NCPA - National Center for Policy Analysis

Hospital Competition and Patient Outcomes

January 7, 2011

In a new National Bureau of Economic Research study, Death By Market Power: Reform, Competition and Patient Outcomes in the National Health Service, authors Martin Gaynor, Rodrigo Moreno-Serra and Carol Propper use data from England's National Health Service (NHS) hospital discharges and administrative data on hospitals to examine the impact of reforms implemented in 2006 to foster competition among hospitals.

The NHS reform meant that hospitals would receive payment only if they attracted patients, and the newly fixed prices meant that such choices would depend on quality, and not on price as in the previous system.  The researchers find that after the reforms, hospitals with shorter waiting lists and higher quality attracted more patients, drew patients from more residential areas and drew patients from further afield.  The effect of these changes was that, within two years of implementation, the NHS reforms resulted in significant improvements in mortality and reductions in length-of-stay without changes in total expenditure or increases in expenditure per patient.

  • The researchers' estimates suggest that the policy resulted in 3,354 life years saved, valued at £227 million (about $350 million) per year.
  • While this is small compared to the annual cost of the NHS of £100 billion (about $155 billion), the authors calculate that estimate based only on short-run decreases in death rates.
  • Allowing for longer-run improvements in mortality, as well as in other less well measured aspects of quality, might increase the net benefits of the pro-competition reforms.

The bottom line, the authors conclude, is that monopoly power substantially increases a patient's risk of death.

Source: Matt Nesvisky, "Hospital Competition and Patient Outcomes," National Bureau of Economic Research, January 6, 2011.

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