Designing Publicly Funded Healthcare Markets

Abstract

Governments around the world provide public funding for healthcare to address the failures that arise when healthcare markets are left to their own devices. However, public funding alone, does not incentivise high quality efficient healthcare. Most OECD countries have therefore moved away from command-and-control systems, separated their role as buyer from the role of providing services, and sought to incentivise providers, using regulation to ensure a minimum acceptable level of quality, while using choice and competition to incentivise providers to become more efficient and to invest savings in improving the quality of care.

However, variations in indicators of clinical quality and patient centred care (the provision of care that focuses on the needs of the patient) suggest these incentives are often too weak. Moreover, the role of choice and competition can become marginalised, particularly when budgets are tight and patient-centred care comes to be perceived as an expensive luxury. This paper therefore argues that there is a need for competition agencies to become more active and effective advocates for the use of choice and competition in publicly funded healthcare markets. It suggests that the need for strong regulation will not shrink or disappear, as it might do in a utility, and so advocacy should not focus simply on deregulating, but instead on designing smarter regulations that create markets that incentivise competition on aspects of the service that patients and payers care about most. Drawing on the literature and different examples of pro-competitive reforms that have been undertaken in different countries, it identifies 10 key policy decisions that make a difference when introducing or reforming competitive forces in healthcare markets.

Keywords: competition, choice, healthcare, hospitals, general practice, antitrust

JEL Classification: L44, L51, L33, L38, I11, I18