The decision to let NHS hospitals compete with each other on price from next year threatens to harm care and raise death rates, experts warn.

The 2011 NHS operating framework confirms that, from April, hospitals will be allowed to charge rates lower than the national tariff, which sets the prices for thousands of NHS procedures and covers roughly half of hospital income.

The move means hospitals will be able to compete for contracts from commissioners by cutting prices, not just by raising quality. But health economists and unions fear this will drive down standards and working conditions for hospital staff.

Zack Cooper, a health economist from the Centre for Economic Performance at the London School of Economics, told HSJ: “Every shred of evidence suggests that price competition in healthcare makes things worse, not better. You save money, but as you’re lowering price you will lower quality.”

Mr Cooper was one of the authors of a study, published in June, which found evidence that the intra-hospital competition introduced in the NHS in 2006 had made hospitals more efficient. He believes England has done a “fantastic job” creating a market in the NHS where “competition leads to higher quality”. But he warned that removing fixed prices from the equation will put this at risk.

“The moral of the story is not ‘more competition: good; less competition: bad’,” he said. “It’s that you need to create sensible incentives and meaningful regulation in order to get competition that produces good quality.”

The danger of price competition in healthcare, economists warn, is that commissioners find the “quality” of complex medical procedures much harder to measure than price. The risk is that this leads them to commission cheaper services, without realising until later that they are worse.

Studies on the introduction of price competition in the NHS in the 1990s and in public healthcare in the US state of New Jersey found that in both cases heart attack death rates were pushed up.

For this reason, chief economist at the Nuffield Trust Anita Charlesworth says she has “grave concerns about the reintroduction of price competition” in the NHS.

She warned: “There is a real risk that the harder-to-observe but fundamentally important aspects of quality, like mortality rates from acute myocardial infarction [heart attacks], will deteriorate.”

Head of health at Unison Karen Jennings said the union’s concern that price competition would lead to cuts in conditions for staff was exacerbated by the policy being introduced during a period of major structural change.

She said: “How can they measure the impact of this when there are so many things going on in the service?”

However, the policy was welcomed by Nick Bosanquet, professor of health policy at Imperial College.

“Without price competition there’s no incentive to lower costs and find more effective methods of doing the job.”

“Just because we didn’t get it completely right in the nineties doesn’t mean we have to go on in the 21st century continuing to be frightened of using these things.”