Rethinking the Welfare State: The prospects for ... - e-Library

Health care 105
general practitioner from the NHS list (and by medical malpractice laws and professional
self-regulation). Because the system was designed such that the money follows the
patients, and patients are unlikely to choose doctors with reputations for poor service, the
doctors would have an incentive to run their practices competitively but in a manner
attentive to patients. With respect to the provision of secondary care, hospitals and other
institutions, which must compete amongst each other for contracts with local health
authorities, would face greater incentives to reduce costs and enhance service quality.
Because decisions regarding resource allocation are made by purchasers who maintain a
closer eye on costs rather than by providers with incentives to maximize costs, the system
ought to be more allocatively efficient than the Canadian model.
Despite the careful engineering of the reforms, however, the NHS continues to
demonstrate shortcomings that have severely limited the realization of the above benefits.
Perhaps the most significant of these is the failure of real competition to materialize
among health care providers. One reason for this failure is the restricted capacity for
meaningful competition given the limited number of hospitals in many localities. 49
Another are the high transaction costs associated with writing, executing, and enforcing
contracts in the health care context and the significant capital costs that act as a barrier to
entry in much of the acute care sector. 50 A final impediment to the emergence of effective
competition is the persistence of relationships between many purchasers and providers
that predate the internal market reforms. The purchasers and providers who make up the
new market were created by the division of established entities and thus it is far easier
from an administrative perspective for them to perpetuate established patterns of
activity. 51 In fact, the NHS initially promoted this behaviour by permitting the use of
simple block contracts between purchasers and providers as a means of facilitating a
smoother transition to the contracting mode with the objective of increasing the degree of
specificity of contracts and the degree of performance monitoring over time.
Unfortunately, once the requirement was implemented that DHAs move to greater use of
more speciflc “cost and volume” contracts, prescribing the number of treatments to be
provided for a given price, in practice block contracts continued to be used albeit in a
more sophisticated manner. 52
A further problem that stems directly from the persistence of block contracts is the
continued reliance of the NHS on bureaucratic decision-making. While much of the
emphasis of Thatcher’s Working for Patients was on making the NHS “more responsive
to the needs of the patient,” in fact hospital services have stopped well short of allowing
consumer demand to drive supply. 53 There are at least two problems with such an
arrangement. First, it remains unclear what incentives local authorities have to make
prudent purchasing decisions that are in the best interests of the patients they serve.
Second, local authorities making large-scale purchasing decisions are unable to be
responsive to idiosyncratic service requirements of individual consumers. Finally, block
contracts also create an incentive for purchasers to pass any blame for inadequate
performance on to providers. 54 Because fixed sums of money are paid to providers for
unpredictable quantities of services, purchasers essentially retain their power of control
while shedding their responsibility That is, purchasers remain responsible for stipulating
the services to be provided yet not for the direct provision of those services. As such, they
can set unreasonable goals for providers and then suggest that any shortfalls that arise are
the fault of the provider. It should be noted that in the absence of sophisticated