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

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

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

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  1. 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.
  2. 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.
  3. Burgess, Simon & Propper, Carol & Wilson, Deborah, 2005. "Extending Choice In English Health Care: The implications of the economic evidence," CEPR Discussion Papers 5328, C.E.P.R. Discussion Papers.
  4. 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.
  5. 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.
  6. Burgess, Simon & Gossage, Denise & Propper, Carol, 2003. "Competition and Quality: Evidence from the NHS Internal Market 1991-9," CEPR Discussion Papers 4026, C.E.P.R. Discussion Papers.
  7. 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.
  8. 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.
  9. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2010. "Does hospital competition save lives?: evidence from the English NHS patient choice reforms," LSE Research Online Documents on Economics 28584, London School of Economics and Political Science, LSE Library.
  10. 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.
  11. 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.
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