Undercover Economist

A healthy dose of competition will help the NHS pull through

Thanks to everyone who sent good wishes after my last “cancer scan” column, which described the year-long process of waiting for a precautionary test. I think that all is well with me, although it is hard to be sure: as I write, the scan still hasn’t happened.

This time the fault was with the paperwork. I showed up, having carefully followed the preparatory instructions I’d been sent, only to be told rather sniffily that I’d followed the wrong ones. “I’ve followed the instructions you sent!” “I didn’t send them.” “Well, I certainly didn’t send them.” Back to square one.

Under the circumstances, I hope you’ll forgive me if I have become strangely obsessed with NHS management.

A fascinating new study by Nick Bloom, Stephan Seiler and John Van Reenen of the London School of Economic’s Centre for Economic Performance (CEP), and Carol Propper of the University of Bristol’s Centre for Market and Public Organisation, attempts to measure the quality of that management. The researchers recruited a team of interviewers who quizzed doctors and managers at 100 hospitals, accounting for 60 per cent of the acute hospitals in England.

They asked open-ended questions about the way the hospital was run. A wonderfully shocking example: “Do staff sometimes end up doing the wrong sort of work for their skills?” “You mean the doctors doing nurses’ jobs, and nurses doing porter jobs? Yeah, all the time. Last week we had to get the healthier patients to push around the beds for the sicker patients.”

The researchers concluded that better hospital management was correlated with better outcomes for patients – modestly so, but in an organisation the size of the NHS hundreds of lives appear to be being lost because of poor management. Bloom and his colleagues also conclude – tentatively, because the comparison is hard – that NHS managers seem to be incompetent compared with managers in the private sector.

It would be nice, then, to figure out what could be done to sharpen up the NHS’s managers and encourage its administrative staff to attach the right instructions to each appointment. One possibility is to bring in lots of those clever private-sector types, but that’s probably a mistake. The evidence suggests that former doctors make good managers, perhaps because they’re better able to communicate with the doctors on their own staff.

A better diagnosis is not that the NHS is missing some elusive quality of private sector-iness, but that it is missing any sort of competitive pressure, the sort of competitive pressure that most businesses (outside banking) have to cope with every day.

The NHS isn’t set up to be a fiercely competitive institution, but the last government did attempt to introduce elements of market reform. Hospitals stand to lose patients or, at the very least staff, to nearby hospitals that are managed more professionally. Isolated hospitals need not worry. As John Hicks once wrote: “The best of all monopoly profits is a quiet life.”

Recognising the iron law of British politics that nobody ever closes down a hospital in a marginal seat, the researchers used constituency boundaries to conduct a kind of natural experiment exploring whether more competition raises management standards.

It seems that it does, a finding that accords with the CEP’s research into private sector management quality, and with new research studying the school system in Florida. Competition raises standards – something that should be music to the new government’s ears.

Also published at ft.com.