Purchaser-provider Split Research Articles

Privatization and the Effectiveness of Monitoring Agencies

The privatization literature depicts the choice whether to contract out as a tradeoff between excessive private investment in quality-reducing cost saving and inadequate public investment in cost-increasing quality improvement, under circumstances where neither the amount of investment nor the cost or quality outcomes are contractible. This paper shows that a monitoring regime, which can verify the benefit of the service at a cost, can bring the investment levels of the private contractor closer to the optimum, while it may not be able to improve the performance of the public sector. Monitors can be captured, and the possibility of capture may decrease social welfare. Social welfare losses due to the possibility of capture may be greater in the case of public provision: The agencies that decide whether to privatize and the agencies that monitor service providers are often identical to, or closely related with, the agencies that actually provide the service if it is kept in-house. Therefore, privatization decisionmakers and monitoring agencies may be more prone to capture when the service is public. Therefore, efficiency may counsel in favor of a purchaser-provider split and a monitor-provider split.

Sixty years of reform in the Portuguese health system: what is the situation with regard to decentralisation?

The authors review 60 years of health care reform in Portugal. The major reforms emerged after the 1974 revolution. The initial period, up to the 1ate 1980s, was a period of development of a very centralised national health service. From the 1990s onwards, concerns with decentralisation were reflected in a number of initiatives: the emergence of regional health authorities; internal health markets and contracting agencies; the purchaser-provider split; entrepreneurial management experiences; local services; vertical (local) integration; and regionalised networks of facilities. These efforts have ensured that health policy, including fiscal matters, remains centrally controlled, while service delivery has increasingly undergone decentralisation, mostly of two types: devolution and deconcentration. Privatisation has also experimented with but has led to recentralisation. Therefore, in Portugal, the search for a decentralised model has involved an ongoing re-balancing of national and sub-national decisionmaking roles. It is not expected that Portugal will see a major decentralisation drive in the near future.

Why Some Market Reforms Lack Legitimacy in Health Care

Market-oriented health policy reforms in the 1980s and 1990s generally included five kinds of proposals: increased cost sharing for patients through user fees, the separation of purchaser-provider functions, management reforms of hospitals, provider competition, and vouchers for purchasing health insurance. These policies are partly derived from agency theory and a model of managed competition in health insurance. The essay reviews the course of reform in five countries that had a national health service model in place in the late 1980s: Italy, New Zealand, Spain, Sweden, and the United Kingdom. Special consideration is given to New Zealand, where the market model was extensively adopted but short lived. In New Zealand, surveys and polls are compared to archival records of reformers' deliberations. Voters saw health care differently from elites, and voters particularly felt that health care was ill suited to commercialization. There are similarities across all five countries in what has been adopted and rejected. Some market reforms are more legitimate than others. Reforms based on resolving principal-agent problems, including purchaser-provider splits and managerial reforms, have been more successful, although cost sharing has not. Competition-based reforms in financing and to a lesser extent in provision have not gained legitimacy. Most voters in these countries see health care as different from other parts of the economy and view managerial reforms differently from policies that try to make health care more like other sectors.

The Interplay between Economic and Political Logics: Path Dependency in Health Care in England

The purpose of this article is to use the ideas of path dependency to understand why policies implemented by governments for health care in England were and are suboptimal in terms of the control of total costs, the equitable distribution of hospital services, and efficiency in delivery. We do this by relating the economic logic of achieving these objectives to the political logic of a state-hierarchical system in which ministers are accountable for the effects of policies and doctors largely decide the supply and demand of health care. The initial policy path of the National Health Service (NHS) controlled costs but lacked systems to achieve equity and efficiency in the funding of hospitals. Policies were introduced to achieve equity, but not efficiency, in the 1970s. The Thatcher government sought efficiency through a budgetary squeeze in the 1980s, which culminated in the NHS funding crisis of 1987 - 1988. The result was the policies of the NHS internal market, which promised efficiency by introducing a purchaser-provider split and a system of provider competition in which money would follow the patient. These promises justified an injection of extra funds for three years, but only a pallid model of the internal market was implemented. The Blair government abandoned the rhetoric of competition but maintained the purchaser-provider split and continued to constrain total NHS costs, which resulted in the funding crisis of 1998 - 1999. Current policies are to substantially increase spending on health care and reintroduce a system of provider competition in which money will follow the patient.

Swedish healthcare under pressure

Swedish health care, run by local governments at both the regional (county) and the municipal levels, has been under pressure during the last 15 years, following increased scrutiny of performance and demand for cost-containment. Health-care expenditures per capita and levels of resource inputs have grown, but more slowly than in other EU countries. At the same time, the number of elderly people has increased, as have options for medical treatment. In the late 1980s, several local governments referred to long waiting-lists for elective treatment and anecdotal evidence of inefficiency and poor responsiveness when arguing for market-oriented reforms. A purchaser-provider split followed, and so did changes in the payment systems for health-care providers. According to the available evidence, these reforms yielded an increased volume of services in the short run; but traditional hierarchical management soon replaced the new incentives. Moreover, evidence suggests that changes introduced by the national government, and the deteriorating funding conditions together with a continued use of new medical technology, have had more far-reaching effects on health-care output and outcome than local-government reforms.

The Purchaser‐provider Split in Principle and Practice: Experiences from Sweden

In the public sector, market‐inspired organisation, control and accounting, along with business‐like relationships between organisational units, usually goes under the name of New Public Management (NPM). One organisational form associated with NPM is the purchaser‐provider split. The model was first used in Sweden by county councils at the end of the 1980s. It was considered to be an effective and democratic method for managing Swedish health care. Over the past few years, researchers in many countries have begun doubting the model's suitability and whether it has really been used in the way that was intended. However, the model is still popular in the Swedish health care sector. This article presents the effects of the purchaser‐provider split found in Swedish studies. These effects are compared to the anticipated effects when the model was launched, and the effects of the purchaser‐provider split in Britain. The aim of this article is to explore the effects of the purchaser‐provider split in practice.

Contracting for health services in a public health system: the New Zealand experience

This paper reports on the process and outcomes of contracting for health services in New Zealand between 1993 and 2000 when a purchaser–provider split was in place. Key factors that shaped the contracting environment were the legal framework, funding constraints, and the cultural and professional norms of contracting personnel. A lack of good information—especially on costs, volumes and quality—increased the costs of contracting and made monitoring and accountability difficult. Over time, however, the contracting process became simpler and less costly. Overall, the introduction of contracting generally improved the focus of providers on costs and volumes; led to greater clarity through specification of services; encouraged providers to focus on methods to improve quality; and enabled new styles of service provision from providers that had not traditionally received public funds for health services. Good relationships between purchasers and providers were seen as the key to successful contracting.

Public Intervention in Health Insurance Markets: Theory and Four Examples from Latin America

This article examines rationales for public intervention in health insurance markets from the perspective of public economics. It draws on the literature of organizational design to examine alternative public intervention strategies, including issues of contracting, purchaser provider splits, and regulation of competition. Health insurance reforms in four Latin American countries are then considered in light of the insights provided by the theoretical literature.

New funding arrangements in the Italian National Health Service.

In the 1990s, the Italian National Health Service (INHS) experienced a major reform introducing regionalization, quasi-markets and managerialism. The combination of quasi-markets and regionalization has produced an interesting scenario: 21 Regional Governments designing their own organizational and funding models to achieve the desired combination of equity, efficiency, freedom of choice and cost containment. This paper reports the results of a research project carried out in 1998-99 to identify such models, verify their actual states of implementation and analyse the resulting incentives for individual health-care organizations. Overall, most Regions have designed their models according to the 'LHU-centred' template, under which most public hospitals remain under Local Health Unit (LHU) control, LHUs are funded by their Regions on a capitation basis and each LHU is expected to reimburse other LHUs, Independent INHS Hospitals (IHs) and accredited private providers for services supplied to its residents. Reimbursements are activity-based according to Regional fee schedules. The major exception is Lombardy, Italy's largest and wealthiest Region, which has formally opted for the 'purchaser-provider split' template, with LHUs acting mostly as purchasers while IHs and accredited private professionals and organizations act as providers. In practice, however, many Regions still show significant features of the traditional cost-reimbursement system.

Bureaucratic chaos?

The Opposition appears to be so incompetent that the proliferation of bureaucracy in the NHS seems to go unnoticed. Whilst the Scots are going for the abolition of the purchaser-provider split, the English are going for duplication of purchasers (health authorities and primary care trusts) as well as acute trusts and workforce groups: the latter may be a rest home for exhausted managers!

Does it matter who owns health facilities?

The rhetoric of governments 'steering not rowing' and of purchaser-provider splits is still part of the language of public sector reform throughout the world, despite some retreat in the National Health Service in the UK. Implementation of separation of purchaser and provider roles has often been associated with suggestions that the private sector is better able to manage hospitals. The evidence for this assertion is mixed, especially when possible quality differences are also considered. This essay suggests that the ownership question is a second-order issue and that policy-makers should ensure that existing public hospitals are funded in a way that encourages efficiency.

Welfare for those who can? The impact of the quasi-market on the lives of people with learning difficulties

This article, drawing on the research findings from the ESRC-funded project ‘The Meaning of the Learning Society for Adults with Learning Difficulties’ explores how the introduction of the 1990 NHS and Community Care Act, with its emphasis on the establishment of a ‘mixed economy’ in social care, has affected the lives of people with learning difficulties living in a rural area of Scotland. The impact of the quasi-market, in particular the purchaser–provider split and the operation of contracts, on the lives of three adults with learning difficulties is examined.

New Labour and the enabling state.

The notion of the 'enabling state' gained currency in the UK during the 1990s as an alternative to the 'providing' or the welfare state. It reflected the process of contracting out in the NHS and compulsory competitive tendering (CCT) in local government during the 1980s, but was also associated with developments during the 1990s in health, social care and education in particular. The creation of an internal market in the NHS and the associated purchaser-provider split appeared to transfer 'ownership' of services increasingly to the providers - hospitals, General Practitioners (GPs) and schools. The mixed economy of care that was stimulated by the 1990 NHS and Community Care Act appeared to offer local authorities the opportunity to enable non state providers to offer care services in the community. The new service charters were part of the enablement process because they offered users more opportunity to influence provision. This article examines how far service providers were enabled and assesses the extent to which new Labour's policies enhance or reject the 'enabling state' in favour of more direct provision.

Beyond New Zealand's Dual Health Reforms

The New Zealand health system was substantially reformed in 1993 with the introduction of a purchaser–provider split, competitive contracting and managerialism. The new system failed to deliver the desired gains and, in 1996, the reforms were “reformed”. While there has been widespread study of the 1993 reforms, there has been little discussion to date of the 1996 changes and the emerging directions for New Zealand health policy and service delivery, which remain unclear. This paper discusses the New Zealand health reforms of the 1990s. It briefly outlines the 1993 reforms and their results. Next, it details the 1996 “reforms”. Third, it discusses developments since 1996, some of which have emerged out of the 1993 reforms, but which have gathered momentum only since the 1996 changes were announced. In the conclusion, the paper lists some of the directions in which the New Zealand health sector appears to be heading, noting that there is a need for coordination of the sector, and for permanence.

The Purchaser—Provider Split: Theory and UK Evidence

In this paper the authors focus on the purchaser—provider split within UK local government, They assess whether that split has had the effects predicted by the theory, especially in terms of diverting the purchaser's attention away from service production per se and more towards assessing and meeting the needs of service users. This implies a shift of attention from inputs and processes to outputs and outcomes. In making that assessment, the authors review other research and present the results of their own survey of all British local governments. They conclude that, if anything, the purchaser—provider split has increased the amount of attention paid to inputs and processes and has done little to focus attention on outputs and even less in respect of outcomes. Although this evidence is by no means conclusive, it does serve to qualify earlier research results that found improvements in outcomes for some services as a result of contracting.

A partial solution: a local mental health authority for the UK.

BACKGROUND: the structural problems of the mental health system in the UK have been analyzed by a number of authors over the past several years as the "reforms" of the health and social service systems have continued (Kavanagh and Knapp, 1995; Mechanic, 1995). In a recent article, Hadley and Goldman (1995) suggest that one possible solution to some of these issues may be the creation of a local mental health authority. Such an authority would consolidate the funding, authority and responsibility in a single entity. We believe this model, which is typical of many local public mental health systems in the US, is at least part of the solution to the current problem of financial and service fragmentation of the current system in the UK. The numerous "reforms" of the health and social service systems (which include the Community Care Act, the development of the Internal Market, GP fundholding and the purchaser-provider split) were not designed for the care of the mentally ill (Han, 1996). These policy changes in the design of health and social services have created a complicated and difficult context in which services must be delivered. Too many agencies play a significant role in the delivery and management of mental health services. Health authorities, social service agencies and GP fundholders are direct and indirect funders of the system while community care trusts, social service agencies and GPs are service providers (Hadley, 1996a). RESULTS AND A PROPOSAL: We believe that the development of local mental health authorities may be part of the solution to the structural and economic problems of the current system in the UK. It is not the answer to limited resources or limited skills, but can create a new structure, which will permit and encourage the cooperation and innovation that is now possible only with unusual effort. Local mental health authorities have a number of crucial characteristics, but, most importantly, they refocus the system on the provision of care to the seriously mentally ill. This is the expressed priority of government, advocates and providers, alike.These new entities could be created at either the purchaser or provider level or, as exists in a number of jurisdictions in the US, at both levels, where a single purchaser may be responsible for multiple consolidated providers. This combination is now the emerging model for innovative services in the US. In the UK, the development of a local mental health authority at the purchaser and/or provider level might be relatively simple. Although the creation of a statutory authority would require primary legislation and is therefore probably not a short-term solution, there appears to be a variety of administrative options that would have the same effect. IMPLICATIONS FOR HEALTH POLICY FORMULATION: The creation of a local mental health authority may be a necessary first step towards the development of a coordinated and comprehensive system of care. It seems likely that there is currently more "political" support for the development of a purchaser model but the development of a sophisticated purchsaer is also likely to take considerable time and effort. Although all the structural and policy problems of the mental health system in the UK will not all be solved by local mental health authorities, they may be beneficial if responsibility for mental illness care is to be centralized and fragmentation is to be reduced. Without making structural changes, the best efforts by clinicians, policymakers and managers are most likely to be in vain. Without a clear point of ultimate purchasing and service responsibility, the fragmentation and inefficiency of the current system will remain (Hadley et al., 1996).

Devolved budgeting, formula funding and equity

A key part of the New Public Sector in the U.K. has been an increased use of delegated budgeting in health and education. Initiatives such as the Local Management of Schools, GP-Fundholders and the Purchaser–Provider split in the National Health Service have required resources and associated budgets to be allocated down to smaller, more local, entities than previously, on the basis of an explicit funding formula. This article examines the relative merits of such a system of devolved budgeting and formula funding compared to other possible approaches to public sector budgeting, from the viewpoint of the extent to which these different approaches are likely to promote equityin the funding of public services to disadvantaged groups. The article illustrates the issues involved by reference both to U.K. experience and to the impact that healthcare funding formulae have on one particularly disadvantaged group in an otherwise advanced economy, namely the Aboriginal population of the Northern Territory of Australia.

The Future Organization of Community Health Councils

This paper examines the ways in which Community Health Councils (CHCs) might organize themselves in the light of the changes arising out of the purchaser–provider split. These changes have meant that they are only one among several agencies claiming to represent the interests of the user, with most fundamentally the Health Authorities themselves being entrusted with the duty of championing the people. Other means of consulting the public, which bypass the CHCs altogether, are also becoming increasingly popular. Taking as its starting‐point EL(95)142, “Guidance on the changes in establishing arrangements”, this paper looks at practical ways in which CHCs might best organize themselves to face the future. It does this by considering, in turn, membership issues, staffing, resources and accommodation, and the roles and relationships of CHCs with regard to other agencies. It also, more radically, considers their continued viability and relevance in the context of other means of tapping into or representing the public's views in the NHS of the future.

The Privatisation of the Property Services Agency: Risk and Vulnerability in Contract-Related Fraud and Corruption

The Property Services Agency was a ‘hived-off’ government organisation responsible for the design, building, renting and maintenance of government property and associated facilities. Its expenditure, and delivery of its functions, were criticised for fraud, waste and inefficiency while it was involved in a number of cases of contract-related fraud and corruption. As the Property Services Agency began to deal with the latter concerns, the government was making it a prime candidate for a purchaser-provider split in relation to funding, the divestment of a number of functions to other agencies and to its client departments, and the introduction of competition in the provision of its services. Finally the Property Services Agency became a candidate for privatisation as its contracting functions were fully transferred to government departments. The responsibilities for combatting corruption and fraud, however, have also been dispersed, leaving HM Treasury to report its concerns over the threat such an area of risk area poses for government departments who have wanted the responsibility for the Agency's functions but, without the awareness, expertise and economies of scale to respond effectively, may be vulnerable to contract-related fraud and corruption. The functions of the Agency, its privatisation, and the implications for dealing with contract-related fraud and corruption provide a case-study in the relationship between different forms of organisation and ownership of the operational and purchasing functions of government, and the ability of governments to control corruption and fraud in public contracting.

Analysing the medicine-management interface in acute trusts.

The impact of the NHS reforms, and the resulting purchaser-provider split, has refocused attention on the relationship between management and medicine in acute hospitals. It is timely to assess the explanatory power of various theoretical models regarding the management-medicine interface. Argues that this interface is currently rather fluid and that a dynamic and adaptive model is best suited to understanding the way in which doctors and managers develop their relationship within the changing policy context. Two examples illustrate these shifting boundaries.