Special Contributor | The Challenge of Monopolies in U.S. Health Care — England May Help Illustrate the Solution
The British National Health Service (NHS) and the U.S. health system are popularly regarded as two unrelated health systems with different values, different virtues, and different vices. However, despite their differences, these two health systems have historically shared a common problem: Large, seemingly immovable monopolies have slowed innovation and thwarted improvements in efficiency. And contrary to some of the stereotypes about the NHS, policymakers in the U.K. have had more success breaking up monopolies by increasing competition than has been achieved in the U.S.
In the U.S., private-sector insurers hold a powerful monopoly in insurance markets, and this hinders progress. Conversely, in the U.K., it has historically been the government-run hospitals’ monopoly power that was hampering improvements. Nevertheless, in both countries, while the health care systems themselves are distinct, the policy response needs to be similar: break up the monopolies, increase choice for individuals, and promote competition. Here, rather than viewing the NHS as a pariah, the British experience can serve as a model for how policymakers can enact potentially divisive market-based reforms in a difficult political and economic climate.
In the past, patients in the U.K. had no formal choice of which hospital they attended for care. Hospital payments were based not on the hospital’s ability to attract patients, but rather on historical patterns of spending. As a result, other than altruism, hospitals had no incentives to improve their performance, cater to patients’ needs, or provide patient-centered care. If patients were not happy with the care that they were receiving, they had no mechanism to change doctors or hospitals and had to simply take what they were given. This situation nearly mirrors the experience in the U.S. employer-based insurance market, where single companies often insure more than 75 percent of the eligible population and individuals have little choice regarding who sells them their coverage.
This lack of incentives led to all sorts of problems within the NHS. Patient waits were long, the level of patient service was patchy, and there was a huge variation in quality across NHS providers. Likewise, in the U.S., an absence of choice in the insurance market has meant that there are few incentives for insurers to improve. This lack of incentives is one of the main reasons why, over the last decade, insurance premiums have increased faster than wages while quality and customer service have been stagnant.
Beginning in 2001, the British government implemented a set of aggressive reforms to the English NHS designed to address some of their glaring deficiencies.(1) At first the reforms actually increased the role of the government in health care. Policymakers set targets for hospitals, rewarded hospitals for meeting the targets, and fired their management if they did not. The centrally led management style was categorized as a period of “targets and terror” that some said hearkened back to the state-run services in 1960s Russia. While the targeting regime worked in the short term, it was eventually recognized as unlikely to offer a long-term solution.
In 2006, the British government shifted course and began to introduce more competition into the health care service. These reforms were hugely controversial and generated significant opposition, much like the policy debates now occurring in the U.S. English patients were given a range of choices of where they could receive care, the government published information on hospital quality to help patients make informed choices, and hospitals were paid only if they were able to attract patients. Hospitals were given more managerial autonomy, and the government invited private hospitals to compete alongside traditional NHS hospitals to offer care to NHS patients.
By all objective standards, these policies, despite the controversy, have been successful. During the period of heavy centralization in the NHS, productivity actually fell. However, in the years since the market was introduced, almost every measurable indicator of quality has improved. Care quality has risen, waiting times have dropped, and patient satisfaction is at the highest levels seen in the NHS in 20 years. The relationship between waiting times and patients’ socioeconomic status has also changed dramatically. In short, not only did waiting times fall, public satisfaction rise, and productivity increase, but equity improved.
Crucially, the U.S. would do well to follow a similar strategy: increase the degree of competition in the insurance market by giving every American the ability to choose from multiple insurance providers in their local market. The challenging question, as we have seen recently, is how to get these reforms passed as legislation. While the monopoly in the U.K. is at the provider side and the monopoly in the U.S. is at the insurer side, there are still a number of lessons from the U.K. that apply to the policymaking process in the U.S.
First, one of the keys to success in the English NHS was that policymakers drew up a clear narrative about how everyone in the system would see improvements in their health care, not just select groups. This is in stark contrast to the recent reform process in the U.S., where Democratic policymakers tried to quell anxiety about reforms by downplaying the impact that they would have on those who already have coverage. Unfortunately, by downplaying the impact of the reforms on those who were already insured, Democrats struggled to corral significant public support for their legislation. If the U.S. wants to succeed with health care, then policymakers need to take a page from the English NHS and craft a better story about how everyone will benefit from reforms, not just a select few who are currently underserved.
Second, the aversion to increasing the role of private providers in England was similar to the skepticism surrounding a public option within the insurance reforms in the U.S. In the U.K., the government was accused of privatizing health care, just as policymakers in the U.S. were accused of trying to perpetrate a government takeover of health care. The English NHS succeeded at increasing the role of private-sector providers by being careful to avoid giving the impression that they wanted the private sector to usurp the public sector. Instead, they indicated that their drive was to increase the role for the private sector in order to create more competition. In the U.S., there was so much hospitality towards the insurance industry that when policymakers discussed the public option, government involvement was viewed as a punishment for the industry, rather than as a tool to increase competition.
Third, reform in England was rolled out over several years. Introducing competition in England required changes in the IT infrastructure, in the reimbursement system to pay doctors, and on the supply side in terms of creating more options from which the public could choose. The government avoided bringing in every element at once and thus cushioned the blow from the reforms. A key lesson for the U.S. is that successful reform does not need to happen at once. While incrementalism can clearly be frustrating at the moment, it may be the only way available to achieve comprehensive reform.
In the wake of the Massachusetts Senate special election, where Democrats lost their supermajority in the Senate, it is clear that the U.S. approach to passing health care legislation needs to change. Policymakers in the U.S. need to look abroad to see not just what substantive policies have been successful, but also how technical policies were translated into legislative and electoral success.
Notes
(1) The British NHS was divided into separate health care systems in England, Scotland, Wales, and Northern Ireland. Only England has pursued aggressive market-based reforms.
Special Contributor Zack Cooper is a research officer with the London School of Economics. His monthly column for the Health Policy Forum considers health policy from the international perspective. “Special Contributors” are regular contributors to the Health Policy Forum who pose their own opinions and policy positions in the realm of health care and health policy. As a leading nonprofit health care research and consulting institute dedicated to improving human health, Altarum encourages open discussion and debate about the many challenges in health care today. All postings to the Health Policy Forum (whether from employees or those outside the Institute) represent the views of the individual authors and/or organizations and do not necessarily represent the position, interests, strategy, or opinions of Altarum Institute. Altarum is a nonprofit, nonpartisan organization. No posting should be considered an endorsement by Altarum of individual candidates, political parties, opinions, or policy positions. Read more.
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