How little of the healthcare and care market can be described as being in anyway a free market! In hospitals and care homes, even where the private sector is included, it is almost always on a fixed price, tariff formula.

That goes for almost the entire hospital and care home sector in Europe. Even where prices are set freely, often there is little real competition. A French care home can set a bedroom price according to local demand, but, given that it is only likely to be competing with 2-3 local entities, that is hardly going to lead to anything too cut throat.

There seems to be surprisingly little political will to move towards forcing the private sector towards greater price competition through tendering.  Indeed, in the UK the government has gone out of its way to make it known that price competition is not part of the proposed UK reforms.

In general, price competition occurs only in mature consolidated sectors within healthcare. Food, I imagine, is savage.

This is odd.  Because what we can clearly state is that, whenever competitive tendering does occur in healthcare services, it massively drives down costs.

This was found in the German lab sector, where new players were winning contracts by offering to charge 17-30% of
the standard krankenkassen lab tariff. The same thing happened in Norway, when the market for surgery to reduce waiting lists moved to tendering. Today, surgery operator Teres says that the private sector charges half the public sector rate. The Spanish lab market runs at prices which are roughly 70% of Germany’s and more or less three times lower than France’s. Poland we are told has seen falls of 30-40% in lab test prices in the last two years to levels where they are around a quarter of German levels.

It will be interesting to see what happens on new build nursing homes in France where just such a move to competitive tendering comes into force in the second half of 2011.

So why shouldn’t we move towards more price competition in healthcare services? After all, there is no fixed tariff for company audits, management consultancy or automotive repairs.

You get various academics arguing that healthcare is just too complicated to be a services market. But every market is complicated and everywhere, left to its own devices, the market finds ways of defining services.

Often markets fail in Europe because the contenders don't want to compete. Why would the 100 big Dutch not for profit hospitals want to compete hard against each other to win selective contracts from insurers?

The big fear, of course, is that price competition would lead to lower standards of medical care. This is true in extreme cases - Polish lab tests are not to be trusted. 

But why generally should this be a real worry? It hasn’t had that effect on car safety. Indeed, rather the reverse – look at the massive reputational damage recently sustained by Toyota over recalls.

In any case, a good regulator, coupled to information transparency so that consumers and their family doctors can see the quality of what is on offer, should deal with quality issues.  At its simplest, the regulator simply tells the operator that if it fails to meet standards it will lose the contract.

I do not see why this all should be so difficult. Say you contract to do 2,000 hips on non-complex patients under 75, in other words a carefully pre-defined cohort with no further cherry picking allowed. To test standards, all the regulator need do is phone the 1,000 after their op and ask how they are doing. Healthcare insurers, such as Allianz, routinely and successfully monitor quality.

Investors can relax of course. It won’t happen, the medical profession is far too powerful and the will to innovate is lacking.

But it damn well should.