Choice, competition and the ‘postcode lottery’ in public services

Travis Pillow

When citizens were offered a choice of providers, and they no longer needed to win a “postcard lottery” to access the best options, public services started to work better. Managers made their operations more efficient. Outcomes improved, but costs actually went down.

At least, that’s what happened when England injected choice and competition into its National Health Service, according to this breakdown of recent research from the American Economic Association (hat tip: Matt Barnum).

If hospitals do not have to compete to attract patients, attention to patient comfort or even the standard of medical care might suffer. A study appearing in the American Economic Journal: Economic Policy that earned a 2016 AEJ Best Paper Award looks to data from England and shows that a lack of competition in the hospital industry can be deadly.

In Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service (PDF), authors Martin Gaynor, Rodrigo Moreno-Serra, and Carol Propper study a pair of 2006 reforms implemented by the National Health Service (NHS) in England that operates public hospitals which are obligated to provide medical care free of charge to every citizen. The changes were designed to get hospitals competing with each other in the hopes of improving service for patients.

Before the 2006 reforms, every NHS hospital in England … didn’t have to worry about competing with other hospitals for patients. In those days, patients were generally referred to a local hospital by their doctors based on their neighborhood of residence and the arrangements of local agencies that contracted with hospitals for care. Even hospitals operating in dense cities like London and Manchester, with many other hospitals a short drive away, were effectively shielded from competition.

Lack of choice led to complaints of a “postcode lottery” where someone living a few blocks down the street from you who just happened to be in a different district could have access to better hospitals with shorter waitlists and the latest technology.

“Postcode lottery.” The education analogies write themselves. It’s worth considering how the universally available, taxpayer-funded public service provided by schools on this side of the pond might, or might not, be similar to English hospitals.

Among other things:

  1. A key feature England’s competition-based health reforms was the launch of a website where people could compare providers based on price and outcomes. Some reform-heavy cities, like New Orleans, are creating similar systems that allow families to shop around among district, charter and even private schools. But in most communities, finding readily accessible, meaningful information remains a challenge for parents.
  2. Do schools differ from hospitals in important ways that might blunt the effects of competition, or worse, spur schools to game the system, such as excluding hard-to-serve students?
  3. England hospital managers had a clear incentive — and the authority — to make changes that led to improvements. Public-school leaders don’t all enjoy the same autonomy, though in some places, more could, soon.

In short, reforms in England’s hospitals seem to align with the theory of action of many school choice advocates, who point to the competitive effects of school vouchers on public school performance, or policies like public-school open enrollment in places Florida and Arizona. When public-service providers no longer enjoy a monopoly, they step up their game. If school choice policies don’t spur systemic improvement, it may be worth asking why. Does the public lack useful information that helps drive competition? Do public school leaders lack the freedom to truly compete?

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