Where do internal markets come from and can they work?

The basis for the argument in favour of the internal market as a means of allocating resources within the health care sector has never been made fully explicit. In particular, the link between the economic theory of market allocation and the specific pricing rules adopted by a number of health care sectors to allocate resources is rarely a focus of attention. Health sector objectives are rarely specified. The mechanisms which remedy failure in the exchange process are not explicitly defined. In short, the optimal structural conditions for the operation of internal markets are not known. The central argument pursued here is that, as this is the case, and using the UK as an example, there are no criteria to which purchasers or providers can turn to assess the operation of exchange within the internal market. Not surprisingly, the internal market dissolves into a number of individual bilateral agreements between purchasers and providers which may or may not increase efficiency in allocating health sector resources.     

Implementing quality of programmes in three Swedish county councils: the views of politicians, managers and doctors

This articles deals with quality assurance within the Swedish health care system at the regional and local levels. The overriding issue concerns the degree to which changes in Swedish health care in recent years with respect to increased freedom of choice for the individual, the purchaser-provider split and new forms of financial reimbursement have affected quality assurance. Special attention is directed toward the relationship between the political-administrative level in the county councils and the medical profession at the local level. Since political responsibility for health care is strongly decentralized and different organizational solutions can be found, Sweden offers a good opportunity for systematic comparisons within the health care sector. Following an overview of certain national initiatives with regard to the quality of health care, three Swedish county councils are compared. The aim is not to provide a general overview of the situation in Sweden with regard to quality assurance, but to compare the strategies and outcomes in county councils with different organizational configurations. The study is based on 35 interviews conducted in 1995 with health care politicians, health care administrators, hospital directors and clinical department heads. The article concludes that indirect incentives can be very strong factors in affecting care providers' active interest in quality assurance. This interest is aroused when providers feel they are in competition in that the number of patients decreases, or in that their activities are being called into question, such as in the form of discussions about possible structural changes in the county council.     

Health-care reforms in the Czech Republic

Health-care reform is everywhere. Although different countries are moving at different speeds, using somewhat different means and different routes, they are all trying to arrive at the same place. The place is called "better value for money in health care". Presents details of the health-care reforms taking place in the Czech Republic, identifying and discussing the main strands of Czech reforms: the dissolution of the regional health authorities; the reorientation of district health authorities; the move to a pluralistic semi-competitive insurance-based system; hospitals receiving funding by winning contracts with purchasers; contracts becoming more sophisticated and being based on cost, volume and quality factors; changes in the incentives and rewards for GPs; the drive towards a primary-care-led health-care system; and privatization.     

A missing link? Workforce demand as the link between two health care related markets

Examines the links between workforce demand and two health care related markets, the first being the internal market between purchasers and providers of health care, and the second the market for education expressed between colleges of education as providers and NHS Trusts as purchasers of the courses. Workforce demand has to take account of the numbers of people on courses, but also specialist skills required to enable NHS Trusts to deliver changing health care needs of the future.     

Managed markets in health care: the UK experiment

The reforms to the United Kingdom national health service initiated in 1989 have unlocked established relationships. Health care providers have come under challenge from an alliance of purchasers and general practitioners. This is resulting in a major rationalisation of acute hospital services in cities such as London. The general practitioner fundholding scheme appears to have produced benefits for patients, although its impact in the longer term remains uncertain. The combination of population based and patient focused models of purchasing within the reforms has created competition between purchasers as well as providers. This has served as a stimulus to purchasers to act as effective agents for patients but it also creates a risk of fragmentation. This paper analyses these developments and draws out their implications for the future of the National Health Service.     

The impact of market oriented reforms on choice and information: a case study of cataract surgery in outer London and Stockholm.

In the early 1990s, a set of market-oriented reforms was introduced into health care systems of the UK and Sweden, two exemplary cases of reliance on planned budgeting and integrated provision of services. In the pursuit of increased efficiency, several County Councils in Sweden have followed the public competition model, while in the UK internal market reforms were introduced. It was expected that the separation of functions of planners and purchasers from those of providers, which were to be freely chosen by the former, would achieve higher allocative efficiency but also enhance users' satisfaction with care. This paper uses cataract surgery as a case study to trace the impact of competition among providers on choice and information. Qualitative research methods were employed to record the perception of changes in their type and amount as it was given to both purchasers and patients. A set of open ended and standardised questionnaires was designed to elicit the views of all actors involved and to measure the likely transformations. Four study sites from Outer London were selected representing the diversity of responses, and the only existing large provider of eye services to Stockholm County Council was used. The analysis of the data showed that the quasi-market reforms have resulted in a change of attitude of providers. Some improvements in the amount and type of information given to purchasers and patients could also be detected, although as far as direct users were concerned, the demand has not been fully satisfied. However, the impact on choice available to patients and purchasers alike seemed to be adverse, an effect that was particularly strong in the UK case.     

Financial incentives for disease management programmes and integrated care in German social health insurance

As a result of recent health care reforms sickness funds and health care providers in German social health insurance face increased financial incentives for implementing disease management and integrated care. Sickness funds receive higher payments form the risk adjustment system if they set up certified disease management programmes and induce patients to enrol. If health care providers establish integrated care projects they are able to receive extra-budgetary funding. As a consequence, the number of certified disease management programmes and the number of integrated care contracts is increasing rapidly. However, contracts about disease management programmes between sickness funds and health care providers are highly standardized. The overall share of health care expenses spent on integrated care still is very low. Existing integrated care is mostly initiated by hospitals, is based on only one indication and is not fully integrated. However, opportunity to invest in integrated care may open up innovative processes, which generate considerable productivity gains. What is more, integrated care may serve as gateway for the introduction of more widespread selective contracting.     

The role of outputs and outcomes in purchaser accountability: reflecting on New Zealand experiences

Recent reforms in a number of countries' health systems have led to the separation of funder, purchaser and provider roles and the strengthening of funders' and purchasers' positions relative to providers. One of the aims of such reforms is to improve accountability. This paper reports on experiences in New Zealand where, in addition to improving the accountability of providers, purchaser accountability has also been a key policy issue. Attempts have been made in New Zealand to develop a funder-purchaser accountability framework based on a mix of outcomes, outputs and inputs. This paper discusses the roles that each might play in contracts and accountability relationships between funders and purchasers. The paper concludes that holding purchasers accountable for outcomes is likely to prove difficult and controversial, because of problems of attribution and because New Zealand funders in recent years have played an important role in determining the priority outputs and inputs which must be purchased. The paper suggests that accountability is more appropriate at the output and process level, in addition to holding purchasers accountable for the ways in which they make decisions and undertake contracting roles. Holding purchasers accountable for purchasing outputs and processes, however, requires greater commitment on the part of the funder to setting priorities more clearly; specifying the range and level of outputs to be purchased and the terms of access to those services; and funding services to this level. The international attention currently being paid to the development of practice guidelines and priority criteria also suggests that holding purchasers accountable for a form of inputs may become an increasingly common practice in future. From 1 July 1998, New Zealand will introduce a priority criteria system for determining access to elective surgery; accountability is thus becoming focused on inputs in the form of patient characteristics. This approach will greatly assist in promoting accountability.     

Swedish physicians' perspectives on the introduction of the Stockholm model

Reports findings on the perspectives of Swedish physicians since the introduction of the Stockholm model. Subjects were asked to describe their work, how long they had been working and whether they were familiar with the Stockholm model. Questions also focused on professional autonomy, use of diagnostic related groups (DRGs), quality of care and competition among health-care providers. Most of the physicians interviewed reported that the Stockholm model had the advantage of increasing efficiency and productivity, that economic incentives influenced their medical decisions, and medical treatment appears more patient-focused than before. Finally, primary care physicians report an enhanced status within the medical profession.     

Choice of primary care provider: results from a population survey in three Swedish counties

Recent reforms in Swedish primary care have involved choice of provider for the population combined with freedom of establishment and privatisation of providers. This study focus to what extent individuals feel they have exercised a choice of provider, why they exercise choice and where they search for information, based on a population survey in three Swedish counties. The design of the study enabled for studying behaviour with respect to differences in time since introduction of the reform and differences in number of alternative providers and establishments of new providers in connection with the reform. About 60% of the population in the three counties felt that they had made a choice of provider in connection with or after the introduction of a reform focusing on choice and privatisation. Establishments of new providers and having enough information increased the likelihood whereas preferences for direct access to a specialist decreased the likelihood of making a choice. The data further suggests that individuals were rather passive in their search for information and tended to choose providers that they previously had been in contact with. This is in line with results from previous studies and poses challenges for county councils governance of reforms.     

Contracts and purchaser-provider relationships in community care

This paper considers the incentives embodied in contracts between purchasers and providers of residential care for frail elderly people. The paper begins with an assessment of current contractual arrangements. A theoretical inquiry generates propositions that some contracts create incentives for providers to misrepresent users' characteristics. These propositions are found to be supported by sample data. The paper then turns to a theoretical consideration of optimal governance structures and, in particular, the use of incentive contracts. These contracts, it is claimed, may go some way to curbing cost-exaggerating behaviour without providing strong incentives to cream-skim or shirk on quality.     

Vertical integration and optimal reimbursement policy

Health care providers may vertically integrate not only to facilitate coordination of care, but also for strategic reasons that may not be in patients’ best interests. Optimal Medicare reimbursement policy depends upon the extent to which each of these explanations is correct. To investigate, we compare the consequences of the 1997 adoption of prospective payment for skilled nursing facilities (SNF PPS) in geographic areas with high versus low levels of hospital/SNF integration. We find that SNF PPS decreased spending more in high integration areas, with no measurable consequences for patient health outcomes. Our findings suggest that integrated providers should face higher-powered reimbursement incentives, i.e., less cost-sharing. More generally, we conclude that purchasers of health services (and other services subject to agency problems) should consider the organizational form of their suppliers when choosing a reimbursement mechanism.     

New labour and reform of the English NHS: user views and attitudes

Background The British National Health Service has undergone significant restructuring in recent years. In England this has taken a distinctive direction where the New Labour Government has embraced and intensified the influence of market principles towards its vision of a ‘modernized’ NHS. This has entailed the introduction of competition and incentives for providers of NHS care and the expansion of choice for patients. Objectives To explore how users of the NHS perceive and respond to the market reforms being implemented within the NHS. In addition, to examine the normative values held by NHS users in relation to welfare provision in the UK. Design and setting Qualitative interviews using a quota sample of 48 recent NHS users in South East England recruited from three local health economies. Results Some NHS users are exhibiting an ambivalent or anxious response to aspects of market reform such as patient choice, the use of targets and markets and the increasing presence of the private sector within the state healthcare sector. This has resulted in a sense that current reforms, are distracting or preventing NHS staff from delivering quality of care and fail to embody the relationships of care that are felt to sustain the NHS as a progressive public institution. Conclusion The best way of delivering such values for patients is perceived to involve empowering frontline staffs who are deemed to embody the same values as service users, thus problematizing the current assumptions of reform frameworks that market‐style incentives will necessarily gain public consent and support.     

Much ado about nothing? The financial impact of physician-owned specialty hospitals

The U.S. hospital industry has recently witnessed a number of policy changes aimed at aligning hospital payments to costs and these can be traced to significant concerns regarding selection of profitable patients and procedures by physician-owned specialty hospitals. The policy responses to specialty hospitals have alternated between payment system reforms and outright moratoriums on hospital operations including one in the recently enacted Affordable Care Act. A key issue is whether physician-owned specialty hospitals pose financial strain on the larger group of general hospitals through cream-skimming of profitable patients, yet there is no study that conducts a systematic analysis relating such selection behavior by physician-owners to financial impacts within hospital markets. The current paper takes into account heterogeneity in specialty hospital behavior and finds some evidence of their adverse impact on profit margins of competitor hospitals, especially for-profit hospitals. There is also some evidence of hospital consolidation in response to competitive pressures by specialty hospitals. Overall, these findings underline the importance of the payment reforms aimed at correcting distortions in the reimbursement system that generate incentives for risk-selection among providers groups. The identification techniques will also inform empirical analysis on future data testing the efficacy of these payment reforms.     

Forecasting the impact of demographic change: the case of the British National Health Service

By projecting trends over the period 1971-85 in discharge rates and lengths of stay in acute and geriatric National Health Service hospitals in England, it is estimated that by 1995 the discharge rate will have risen by 13% and average lengths of stay will have fallen by 26%. Combining these projections with current population projections for England, it is estimated that 13% fewer beds will be in daily use. These changes are shown to vary widely across specialties. The projections reveal that demographic change per se is a less important source of change than are changing activity rates. The 'trend' projections suggest that purchasers and providers within internal markets will have to take account of very different degrees of pressure between specialties. They can provide information which is essential for negotiations about local needs and local contracts.     

NHS contracts: An agency approach

The White Paper Working for Patients has produced dramatic changes in the organization of health care in the UK that will soon be followed by analogous reforms in other countries. The core of the reform is represented by the separation of the responsibility for purchasing health care from providing the services. The creation of this internal market is said to enhance efficiency, but some peculiar characteristics of health care prevent a Pareto optimal solution being reached. This paper describes the purchaser-provider relationship using an innovative principal agent model to assess the relative merits of the different forms of contracts. The model is also used to show how competition among providers allows the purchaser to extract this private information. From a theoretical point of view, the approach is innovative in the formulation of the principal's objective function; the interesting finding is that the presence of a stringent budget constraint alters both the risk-sharing conditions and the First-best contract proposed by the literature. From a policy point of view, the paper explains why in the first wave over 75% of contracts between purchasers and providers were block contracts. It is also demonstrated why this contractual form should be avoided.     

Health and efficiency

Measuring efficiency is essential but purchasers and providers should treat the perverse incentives of the efficiency index with caution, warn John Appleby and Val Little.     

The quality of health purchasing

Much has been written about quality in patient care and clinical support services, but very little about the quality of purchasing. This paper gives an overview of quality issues in purchasing, and offers guidelines and practical steps for purchasers to improve service quality--both their own and their providers'. It defines quality in purchasing and considers how purchasers can influence markets and work with providers to improve health services quality. The paper gives practical guidance for improving quality, which recognises the limited resources and skills which purchasers have for the task. It addresses some issues raised by purchaser/managers: How does a purchasing organisation measure and improve quality? Is there a better way of specifying and monitoring quality than the "shopping-list of standards" approach--what should be asked of providers? How can information about clinical quality, outcome and costs, be obtained in a form in which reliable comparisons can be made? Is quality accreditation or registration a good predictor of future quality?     

The NHS internal market: economic aspects of its medium-term development

With the re-election of the Conservative Party in the United Kingdom in April 1992, it is now likely that the major reforms of its National Health Service as outlined in the 1989 White Paper--Working for Patients--and embodied in the 1990 National Health Service and Community Care Act will be implemented to completion. This article examines the reforms as a re-structuring of incentives facing agencies within the internal market for health care, and forecasts how agency behaviour is likely to change as a result of such re-structuring. Medium-term implications of the reforms for hospitals, general practitioners and patients are derived. A number of problems in the continued development of the internal market are anticipated.