Economic regulation in Health care

Economic regulation was originally set up to regulate natural monopolies in the interests of consumers and to promote competition where appropriate. The need to ensure the health care market operates in the interests of the public and patients is one of the main objectives behind the introduction of economic regulation in health care. Can we learn anything from the experience of economic regulation in other sectors?

The coalition government has built on the market-orientated policies of the previous government, creating a stronger and more independent system of economic regulation that will apply to the whole health care sector, public and private providers. The Health and Social Care Bill proposes extending Monitor’s responsibilities to include:

  • price-setting
  • tackling anti-competitive behaviour
  • ensuring continuity of essential services in the event of financial failure.

There has been some concern about the impact of competition in health care, with critics claiming that it cannot be treated in the same way as the nationalised utilities. Economic regulation in health care seeks to look at these issues dispassionately. It outlines the development of economic regulation in England and describes the differences between the market in health care and the market in the utility sector. In looking at the experiences of other sector-specific economic regulators, it considers their objectives, how they are held to account and what regulatory instruments they use. It also briefly compares the proposals for the regulation of health care in England with the experience of economic regulation of health care in The Netherlands and the United States.

The establishment of independent regulators was explicitly designed to take day-to-day decision-making away from the political arena, so there are a number of political challenges for Monitor. This paper concludes that the task faced by Monitor should not be underestimated because of the complexity of the product and the number and size of organisations in the market. Furthermore, the fact that there is little precedent or supporting analysis creates further practical and  technical challenges.     

This paper will be essential reading for policy-makers considering the role of economic regulation in health care, and those tasked with implementing the new system of regulation in England.

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