Analysis: Price competition in the NHS

David Cameron’s speech on the NHS on Wednesday included a section on competition, but he didn’t mention price. No surprises there: why should he have revisited one of the most controversial aspects of the NHS reforms?

According to the British Medical Association he’s already conceded that price competition has no place in the NHS.

‘The BMA has welcomed a commitment from the government that it will not allow healthcare providers to compete for NHS contracts on the basis of price,’ it said in a press release in March.

The BMA wasn’t alone; its press release coincided with headlines like ‘Andrew Lansley abandons plans to introduce price competition,’ ‘Lansley U turn on price competition’; ‘Competition in NHS will not be based on price, coalition says’. Anyone reading these would assume that price competition was a far-off prospect that might never arrive at all.

Which is presumably why David Cameron didn’t feel he needed to mention it.

But health secretary Andrew Lansley’s original proposal applied to parts of the NHS covered by the national tariff – a fixed price attached to certain services and treatments. His plan was to replace the fixed tariff with a maximum price, allowing providers to undercut each other.

That plan was abandoned – prompting the ‘u-turn’ headlines – after various people, including supporters of a market in healthcare warned it could lead to a ‘race to the bottom’ on quality. The NHS must now pay the same price for all healthcare covered by the tariff.

But – and this is a big but – the tariff only applies to around 60 per cent of NHS provision, most of which is supplied by hospitals.

Where no tariff price has been attached to a service, price competition is allowed, and has been happening for some time.

NHS Leicestershire County and Rutland advertised for a community hand surgery service in February. The ad said the PCT would pay a maximum of £570 per procedure and asked bidders to submit their own “unit cost”.

NHS Leicestershire insists ‘providers were not required to compete on price as this was set by the commissioner’. This is disingenuous – it clearly wanted bidders to compete on how much they could come in under the maximum, otherwise why ask them to submit their own prices?

Contracts were awarded to three private providers on 17 May 2011.

The PCT won’t say how much it’s paying under the contracts – which would indicate the success of the competition in drive the price down – because that information is, of course, ‘commercially sensitive’.

If the Department of Health has accepted that price competition within acute care could lead to a ‘race to the bottom’, why is it allowing price competition for community services?

And where a service IS covered by the tariff, meaning price competition is banned, loopholes are easy to find.

For example, where the tariff applies to services provided by a consultant, all PCTS  have to do is ask for the same service to be provided by a nurse and the tariff no longer applies.

One PCT which has done just that is NHS Barking and Dagenham. It recently advertised for someone to run the North East London Treatment Centre, which is based on the same site as the beleaguered NHS King George Hospital in Goodmayes, Essex. The PCT hopes to make a £2.5 million saving on the current contract with private company Care UK.

‘Bidders will be invited to describe how they will deliver a proportion of the outpatient appointments at below tariff,’ the ad says. It suggests they do this by offering these patients ‘nurse led’ or ‘consultant-supervised’ rather than ‘traditional consultant-led’ appointments.

It’s likely that some outpatients don’t need to see a consultant. But if the BMA thinks the Lansley U-turn means hospitals are safe from price competition, this advert should make it think again.