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Does Hospital Competition Improve Efficiency? An Analysis of the Recent Market-Based Reforms to the English NHS

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  • Zack Cooper
  • Steve Gibbons
  • Simon Jones
  • Alistair McGuire

Abstract

This paper uses a difference-in-difference estimator to test whether the introduction of patient choice and hospital competition in the English NHS in January 2006 has prompted hospitals to become more efficient. Efficiency was measured using hospitals' average length of stay (LOS) for patients undergoing elective hip replacement. LOS was broken down into its two key components: the time from a patient's admission until their surgery and the time from their surgery until their discharge. Our results illustrate that hospitals exposed to competition after a wave of market-based reforms took steps to shorten the time patients were in the hospital prior to their surgery, which resulted in a decrease in overall LOS. We find that hospitals shortened patients' LOS without compromising patient outcomes or by operating on healthier, wealthier or younger patients. Our results suggest that hospital competition within markets with fixed prices can increase hospital efficiency.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0988.

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Date of creation: Jun 2010
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Handle: RePEc:cep:cepdps:dp0988

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Hospital Competition; Market Structure; Prospective Payment; Incentive Structure;

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  1. Carol Propper & Deborah Wilson & Simon Burgess, 2005. "Extending Choice In English Health Care: The implications of the economic evidence," The Centre for Market and Public Organisation 05/133, Department of Economics, University of Bristol, UK.
  2. Martin, Stephen & Smith, Peter, 1996. "Explaining variations in inpatient length of stay in the National Health Service," Journal of Health Economics, Elsevier, vol. 15(3), pages 279-304, June.
  3. Le Grand, Julian, 2009. "Choice and competition in publicly funded health care," Health Economics, Policy and Law, Cambridge University Press, vol. 4(04), pages 479-488, October.
  4. Chalkley, Martin & Malcomson, James M, 1998. "Contracting for Health Services with Unmonitored Quality," Economic Journal, Royal Economic Society, vol. 108(449), pages 1093-1110, July.
  5. Hunter, David J., 2009. "The case against choice and competition," Health Economics, Policy and Law, Cambridge University Press, vol. 4(04), pages 489-501, October.
  6. Street, Andrew & Maynard, Alan, 2007. "Activity based financing in England: the need for continual refinement of payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 419-427, October.
  7. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  8. Carol Propper & Simon Burgess & Denise Gossage, 2008. "Competition and Quality: Evidence from the NHS Internal Market 1991-9," Economic Journal, Royal Economic Society, vol. 118(525), pages 138-170, 01.
  9. Dixon, Jennifer, 2009. "Invisible hand? More like post-modern mush," Health Economics, Policy and Law, Cambridge University Press, vol. 4(04), pages 503-508, October.
  10. Fenn, Paul & Davies, Philip, 1990. "Variations in length of stay : A conditional likelihood approach," Journal of Health Economics, Elsevier, vol. 9(2), pages 223-234, September.
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