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Free to Choose? Reform and Demand Response in the English National Health Service

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  • Martin Gaynor
  • Carol Propper
  • Stephan Seiler

Abstract

The impacts of choice in public services are controversial. We exploit a reform in the English National Health Service to assess the impact of relaxing constraints on patient choice. We estimate a demand model to evaluate whether increased choice increased demand elasticity faced by hospitals with regard to clinical quality and waiting time for an important surgical procedure. We find substantial impacts of the removal of restrictions. Patients became more responsive to clinical quality. Sicker patients and better informed patients were more affected. We leverage our model to calculate potential benefits. We find increased demand responsiveness led to a significant reduction in mortality and an increase in patient welfare. The elasticity of demand faced by hospitals increased post-reform, giving hospitals potentially large incentives to improve their quality of care and find suggestive evidence that hospitals responded strongly to the enhanced incentives due to increased demand elasticity. The results suggests greater choice can enhance quality.

Suggested Citation

  • Martin Gaynor & Carol Propper & Stephan Seiler, 2012. "Free to Choose? Reform and Demand Response in the English National Health Service," NBER Working Papers 18574, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18574
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    References listed on IDEAS

    as
    1. Propper Carol & Sutton Matt & Whitnall Carolyn & Windmeijer Frank, 2008. "Did 'Targets and Terror' Reduce Waiting Times in England for Hospital Care?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(2), pages 1-27, January.
    2. Walter Beckert & Mette Christensen & Kate Collyer, 2012. "Choice of NHS‐funded Hospital Services in England," Economic Journal, Royal Economic Society, vol. 122(560), pages 400-417, May.
    3. Caroline M. Hoxby, 2003. "The Economics of School Choice," NBER Books, National Bureau of Economic Research, Inc, number hox03-1, June.
    4. 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 228-260, August.
    5. Tay, Abigail, 2003. " Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
    6. Hoxby, Caroline M. (ed.), 2003. "The Economics of School Choice," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226355337.
    7. F. Moscone & E. Tosetti & G. Vittadini, 2012. "Social interaction in patients’ hospital choice: evidence from Italy," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 175(2), pages 453-472, April.
    8. Timothy Besley & Maitreesh Ghatak, 2003. "Incentives, Choice, and Accountability in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 235-249, Summer.
    9. Varkevisser, Marco & van der Geest, Stéphanie A. & Schut, Frederik T., 2012. "Do patients choose hospitals with high quality ratings? Empirical evidence from the market for angioplasty in the Netherlands," Journal of Health Economics, Elsevier, vol. 31(2), pages 371-378.
    10. Gaynor, Martin & Vogt, William B, 2003. " Competition among Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 764-785, Winter.
    11. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, March.
    12. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-763, Winter.
    13. Caroline Minter Hoxby, 2003. "Introduction to "The Economics of School Choice"," NBER Chapters,in: The Economics of School Choice, pages 1-22 National Bureau of Economic Research, Inc.
    14. Martin Gaynor & Rodrigo Moreno-Serra & Carol Propper, 2013. "Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 134-166, November.
    15. Le Grand, Julian, 2003. "Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawns and Queens," OUP Catalogue, Oxford University Press, number 9780199266999.
    16. Gowrisankaran, Gautam & Town, Robert J., 1999. "Estimating the quality of care in hospitals using instrumental variables," Journal of Health Economics, Elsevier, vol. 18(6), pages 747-767, December.
    17. John Geweke & Gautam Gowrisankaran & Robert J. Town, 2003. "Bayesian Inference for Hospital Quality in a Selection Model," Econometrica, Econometric Society, vol. 71(4), pages 1215-1238, July.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Free to choose?: A comment on Gaynor, Propper, and Seiler (2016)
      by Sam Watson in The Academic Health Economists' Blog on 2016-07-20 12:00:37

    Citations

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    Cited by:

    1. Moscelli, Giuseppe & Siciliani, Luigi & Gutacker, Nils & Gravelle, Hugh, 2016. "Location, quality and choice of hospital: Evidence from England 2002–2013," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 112-124.
    2. repec:oxf:wpaper:747 is not listed on IDEAS
    3. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    4. Mark Stabile & Sarah Thomson, 2014. "The Changing Role of Government in Financing Health Care: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 480-518, June.
    5. Matteo Benetton, 2017. "Lenders' Competition and Macro-prudential Regulation: A Model of the UK Mortgage Supermarket," 2017 Meeting Papers 1001, Society for Economic Dynamics.
    6. Katz, Michael L., 2013. "Provider competition and healthcare quality: More bang for the buck?," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 612-625.
    7. repec:eee:jhecon:v:58:y:2018:i:c:p:123-143 is not listed on IDEAS
    8. Moscelli, Giuseppe & Siciliani, Luigi & Tonei, Valentina, 2016. "Do waiting times affect health outcomes? Evidence from coronary bypass," Social Science & Medicine, Elsevier, vol. 161(C), pages 151-159.
    9. Gutacker, Nils & Siciliani, Luigi & Moscelli, Giuseppe & Gravelle, Hugh, 2016. "Choice of hospital: Which type of quality matters?," Journal of Health Economics, Elsevier, vol. 50(C), pages 230-246.
    10. Rita Santos & Hugh Gravelle & Carol Propper, 2013. "Does quality affect patients’ choice of doctor? Evidence from the UK," The Centre for Market and Public Organisation 13/306, Department of Economics, University of Bristol, UK.
    11. Gibbons, Stephen & Neumayer, Eric & Perkins, Richard, 2015. "Student satisfaction, league tables and university applications: Evidence from Britain," Economics of Education Review, Elsevier, vol. 48(C), pages 148-164.
    12. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, Elsevier.
    13. Gibbons, Stephen & Neumayer, Eric & Perkins, Richard, 2013. "Student satisfaction, league tables and University applications," LSE Research Online Documents on Economics 58540, London School of Economics and Political Science, LSE Library.
    14. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2013. "Hospital Mergers: A Spatial Competition Approach," Discussion Paper Series in Economics 8/2013, Norwegian School of Economics, Department of Economics.
    15. repec:nip:nipewp:10/2014 is not listed on IDEAS
    16. Kristian Niemietz, 2015. "Internal Markets, Management by Targets, and Quasi-Markets: An Analysis of Health Care Reforms in the English NHS," Economic Affairs, Wiley Blackwell, vol. 35(1), pages 93-108, February.
    17. Hugh Gravelle & Giuseppe Moscelli & Rita Santos & Luigi Siciliani, 2014. "Patient choice and the effects of hospital market structure on mortality for AMI, hip fracture and stroke patients," Working Papers 106cherp, Centre for Health Economics, University of York.
    18. Carol Propper, 2013. "Competition, Incentives and the English NHS," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(1), pages 16-20, 04.
    19. Rita Santos & Hugh Gravelle & Carol Propper, 2013. "Does quality affect patients’ choice of doctor? Evidence from the UK," Working Papers 088cherp, Centre for Health Economics, University of York.
    20. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2017. "Hospital Mergers with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 597-627, July.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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