Free to Choose? Reform and Demand Response in the British National Health Service

Free to Choose? Reform and Demand Response in the British National Health Service

By Martin Gaynor, Carol Propper, Stephan Seiler
December 2016Working Paper No. 3169

The impacts of choice in public services are controversial.  We exploit a reform in the English National Health Service to assess the impact of relaxing constraints on patient choice. We estimate a demand model that explicitly captures the referral constraints imposed on patients to evaluate whether removing constraints on choice increased the demand elasticity faced by hospitals. Using data for an important surgical procedure we find that patients became more responsive to clinical quality. The increased demand responsiveness led to a modest reduction in mortality by re-allocating patients and a substantial increase in patient welfare. The elasticity of demand faced by hospitals increased substantially post-reform, giving hospitals stronger incentives to improve their quality of care. Finally, we find evidence that hospitals responded to the enhanced incentives by improving quality. The results suggests greater choice can enhance quality.