The authors’ measure efficiency using hospitals’ average length of stay (LOS) for patients undergoing elective surgery. The results suggest that competition between public providers prompted public hospitals to improve their productivity by decreasing their pre-surgery, overall and post-surgery length of stay. In contrast, competition from private hospitals did not spur public providers to improve their performance.

“First, our findings demonstrate that hospital competition can lead to improvements in public providers’ productivity based on our observed reductions in hospitals pre-surgical LOS. Here, if we assume that the impact of competition on pre-surgery LOS captured overall improvements in hospital efficiency, then these 7-9% gains would have produced non-trivial savings. However, we also find that the underlying market dynamics and the specifics of the hospital payment program in place can greatly affect the impact of competition. While we did find that competition improved providers’ productivity, we also found that that there is a real risk that hospital competition between public and private providers and between general hospitals and specialty surgical centers can lead to risk segmentation, with large incumbent hospitals at risk of inheriting a riskier patient case mix who are more costly to treat. This, in and of itself, may not reduce social welfare. However, our results suggests that in order to maximize the welfare gains from these types of market-based reforms, policy-makers must investigate and introduce more sophisticated risk-adjustment of hospital payments to control for variation in patients’ prospective costs and limit hospitals’ ability to create excess profits by focusing on healthier patients.” p24/25

See the full paper: Does competition improve public hospitals’ efficiency? Evidence from a quasi-experiment in the English National Health Service. Centre for Economic Performance (CEP) Discussion Paper No 1125, Feb 2012.