Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms

Posted by D. Daniel Sokol

Zack Cooper (LSE Health and the Department of Social Policy, London School of Economics), Stephen Gibbons (SERC, Department of Geography and Environment, London School of Economics), Simon Jones (LSE Health), and Alistair McGuire (LSE Health and the Department of Social Policy, London School of Economics) ask Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms.

ABSTRACT: This paper examines whether or not hospital competition in a market with fixedreimbursement prices can prompt improvements in clinical quality. In January 2006, theBritish Government introduced a major extension of their market-based reforms to theEnglish National Health Service. From January 2006 onwards, every patient in England couldchoose their hospital for secondary care and hospitals had to compete with each other toattract patients to secure their revenue. One of the central aims of this policy was to createfinancial incentives for providers to improve their clinical performance. This paper assesseswhether this aim has been achieved and competition led to improvements in quality. For ourestimation, we exploit the fact that choice-based reforms will create sharper financialincentives for hospitals in markets where choice is geographically feasible and that prior to2006, in the absence of patient choice, hospitals h! ad no direct financial incentive to improveperformance in order to attract more patients. We use a modified difference-in-differenceestimator to analyze whether quality improved more quickly in more competitive marketsafter the government introduced its new wave of market-based reforms. Using AMI mortalityas a quality indicator, we find that mortality fell more quickly (i.e. quality improved) forpatients living in more competitive markets after the introduction of hospital competition inJanuary 2006. Our results suggest that hospital competition in markets with fixed prices canlead to improvements in clinical quality.