Health economist Professor Alan Maynard on proper design and regulation of any competition system, David Nicholson’s bullshit and Adam Smith’s truth.
Ray Kroc, the founder of the McDonalds obesity-inducing (if eaten incessantly) fast-food chain, was once asked asked what he would do if he saw a rival drowning. He is alleged to have replied, “stick a hose in his mouth”.
This is a nice example of competition red in tooth and claw which opponents use to throw the competition baby out with the bathwater.
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Competition is like medicine: it can kill or cure you. Thus (like medical treatment) if competition policy is poorly designed and regulated, you can be sure that that the punters will be screwed!
Competition can be defined “the action of competing or contending with others for supremacy, a position or a prize”. Alternatively, it involves “striving for custom between rival traders in the same commodity” (both definitions from the SOD (Shorter Oxford Dictionary).
Competition creates uncertainty amongst traders and a concern that they will lose custom. Thus so the story goes, they will strive to maintain if not improve their position.
There is no such thing as a free market, except perhaps in the minds of nutty ideologues. A market is a network of buyers and sellers - and even those epitomes of free enterprise, the stock markets, are regulated.
For such organisations to function, there have to be rules about when and how payments are made and when property rights (i.e. ownership of assets) are transferred.
Denationalisation and its discontents
Denationalisation of public utilities in the post-Thatcher period has demonstrated how difficult it is to regulate markets, particularly when they are dominated by a few traders.
For instance: the Major government came up with the wheeze of separating the ownership and management of rail track from the operation of the train service. This has produced costs of running the railway system some 30 per cent higher than on the continent due to inflated wages and over-manning.
It has also produced large subsidies for poverty-stricken entrepreneurs such as Richard Branson and other millionaires in need of increased funding from taxpayers.
The daftness of chambers
Bright sparks have suggested that this failed, allegedly “competitive” structure is relevant for the NHS. Thus you might have the separation of the running of hospitals from the employment of consultants, who would operate in ‘chambers’ - like overpaid and inefficient lawyers.
’If you want to inflate NHS costs and provider incomes, this policy is a sure winner.’
This idea seems quite daft. The evidence from the NHS is that whenever you bargain with doctors, you end up with inflated pay and the maintenance of restrictive practices. So if you want to inflate NHS costs and provider incomes, this policy is a sure winner.
Where competition works, and why
So does competition work? Yes, of course it does - but only in carefully controlled environments and with considerable costs. Thus the grocery market is competitive.
Currently this market is divided into the top (e.g. Waitrose), and the lower parts of the market (Lidl) thriving; whilst the middle is under pressure (Asda, Sainsburys and Morrisons) and local convenience stores get squeezed as the big three and the Co-operative Society compete for their business in small local stores.
Here is a market with continual “churn” as traders strive to shave their rivals’ profits and improve market share.
However, this market has core commodities which are comparable e.g. Lurpack Butter is homogeneous across stores. The healthcare market does not exhibit such homogeneity: treatments for similar conditions vary and providers exhibit large practice variations.
Hence the desire worldwide to use evidence-based guidelines to determine intervention thresholds and successful outcomes.
Until such information is available, there is a risk to taxpayers and patients that they will be damaged. Contracts have to specify ‘value’. Yet entrepreneurs may define value as income revenue and neglect the need to ensure that the quality of care is good and observably so.
Where insurers and the NHS converge
Insurers, like their NHS counterparts, have been slow to define and enforce quality-based contracts. Private providers have got away in the USA and the UK with passive systems that pay for the procedure, rather than for the outcome.
Insurers, like the NHS, are now slowly beginning to challenge providers, public and private, to demonstrate value in terms of using evidence-based guideline and improving outcomes.
So how to proceed with the competitive agenda? Two issues are pertinent: competition is emerging strongly with pay for performance initiatives; and these should not be allowed to erode the primary behavioural driving force in universal public healthcare - duty.
For the last decade, NHS England has been rolling out one policy wheeze after another. All are directly or indirectly creating competitive pressures amongst practitioners and institutions.
The list is long: the new contracts for GPs (QOF) and consultants; QIPP; ISTCs; Foundation Trusts; aggressive PbR pricing; and PROMs. Like floundering sailors in a turbulent sea, the Department of Stealth is continually throwing boulders into the sea of NHS complacency in an effort to improve NHS survival.
The central questions for all this competitive effort is this: where is the measurement of effectiveness, and which of this bombardment of evidence-free optimistic wheezes is the most cost-effective?
’Don’t be silly, say Comrade Nicholson and his team of merry ignoramuses: “we know they all work”. Such bullshit is unacceptable in a world of austerity.’
Don’t be silly says Comrade Nicholson and his team of merry ignoramuses: “we know they all work”. Such bullshit is unacceptable in a world of austerity. We need to identify and invest in those interventions that give the biggest bang for the buck; not just to spray scarce resources around randomly!
The second issue not to lose sight of is the inherent sense of duty exhibited by most employees in all organisations. Generally, people do not go to work to skive, but to do an honest day’s work.
To what extent does the Whitehall policy barrage undermine this primary motivation force? Ideally, it should complement our sense of duty.
Let us conclude with the wise words of Adam Smith - the eighteenth century political economist, who is often cited wrongly by right-wing ideologues as the father of competition red in tooth and claw: “Those general rules of conduct when they are fixed in our mind of habitual reflection are of great use in correcting the misrepresentations of self-love concerning what is fit and proper to be done in out particular situation. The regard of those general rules of conduct, what is properly called a sense of duty, is the principle consequence in human life, and the only principle by which the bulk of mankind are capable of directing their actions”.
’Every effort should be made to ensure that competition is efficient rather than wasteful, and complements duty rather than erodes it.’
As you can see, Smith thought duty was the primary motivation of employees. Regardless of whether NHS care is provided publicly or privately, the maintenance of the sense of duty should provide focus for all managers and policymakers.
Every effort should be made to ensure that competition is efficient rather than wasteful, and complements duty rather than erodes it.