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Are integrated care packages like M&Ms? Expect a competition law armageddon.
Somewhere along the path of the subconscious of this current Government they realised competition law, as the trojan horse for implementing the private market of the NHS, would be the ‘nuclear option’ gone too far.
After the original set of section 75 NHS regulations had been humiliatingly scrapped, Norman Lamb and other LibDem members in the Upper and Lower House had to ferret around for another way to sell this discredited policy. They found ‘integration’.
The idea of co-ordinated care bundles, delivering outcomes across a range of different domains, seems like an attractive one. For the privateers, their uncanny similarity to the Kaiser Permanente Integrated Care Plan is of course enticing.
Thrust on this that private providers can cobble together au “uber contract”, subcontracting bits of it to various bods, through the ‘prime contractor model’ – and job done.
However, this way of integrating services is a ‘red rag’ to the bull of the competition authorities both here and across the pond.
You have to have been living on the Planet Mars to escape the screw-ups of the regulation of the energy market in the UK.
In 2008, the Telegraph reported the following:
Regulator tells Treasury it has found no evidence that energy companies colluded to increase bills…
Energy watchdog Ofgem has dismissed suggestions that the UK’s six largest energy companies colluded to increase gas and electricity bills. The regulator has also demanded that those alleging price-fixing should produce the evidence.
Alistair Darling, the Chancellor, summoned Ofgem chairman Sir John Mogg and chief executive Alistair Buchanan after Npower, owned by the German giant RWE, last week increased gas prices by 17pc and electricity prices by 13pc.
Mr Buchanan said yesterday: “We have no evidence of anti-competitive behaviour. We see companies gaining and losing significant market share, record switching levels and innovative deals.”
That was unbelievably five years ago.
It was once famously said that, “Integration…is like M&Ms…a thin, sugary veneer of medical ‘science’ over a yummy core of price fixing…” (US Healthcare Executive).
In the US, health care providers are generally converge upon the view that competition concerns – namely the fear of violating competition law – have had a significant chilling effect on progress toward increased integration in the delivery of health care. This, it is claimed, has led to relative ‘conservatism’ over formal partnerships.
What happens in the UK depends on how ‘light touch’ Monitor ends to be – or whether it will be relatively supine. It is still claimed by some that the light touch regulation of the City, originally introduced by the Margaret Thatcher Conservative government, led to the City spiralling out of control.
Cartels are when companies act together to behave in a way together at the expense of the customer.
Quite irrespective of their clandestine character, cartels are difficult to prove due to their varying characteristics. Cartels can be evidentially complex in the sense that the duration and intensity of participation and the subsequent anti-competitive conduct on the market may vary and take different forms.
These specificities impose a near unbearable threshold for competition authorities to prove in detail an infringement, let aside to impose an appropriate sanction reflecting the cartelists’ real participation.
Montesquieu, in his seminal work ‘De l’esprit des lois’ observed that ‘natural equity demands that the degree of proof should be proportionable to the greatness of the accusation’. While the ‘greatness of the accusation’ in cartel infringements is undisputed – especially in light of the magnitude the incurred sanctions – it appears less clear to what extent this should affect the ‘degree of proof’ of those infringements, especially having regard to their specificities.
Article 101(1) TFEU sets out the European competition law position:
The following shall be prohibited as incompatible with the internal market all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
In a famous case called Bayer v Commission, the Court of the First Instance, for the first time ventured to define the term ‘agreement’ as a concept that ‘centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention’.
Over two centuries ago, Adam Smith, the dean of free market economics, warned: “People of the same trade seldom meet together, even for merriment and diversion, but tbe conversa- tion ends in a conspiracy against the public, or in some contrivanee to raise prices.” ‘^
The costs of violating price-fixing laws are very high: lawyers’ fees, government fines, poor morale, damaged public image, civil suits, and now prison terms.
While the appearance of price collusion or price fixing may seem bad in the energy market, and unproven, what will happen behind ‘closed doors’ for procedures outsourced in the NHS is likely to be a hidden scandal.
There is some truth in making the energy market more ‘competitive’. One, often rarely discussed solution, way is to ‘differentiate the product’, such that they are not all selling the same thing.
For such a homogeneous item such as gas, it is difficult to propose to do this.
Differentiating hernia operations, the bread-and-butter of the cherrypicked NHS for ‘high volume, low cost procedures’, is easier. You can vary the quality of en-suite ‘refreshments’. It’s well known that cinemas attract clients not on the basis of the quality of films, but on their range of things to go with their popcorn.
It may be intrinsically more easy to distinguish different ‘integrated care packages’, by varying the relative proportions of physical healthcare, social care, and social care (the components of what Andy Burnham MP might call “whole person care”).
The “we’ve been doing it for years” phenomenon of collusive practices is a tougher nut to crack. But in some fairness, the new private health providers haven’t been “doing it for years”, as the jet engines for the Health and Social Care Act (2012) for competitive tendering – the section 75 regulations – have only just been legislated for.
Amazingly enough, some producers of ‘folding boxes’ were given hefty fines in the United States in the 1970s. The experience there was that executives in the convicted paper companies acknowledge that the lack of contact between them and company lawyers made it hard to apply the law.
Direct contact between operating managers and members of the legal staff seemed to be less frequent in the companies that were more heavily involved in the conspiracy.
As they say, we live in ‘interesting times’, but, helpfully on this occasion, the experience from other jurisdictions may be quite helpful. Don’t blame me – Le Grand and Propper started it!
Like a faulty house of cards, the competition rationale for the Health and Social Care has fallen apart
In the beginning….
In the beginning, there was garbage and rhetoric. It sounded nice, but it was intellectually devoid of quality, there was not much competition for ideas even though this WAS bad, and so there was not much choice.
Julian LeGrand back in 2003 talks of the “competition juggernaut”:
Labour has made many mistakes, usually and unsurprisingly given its roots in socialism and central planning, in the direction of too heavy-handed central control. The public service juggernauts are now on a different course, with decentralisation, competition and choice as part of their route maps – and with plenty of resources as fuel. If they fail to arrive at their destination, if our expectations are dashed, there will be real questions over the future of each area of public services: how long can it remain public; how long can it remain a service?
‘Competition fever‘ should have never have got off the ground. The University of York, Economics of Social Care and Health Unit, and Centre for Health Economics once published a study of ‘Hospital competition under fixed prices’ (research paper 80).
The argument that competition improves quality fell apart because of the sheer volume of invalid assumptions, as demonstrated in the following quotation from that document:
The review of the theoretical literature suggests that the plausible argument that greater competition amongst providers facing fixed prices will lead to higher quality rests on strong assumptions which may not hold. The literature shows that more competition increases quality when providers are profit maximisers and marginal cost of treatment is constant. Competition has an ambiguous or negative effect on quality when providers are altruistic, the marginal cost of treatment is increasing and quality is only imperfectly observable. The literature has been largely silent on the relationship between market size, as measured by total population or population density, and quality.
Competition as the failed central plank of the Health and Social Care Act (2012)
The raison d’être of the Health and Social Care Act (2012) is nothing to do with improving clinical care, though that could be a consequence of its three main areas. There is nothing about how patient staffing can be addressed, related to the equally potent issue of patient safety. It has never been entirely clear how the Act came about, but the three planks of policy are laid bare by the impact assessments from the Department of Health (2011) (published here on 19 January 2011). The three main planks of the Bill are firstly to establish the competitive market as the substrate for the National Health Service, to define better the insolvency régime (it is important to clarify how economic entities as autonomous units can be allowed to fail ‘to get them out of the system’), and the machinery needed to regulate the market. I will come to how Monitor has had to come into being to ‘regulate the internal market’, but it is not insignificant that introducing the market is itself a source of waste and inefficiency (such as duplicated transaction costs). Of course, the issue of how to regulate the internal market should be regulated has often been analysed in a substandard manner before by some social scientists, not competition lawyers, but this is now an important policy issue which has been thrust into the limelight.
Central to this argument is that competition promotes innovation. This is indeed cited on page 41 of the “Impact assessment”.
Ahn (2002) reviews a large number of studies on the link between competition and innovation and concludes that competition encourages innovative activities and has a significant impact on long-term productivity growth:
“Competition has pervasive and long lasting effects on economic performance by affecting economic actors’ incentive structure, by encouraging their innovative activities, and by selecting more efficient ones from less efficient ones over time”.
The myth that competition drives innovation, when COLLABORATION does
However, there is an intrinsic problem in business management: the assumption that competition drives innovation. This bit of missing evidence in the impact assessments totally distorts the raison d’être of the Act itself, and of course there is a separate debate in management as to whether innovation can be detrimental to organisational culture or learning. There is considerable evidence now that collaboration, not competition, can be essential for innovation. This theme is taken up in an interesting article about ‘internal markets’ from Forbes:
Major innovation needs collaboration, not competition. For innovation, internal markets have the same problem as hierarchical bureaucracies. Managers vote their resources for innovations that bolster their current fiefdoms and careers. The safest strategy is to stick to the status quo. Ms. Kimes’ article gives multiple examples where competing managers at Sears looked after their own units at the expense of the interests of the firm as a whole.
Second, innovation isn’t basically an issue of spending. Booz & Company’s annual innovation reports repeatedly state: “Spending more on R&D won’t drive results. The most crucial factors are strategic alignment and a culture that supports innovation.”
Finally, the hope of the internal markets theory is that, by funding a variety of different ideas, the organization will emulate the evolutionary process of natural selection and so the best ideas will survive and prosper. The problem is that once a disruptive idea starts to flourish and becomes more interesting than the normal bread-and-butter work of the organization, it risks becoming a threat to the rest of the organization.
The wheels are coming off the Competition Juggernaut a bit sooner than expected
David Williams at the Health Services Journal only very recently on 16 September 2013 reported that:
NHS England has delayed the publication of its choice and competition framework amid a “paucity of evidence” of the benefit to patients.
Policy director Bill McCarthy made the announcement at a board meeting on Friday, highlighting the issue as a new risk for the central body.
The framework and supporting documents were originally slated for publication in July.
Mr McCarthy said: “We’re having [a discussion] with Monitor around choice and competition, and how best they can be applied in healthcare to improve outcomes for patients, including a better experience.
“That’s taken a bit longer than we hoped.
“We had hoped to be able to put out some guidance early in the summer – I think that probably reflects… it is one of the areas where there is a paucity of evidence.”
“Operation Propper”
Clause “B47” (p.42/3) in the official Impact Assessments from the Department of Health cites one of the key planks of evidence that the Department of Health wishes to use in promoting its competition argument.
“A July 2010 study by health economists Martin Gaynor, Rodrigo Moreno-Serra, and Carol Propper investigated outcomes in the NHS following the introduction of choice in 2006. They conclude as follows: “We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost”. The study found that there was a larger inflow of patients to better quality hospitals after the 2006 NHS reforms, suggesting that popular providers in health care are able to expand supply.”
There is an even worse justification for the competition dogma later in the Department of Health’s official impact assessments:
B48. A January 2010 study by the London School of Economics also looked at NHS data post- introduction of choice in 2006. The key conclusion is as follows: “Using AMI mortality as a quality indicator, we find that mortality fell more quickly (i.e. quality improved) for patients living in more competitive markets after the introduction of hospital competition in January 2006. Our results suggest that hospital competition in markets with fixed prices can lead to improvements in clinical quality”.
B49. Evidence from the LSE shows that management quality – measured using a new survey tool – is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreover, the study finds that higher competition (as indicated by a greater number of neighbouring hospitals) is positively correlated with increased management quality.
The general issue received a scathing response from Allyson Pollock, Alison Macfarlane and Ian Greener who could not have put it any clearer.
The major improvements in outcome after acute myocardial infarction can be attributed to improvements in primary prevention in general practice and in hospital care, including the introduction of percutaneous IV angiography. The government’s own cardiac Tzar, Sir Roger Boyle, was sufficiently angered by their claims to respond with withering criticism: “AMI is a medical emergency: patients can’t choose where to have their heart attack or where to be treated!” It is “bizarre to choose a condition where choice by consumer can have virtually no effect”. Patients suffering “severe pain in emergencies clouded by strong analgesia don’t make choices. It’s the ambulance driver who follows the protocol and drives to the nearest heart attack centre”.
The intervention that the authors claimed reduced heart attacks and was a proxy for competition was patient choice. In 2006, patients were given choices of hospitals including private for-profit providers for some selected treatments. Less than the half patients surveyed in 2008 even remember being given a choice, and only a tiny proportion made those choices based on data from the NHS choices website. If patient choice was one of the two key elements of competition, it wasn’t prevalent and rather than being derived from the authors’ data, it was assumed.
Crucially, even if patient choice had occurred it does not explain why heart attack mortality rates fell. There is no biological mechanism to explain why having a choice of providers for elective hip and knee operations surgery (including hospitals which did not treat or admit acute MI patients) could affect the overall outcomes from acute myocardial infarction where patients do not exercise choice over where they are treated.
The problem of data dredging is well known; if you repeat an analysis often enough significant statistical associations will appear. But the authors make the cardinal error of not understanding their data and of confusing minor statistical associations with causation. Deaths from acute MI are not a measure of quality of hospital care, rather a measure of access to and quality of cardiology care. At best, what the paper appears to show is not the effect of choice on heart attacks but that if an individual has a heart attack in an area close to a hospital and their GP is near the hospital, then outcomes are better, but such findings are not new.
Going for their central criticism, in the same article, they explained:
The drip feed of pro-competition studies from Zack Cooper at LSE raises serious questions for the academic community and the public about what constitutes bad science and what to do about its politicisation. Recently, on 21 February in the columns of the FT, Cooper and colleague Julian Le Grand warded off serious scientific criticisms of the studies with an ad hominem attack, categorising those in favour of competition as empiricists and those whose work is critical of markets in health care as intuitivists. In so doing they sweep aside decades of careful economic theory and evidence which shows why markets do not work in health services and distract the reader from the facts that their work is ungrounded and far from empirical. Their repeated claims that competition in the NHS saves lives and improves quality and productivity have no scientific basis.
A litigation factory?
Of course the £3bn Health and Social Care Act (2012) which have no mechanisms of helping with clinical staffing or patient safety, in the drive for business efficiencies, have become a bonanza for private companies to which work has been outsourced, and a boon for the commercial and corporate law firms which are now nurturing them. The NHS of course has trouble in meeting the formidable legal bill against the private providers, as well as staff it has made redundant due to this top-down reorganisation.
I have long argued that the commissioning (‘competition and choice’) process through section 75 Health and Social Care Act (2012) would soon turn sour, for example in the original blogpost I did for the Socialist Health Association in January 2013 here. Crispin Dowler recently reported early tensions on 11 September 2013 in the Health Services Journal:
A number of private providers are likely to take complaints to the NHS’s new competition regulator Monitor over the next three years, the chief executive officer of Ramsay Health Care UK warned last week.
Jill Watts, whose organisation was ranked the largest private provider of NHS funded acute care in the most recent study by market analysts Laing and Buisson, said she could “almost guarantee” there would be challenges to come.
She told a Westminster Health Forum conference that the April switchover to clinical commissioning groups under the government’s health reforms had not produced uniform changes in commissioners’ attitudes to the private sector.
“In one part of the country, where we had almost adversarial relationships and they didn’t want to use us at all, they’re very keen to work with us now,” she said.
The New Labour Legacy, competition, performance and “the target culture”
Competition was intimately wound up in the target-driven agenda. NHS hospitals would have to meet targets to jump through regulatory hoops to become NHS Foundation Trusts. As long as finances stacked up, patient safety appears to have suffered in some Trusts under Labour’s watch. Whilst the evidence for competition being beneficial in the NHS market is weak, it has remained with us in policy like a bad smell. Julian LeGrand could have not put better how idiotic this policy really was.
The problem is indeed partly money – a historical legacy of underspending in all areas of public services. But, as John Hutton says, it isn’t only that. There is also a legacy of poor performance: of failing to use what resources there are effectively and efficiently. This is a lesson that six years in power have taught New Labour. The Government has tried and is trying a wide variety of techniques to lever up performance: publishing league tables on comparative performance, encouraging private sector involvement, offering independence to high fliers, stimulating competition and choice. But one of its favourite instruments has been targetry: the setting of targets with heavy penalties for failing to meet them. Many in government are convinced that this is the way to go.
