Contestability: a middle path for health care

BMJ 1996; 312 doi: https://doi.org/10.1136/bmj.312.7023.70 (Published 13 January 1996) Cite this as: BMJ 1996;312:70
  1. Chris Ham
  1. Director Health Services Management Centre, Birmingham B15 2RT

    Combines competition with planning

    Quietly in the night, competition in British health care has slipped away, its passing unremarked and little noticed by those who brought it into this world. The death sentence was first signalled by William Waldegrave when he was secretary of state for health. As Mr Waldegrave commented at the time, the NHS market “isn't a market in the real sense … it's competition in the sense that there will be comparative information available.”1 The change of direction was confirmed by Virginia Bottomley. In her valedictory speech in 1995 Mrs Bottomley extolled the virtues of planning and collaboration; the word “competition” scarcely crossing her lips.2 Her successor, Stephen Dorrell, has echoed this line, most notably in a personal letter to the chairs of health authorities and trusts. In his letter Mr Dorrell referred to the achievements of the NHS management reform, and at no point did he mention markets and the benefits that would arise from competition in future. Indeed, when was the last time any health minister urged those in the NHS to leave behind the legacy of planning and grasp the competitive opportunities available to them?

    The decoupling of markets and health care is not a uniquely British phenomenon, as developments in Sweden and to a lesser extent the Netherlands indicate. After a decade in which competition was seen as the solution to the problem of inefficient health service provision, new ideas are under debate. It seems as if the competition vogue may have had its day, although in the eddying currents of political debate it is not always clear when the tide has finally turned.

    Why has the attempt to bring markets into health care been a policy failure? In the British context there are several reasons. To begin with, the scope for competition in many parts of the NHS is limited by the existence of monopoly providers. Furthermore, even where there is a choice of providers, it has been difficult to control the effects of market forces. The result has been harmful instability, particularly in London and other cities where major changes in hospital provision have emerged onto the agenda. In recognition of the limits of competition, managers and doctors have moved increasingly to establish collaborative arrangements in which purchasers and providers work together on a long term basis. Not only is this a pragmatic response to weaknesses in the original policy design, but also it has been justified by reference to best practices in industry. Successful companies, it is argued, work in partnership with their suppliers and seek to create “win-win” relationships. By extension, critics of competition maintain that the NHS should do the same. These developments have been reinforced by concerns about the increase in management costs associated with the introduction of competition.

    Estimates suggest that the NHS reforms may have resulted in up to pounds sterling1bn extra being spent on administration, although changes in definitions make it difficult to be precise. This is because of the need to employ staff to negotiate and monitor contracts and to deal with the large volumes of paperwork involved in the contracting system. Ministers have responded to these concerns by streamlining the organisation of the NHS and introducing tight controls over management costs. They have also encouraged the use of long term contracts in order to reduce the transaction costs of the new arrangements.

    Out of the ashes of competition has arisen a different policy agenda. This owes less to a belief in market forces than a desire to use the NHS reforms to achieve other objectives. The current agenda centres on policies to improve the health of the population, give greater priority to primary care, raise standards through the patient's charter, and ensure that medical decisions are evidence based. These policies hinge on effective planning and coordination in the NHS and all have been made more salient by the separation of purchaser and provider roles on which the reforms are based.

    In particular, the existence of health authorities able to take an independent view of the population's health needs without being beholden to particular providers has changed the way in which decisions are made. To this extent the organisational changes introduced in 1991 have served to refocus attention on those whom the NHS exists to serve, even though the effects were neither anticipated nor intended when the reforms were designed. Like a potter moulding clay, only in the process of creation has the shape of the product become apparent. The effect of this policy shift has been to open up common ground between Labour and the Conservatives, notwithstanding the differences that remain.

    Yet before the obituary of competition is written, the consequences of a return to planning need to be thought through. The NHS was reformed precisely because the old command and control system had failed to deliver acceptable improvements in efficiency and quality, and the limitations of planning must also be acknowledged. While competition as a reforming strategy may have had its day, there are nevertheless elements of this strategy which are worth preserving. Not least, the stimulus to improve performance which arises from the threat that contracts may be moved to an alternative provider should not be lost. The middle way between planning and competition is a path called contestability. This recognises that health care requires cooperation between purchasers and providers and the capacity to plan developments on a long term basis. At the same time, it is based on the premise that performance may stagnate unless there are sufficient incentives to bring about continuous improvements. Some of these incentives may be achieved through management action or professional pressure, and some may derive from political imperatives.

    In addition, there is the stimulus to improve performance which exists when providers know that purchasers have alternative options. This continues to be part of the psychology of NHS decision making, even though ministers seem reluctant to use the language of markets. It is, however, a quite different approach than competitive tendering for clinical services, which would expose providers to the rigours of the market on a regular basis.

    The essence of contestability is that planning and competition should be used together, with contracts moving only when other means of improving performance have failed. Put another way, in a contestable health service it is the possibility that contracts may move that creates an incentive within the system, rather than the actual movement of contracts. Of course for this to be a real incentive then contracts must shift from time to time, but this is only one element in the process and not necessarily the most important. As politicians prepare their plans for the future it is this path that needs to be explored.


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