Commissioners will have to sharpen their understanding of healthcare markets and see carefully managed competition as a tool that works for the benefit of patients

In March, HSJcompiled the results for all primary care trusts from the world class commissioning assurance exercise. Although PCTs have made a solid start there is a lot of room for improvement, particularly in market stimulation (competency seven) where they performed worst. 

Perhaps it is not surprising PCTs scored poorly in this area. After all, it is only now, as reforms start to bite, that skills in analysing, stimulating and managing markets have come to the fore. In other sectors these skills are more likely to sit with economists or within marketing departments but as NHS commissioners begin to develop their capability in market management, they will discover a new lever that can be pulled in the search for more responsive, higher quality and more equitable services.

Best practice in NHS market management is now emerging, developed by drawing on the experience of other sectors but adapting this to take account of the healthcare environment.

While market management may be unfamiliar territory for most PCTs, competence can be gained relatively quickly if they adopt a systematic approach.

This task is made more urgent by the advent of the co-operation and competition panel. It is in front of this panel that PCTs and strategic health authorities may have to justify their decisions in the case of disputes. A transparent, systematic and defensible approach is essential if local market management decisions are to stand up to its scrutiny.

So what are the basics of a robust market management approach? The first step is to consider how best to “segment” a local market: what different services might act as close substitutes for one another? And how far would patients travel for each service? The answers help commissioners understand what different markets they have, how far they extend and which providers are active, or could be active, in each.

Metrics for markets

Having defined local markets, the second step is to understand how each is operating. Sadly there is no single killer indicator that characterises a market. Instead, judgement must be applied, informed by a number of different metrics. How much choice of provider is there within a reasonable travel time for patients? How concentrated is the market (and what are the market shares of the current providers)? To what extent are patients switching between providers and if there is a dominant provider will it remain so? Is there a real threat of entry into the market or are barriers simply too high? How is each of these indicators changing over time?

If PCTs are to manage their markets effectively, they need to collect data on and interpret these indicators and track changes. But they should take care not to fall into the trap of thinking competition is the lever to pull at all times. Competition is not an end in itself.

In many healthcare markets strong competition between providers may be inappropriate. PCTs need to understand whether they would be best served by developing competition for the market - with providers vying for the right to provide a service to a population - rather than in the market, with any willing provider able to ply their trade to patients and GPs.

PCTs will also need to prioritise carefully. They cannot address all markets at once. A small number should be selected for early action. For example, the spotlight might be shone on those markets where quality is poor, or where inequalities in access or benefit are high and where indicators suggest market dynamism is sub-optimal.

While PCTs can expect further guidance from the co-operation and competition panel, thinking on what a “good” healthcare market looks like is still evolving. Healthcare markets are simply not the same as other markets. The indicators we describe will prove useful for the NHS, but commissioners and the panel will need to develop health market benchmarks. 

The use of markets in healthcare will not go away - the Conservative Party is as committed to competition as Labour. Nor should PCTs fear judicious use of competition. With the NHS constitution’s focus on patient choice, the ability of commissioners to direct patients where they see fit is fast diminishing.

In future they will be market shapers. Effective market management with the proper analytical tools will allow PCTs to shape markets so that they deliver better outcomes for patients.