Regulating competition in the NHS

In December 1994 the Department of Health published guidelines intended to inform participants in the NHS internal market of current government policy with respect to mergers and anti-competitive behaviour. The Guide focused on four topics: provider mergers and joint ventures, providers in difficulty, purchaser mergers and collusion. The policies outlined in the Guide are drawn from traditional models of competition policy as applied to private sector firms except that it would appear the Department of Health is intended to act in place of the usual institutions of competition policy such as the Monopolies and Mergers Commission. This paper questions the Government’s approach on two broad grounds. First, there is an inherent conflict of interest between the Department’s role in rationalising capacity in the NHS and enforcement of competition policy. If there is to be a competition policy, it should not be internally administered. Second, private sector competition policy based on maintenance of excess capacity and new entry is an inappropriate and potentially inefficient framework for regulating competition between public sector firms. Treasury and Department of Health rules create financial constraints on the ways public sector firms (Trusts) are able to compete. These constraints have the effect of concentrating market power in the hands of purchasers not providers. A competition policy designed to regulate competition within the public sector is likely to be very different from the traditional models with which we are familiar.