Research from the London School of Economics published in December gave insight into how competition within the NHS is benefiting patients.

The report, Does Hospital Competition Save Lives? Evidence from the Recent English NHS Choice Reforms, supports the view that greater incentives placed in the system will better tackle quality and productivity.

NHS culture always demonstrates it’s rattled when it calls people it disagrees with ideologues

The researchers compared areas where there were more competitive markets with those where there was less, following the introduction of hospital competition in January 2006, and found that mortality fell more quickly (and quality improved) for patients living in areas with more competitive markets. “Our results suggest that hospital competition in markets with fixed prices can lead to improvements in clinical quality,” the report concluded.

Of course, a single research report will never clinch what is essentially a political argument, but it’s important to note how the incentive of competition can improve outcomes.

It’s common knowledge that there is a battle going on within the NHS today between those who want to mainly use incentives to improve quality and productivity and those who mainly want to use the old style of instruction from the top.

In December, Sir David Nicholson, chief executive of the NHS, told the Financial Times: “One of the mistakes that the ideologues around reform make is that they think that all you have to do is put the right incentives and penalties into the system and the service will respond.”

NHS culture always demonstrates it’s rattled when it calls people it disagrees with ideologues. What they mean is: “We inside this NHS culture, we all work with common sense. Those people outside trying to change us only have a nasty external thing called ideology, which we don’t need.”

Sir David is right in that most of the reforms have been based upon introducing incentives into the system.

The rationale is that a provider will work better and harder if they get paid for the work they actually do and don’t simply get a block grant irrespective of what they do. If hospitals feel they have to attract patients by providing a better service to get that finance, then they will try and attract the patient.

The tariff therefore works as an incentive. It could be one of the main incentive levers that will allow the NHS to get through the changes that will be necessary as resources are tightened. Productivity improvements will depend upon incentives working as an integral part of the NHS (and not as external ideologies).

December’s operating framework continued the contradiction contained within the leadership direction of the NHS. On the one hand, there are those who believe in reform and will try and improve productivity by bearing down on the cost of acute secondary care by reducing the tariff. On the other, there are those who see the decrease in the price of procedures as being too difficult for the hospitals to survive and therefore want to be able to suspend the application of the tariff in their health economy.

The framework says: “Strategic health authorities may exercise discretion to temporarily suspend contractual arrangements between primary care trusts and providers in their region where these arrangements are demonstrably not operating in the interest of patients.” But the danger of having a leadership that believes both in reform through the tariff but also believes in allowing people to opt out of the tariff is that the productivity levers will cancel each other out.

The place where productivity most needs to be improved is in the most inefficient hospitals. Yet it is precisely those hospitals that will find working to a deflated tariff the most difficult.

If an SHA can say a hospital is too inefficient to work to tariff, then it will be allowing the most inefficient hospitals to opt out of the main way in which they could be made more efficient.

The power to decide whether the tariff is allowed to work as an incentive or not is at the centre, where Sir David believes that incentives are essentially ideological things that are external to the NHS. When an SHA comes to him and asks to remove the main incentive of the tariff from its most inefficient hospitals, will he agree with the SHA that sees the tariff as an external force to his NHS, or will he stand by tariffs as necessary incentives for productivity?

Competition between NHS hospitals as an incentive saves lives. But will incentives themselves be allowed to survive?