Competition in the NHS in England

BMJ 2011; 342 doi: http://dx.doi.org/10.1136/bmj.d1035 (Published 14 February 2011) Cite this as: BMJ 2011;342:d1035
  1. Chris Ham, chief executive
  1. 1King’s Fund, London W1G 0AN, UK
  1. c.ham{at}kingsfund.org.uk

Debate about commissioning detracts from the radical extension of market principles in the Health and Social Care Bill

At the heart of the gargantuan Health and Social Care Bill published by the Coalition government in January are provisions to establish a comprehensive system for the economic regulation of health and adult social care services. Part 3 of the bill is divided into eight chapters (far more than any other part of the bill), which encompass the role of Monitor as the economic regulator, plans for licensing of providers and setting prices, clauses on competition including the role of the Competition Commission and the Office of Fair Trading, and arrangements for insolvency and for a system of special administration to ensure continuity of designated services when providers fail. These provisions amount to the most ambitious attempt yet seen to apply a system of market regulation to the NHS.

Publication of the bill puts in perspective debates about the government’s intentions that have dominated discussion since last May’s election. Although many organisations have focused their attention on plans to give general practices a major role in commissioning health services and to require all NHS providers to become foundation trusts, these changes are of secondary importance compared with the radical extension of competition in healthcare. Building on the Thatcher government’s internal market reforms in the 1990s and the Blair government’s enthusiasm for choice and competition, David Cameron and his Health Secretary, Andrew Lansley, are going much further in putting in place the architecture they believe will enable the NHS to become truly world class.

The government’s plans have been long in the making. As far back as July 2005, Andrew Lansley explained his philosophy of public service reform, invoking his experience as a civil servant working with Norman Tebbit on opening up the telecommunications sector to competition to set out seven principles to guide reform. These principles were to maximise competition, transfer risk to the private sector, ensure strong and independent regulation, set out standards and accountability clearly, specify universal service objectives and how they are to be funded, provide quality information for customers and maximise the number of providers, and ensure equitable access without sacrificing efficiency for equality.1

The provisions in the Health and Social Care Bill derive directly from these principles and underline the government’s intention to draw on experience of privatising the utilities in taking forward the reform of the NHS. The question that arises is how applicable are these principles in view of the differences between healthcare and sectors like telecommunications? Also, will choice and competition help to transform the NHS and improve patient care or will they lead to increased fragmentation as Monitor exercises its duty “to promote competition where appropriate”?

On the positive side, the government has given much more thought to the mechanisms needed to make competition work in healthcare than its predecessors did. Whereas previous administrations have applied market principles in a piecemeal fashion and built up the architecture of competition incrementally, the Coalition government has set out its proposals in detail from the outset. The government came into office with a clear plan and has moved rapidly to translate its ambitions into legislation; it has sought to learn from the failure of the Blair government by being bold in its approach to public service reform in its first term.2

On the negative side, the government’s proposals run the risk of replacing the bureaucracy of performance management with the red tape of economic regulation. Monitor will need to employ large numbers of economists, lawyers, accountants, and managers to deal with competition issues, providers who fail, price setting, licensing providers, and other work. Add to this the need for Monitor to work hand in hand with the Competition Commission and the Office of Fair Trading on competition, the Care Quality Commission on regulation of quality, and the NHS Commissioning Board on price setting, and the complexities of the proposed regulatory arrangements become apparent.

The bigger question is whether competition in healthcare is the right route to take even if it has brought gains in other sectors. A recent review by Peter Smith, one of Britain’s most respected health economists, for the Organisation for Economic Cooperation and Development found that evidence on the benefits of competition is equivocal and underlined the challenges in applying market principles successfully. As the review concluded, “effective implementation of market-type mechanisms is . . . likely to require considerable managerial skills and impose substantial transaction costs, particularly in purchasing and regulatory institutions.”3

The limits to markets have given rise to the argument that there should be increased collaboration between providers in many areas of care, including the provision of specialist cancer and cardiac services through networks and care for people with chronic diseases through integration of primary and secondary care.4 Sensitive to the criticism that their plans may inhibit collaboration and increase fragmentation, ministers have gone on record as supporting integrated care where it will bring benefits.5 This needs to be reflected in legislation to ensure that Monitor’s duty to promote competition does not result in collaboration and integration being seen as anticompetitive.

Lessons from experience of applying market principles in the NHS since the 1990s also need to be heeded. In a highly visible public service like the NHS—the nearest thing we have to a national religion, according to Nigel Lawson6—it will always be difficult for politicians to distance themselves from controversial matters like reducing access to hospital services when providers fail to compete successfully, even if these decisions are taken by the regulator. In this respect, as in many others, healthcare is different from the former publicly owned utilities, underlining the political and technical challenges in adapting lessons from one sector to another.


Cite this as: BMJ 2011;342:d1035


  • Competing interests: The author has completed the Unified Competing Interest form at www.icmje.org/coi_disclosure.pdf (available on request from the corresponding author) and declares: no support from any organisation for the submitted work; no financial relationships with any organisations that might have an interest in the submitted work in the previous three years; no other relationships or activities that could appear to have influenced the submitted work

  • Provenance and peer review: Commissioned; not externally peer reviewed.