Competition in Hospital Services – The Policy Dimension

Health care is one of the most important public policy areas both due to the economic importance of the sector and its impact on individual well-being. Health and hospital services have historically been provided through centralised, highly regulated or non-market means in most OECD countries outside the United States. While health systems vary substantially across OECD countries, Governments have used their control over supply - either through financing or the delivery of health care services - to drive efficiency and improve quality of care. Consumer choice between insurers or health care service providers have been a feature of some health care systems, however evidence on its influence in driving improvements in performance is mixed. The last two decades have seen a substantial focus on driving further competition in the delivery of health and hospital services. On the demand side, governments have sought to improve the availability of information about the performance of health care services and providers and support more informed choices by patients. At the same time, Governments have undertaken reforms seeking to restructure supply and financing arrangements to encourage competition - even in health systems with long standing traditions of publicly operated health care services. Various market-oriented reforms have been introduced across the Netherlands, Germany, Belgium, Israel, Australia, New Zealand and the UK over recent years. Yet the question of whether establishing a ‘market’ is an appropriate way of improving outcomes in hospital services and general health services remains contested. As OECD countries grapple with fast-rising and substantial health spending, improving the efficiency of health care systems is a central priority for governments, as they seek to maintain quality and the range of services that their citizens have been accustomed to. There is a growing empirical and theoretical literature describing the impact of market structure on price and quality of hospital services. Some of the key economic issues raised in this literature include: • What are the conditions for and repercussions of price or quality competition in the hospital services sector? • What are the key demand side factors in the provision of hospital services and how could demand side factors contribute to effective competition on prices and quality of health and hospital services? • What are the relevant supply side factors that determine the scope for competition in the provision of hospital services and what steps could be taken to promote effective competition on prices and quality? • What could be appropriate institutional frameworks and policy reforms for countries to introduce to allow more worthwhile competition in hospital services?