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

Author Info

  • 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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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

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

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Find related papers by JEL classification:
  • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
  • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
  • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
  • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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  1. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2011. "Does Hospital Competition Save Lives? Evidence From The English NHS Patient Choice Reforms," Economic Journal, Royal Economic Society, vol. 121(554), pages F228-F260, 08.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  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. 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.
  9. 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.
  10. 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.
  11. 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.
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Cited by:

  1. Helmut Herwartz & Christoph Strumann, 2014. "Hospital efficiency under prospective reimbursement schemes: an empirical assessment for the case of Germany," The European Journal of Health Economics, Springer, vol. 15(2), pages 175-186, March.
  2. Dan Corry & Anna Valero & John Van Reenen, 2011. "UK economic performance since 1997: growth, productivity and jobs," LSE Research Online Documents on Economics 47521, London School of Economics and Political Science, LSE Library.
  3. Simon Jones & Jessica Wardlaw & Susan Crouch & Michelle Carolan, 2011. "Modelling catchment areas for secondary care providers: a case study," Health Care Management Science, Springer, vol. 14(3), pages 253-261, September.
  4. MORIKAWA Masayuki, 2010. "Economies of Scale and Hospital Productivity: An empirical analysis of medical area level panel data," Discussion papers 10050, Research Institute of Economy, Trade and Industry (RIETI).
  5. Michiel Bijlsma & Pierre Koning & Victoria Shestalova & Ali Aouragh, 2010. "The effect of competition on process and outcome quality of hospital care: An empirical analysis for the Netherlands," CPB Discussion Paper 157, CPB Netherlands Bureau for Economic Policy Analysis.

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