The NHS must embrace value-based competition if it is to meet the future needs of the public it serves, Health Secretary Andrew Lansley said yesterday.

Under the government’s plans to modernise the NHS, providers which deliver excellence will benefit from more patients choosing their service, while those that do not will have a strong incentive to change and improve, he said, speaking at a conference hosted by Monitor, the future economic regulator, and UCL Partners.

But competition must be based on the quality of results for patients and not cost alone, the Health Secretary told delegates.

“Our plans to modernise the NHS will finally bring the power of competition to healthcare. Not a free-for-all race to the bottom, but a race for quality, for excellence and for efficiency,” he said.

“We will change the default in the health service decision-making, so that it is GPs - the people who see patients every day - and their clinical colleagues across the NHS, social care and local government, who decide what and how services are provides. This is about giving patients and commissioners real choice for the first time,” he added.

Mr Lansley went on to respond to claims that competition leads to variation and divergence across the country. In fact, he said, despite best efforts, variation already exists.

“The difference will be that future variation will be because local communities have chosen that variation. It will be the very opposite of the postcode lottery,” he told the conference.

“Because of the nature of competition, some providers will perform better than others, but that does not mean that people will receive worse care than they do now. In fact, the evidence is that where there is effective competition, all producers are driven to raise their game, so that even those providers that are less successful improve, and that those served by them also receive a better service,” said Mr Lansley.

The government’s Health and Social Care Bill, published last week, sets out the four main roles which Monitor will take on in future - licensing providers, supporting service continuity, price setting and promoting competition. Price competition will be allowed only where it is deemed appropriate and where it will not harm quality of service, says the government.

"In Monitor’s view, introducing more competition into healthcare is an important step in raising the productivity of the sector and delivering ever higher quality care for patients,” said the agency’s interim chief executive, Dr David Bennett, welcoming the government’s proposals last week.

However, he added: “competition must be seen as a means and not an end in itself.  We do not support competition for its own sake, but as a way to drive innovation, quality and efficiency.  It has delivered significant benefits in other sectors and has been shown to improve quality within healthcare and other sectors under the right circumstances.”

Monitor particularly welcomes the government’s plan for it to become the economic regulator for health and adult social care in England, he said. “We believe it is right to have an economic regulator which is independent of political influence, can build specialist skills and is transparent in the way it sets prices, promotes competition and deals with failure, both of markets and of institutions,” said Mr Bennett.