Competition and regulation in the healthcare sector

2. Market characteristics and the introduction of competition

This section provides an overview of the main institutional features in the healthcare sector and of key characteristics of demand and supply for healthcare services, highlighting those leading to market failures. These market failures, together with equity considerations, explain why governments intervene extensively in healthcare markets, through funding, regulation and, in many cases, direct provision.

Against the backdrop of similar market failures across countries, different jurisdictions have responded in different ways, creating the variation of healthcare systems seen across the OECD.

The economic literature on healthcare markets is extensive and has greatly contributed to the approach of competition authorities to these markets. This text simplifies and summarises only high-level results to explain the basic rationale for government intervention and for introducing competition, as well as the regulatory barriers to competition resulting from this intervention.

2.1. Healthcare systems vary significantly

Health systems vary in several important respects, such as how they are structured, funded and how services are delivered. Key policy choices that can help distinguish different systems are as follows: “degree of user choice of basic coverage; degree of private provision of primary care and outpatient specialist services; patient choice of providers; health insurance as a secondary source of coverage (“over the basic” coverage); role of primary care in the health system (gate-keeping)” (OECD/The Health Foundation, 2025[4]).1

Depending on these policy choices, market mechanisms may be more or less developed, and demand and supply behaviour will differ too. The implications of selected criteria are described below by way of example:

• Degree of user choice of basic coverage: this is related to the importance of health insurance in a country. Some countries, such as Germany and the Netherlands, have a system of mandatory insurance where consumers can choose an insurer for their basic coverage. In others, such as Australia, Canada and France, user choice is not possible and basic cover is provided by public insurance, complemented by private insurance beyond basic coverage.

• Patient choice of providers: patients’ choice in selecting hospitals or doctors, which is another policy lever, is a necessary condition for competition in the market for medical services. In France, patients can choose their provider but cannot choose a provider for their basic coverage, which is provided by the public insurer.

• Role of primary care in the health system: the role of primary care also varies, with general practitioners (GPs) having a “gate-keeping” function for patients’ access to specialist care in countries such as in Denmark, Norway and the UK. This limits the extent to which patients are free to access specialist services, at least when they are publicly funded. It may also restrict patients’ ability to choose the specific specialist provider.

In addition to the private provision of outpatient services, which is one of the criteria in OECD/The Health Foundation (2025[4]) mentioned above, the degree of private provision of hospital services gives a sense of the extent to which market mechanisms are in place. For example, the government may rely on private hospitals (or services) to alleviate congestion in the public system, raising questions of whether government funding of public hospitals may distort the playing field (see Box 4 below).

From a competition point of view, it is also important to consider whether prices can be set by providers, are negotiated between providers and insurers or are otherwise regulated, or indeed whether patients face any prices at all, as this will affect how suppliers compete and how patients behave (OECD, 2025[5]). A related policy question concerns the relative shares of government-funded and voluntary / out-of-pocket expenses. This has a range of implications, including for access to affordable care and for how it affects the healthcare market, for instance because patients that face negligible out-of-pocket payments may tend to demand more services, as discussed below.

The significant variation in health system is demonstrated, for example, by the cross-country differences in the proportion covered by government financing and compulsory insurance. In 2023, this proportion covered about 89% of spending on hospital care and 78% of spending on outpatient medical care on average in the OECD.2 However, the share for hospital care varied widely and ranged from 53% in Brazil to 99% in Norway and Sweden.

There is no evidence that one model is superior in all respects to other models in delivering efficient care. Healthcare systems that have very similar characteristics display different efficiency levels. Moreover, there are efficient health systems in all types of models and similarly there are systems that do not perform well in all models (OECD/The Health Foundation, 2025[4]). The finding is relevant for this policy paper because it suggests that incremental changes within a given model, for example pro-competitive regulation, could be valuable.

2.2. Demand and supply characteristics

Demand and supply for healthcare services are significantly shaped by the extent of government intervention in designing the healthcare system and developing regulations, but also by the government’s role as a provider and as a payer of healthcare services. In turn, government intervention is motivated by certain characteristics of healthcare services that lead to market failures, as well as by equity considerations.

2.2.1. Demand-side considerations

Patients face complex choices such as whether to initiate a treatment, whether to seek ambulatory or hospital care and to select a specific provider. These decisions are affected by significant information asymmetries, as patients are generally unable to assess whether treatment is necessary, which type of treatment is most appropriate, and (where possible) how to differentiate between the quality of providers. In addition, in systems where there is no public coverage, they can choose the extent of health insurance coverage and the specific plan. They can also select private insurance on top of the public coverage already provided by the state.

This view of patient choices is complicated by the fact that patients do not always pay for the medical services they are provided, because medical coverage is provided by the public health system or by insurance. This leads to moral hazard phenomena, both before and after an illness has occurred. In particular, moral hazard may result in higher demand for healthcare since the expenditure will be covered, in part or fully, by the state or private insurance (Zweifel and Manning, 2000[8]).

Demand’s responsiveness to price depends on the extent to which healthcare is provided for free (either because it is fully funded by the state or the service is provided for free, given that the patient has already purchased health insurance), whether it involves out-of-pocket payments or whether the patient pays the full price. Empirical work on the demand for healthcare showed that patients paying a share of the costs use fewer services than those benefitting from free services, without having an adverse effect on health apart from the poorest and sickest patients (Brook et al., 2006[9]).

Moreover, demand responsiveness to price depends on how complex medical services are and how pricing information is presented. When patients pay full prices or out-of-pocket contributions, comparing price information for simple services (e.g. lab tests) is straightforward. However, the consensus in the healthcare literature is that patients may not be able to process price information for more complex treatments, such as inpatient care involving medical interventions and overnight stays in hospital. Nonetheless Prager (2020[10]), while confirming that demand is inelastic, shows that patients are price sensitive also for complex treatments. For this to happen, patients need to know precisely how much they will pay in out-of-pocket contributions, which is not often the case because of the complexity of health insurance plans.

Distance appears to be the main driver of patient choice, at least for some services, even though the quality of healthcare is a key consideration (Siciliani, Chalkley and Gravelle, 2022[11]). Confirming earlier results on other countries and services, Pitkänen and Linnosmaa (2021[12]) find that patients prefer “high-quality providers within short distances.” Despite the importance of quality, individuals may not be in a position to fully assess the quality of healthcare either before or after they have experienced the service.3 This asymmetry of information between the patient and the healthcare provider has led to a debate on the extent to which a patient can actually make informed choices, based on complete and unbiased information provided by healthcare professionals (Zweifel and Manning, 2000[8]). Some quality dimensions, such as waiting times, are easier to understand than others and impact patient choices (Propper, 2026[13]; OECD, 2018[2]).

2.2.2. Supply-side considerations

As outlined in OECD (2025[5]), the healthcare sector is a complex ecosystem characterised, on the supply side, by a variety of actors, including those that fall in the scope of this policy paper, as follows:

• Primary care providers, such as General Practitioners (GPs) or family doctors;

• Outpatient practitioners or ambulatories that provide specialised medical services;

• Hospitals and clinics;

• Payers, including public health systems and private insurers. Patients may also contribute to expenditure through out-of-pocket payments.

Other market segments, namely pharmaceuticals and medical equipment, are closely intertwined with healthcare services, affecting prices and quality, but fall outside the scope of this paper.

Each of the above market segments can look different in terms of structure and, depending on the health system, the role of public providers may be central. Physicians traditionally practice individually or in small groups, and markets tend to be fragmented, while hospital markets have shown increasing concentration since the 1990s (Gaynor, Ho and Town, 2015[14]). More recently, a wave of consolidation has affected also other market segments, mostly driven by financial actors. The entry of financial actors, such as private equity (PE) funds, in the sector is referred to as financialisation (see Section 2.2.3).

The variables on which medical providers compete crucially depend on the features of the health system. When prices are set by the state,4 providers compete on quality to attract patients (Gaynor, Ho and Town, 2015[14]). To enable medical providers to compete on quality, their workforce is a crucial supply-side factor. Professional qualifications and regulatory frameworks play a key role in shaping this quality, while also needing to balance the risk of unduly restricting the supply of qualified professionals (see Section ‎3.4).5 Hospitals may have limited autonomy in recruiting staff and influencing their pay, which constraints this competitive lever (OECD, 2012[3]). Conversely, in systems where insurers or hospitals have greater autonomy, professionals compete to co-operate with insurers and hospitals or large practices. If selection criteria focus heavily on cost containment, professionals may face distorted incentives, e.g. selecting low-cost treatments even when not suitable or delivering low-quality care.

While providers may compete on quality when prices are set exogenously, they may choose not to compete for certain types of patients. If prices are uniform, medical providers have an incentive to select low-cost patients in the absence of government intervention. Similar mechanisms of adverse selection will also be relevant for health insurers, when the latter can choose low-risk clients (e.g. with a lower probability to need treatment because they do not have prior conditions or because they are younger) in order to minimise the expected cost of covering patients’ treatments. Due to these market failures, governments intervene to promote access to medical services and to health insurance.

Competition takes place in local markets. Proximity is a key consideration in the choice of hospitals, general practitioners (GPs) and family doctors, while renowned specialists or hospitals may attract patients from distant areas (Propper, 2026[13]).6

Finally, insurers build networks of medical providers for their enrolees. Medical providers negotiate with health insurers to be included in their networks as well as the reimbursement rates for treating enrolees. Insurers compete with each other based on premiums they charge to enrolees (or companies, if insurance is provided by employers), the quality of medical providers they contract with and the extent of their provider network (Gaynor, Ho and Town, 2015[14]).7 The potential for anti-competitive behaviour arising from the contracts between insurers and providers is not considered here since it is related to private negotiations rather than the regulatory framework.8

2.2.3. Financialisation trends in medical services

Financialisation is often observed through: (i) increasing investor ownership of provider organisations; (ii) consolidation into corporate chains, sometimes via serial acquisitions of small practices; and (iii) organisational structures that may separate operating entities from management services and/or real estate (Suzuki et al., 2025[15]).9 The trend is especially marked in outpatient care. Evidence from an OECD survey of 20 countries suggests that investor ownership in outpatient care has been rising in about half of responding countries in recent years, and that private equity is frequently reported as among the most active investor types (Suzuki et al., 2025[15]).10

These structural features give rise to incentive distortions, compared with public providers, not-for-profit providers and even other types of for-profit providers. The extent to which profitability objectives affect quality and pricing is an important question for policymakers with implications for the regulatory framework and for competition in the healthcare sector, as shown by the debate about ownership restrictions (see Section ‎3.2.3). It is also relevant for competition authorities, beyond their advocacy role, given that this wave of transactions may lead to significant consolidation in several markets.

A review of empirical studies on private equity (PE) ownership concludes that PE ownership is most consistently associated with higher costs to patients or payers, and mixed to harmful impacts on quality (measured through patient safety indicators, staffing levels, clinical outcomes, and patient experience scores).11 Strategies to increase profits include upcoding of billing (i.e. billing for more complex or costly services than those actually delivered), and selection of more profitable patient profiles, that are confirmed in empirical work (Gondi and Song, 2019[16]). The evidence on quality is more heterogeneous because it depends on the setting and measures used (staffing, safety, patient experience, avoidable hospital use and mortality). Still, several studies raise concerns that some forms of financialisation can be associated with worse staffing or worse patient outcomes, particularly in high-acuity or staffing-sensitive settings (see Annex A below).

2.3. Competition in the healthcare sector

As mentioned in Section 2.1, many OECD countries allow some form of competition, particularly through patient choice of providers and, less frequently, choice of insurers in those health systems that are not based on a public insurer. Before moving to a discussion of regulatory barriers to competition, this section briefly discusses some evidence about the introduction of competition, with a view to supporting competition authorities’ advocacy on the benefits of competition and pro-competitive regulation. It focusses on the impact of competition on quality, integrating evidence included in OECD (2012[3]) and OECD (2018[2]) with more recent evidence and reviews by Siciliani, Chalkley and Gravelle (2022[11]) and Propper (2026[13]).

When providers face prices set by the authorities above cost, providers compete on quality and the evidence shows that competition does deliver better quality. Studies have focussed on hospitals, producing positive results about the impact of competition on the quality of emergency care, while evidence is more mixed for elective procedures. Evidence on competition among primary care practices is scarcer, but it shows that providers facing more competition are driven to improve at least some aspects of service quality such as waiting times. In several countries, reforms introducing greater competition and patient choice were not accompanied by the systematic provision of information on provider quality. As a result, in certain settings it is not clear what impact reforms have had on the quality of care. Moreover, the absence of accessible and comparable quality information limited consumers’ ability to make informed choices, thereby potentially constraining the effectiveness of pro-choice policies.

Introducing competition in healthcare markets does not mean that regulation will be phased out, as regulation will still be needed on several issues such as verifying the quality of providers entering the market and the level of services they provide. To the extent that competition has been introduced in the healthcare sector as an instrument to improve healthcare provision, regulation should not undermine it or restrict it. Section ‎3 will address how to identify regulatory barriers to competition and will discuss areas in which competition authorities could focus their advocacy for pro-competitive regulation.

Patient choice under regulated prices, removing the possibility of price competition, has been implemented in several countries, such as France, Italy, Korea, Norway and the United Kingdom (OECD, 2018[2]). By way of example, patient choice under administered prices became a central element of the National Health Service (NHS) reform in the 2000s in the UK. The reform aimed to make referral decisions more sensitive to differences in hospital quality and, by doing so, to strengthen incentives for providers to improve. The empirical literature that followed confirmed this prediction, both in the UK and in other countries (see Annex B).

Competition between general practitioners (GPs) differs from hospital competition in several respects, with GPs operating in small geographic markets with few competitors. Patient choice can incentivise GPs to compete on quality, but evidence is very limited and seems to point to distance as the main driver of patient choice, as opposed to quality (Siciliani, Chalkley and Gravelle, 2022[11]).

These results should be contrasted with settings where providers compete also on prices, where conclusions are more ambiguous and depend on factors such as whether demand is more responsive to price or to quality, and whether quality is observable (Gaynor, Ho and Town, 2015[14]). There are few countries where prices are set by the market, for instance through negotiations with health insurers, including the Netherlands and the United States. In this case, depending on the relative bargaining powers of the various market players, there may be different levels at which competition takes place and different outcomes for patients. For example, if insurers were to choose doctors based on low prices, this would have the potential of negatively affecting quality.

In addition, the United Kingdom offers a useful example, since it allowed hospitals to compete on both price and quality following a reform from the early 1990s, before moving to a system of administered prices as discussed above. Evidence on UK hospitals in the 1990s point toward adverse quality effects (Gaynor and Town, 2012[17]). Similar conclusions on the negative impact of price competition on quality were reached for the US even though in a very specific setting, that is a change from a regulated system, where price was based on incurred hospital costs, to a system where insurers could negotiate with hospitals to set prices (Volpp et al., 2005[18]).12 In contrast, results from the Netherlands do not show adverse effects of price competition on quality. 13

Notes

← 1.  Some of these policy choices, alongside with several case studies, were discussed in an earlier WP2 paper and roundtable (OECD, 2018[2]).

← 2.  See Figure 5.7, (OECD, 2025[1]).

← 3.  Despite this, there is evidence that prestigious hospitals attract large shares of patients (Prager, 2020[10]), which may however be related to availability of quality information to patients including information that is mandated by regulation.

← 4.  For example, this is the case in single payer systems where the state fully funds basic health coverage and sets prices administratively (see OECD (2018[2]) for the economic rationale for fixed prices in these systems, when there is patient choice but no co-payment by the patient). Prices could also be set for some patients, but not all, as is the case for the rates set by Medicare in the US, which is a government programme for people above 65 years old or people with disabilities.

← 5.  The OECD (2024[34]) has recently surveyed the competition policy considerations when imposing regulatory restrictions on the supply of professional services (including healthcare providers).

← 6.  Identifying the geographic boundaries of hospital markets in an appropriate way has been pivotal in merger control (Varkevisser, Capps and Schut, 2008[114]).

← 7.  Anticompetitive practices can arise in the context of negotiations between medical providers and insurers, such as doctors’ agreements to fix minimum prices charged to insurers or hospitals using their market power to prevent insurers from contracting with lower-cost hospitals or offering enrolees budget-conscious plans.

← 8.  For a recent discussion on anticompetitive practices, see (Sinaiko, 2026[116]).

← 9.  Financialisation trends were also discussed in previous OECD competition policy roundtables, in the Competition Committee roundtable on serial acquisitions and industry roll-ups (OECD, 2023[110]) and in the discussion on competition and regulation in the care industry (OECD, 2024[111]) by WP2.

← 10.  This is consistent with deal-flow data documenting over 8 400 private equity transactions in healthcare across 25 OECD countries between 2013 and 2023, with outpatient clinics representing the dominant investment target (Singh et al., 2026[109]). In the US, the number of private equity-acquired physician practice sites grew more than sevenfold between 2012 and 2021, from 816 sites across 119 metropolitan areas to 5 779 sites across 307 metropolitan areas, with single firms exceeding 30% market share in over 100 specialty markets (Abdelhadi et al., 2024[112]).

← 11.  Much of the evidence base is US-focussed and may have limited international generalisability (Borsa et al., 2023[113]).

← 12.  Under the new system, hospitals competed for patients on both price and quality. The authors found that reforms had a negative effect on mortality for some conditions, but the results may be affected by other changes, beyond the move from set prices to negotiated prices. For example, the reform led to a reduction in subsidies to hospitals for uninsured patients which affected the hospitals’ budgets.

← 13.  In the Netherlands, insurers negotiate with hospitals to set prices and therefore the Dutch market provides another example of a market where hospitals compete on quality and price. Roos et al. (2020[115]) focusses on elective surgery in the Netherlands but does not find evidence of lower quality driven by price competition. Van der Schors et al. (2022[39]) finds evidence that cancer patient survival was higher in hospitals with more competitors within a 30-Km radius, even though the effect was small and other variables, such as patient and treatment characteristics, were more important to explain survival.