Facts, Analysis and Comment.

Heath Services Regulation


There are many parallels between the provision of rail and health services in the UK. Most obviously, we now have government-run railway operated by the private sector in the form of franchised Train Operating Companies. And we have a government-run health service, again substantially provided by the private sector in the form of self-employed GPs, dentists etc, plus hospitals with a great degree of independence which compete with each other and can and do go out of business. Both sectors are subject to competition law which can lead to the competition authorities making decisions which conflict with government policy - for instance to grant rail franchises or to merge hospitals. The following notes explain why it is extraordinarily difficult to regulate these two sectors.

On the one hand, they both contain near-monopolies. The rail industry contains a number of natural or near natural monopolies, for there can usually be only one set of tracks between stations. The health service is (quite rightly) staffed by restricted-entry professionals, and specialist services need to be provided in a small number of regional centres. And most of us are reluctant and/or unable to change general practitioners (GPs). As a result, both sectors demonstrate lower than optimal productivity, and the quality of their service provision is often the subject of serious criticism. It is also the case that they are both heavily taxpayer funded. Successive governments have therefore been very keen to find ways of introducing competition into the sectors, so as to drive greater efficiency and improved service quality.

However, even putting their monopolistic characteristics on one side, it is clearly impossible to abolish subsidies and introduce unrestricted competition into either sector.

This would inevitably price-out poorer members of the community, imposing unacceptable social cost and - in the case of the rail system - doing huge economic damage to the economy of Greater London which depends so heavily on the rush hour commuter rail network. After all, any new transport infrastructure brings with it very large externalities (i.e. costs and benefits which accrue to third parties). In the case of rail, these are mainly beneficial, allowing new housing and commercial development, and increasing land prices. That is why it makes sense for the government to build roads and railways, and then subsidise their running costs, recouping the cost through general taxation.

There is also the point that effective regulation in any sector has to ensure that price competition does not leak through into unacceptably reduced service quality and/or a reduced range of services. But this is extremely hard to do in these sectors, for what is 'unacceptable'? In rail, where is the balance to be struck? It is extremely difficult (and probably impossible) to ascertain the extent to which rail passengers would be willing to trade reduced quality and reduced service frequency for lower fares. And then what about the rail safety/cost trade off? In health, it is surely near-impossible to measure 'quality', let alone ascertain what trade-offs would be acceptable.

Detail & Comment

Successive UK governments have stressed the importance of choice and competition in health services, so that patients can in effect drive up standards. But it is worth noting that the biggest gain from, for instance, getting surgeons to publish their success rates seems to have been that this encouraged them to learn from one another. Good practice and promising new techniques accordingly spread much more quickly than in the past. The result was that all surgeons' performance came up to near the standard of the best, and patients did not need to 'exercise choice' even though that was the original headline reason for the publication of the data.

Also, in contrast to rail, there has always been significant private sector health provision in the UK. To begin with, all GPs are self-employed, although their income is to some extent set by the Government, depending on the number of patients they can attract. And then many, if not most, consultants have a significant private practice delivered through their own consulting rooms, private hospitals and private wings within NHS hospitals. More recently, successive governments have encouraged NHS hospitals to become more self governing and competitive, beginning with the creation of Foundation Trusts in 2002, regulated mainly by Monitor with the Cooperation and Competition Panel ensuring fair play on the economic/competition front, and the Care Quality Commission and all the Professional Bodies monitoring the quality of care provided by doctors, nurses and other professional staff. It may or may not have helped that the Cooperation and Competition Panel was in due course subsumed into Monitor.

But the regulatory regime suffered some serious failures, most obviously at Mid-Staffs and Morecambe Bay.  And blogger Guido Fawkes was not impressed by what he saw as a regulatory quagmire, nor the October 2013 Chair-designate of Monitor:-

"It's hard to summon the invective to describe the nice young regulator who's going to head up the NHS's Monitor. Pleasant, modest Dominic Dunn (£63,000 a year for three days a week) is there to provide another layer of strategic obfuscation in the multi-billion miasma of the NHS. That's not written in to his job description but he is certainly an elusive target. When asked a direct question - is it your job to promote competition in the NHS? - he answered: "Not to promote competition, but to address anti-competitive behaviour." Or again: "We don't have enough radiotherapy in my part of the country. Is it your job to address that lack?" He said: "I certainly agree with avoiding the situation where there is enforcement action needed." When the revolution comes, these people will be carrying bedpans.

[Parliamentary committee Chairman] Stephen Dorrell asked Mr Dunn what he'd like to be remembered for after a decade running the joint. "Well, er I this it's knowing how you define success." Oh yes. Defining success, that's the key to it. These people do what they do and call it success. But judging from the administrative esperanto he spoke, success won't be getting nurses to wash their hands. It won't be stopping staff telling old people to "go in their beds" instead of taking them to the toilet. Success won't be rooting out hospital heads responsible for deaths by incompetence, negligence and sadistically indifferent staff. No, success will be aligning the strategic priorities and navigating the transitional issues between national integration and intrasectoral competition.

The post-2010 Coalition Government has indicated that it intends to extend Foundation status to all hospitals, and has abolished Strategic Health Authorities and Primary Care Trusts: the organisations previously charged with coordinating NHS services in their areas. This has left consortia of GPs in effect buying services direct from hospitals - thus somewhat ironically reducing competition to the extent that individual GPs will in future be bound to send their patients to those hospitals with which their consortia have negotiated favourable contracts, rather than to a particular consultant whom they particularly admired.

There was an interesting report, in February 2015, of a York University-led study which suggested that (albeit in response to patient pressure) the cost of newly regulator-approved and often very expensive drugs was literally killing other patients as NHS resources were diverted away from areas such as radiotherapy, nursing and mental health.  According to a Times report of the study, "Approving a drug that costs the health service £10 million will lead to 51 extra deaths elsewhere as well as worse quality of life for many other patients." And "The Cancer Drugs Fund costs other patients five years of good quality life for every one year it adds." 


Martin Stanley