COMPETITION IN THE NHS INTERNAL MARKET - AN OVERVIEW OF ITS EFFECTS ON HOSPITAL PRICES AND COSTS

The 1989 reforms of the UK National Health Service (NHS) introduced co mpetition in the supply of hospital services. This paper synthesizes b oth the theory underlying the introduction of competition into the NHS , and the limited existing evidence on whether competition affects the prices posted by sellers of medical services, and the costs of produc ing these services. The results indicate high levels of price variabil ity, widespread disregard for average cost pricing rules and some indi cation that competition had some effect on prices. It appears that low er prices may be offered to smaller purchasers, such as General Practi ce Fund Holders (GPFH). This effect of competition on price was mirror ed, with a delay, in hospital costs. (C) 1998 John Wiley & Sons, Ltd.