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A Reader in Health Policy and Management

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A Reader in Health
Policy and
Management
Edited by Ann Mahon, Kieran Walshe and
Naomi Chambers

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Open University Press

McGraw-Hill Education
McGraw-Hill House
Shoppenhangers Road
Maidenhead
Berkshire
England
SL6 2QL

email: [email protected]
world wide web: www.openup.co.uk

and Two Penn Plaza, New York, NY 101212289, USA

First published 2009

Copyright Ann Mahon, Kieran Walshe and Naomi Chambers 2009

All rights reserved. Except for the quotation of short passages for the purpose of criticism
and review, no part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the prior written permission of the publisher or a licence
from the Copyright Licensing Agency Limited. Details of such licences (for reprographic
reproduction) may be obtained from the Copyright Licensing Agency Ltd of Saffron
House, 610 Kirby Street, London, EC1N 8TS.

A catalogue record of this book is available from the British Library

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Printed and bound in the UK by Bell and Bain Ltd, Glasgow

Fictitious names of companies, products, people, characters and/or data that may be used
herein (in case studies or in examples) are not intended to represent any real individual,
company, product or event.

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Contents

Publishers acknowledgements viii

Introduction: Ann Mahon, Kieran Walshe and Naomi Chambers xii

Part 1: The role of the state in healthcare Ann Mahon 1

1 Social insurance and allied services (Beveridge, 1942) 6

2 The new politics of the NHS (Klein, 2006) 8
3 The social transformation of American medicine: the rise of a
sovereign profession and the making of a vast industry (Starr, 1982) 14
4 Securing our future: taking a long-term view (Wanless, 2002) 20

Part 2: The policy-making process Naomi Chambers 28

5 Street-level bureaucracy and the analysis of urban reform (Lipsky, 1971) 33

6 Why Britain is reorganizing its health service yet again (Klein, 1998) 42
7 Designing health service organization in the UK, 1968 to 1998: from
blueprint to bright idea and manipulated emergence (Harrison and
Wood, 1999) 47
8 The interplay between economic and political logics: path dependency
in health care in England (Bevan and Robinson, 2005) 57

Part 3: The allocation and distribution of resources Kieran Walshe 68

9 Equity and equality in health and healthcare (Culyer and Wagstaff, 1993) 73
10 Resource allocation to health authorities: the quest for an equitable
formula in Britain and Sweden (Diderichsen, Varde and Whitehead, 1997) 84
11 Economics, QALYs and medical ethics: a health economists
perspective (Williams, 1995) 95

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vi

12 The development of health technology assessment (Banta, 2003) 102

13 Explicit and implicit rationing: taking responsibility and avoiding
blame for health care choices (Ham and Coulter, 2001) 108

Part 4: Markets and choice in healthcare Naomi Chambers 119

14 Reflections on the management of the National Health Service:

an American looks at incentives to efficiency in health services
management in the UK (Enthoven, 1985) 124
15 Links between governance, incentives and outcomes: a review of
the literature (NCCSDO) (Davies, 2005) 127
16 The gift relationship: from human blood to
social policy (Titmuss, 1970) 139
17 Patient choice and patient empowerment in northern European
health systems: a conceptual framework (Saltman, 1994) 144
18 Giving consumers of British public services more choice: what can
be learned from recent history? (Perri 6, 2003) 157

Part 5: Accountability and regulation Kieran Walshe 169

19 The Audit Society: second thoughts (Power, 2000) 174

20 Regulation of government: has it increased, is it increasing, should
it be diminished? (Hood, James and Scott, 2000) 186
21 External assessment of health care (Shaw, 2001) 196
22 The role of regulation in quality improvement (Brennan, 1998) 205
23 Social regulation of healthcare organizations in the USA: developing
a framework for evaluation (Walshe and Shortell, 2003) 213
24 What is measured is what matters: targets and gaming in the
English public health care system (Bevan and Hood, 2006) 229

Part 6: Quality and safety Kieran Walshe 244

25 The quality of care: how can it be assessed? (Donabedian, 1988) 249

26 Continuous improvement as an ideal in health care (Berwick, 1989) 260
27 A primer on leading the improvement of systems (Berwick, 1996) 268
28 Error in medicine (Leape, 1994) 279
29 Evaluation of quality improvement programmes (vretveit and
Gustafson, 2002) 296

Part 7: General management and governance Naomi Chambers 311

30 Report of the NHS management enquiry (Griffiths, 1983) 316

31 Shaping strategic change (Pettigrew, Ferlie and McKee, 1992) 322

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CONTENTS vii

32 The fish rots from the head (Garratt, 1997) 331

33 The governance of public and non-profit organisations (Cornforth, 2003) 336
34 Why do we keep on meeting like this? The board as ritual in health
and social care (Peck, Perry, Gulliver and Towell, 2004) 340

Part 8: Evidence-based policy and management Kieran Walshe 347

35 Effectiveness and efficiency: random reflections on health services

(Cochrane, 1972) 352
36 Evidence-based medicine: an approach to clinical problem-solving
(Rosenberg and Donald, 1995) 357
37 Grey zones of clinical practice: some limits to evidence-based
medicine (Naylor, 1995) 367
38 Evidence-based management: from theory to practice in health care
(Walshe and Rundall, 2001) 373
39 Is there such a thing as evidence-based management? (Rousseau, 2006) 386

Part 9: The social context of health Ann Mahon 399

40 Declaration of Alma-Ata (1978) International Conference on Primary

Health Care, Alma-Ata, USSR, 612 September 405
41 The Inverse Care Law (Hart, 1971) 409
42 Report from the Poor Law Commissioners on an inquiry into
Sanitary Conditions of the Labouring Population of Great Britain
(Chadwick, 1842) 416
43 Report of a research working group: inequalities in health (Black, 1982) 421
44 A new perspective on the health of Canadians (Lalonde, 1974) 431
45 Securing good health for the whole population (Wanless, 2004) 435

Part 10: Cultural critiques of formalized healthcare systems

Ann Mahon 441

46 Limits to medicine. Medical nemesis: the expropriation of health

(Illich, 1997) 445
47 The unmasking of medicine (Kennedy, 1983) 449
48 Asylums: essays on the social situation of mental patients and other
inmates (Goffman, 1961) 455
49 Medicine matters after all (Bunker, 1995) 463
50 Hippocratic oaths (Tallis, 2004) 477
Index 487

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Publishers acknowledgements

The editors and publisher wish to thank the following for permission to use
copyright material:
Beveridge, W. (1942) Social Insurance and Allied Services. Cmnd 6404. London:
HMSO [extracts from summary: pp 69 and 1113].
Klein, R. (2006) The New Politics of the NHS (5th edn). Harlow: Longman
[chapter 1: pp 15].
Starr, P. (1982) The Social Transformation of American Medicine: The Rise of a
Sovereign Profession and the Making of a Vast Industry. New York: Basic Books
[extracts from Chapter 5: pp 44449].
Wanless, D. (2002) Securing our Future: Taking a Long-term View. HM Treasury,
April 2002 [extracts from introduction: 1.1, 1.2, 1.5, 1.6, 1.8, 1.12, 1.13,
1.18; Chapter 6: 6.546.76 and Annex C: C.16C.24].
Lipsky, M. (1971) Street-level bureaucracy and the analysis of urban reform, Urban
Affairs Review, 6: 391409, London: Sage Publications [extracts].
Klein, R. (1998) Why Britain is reorganizing its health service yet again, Health
Affairs, 17(4): 111125 [extracts].
Harrison, S. and Wood, B. (1999) Designing health service organisation in the
UK, 19681998: From Blueprint to Bright Idea and Manipulated Emer-
gence, Public Administration, 77(4): 75168 [extracts].
Bevan, R.G. and Robinson, R. (2005) The interplay between economic and
political logics, Journal of Health, Policy, Politics and Law, 30(1) 2: 5378
[extracts].
Culyer, A. and Wagstaff, A. (1993) Equity and equality in health and healthcare,
Journal of Health Economics, 12: 43157 [extract: pp 43133, 44548].
Ham, C. and Coulter, A. (2001) Explicit and implicit rationing: taking responsi-
bility and avoiding blame for health care choices, Journal of Health Services
Research and Policy, 6(3): 16369 [extract: pp 16366, 168].
Banta, D. (2003) The development of health technology assessment, Health Policy,
63: 12132 [extract: pp 12124, 12830].

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PUBLISHERS ACKNOWLEDGEMENTS ix

Williams, A. (1995) Economics, QALYs and medical ethics: a health economists

perspective, Health Care Analysis, 3: 22126.
Diderichsen, F., Varde, E. and Whitehead, M. (1997) Resource allocation to
health authorities: the quest for an equitable formula in Britain and Sweden,
British Medical Journal, 315: 87578.
Enthoven, A. (1985) Reflections on the Management of the National Health Service:
An American Looks at Incentives to Efficiency in Health Services Management in
the UK. London: Nuffield Provincial Hospitals Trust [extract].
Saltman, R.B. (1994) Patient choice and patient empowerment in northern
European health systems: a conceptual framework, International Journal of
Health Services, 24(2): 20129 [extract].
Titmuss, R. (1970) The right to give, in R. Titmuss (ed.) The Gift Relationship:
From Human Blood to Social Policy. London: Allen & Unwin [extract: Chap-
ter 17, pp 30514].
Davies, C. (2005) Links Between Governance, Incentives and Outcomes: A
Review of the Literature. NCCSDO [extract].
Perri 6 (2003) Giving consumers of British public services more choice: what can
be learned from recent history? Journal of Social Policy, 32: 23970 [extracts].
Power, M. (2000) The audit society: second thoughts, International Journal of
Auditing, 4: 11119 [extract: pp 11116, 11718].
Hood, J. and Scott, C. (2000) Regulation of government: has it increased, is it
increasing, should it be diminished? Public Administration, 78(2): 283304
[extract: pp 28387, 29596, 30102].
Shaw, C.D. (2001) External assessment of health care, British Medical Journal,
322: 85154.
Walshe, K. and Shortell, S.M. (2003) Social regulation of healthcare organisations
in the United States: developing a framework for evaluation, Health Services
Management Research, 17: 7999 [extract: pp 7982, 85, 9397].
Brennan, T.A. (1998) The role of regulation in quality improvement, Milbank
Quarterly, 76(4): 70931 [extract: pp 70912, 72528].
Bevan, G. and Hood, C. (2006) What is measured is what matters: targets and
gaming in the English public healthcare system, Public Administration, 84(3):
51738 [extract: pp 51824, 53336].
Donabedian, A. (1988) The quality of care: how can it be assessed? Journal of the
American Medical Association, 260(12): 1743748 [extract: pp 174344, 1745,
174517].
Berwick, D.M. (1989) Continuous improvement as an ideal in healthcare, New
England Journal of Medicine, 320(21): 1424425.
Berwick, D.M. (1996) A primer on leading the improvement of systems, British
Medical Journal, 312: 61923.
Leape, H. (1994). Error in medicine, Journal of the American Medical Association,
272: 185157 [extract: pp 185155].
vretveit, J. and Gustafson, D. (2002) Evaluation of quality improvement pro-
grammes, Quality and Safety in Health Care, 11: 27075

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Simon, H.A. (1997) Administrative Behaviour Rationality in Human Behaviour.

New York: The Free Press [extracts: pp 879].
Garratt, B. (1997) The Fish Rots from the Head. London: HarperCollins [extracts:
pp 3151].
Griffiths, R. (1983) Report of the NHS Management Enquiry, London: HMSO
[extracts].
Cornforth, C. (2003) The Governance of Public and Non-profit Organisations.
London: Routledge [extracts: pp 611].
Pettigrew, A., Ferlie, E. and McKee, L. (1992) Shaping Strategic Change. London:
Sage Publications [extracts: pp 27587].
Peck, E., Perri 6, Gulliver, P., Towell, D. (2004) Why do we keep on meeting like
this? The board as ritual in health and social care, Health Services Management
Research, 17: 100109 [extracts].
Cochrane, A. (1972) Effectiveness and Efficiency: Random Reflections on Health
Services. London: Nuffield Provincial Hospitals Trust [chapter 4: pp 2025].
Sackett, D.L. and Rosenberg, M.C (1995) On the need for evidence based
medicine, Journal of Public Health Medicine, 17(3): 33034.
Naylor, C.D. (1995) Grey zones of clinical practice: some limits to evidence based
medicine, Lancet, 345: 84042.
Walshe, K. and Rundall, T.G. (2001) Evidence based management: from theory to
practice in healthcare, Milbank Quarterly, 79(3): 42957 [extract: pp 429,
43746, 45153].
Rousseau, D.M. (2006) Is there such a thing as evidence based management?
Academy of Management Review, 31(2): 25669 [extract: pp 256, 25860,
26162, 26768].
Chadwick, E. (1842) Report from the Poor Law Commissioners on an inquiry into
Sanitary Conditions of the Labouring Population of Great Britain. London: Poor
Law Commission [extracts: pp 42125].
Tudor Hart, J. (1971) The Inverse Care Law, The Lancet, 27 February, 40612
[extracts: pp 40507, 40910, 412].
Declaration of Alma Ata (1978) International Conference on Primary Health Care,
Alma Ata, USSR, 612 September.
Black, D. (Chair) (1982) Report of a Research Working Group Inequalities in
Health. London: Department of Health and Social Services [extracts: chapter
1, 4143, 4646, 4950, chapter 2, 5160, chapter 6 13334].
Lalonde, M. (1974) A New Perspective on the Health of Canadians. Ottawa: Health
Canada [extracts: pp 6367].
Wanless, D. (2004) Securing Good Health for the Whole Population. London: HM
Treasury [extracts from the summary: pp 39].
Tallis, R. (2004) Hippocratic Oaths. Atlantic Books [extracts from introduction:
pp 13, 8993].
Goffman, E. (1961) Asylums: Essays on the Social Situation of Mental Patients and
Other Inmates. London: Penguin [extracts: pp 12025, 13438, 15155].

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PUBLISHERS ACKNOWLEDGEMENTS xi

Illich, I. (1977) Limits to medicine, in I. Illich, Medical Nemesis: The Expropriation

of Health. London: Marion Boyars [extracts from part I, clinical iatrogenesis:
pp 3236, including footnotes].
Kennedy, I. (1983) The Unmasking of Medicine. London: Granada Publishing
[extracts: chapter 2, page 25, 2627, 28, 2830, 31, 32, 3233, 34, 3738, 39,
40, 41].
Bunker, J. (1995) Medicine matters after all, Journal of the Royal College of
Physicians of London, 29(2): 10512 [reproduce].
Every effort has been made to trace the copyright holders but if any have been
inadvertently overlooked the publisher will be pleased to make the necessary
arrangement at the first opportunity.

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Introduction
Ann Mahon, Kieran Walshe and
Naomi Chambers

Policy context and the purpose of this reader

This reader aims to offer managers and leaders working in healthcare easy access
to a selection of key readings that will help them to make sense of their day-to-day
working experiences, and to see the bigger picture of health system reform.
Health care organizations are often complex, diverse and difficult to manage and
there are many different types of manager, working in different ways, in different
organizational settings and in different countries. Health system reform can be
seen as a unifying concern for them all. They need to understand the factors
shaping policy (policy drivers) and the many and varied responses to these (policy
levers) (Mahon and Young, 2006). Those levers and drivers may be outside of the
influence of most managers, but they must be in a strong position to respond to
these drivers if they are to commission, provide and manage effective and timely
healthcare. To respond to this challenge, managers have to combine practical
experience of day-to-day management with a depth and a breadth of knowledge
and understanding about the wider context of the health system in which they
work. That is the purpose of this book.
Many of the recent reforms introduced in the public sector have been inspired
by market-based approaches that in the past were simply not associated with, nor
deemed to be relevant to, healthcare. This has changed and management theories,
concepts and practices developed in the business world have now extended into the
business of healthcare. As a consequence, we have witnessed a move away from
models associated with public administration towards those associated with the
worlds of business and private enterprise. The global term for this trend is new
public management. It is outside the scope of this introduction and indeed this
reader to offer an in-depth overview and critique of the new public management
debate. This has been offered by others working closely in this field (Hood, 1995;
Ferlie et al., 1997; Ferlie, Lynn and Pollitt (eds), 2005). However, a framework
setting out key policy drivers and policy levers will be introduced to provide a

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INTRODUCTION xiii

conceptual framework that sets the scene for the readings included in this book.
First, it is helpful to explain how this reader has been compiled.

The purpose of the reader

As directors of various postgraduate programmes in health policy, management

and leadership, we have observed a number of trends of interest and concern in
recent years. As is apparent in the different disciplinary bases of our selected
readings, the field of health policy and management draws on a range of disciplines
including inter alia economics, political science, sociology, social psychology,
business and management and philosophy. This diversity, combined with the
proliferation of published material in the field, means that managers get over-
whelmed, cannot see the wood for the trees and simply dont know where to start
when it comes to searching the literature. As well as the proliferation of published
material, the ever increasing use of the Internet with electronic databases and
journals have contributed to the growth in the literature. They have also changed
the way we search and gather sources. Papers can be searched, accessed and
printed within a matter of minutes and at any time of day or night, providing
immediate access for busy managers and clinicians and facilitating the combination
of challenging working lives with part-time study. However, this has also meant
fewer trips to the library, fewer hand searches of journals and perhaps fewer
serendipitous moments of discovery while trawling through the archives.
Furthermore, why seek out original sources of material when writers of health
policy and management text books provide us with adequate summaries of
primary sources? The short answer is that they often do not. Original ideas can get
diluted and distorted over time and summaries often fail to capture the context
they were written in.
Programmes in health management, policy and leadership tend to be applied
programmes that encourage the application of concepts and theories, often at the
level Robert Merton referred to as theories of the middle range (Merton, 1968).
By this he meant theories that were not distant, abstract or grand ideas but rather
concepts and frameworks that can be accessed and used to elucidate, elaborate and
explore the challenges that managers face in their day-to-day jobs. We see this
reader as providing access to a number of papers developing or testing out
middle-range theories in order to shed new light on contemporary problems.
Finally, as policy initiatives come and go, young leaders can often believe that
policies are breaking into brand new ground and sparking debates that have not
previously been on the agenda. The readings selected for this reader provide ample
evidence to support the notion of path dependency in health policy and
management a theme explored more fully in Part 2 of this reader.
So, the reader has been compiled in response to these observations and
concerns. We hope this provides managers and others who for whatever purpose
wish to explore topics in greater depth a place to start their journey. We hope it
gives a thirst for tracing readings back to primary sources and the energy and
enthusiasm for making that extra effort to seek out classic papers in their full and

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xiv

original glory. We hope it provides managers and leaders with illustrations of how
papers, some of which were first published many years ago, continue to have
relevance as we enter the second decade of the twenty-first century.
Before introducing the structure of the reader and the readings selected, the
policy context is set out by looking at the factors that are driving reforms and the
various ways that governments are responding.

Healthcare reforms drivers and levers

The impetus for reforms across many developed and developing countries have
emerged from sociological, technological, economic and political developments
that have accelerated in recent decades. The drivers for reform in public services in
general and health policy and management in particular, are well rehearsed (e.g.
Baggott, 2007; OECD, 2005; Dubois et al., 2006; Walshe and Smith, 2006). The
main driver for reform has, without doubt, been governments concerns with
increasing costs and efforts to contain them. Other factors relating to rising public
expectations, changing demographics, technological developments and globaliza-
tion are also important. These drivers, with some examples, are summarized in
Table I1.1.
The OECD review Modernising Government:The Way Forward was carried out
to provide a greater depth of understanding of how governments have responded
to these various pressures for reform with a concern to help policy makers and
managers prepare for future challenges. They identify six management reform
policy levers as follows:

+ open government;
+ enhancing public sector performance;
+ modernizing accountability and control;
+ reallocation and restructuring;
+ the use of market-type mechanisms;
+ modernizing public employment.

These levers, with some examples of related policy options, are summarized in
Table I1.2.

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 Table I1.1 Policy drivers

Consumerism A general rise in expectations and a reduction in confidence and trust in professions and institutions
+ Increasingly well-educated, informed and critical citizens expect high-quality services, streamlined administrative procedures and to have their views
and knowledge taken into account in public decision making (OECD, 2005)
+ Increased population mobility and a preparedness to travel as a consequence of cheaper air travel (Baggott, 2007)
+ The users or consumers of health care are no longer passive patients accessing and utilizing care in deference to health professionals. Patients have
high expectations of the services they access, they are less deferential and more demanding (Coulter, 2003)
Socio-economic and demographic changes Changes in age distribution and ethnicity
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+ Ageing population and associated changes in the patterns of illness (Baggott, 2007)
+ Population displacement due to war (Baggott, 2007)
+ Economic migration including health workers (Young et al., 2008)
+ Failure to reduce inequalities in health/increasing inequalities within and between nations (Baggott, 2007)
+ Epidemiological transition (Mahon, 2006)
Technological advances

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+ More advanced systems in accounting and auditing (OECD, 2005)

A
+ Technological advances: biomedical science, genetics, pharmacology, computing, e-Health, telemedicine, genetics internet, email (McDonald and
Walley, 2006; Donaldson, 2007)

Costs An increasing concern about increasing costs, cost-effectiveness and productivity

+ Increasing demands on public expenditure, calls for higher-quality services and in some countries an increasing unwillingness to pay higher taxes
(OECD, 2005)
+ Costs and concerns with efficiency, effectiveness and productivity. Increasing costs and concerns with productivity (OECD, 2005)

Division: aprelims
+ Issues of costs and cost-effectiveness relate to choices about what governments choose to invest their resources in (OECD, 2005)

F
Globalization / internationalization
+ Internationalization of the health policy process the role of international bodies such as the WHO and the World Bank in policy making (Baggott,
2007)
+ Increasing role of the European Union in shaping domestic health policies (Dubois, McKee and Nolte, 2006)
+ Threat of war and terrorism (Donaldson, 2007)

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INTRODUCTION
xv
 Table I1.2 Policy levers (summarized from OECD, 2005)
xvi
Policy levers Summary of the key features
Open government Countries are moving from a situation where governments decided what information to make public to a greater willingness to make
information available unless there is a defined public interest in it being withheld. Often citizens have a legal right to information. For
example 90 per cent of OECD countries have a Freedom of Information Act and an Ombudsman office. The three main characteristics
of open government are:
+ transparency that its actions and the individuals responsible for those actions will be exposed to public scrutiny and challenge;
+ accessibility that its services and information on its activities will be readily accessible to citizens;
+ responsiveness that it will be responsive to new ideas, demands and needs.
Enhancing public sector performance To enhance performance countries have adopted a range of approaches to management including budgeting, personnel and institutional
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structures. Examples of institutional change include the creation of executive agencies and the privatization or outsourcing of the
provision of public services. This lever of reform seeks to move the focus of activity such as budgeting away from inputs and towards
results. The quantity of performance information is continuously increasing although problems are encountered with the quality and the
application of the information. Performance information is important for governments in assessing and improving policies:
+ in managerial analysis, direction and control of public services;
+ in budgetary analysis;
+ in Parliamentary oversight of the executive;
+ for public accountability the general duty on governments to disclose and take responsibility for their decisions.

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Modernizing accountability and There has been a move from ex ante to ex post control and the development of stronger processes of internal control. This means a

A
control trend from a system where transactions were approved prior to commitment from a controller outside of the spending ministry (ex ante)
to one where internal management makes many financial and non-financial resource allocation decisions that are externally checked after
the event (ex post). This has resulted in more external audits and new and more complicated auditing and accounting regimes being put
in place. As control becomes increasingly ex post, accountability becomes more important.
Concern with costs and demand Fiscal constraints combined with increasing demands have led to the need for a range of structures tailored to specific requirements. In
leading to reallocation and the past two decades many countries have restructured public services in a variety of ways which include:
restructuring + devolution of authority and functions from central to local government;
+ reorganization of functions driven by the globalization of public concerns such as trade, environment and anti-terrorism;
+ governments have been withdrawing from/selling off their interests in activities that could be conducted by private entities without

Division: aprelims
direct involvement by the State;

F
+ moving away from being a direct provider of services towards creating market structures increases the regulatory role of the State;
+ whole of government reform reorganization;
+ devolution, privatisation, contracting out.
The use of market-type mechanisms Market-type mechanisms are a broad concept encompassing all arrangements where at least one significant characteristic of markets is
to provide government services present (OECD, 2005, p. 131). In service provision these characteristics include outsourcing, contracting out, publicprivate
partnerships and user charges. Significant management challenges exist in moving to a market-type mechanism model, especially in
separating the role of government as purchaser and provider of services, where traditionally governments have performed both roles.

Sequential 16
Organizing and motivating public A variety of initiatives have attempted to reduce public employment and increase managerial flexibility through decentralization of human
servants: modernizing public resource management, accountability and pay. As a result of these changes many assumptions about the way public service works such
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INTRODUCTION xvii

The structure of this reader

The fifty selected readings have been organized in ten parts. It is not anticipated
that anyone reading this book will read it cover to cover and in sequence, and it has
not been designed to be read in that way. Instead, we expect it to be used as a
resource to provide instant access to classic readings in specific areas of policy and
management and to address some of our concerns that such readings should be
available to as wide an audience as possible, whether as a layperson with an interest
in health policy and management, a manager or clinician pursuing topics of
personal interest or for professional development on short courses or postgraduate
programmes. With this in mind, a similar format for each part has been adopted so
that the readings selected for each part are preceded by a short introduction with
some background and scene-setting to the general topic, an introduction to the
selected readings and a summary of the key messages, references and further
reading.
Part 1 includes papers with different perspectives on the role of the state in
healthcare. The shift from bureaucratic and paternalistic models of healthcare
towards more market-oriented systems of healthcare has meant an evolving rather
than diminishing role for the state. This part of the reader includes selections that
set out or critique the impact of the state on health policy from the period
preceding the introduction of welfare in England up to the present day.
Part 2 focuses on the policy-making process. Healthcare managers need to
understand how policy is developed and implemented in order to understand their
role and contribution, but also as a touchstone for personal priority setting in their
day-to-day work. This part of the reader therefore focuses on classic texts in
relation to policy development and implementation.
The allocation and distribution of resources is the focus of part 3 that explores the
way in which healthcare funding is organized and the readings focus on the
implications of funding mechanisms for issues of equity, effectiveness and effi-
ciency in health systems and also how systems of funding have shaped both the
nature and the behaviour of healthcare organizations and health services.
Governments throughout the world are increasingly attracted by the use of
market mechanisms and choice in health and public sector reforms to drive up
efficiency and quality. Part 4, Markets and choice in healthcare, identifies some key
readings that have influenced the marketization of healthcare and the increasing
emphasis on choice.
The readings selected for part 5, Accountability and regulation, consider the
changing relationship between society and healthcare and how organizations and
the professionals working in them are held to account with a growth in formal and
external systems of monitoring.
Recent years have witnessed increasing interest throughout the developed
world in the quality of health services, and in systems to measure, assure and
improve quality in healthcare. The selections in part 6, Quality and safety, consider
developments and responses to this trend with a focus on the development of
clinical governance, total quality management in healthcare and patient safety.

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xviii

With the emergence of the new public management era, the language used to
describe the administration of health services changed dramatically in the 1980s.
In part 7, General management and governance, the selections cover the origins of
general management in the NHS, new responsibilities for managing strategic
change and the nature and performance of Boards.
The rise over the 1990s of the evidence-based medicine movement has
influenced not just health but also those in other sectors such as education, social
care, criminal justice and housing. Part 8, Evidence-based health policy and manage-
ment, focuses primarily on the use of evidence by decision makers to shape health
policy and the organization and delivery of health services.
Adopting a broader and more positive definition of health shifts our attention
away from health services that are provided to treat illness and disease and towards
the wider socio-economic and political contexts where health, illness and disease
are defined, experienced and determined. Part 9 thus focuses on The social context
of health locating healthcare in its wider context as one of many factors contribut-
ing to the health of a population.
Part 10 considers aspects of the Cultural critiques of formalized healthcare
systems. The 1970s witnessed the growth of these cultural critiques of medicine as
well as other established institutions and professions in society. The debate is
brought up to date with more recent readings seeking to address the balance.

A note on the selections

Space does not permit inclusion of all the relevant themes and readings that could
be covered in this reader, although some may be conspicuous by their absence
(such as leadership, patient and public involvement, healthcare commissioning,
and so on.) The final ten themes and fifty readings that have been agreed upon
emerged from discussions reflecting the editors understanding of contemporary
policy drivers and levers and their respective areas of interest. They also reflect
some of the constraints imposed on us as a result of seeking copyright permissions.
Nevertheless, we believe that these ten themes cover some of the key policy drivers
and levers set out earlier in this introduction. They also cover topics that reflect the
multidisciplinary content of many postgraduate programmes in the field of health
policy and management.

This book and its companion: Healthcare management

The idea for this book emerged in part from the work we and many colleagues did
in writing and editing a comprehensive text on healthcare management, designed
for use in management development and postgraduate programmes (Walshe and
Smith, 2006). That book ended up with 28 chapters (and over 500 pages), and
there are many connections implicit or explicit between its content and the
content of this reader. We have not tried to follow the same thematic structure in
this reader as we used in the text on healthcare management, in part because the

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INTRODUCTION xix

primary focus of the former was on managing healthcare organizations, while this
book tends to tackle the wider context of health systems and health policy.
However, we anticipate that many people will want to use them alongside each
other, and for those readers, the connections will, we think, be readily apparent.
For example, anyone grappling with the complexities of healthcare financing might
want to read Chapter 3 in the textbook in which Suzanne Robinson offers a clear
and structured typology and explanation of how health system funding is organ-
ized, alongside part 3 of this reader, which explores the question of how resources
are allocated and distributed, with contributions from Alan Williams, Antony
Culyer, Chris Ham, Angela Coulter and others.
However, our main hope is that for many managers, this book and its
companion text will be not the end of their reading, but the beginning. If we have
stimulated you to want to know more, to follow up the suggested readings and
references at the end of each part or chapter, and to use our work as your
stepping-off point into a wider literature, then we will be more than pleased.
Ann Mahon, Kieran Walshe and Naomi Chambers
Manchester, March 2009

References
Baggott, R. (2007) Understanding Health Policy. Bristol: The Policy Press and the
Social Policy Association.
Coulter, A. (2003) An unacknowledged workforce: patients as partners in health-
care, in C. Davies (ed.) The Future Health Workforce. Basingstoke: Palgrave
Macmillan: Chapter 2.
Donaldson, L. (2007) On the State of the Public Health: 2006 Annual Report of the
Chief Medical Officer. London: Department of Health.
Dubois, C.-A., McKee, M. and Nolte, E. (2006) Human Resources for Health in
Europe. Maidenhead: Open University Press.
Ferlie et al. (1997) The New Public Management in Action. Oxford: Oxford
University Press.
Ferlie, Lynn and Pollitt (eds) (2005) The Oxford Handbook of Public Management.
Oxford: Oxford University Press.
Hood, C. (1995) Contemporary public management: a new global paradigm?
Public Policy and Administration, 10(2): 10417.
Mahon, A. and Young, R. (2006) Health care managers as a critical component of
the health care workforce, in C.-A. Dubois, M. McKee and E. Nolte (eds)
Human Resources for Health in Europe. Maidenhead: Open University Press.
Mahon, A. (2006) The wider context of health, in K. Walshe and J. Smith
Healthcare Management. Maidenhead: Open University Press.
McDonald, R. and Walley, T. (2006) Managing healthcare technologies and
innovation, in K. Walshe and J. Smith Healthcare Management. Maidenhead:
Open University Press.
Merton, R.K. (1968) Social Theory and Social Structure. New Jersey: The Free
Press.

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xx

OECD (2005) Modernising Government The Way Forward. Paris: OECD.

Walshe, K. and Smith, J. (eds) (2006) Healthcare Management. Maidenhead: Open
University Press.

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PART 1
The role of the state in healthcare
Introduced by Ann Mahon

Healthcare demands ever increasing resources and as Moran observes health

care looms large in the modern welfare state and states loom large in modern
health care systems (Moran, 2002: 139). At one level this may seem to be an
outdated and somewhat counter-intuitive observation since, as discussed in the
introduction, a recurring theme in health policy and management is the shift from
bureaucratic, centralized, state-dominated models of healthcare towards more
market-oriented systems. Does not the introduction of market principles necessar-
ily mean that the role of the state in healthcare diminishes? While for some the
trend towards marketization equates with a diminishing role for the state and a
rolling-back of its frontiers, for others this shift inevitably changes its role but its
role nevertheless remains central. Indeed the steer more, row less role of the
state in an environment receptive to market mechanisms may not only incur extra
transaction and administrative costs, but may also require more sophisticated
approaches to regulation (a topic covered in more detail in Part 5) which, in turn,
require the restructuring of state bureaucracies and the reallocation of roles and
responsibilities (Saltman, 2002; OECD, 2005). States are also interested in
health systems as major economic players employing large numbers of people in
a wide range of different roles. In the NHS in England, for example, the NHS
employs a remarkable 1.3 million people out of a population of 49.1 million
(Dixon, 2006). Thus, whatever system of health care predominates in a nation,
the state plays a central role in determining coverage, the nature and extent of
benefits, the systems of funding (including user charges), the allocation and
distribution of resources and the structure and organization of services.
National systems are often described on the basis of how their funding is
generated, rather than how resources are allocated (which is the focus of Part 3).
These include private health insurance, taxation (which may be direct or indirect,
general or hypothecated and national or local), social health insurance and
charges and co-payments. In practice, most countries systems operate through a
mixed system of funding, which usually includes some element of taxation

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2 A READER IN HEALTH POLICY AND MANAGEMENT

(Robinson, 2006). The funding bases of health systems are often located on a
continuum with state-dominated systems at one end of the spectrum, typified by
the UK NHS predominantly funded through general taxation and market-dominated
systems at the other extreme, characterized by a heavy reliance on private
insurance as the source of funding and typified by the US system. This can be
misleading as closer scrutiny of OECD figures for 2006 reveal a substantial state
role for both the USA and the UK. Looking first at total expenditure on health as a
percentage of gross domestic product (GDP), the USA spends a staggering
15.3 per cent of its GDP on healthcare, compared with the UKs 8.4 per cent.
Total spending per capita shows a similar pattern with the USA spending
US$6714 per capita compared to the UKs US$2760. However, almost a half of
this massive allocation of US resources comes from the state so that
45.8 per cent of the total expenditure on health in the USA came from the public
purse with the corresponding figure for the UK being 87.3 per cent (OECD, 2008).
These figures disguise appalling patterns of inequalities in both health status and
in access to health services across different social and ethnic groups, particularly
for the USA where access to healthcare for the majority is dependent on
employment-linked insurance and where up to a fifth of the population are not
insured. Nevertheless, they illustrate the significant investment that states make,
even in the most apparently laissez-faire of health systems like the USA. This
fundamental role of the state is captured by Saltman in the following quote:

A fundamental characteristic of contemporary health policy is the centrality of

the state to the design and management of an effective healthcare system.
This core characteristic holds true for tax-funded, social insurance-funded and
private-insurance funded health systems alike. It also holds true for develop-
ing as well as developed countries, and across countries with broadly
different demographic characteristics and widely varying geographic locations.
(Saltman, 2002: 1677)

Managers of health services should therefore be familiar with how the state
determines policy, defines the content of policy, implements policy and then
responds to the consequences both unintended and intended. As noted above,
states may be a substantial financer of health care, through taxation or through
other benefits but they may also be providers of care, alongside private or
voluntary providers and a regulator of the organizations that commission and
provide care. What the centrality of the role of the state also highlights is the
political nature of health, played out most visibly through media coverage of
public interest health stories, particularly at election times, such as the
Jennifers ear news story that dominated the English press during the 1992
general election campaign and highlighting the impact of the close proximity
between politics and politicians with the NHS often referred to as a political
football (Black, 1992). As health care becomes increasingly complex, a number
of commentators have questioned not just the appropriateness but also its ability
to be managed by such political processes and there are increasing calls for an

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A READER IN HEALTH POLICY AND MANAGEMENT 3

independent NHS (Edwards, 2007). However, it is not just national politics that
determines and influences health systems medical politics and the power and
influence of other key players within systems like insurance and the pharmaceu-
tical industries all operate to maximize their interests. States do not therefore
start with a blank slate on which to design their optimum system of health care
and systems are politically derived introducing and implementing what is feasible
and acceptable to key players at a particular point in history.
Turning to the readings selected under the theme of the role of the state.
William Beveridge (1942) essentially published the blueprint for the welfare state
in England, designed to attack what he called the five giants of want, disease,
ignorance, squalor and idleness. Various Acts of Parliament were subsequently
passed covering education, social security and health. The attack on disease
culminated in the creation of the NHS, with the implementation of the 1946 NHS
Act in 1948. Beveridges report is therefore of significance for its place in history.
But this selection also demonstrates the value of returning to original sources to
capture both the tone and content of proposals at particular points in history and
also the extent to which original aims were implementable. Beveridge sets out
three guiding principles. First, that any proposals for the future should not be
restricted by consideration of sectional interests (somewhat ironic given Rudolf
Kleins subsequent analysis of events (Klein, 2006)). Second, his proposal was
for social insurance (and not general taxation) as one part of a comprehensive
policy of social progress and, third, that social security must be achieved by
cooperation between the state and individual Beveridge believed that the state
should not stifle incentive, opportunity or responsibility and should leave room for
individual responsibility to flourish a sentiment echoed in another government
publication some 60 years later (Wanless, 2002). For pragmatic rather than
political reasons national taxes (favoured by Bevan) rather than local taxes or
social insurance became and remain the predominant source of funding for the
NHS (Lowe, 2008). The desirability of a tax-funded system has of course been
open to continuous debates and reviews, all of which, including the most recent,
have defended the status quo and continued to follow the path set in the 1940s.
The focus instead has shifted more towards performance and how money is spent
rather than how the NHS is funded.
Rudolf Kleins now classic text provides a unique analysis of the politics of the
creation of the NHS, which he presents as dramatic but evolutionary. Klein
emphasizes the political dynamics of the creation of the NHS and brings to centre
stage the main groups of actors that shaped it. While enmeshed within the
politics and ideological debates, Klein demonstrates yet again that pragmatism
won the day and the emerging consensus produced an irrational system in the
name of the rationalist paternalists who, according to Klein, were less concerned
with social injustice than in sorting out the mess that preceded nationalization.
Paul Starr (1982) introduces us to a new set of actors in a different setting and
yet facing now familiar concerns with controlling healthcare expenditure. This
concerns both state and insurance companies, while physicians, protective of
their clinical and economic autonomy, opposed increased public control. For Starr

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4 A READER IN HEALTH POLICY AND MANAGEMENT

the irony here is that medical opposition to public programmes did not cease
progressive rationalization by the private sector bringing with it accusations of the
deprofessionalization and proletarianization of medicine.
The final reading includes extracts from a document that reports on the
findings from the first ever long-term assessment of the resources required to
fund the health service in England, Chaired by Derek Wanless (Wanless, 2002)
and published some 60 years after Beveridge. Wanless departed from, or at least
elaborated on, his brief in at least two significant ways. First, he recognized that
although the brief related to healthcare, health and social care are inextricably
linked to health and so should be considered together. Second, he notes that the
brief for his review did not include looking at how healthcare resources are
financed. However, he argued that such a review was necessary because of the
potential relationship between how a health care system is funded and the
subsequent demand and indeed costs of the total resources required. While his
conclusion supported the status quo, it also opened the door for a greater role for
out-of-pocket payments. Performance, he warns, is a prerequisite for continued
public support for a public funded service.

Summary

+ National healthcare systems are often described on the basis of how

they are resourced. This may be through private insurance, social
insurance, taxation or charges and co-payments. In practice, most
systems operate with a combination of these different sources of
funding and systems are often located on a continuum with state-
dominated systems at one end of the spectrum (characterized by the
English NHS) and market-dominated systems at the other end (charac-
terized by the US system).
+ The state has a central role in the design, management and regulation
of healthcare irrespective of how the system is funded. Even in the
archetypal market system of healthcare, nearly a half of resources are
derived from state sources.
+ The increasing marketization of healthcare and an increase in the
plurality of providers, changes, rather than diminishes, the role of the
state.
+ Healthcare systems are political products emerging from the complex
interactions between stakeholders.
+ The selections in this part of the reader cover a 60-year period beginning
with Beveridges blueprint for welfare followed by Kleins eagle-eye
analysis of the politics of the creation of the NHS. From a US
perspective, Paul Starrs contribution introduces new actors, not least
the health insurance industry and finally the 2002 Wanless report
provides a contemporary review of the long-term implications for funding
the NHS.

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A READER IN HEALTH POLICY AND MANAGEMENT 5

References and further reading

Black, N. (1992) Jennifers ear: airing the issues, Quality in Health Care, 1:
21314.
Dixon, J. (2006) The politics of healthcare and the health policy process:
implications for healthcare management, in K. Walshe and J. Smith (eds)
Healthcare Management. Maidenhead: Open University Press.
Edwards, B. (2007) An independent NHS: A Review of the Options. London: The
Nuffield Trust.
Lowe, R. Financing healthcare in Britain since 1939 (www.historyandpolicy.org/
papers: accessed 2008).
Moran, M. (2000) Understanding the welfare state: the case of health care,
British Journal of Politics and International Relations, 2(2): 13560.
OECD (2005) Modernising Government: The Way Forward. Paris: OECD.
OECD (2008) Health Data 2008 Version June 2008 (www.oecd.org/).
Robinson, S. (2006) Financing healthcare: funding systems and healthcare costs,
in K. Walshe and J. Smith (eds) Healthcare Management. Maidenhead: Open
University Press.
Saltman, R.B. (2002) Regulating incentives: the past and present role of the state
in healthcare systems, Social Science and Medicine, 54: 167784.

The readings
Beveridge, W. (1942) Social Insurance and Allied Services. Cmnd 6404. London:
HMSO.
Klein, R. (2006) The New Politics of the NHS (5th edn). Harlow: Longman.
Starr, P. (1982) The Social Transformation of American Medicine: The Rise of a
Sovereign Profession and the Making of a Vast Industry. New York: Basic
Books.
Wanless, D. (2002) Securing our Future: Taking a Long-term View. London: HM
Treasury.

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1
Social insurance and allied services
William Beveridge
Extracts from Beveridge W (1942) Social insurance and Allied Services.
Cmnd 6404. London, HMSO.

Three Guiding Principles of Recommendations

6. In proceeding from this first comprehensive survey of social insurance to the
next taskof making recommendationsthree guiding principles may be laid
down at the outset.
7. The first principle is that any proposals for the future, while they should
use to the full the experience gathered in the past, should not be restricted by
consideration of sectional interests established in the obtaining of that experience.
Now, when the war is abolishing landmarks of every kind, is the opportunity for
using experience in a clear field. A revolutionary moment in the worlds history is a
time for revolutions, not for patching.
8. The second principle is that organisation of social insurance should be
treated as one part only of a comprehensive policy of social progress. Social
insurance fully developed may provide income security; it is an attack upon Want.
But Want is one only of five giants on the road of reconstruction and in some ways
the easiest to attack. The others are Disease, Ignorance, Squalor and Idleness.
9. The third principle is that social security must be achieved by co-operation
between the state and the individual. The state should offer security for service and
contribution. The state in organising security should not stifle incentive, opportu-
nity, responsibility; in establishing a national minimum, it should leave room and
encouragement for voluntary action by each individual to provide more than that
minimum for himself and his family.

The Way to Freedom from Want

11. The work of the Inter-departmental Committee began with a review of

existing schemes of social insurance and allied services. The Plan for Social
Security, with which that work ends, starts from a diagnosis of wantof the
circumstances in which, in the years just preceding the present war, families and
individuals in Britain might lack the means of healthy subsistence. During those

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SOCIAL INSURANCE AND ALLIED SER VICES 7

years impartial scientific authorities made social surveys of the conditions of life in
a number of principal towns in Britain, including London, Liverpool, Sheffield,
Plymouth, Southampton, York and Bristol. They determined the proportions of
the people in each town whose means were below the standard assumed to be
necessary for subsistence, and they analysed the extent and causes of that
deficiency. From each of these social surveys the same broad result emerges. Of all
the want shown by the surveys, from three-quarters to five-sixths, according to the
precise standard chosen for want, was due to interruption or loss of earning power.
Practically the whole of the remaining one-quarter to one-sixth was due to failure
to relate income during earning to the size of the family. These surveys were made
before the introduction of supplementary pensions had reduced the amount of
poverty amongst old persons. But this does not affect the main conclusion to be
drawn from these surveys: abolition of want requires a double re-distribution of
income, through social insurance and by family needs.
12. Abolition of want requires, first, improvement of state insurance, that is
to say provision against interruption and loss of earning power. All the principal
causes of interruption or loss of earnings are now the subject of schemes of social
insurance. If, in spite of these schemes, so many persons unemployed or sick or old
or widowed are found to be without adequate income for subsistence according to
the standards adopted in the social surveys, this means that the benefits amount to
less than subsistence by those standards or do not last as long as the need, and that
the assistance which supplements insurance is either insufficient in amount or
available only on terms which make men unwilling to have recourse to it. None of
the insurance benefits provided before the war were in fact designed with reference
to the standards of the social surveys. Though unemployment benefit was not
altogether out of relation to those standards, sickness and disablement benefit, old
age pensions and widows pensions were far below them, while workmens
compensation was below subsistence level for anyone who had family responsibili-
ties or whose earnings in work were less than twice the amount needed for
subsistence. To prevent interruption or destruction of earning power from leading
to want, it is necessary to improve the present schemes of social insurance in three
directions: by extension of scope to cover persons now excluded, by extension of
purposes to cover risks now excluded, and by raising the rates of benefit.
13. Abolition of want requires, second, adjustment of incomes, in periods of
earning as well as in interruption of earning, to family needs, that is to say, in one
form or another it requires allowances for children. Without such allowances as
part of benefit or added to it, to make provision for large families, no social
insurance against interruption of earnings can be adequate. But, if childrens
allowances are given only when earnings are interrupted and are not given during
earning also, two evils are unavoidable. First, a substantial measure of acute want
will remain among the lower paid workers as the accompaniment of large families.
Second, in all such cases, income will be greater during unemployment or other
interruptions of work than during work.

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2
The new politics of the NHS
Rudolf Klein
Extracts from Klein R (2006) The New Politics of the NHS (5th edn).
Harlow, Longman.

If many simultaneous and variously directed forces act on a given body, the
direction of its motion cannot coincide with any of those forces, but will always
be a mean what in mechanics is represented by the diagonal of a parallelo-
gram of forces. If in the descriptions given by historians we find their wars
and battles carried out in accordance with previously formed plans, the only
conclusion to be drawn is that those descriptions are false.
Leo Tolstoy, War and Peace
Britains National Health Service (NHS) came into existence on 5 July 1948. It
was the first health system in any Western society to offer free medical care to the
entire population. It was, furthermore, the first comprehensive system to be based
not on the insurance principle, with entitlement following contributions, but on
the national provision of services available to everyone. It thus offered free and
universal entitlement to state-provided medical care. At the time of its creation it
was a unique example of the collectivist provision of health care in a market
society. It was destined to remain so for almost two decades after its birth when
Sweden, a country usually considered as a pioneer in the provision of welfare,
caught up. Indeed, it could be held up as the greatest Socialist achievement of the
Labour Government, to quote Michael Foot, the biographer of Aneurin Bevan
who, as Minister of Health in that Government, was the architect of the NHS.1
The transformation of an inadequate, partial and muddled patchwork of
health care provision into a neat administrative structure was dramatic, even
though the legislative transformation was built on the evolutionary developments
of the previous decades. At a legislative stroke, 1,000 hospitals owned and run by a
large variety of voluntary bodies and 540 hospitals operated by local authorities
were nationalised. At the same time, the benefits of free general practitioner care,
hitherto limited to the 21 million people covered by the insurance scheme
originally set up by Lloyd George in 1911, were extended to the entire population.
From then on, everyone was entitled, as of right, to free care whether provided
by a general practitioner or by a hospital doctor financed by the state. At the

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THE NEW POLITICS OF THE NHS 9

summit of the administrative structure there was the Minister of Health. Under the
terms of the 1946 Act setting up the NHS, the Minister was charged with the duty
to promote the establishment in England and Wales of a comprehensive health
service designed to secure improvement in the physical and mental health of the
people of England and Wales and the prevention, diagnosis and treatment of
illness, and for that purpose to provide or secure the effective provision of services.
The services so provided, the Act further laid down, shall be free of charge.
How did this transformation come about? It is not the aim of this chapter to
provide a history of the creation of the NHS: other sources are available, giving a
detailed blow by blow account of what happened in the years leading up to 1948.2
The intention, rather, is to analyse the political dynamics of the creation: to
identify the main groups of actors in the arena of health care politics and to
delineate the world of ideas in which the plans for a national health service evolved.
In doing so, it is necessary to explore the complex interplay between the
ineluctable pressure on politicians and administrators to do something about the
practical problems forced on to their agenda by the clamouring inadequacies of
health care in Britain, as it had evolved over the previous century up to 1939, and
their resolution of the policy puzzles involved in accommodating competing values
and insistent pressure groups. It was the historical legacy which made it inevitable
that a national health service would emerge by the end of the Second World War.
It was the ideological and practical resolution of the policy puzzles which
determined the precise shape taken by the NHS as it actually emerged in 1948.

The emerging consensus

First, let us examine the nature of the consensus that had emerged by 1939: the
movement of ideas which made it seem inevitable that some kind of national health
service would eventually evolve dictated, as it were, by the logic of circumstances,
rather than by the ideology of politicians or the demands of pressure groups.
Basically, this consensus embodied agreement on two linked assumptions. These
were that the provision for health care in Britain, as it had grown up over the
decades, was both inadequate and irrational.
Health care, it was agreed, was inadequate in terms both of coverage and of
quality. Lloyd Georges 1911 legislation had provided insurance coverage only for
general practitioner services. In turn this coverage was limited to manual workers,
excluding even their families. Hospital care was provided by municipal and
voluntary institutions on the basis of charging those who could afford to pay and
giving free care to those who could not. Even though the bewildering mixture of
state insurance, private insurance and the availability of free care in the last resort
meant that everyone had access to some form of medical treatment, the quality
varied widely. The general practitioner, operating usually on the small shopkeeper
principle of running his own practice single-handed and relying mainly on the
income from the capitation fees of his insured patients, was isolated from the
mainstream of medicine. It is disturbing to find large numbers of general
practitioners being taught at great trouble and expense to use modern diagnostic

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10 A READER IN HEALTH POLICY AND MANAGEMENT

equipment, to know the available resources of medicine and to exercise judgement

as between patient and specialist, the 1937 Political and Economic Planning
(PEP) survey of health care in Britain commented,3 only to be launched out into
a system which too often will not permit them to do their job properly. In the case
of the hospital sector, the quality of specialist care varied greatly; indeed there was
no officially agreed definition of who should be considered a specialist the title of
consultant being attached to specific posts, mostly in the prestigious teaching
hospitals, rather than being a generally accepted description of doctors with special
skills recognised according to explicit criteria. In many of the smaller voluntary
hospitals, especially, it was general practitioners who carried out both medical and
surgical procedures, with no check on their qualifications or competence for the
job.
The system, it was further agreed, was irrational. Specialists gravitated to those
parts of the country where the population was prosperous enough to pay for
private care, since hospital consultancies were honorary and they were thus
dependent on income from private practice. By definition, the most prosperous
parts of the country were not necessarily those which generated most need for
medical care. Voluntary and municipal hospitals competed with, and against, each
other. The distribution of beds across the country was determined by historical
hazard, not the logic of the distribution of illness: Birmingham, for example, had
5.7 beds per 1,000 population, while Liverpool had 8.6. Hospitals shuffled off
responsibility for patients to each other: the voluntary hospitals regularly dumping
chronic cases onto the municipal sector. Municipal hospitals could, and indeed
did, refuse admission to patients coming from outside their local authority area. A
further article of faith in the emerging consensus was, therefore, the need to
co-ordinate the various systems voluntary and municipal that had emerged, and
to introduce some rationality into the distribution of resources.
The consensus had another ingredient. There was widespread acceptance of
the fact that the voluntary hospital system was no longer viable financially. By the
mid 1930s traditional forms of fund-raising from the public the appeal to
altruistic charitable instincts were not yielding anything like enough to support
their activities: only 31 per cent of the income of London teaching hospitals and
20 per cent of the income of the provincial teaching hospitals came from this
source. More important was income from charges to patients, financed on a 50:
50 basis either out of their own income or out of contributory insurance
schemes. The bankruptcy of the voluntary sector was staved off by the Second
World War, when these hospitals drew large-scale benefits from the Governments
scheme of paying for stand-by beds for war casualties. But it was clear that, in the
long term, their dependence on public finance was both irremediable and likely to
increase.4 Equally, it had long since become clear that the original purpose of the
most prestigious of the voluntary hospitals to provide free care for the poor-
could not be fully carried out, since financial pressures were forcing them to rely
on attracting precisely those patients who could afford to pay. The price of survival
was, to an extent, the repudiation of the inspiration which had led to their creation
in the first place.

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THE NEW POLITICS OF THE NHS 11

Not surprisingly, therefore, the years between the two world wars between
1918 and 1939 were marked by the publication of a series of reports from a
variety of sources, all sharing the same general perspective. In 1920 the Minister of
Healths Consultative Council on Medical and Allied Services (the Dawson report)
enunciated the principle that the best means of maintaining health and curing
disease should be made available to all citizens a principle to be later echoed by
Aneurin Bevan when he introduced the 1946 legislation and elaborating this
principle in a detailed scheme of organising health care; a hierarchy of institutions
starting from the Primary Health Centre and culminating in the Teaching
Hospital.5 In 1926 the Royal Commission on National Health Insurance came to
the conclusion, although it baulked at spelling it out in its immediate recommen-
dations, that the ultimate solution will lie, we think, in the direction of divorcing
the medical service entirely from the insurance system and recognising it along
with all other public health activities as a service to be supported from the general
public funds.6 In 1930 the British Medical Association (BMA) came out in favour
of extending the insurance principle to the dependents of the working population
and supported a co-ordinated reorganisation of the hospital system, while in 1933
the Socialist Medical Association added its radical treble to the conservative bass
drum of the BMA and published its plan for a comprehensive, free and salaried
medical service, to be managed by local government but with a regional planning
tier.7
There are a number of strands within this consensus which need disentangling.
In the first place, the consensus speaks with the accents of what might be called
rationalist paternalists, both medical and administrative. This is the voice not so
much of those outraged by social injustice as of those intolerant of muddle,
inefficiency and incompetence: a tradition going back to the days of Edwin
Chadwick, via the Webbs. It is further, the voice of practical men of affairs, trying
to find solutions to immediate problems. In the second place, the consensus
reflects a view of health care which was rooted in British experience, though not
unique to it: an intellectual bias which helps to explain why the institutional
solution devised in the post-war era was unique to Britain.
The second point requires elaboration. When, confronted by the muddle of
health care, men started thinking about possible solutions, they had before them
two models either of which could have been developed into a fully-fledged
national system. The first model was that of Lloyd Georges insurance scheme for
general practice: an import from Bismarcks Germany. In theory, there was no
reason why such a model could not have been elaborated into a comprehensive
national insurance scheme: the road followed by nearly all other Western societies
in the post-war period, and advocated by the BMA not only in the 1930s but also
subsequently. The other model, however, was that of the public health services,
developed and based on local authority provision in Britain in the nineteenth
century: a model based on seeing health as a public good rather than as an
individual right. While the first model emphasised the right of individuals to
medical care a right to be based, admittedly, on purchasing the appropriate
insurance entitlements the second model emphasised the obligation of public

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12 A READER IN HEALTH POLICY AND MANAGEMENT

authorities to make provision for the health of the community at large. While the
first model was consistent with individualistic medical values given that the
whole professional ethos was to see medical care in terms of a transaction between
the individual patient and the individual doctor the second model was consistent
with a collectivist approach to the provision of health care. Indeed throughout it is
important to keep in mind the distinction between medical care in the strict sense
(that is, care and intervention provided by doctors with the aim of curing illness)
and health care in the larger sense (that is, all those forms of care and intervention
which influence the health of members of the community).
Thus the whole logic of the Dawson report was based on the proposition that
preventive and curative medicine cannot be separated on any sound principle.
They must likewise be both brought within the sphere of the general practitioner,
whose duties should embrace the work of both communal as well as individual
medicine. Nor was this just a matter of intellectual tradition. Local government
was already in the business of providing health care, ranging from curative
medicine in its hospitals to chronic care for the elderly and mentally ill in its
institutions, from the provision of maternity clinics to looking after the health of
schoolchildren. Organisational bias thus reinforced intellectual bias in the sense
that the services provided by local government would have to be incorporated into
any national scheme that might emerge. To have adopted an insurance-based
scheme would therefore have meant actively repudiating the service-based legacy
of the past.
Given this convergence of views on the necessity of devising some form of
national health service, as distinct from some form of national health insurance, it
is tempting to interpret the eventual emergence of the 1948 NHS in a determinis-
tic fashion: to see it as the child not of Labour ideology, not as a Socialist triumph,
but as the inevitable outcome of attempts to deal with a specific situation in the
light of an intellectual consensus, both about what was desirable and about what
was possible. Equally, given this convergence, it would seem redundant to search
for explanations in Britains wartime experience, whether administrative or emo-
tional. The acceptance of the need for a national health service long predates, as
we have seen, the wartime administrative experience of running the emergency
medical service: an experience which, at best, can have generated confidence that it
was actually possible to run a complex web of hospitals and services. Similarly, this
acceptance long predates the wartime commitment to a collectivist solution of
welfare problems: a commitment epitomised in the 1942 Beveridge report which
assumed, without elaborating in detail, the creation of a comprehensive national
health service.
Accepting a general notion is, of course, one thing. Devising and implement-
ing a specific plan is, however, a very different matter. The consensus may have
provided a foundation. It did not provide a blueprint: when it came to detail, the
various proposals put forward during the inter-war period had all come up with
somewhat different schemes. To examine the evolution of plans from the outbreak
of war in 1939 to the enactment of the 1946 legislation for setting up the National
Health Service is to identify a whole series of clashes not only between interest

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THE NEW POLITICS OF THE NHS 13

groups but also between competing values. If everyone was agreed about the end
of policy in a general sort of way, there was little by way of consensus about
means and much awareness of the fact that the means chosen might, in turn,
affect the end. It was a conflict of a peculiar sort: conflict contained, and limited,
by an overarching consensus a constraint which forced compromise and caution
on all the protagonists. Indeed, as we shall find, the theme of conflict within
consensus is one which runs through the entire history of the NHS.

Notes

1 Michael Foot, Aneurin Bevan, vol. 2, Davis-Poynter: London, 1973.

2 In many ways the best account remains Harry Eckstein, The English Health
Service, Harvard UP: Cambridge, Mass. 1958. At the time of writing, the
government documents were not accessible and the book is perhaps biased by
the sources that were available: Ecksteins exclusive emphasis on the central
role of the medical profession reflects the fact that the main sources available
were the published accounts of negotiations in the medical press. Another
account based on published sources is AJ Willocks, The Creation of the National
Health Service, Routledge & Kegan Paul: London 1967. The first book to be
based on the documents now available in the Public Records Office is John E
Pater, The Making of the National Health Service, King Edwards Hospital Fund
for London: London 1981. Pater himself was a civil servant at the Ministry
during the period in question, and his book therefore is a most authoritative (if
extraordinarily discreet and self-effacing) account.
3 Political and Economic Planning, Report on the British Health Services, PEP:
London 1937.
4 Brian Abel-Smith, The Hospitals in England and Wales, 18001948, Harvard
UP: Cambridge, Mass. 1964.
5 Ministry of Health, Interim Report on the Future Provision of Medical and Allied
Services, HMSO: London 1920, Cmnd. 693.
6 Royal Commission on National Health Insurance, Report, HMSO: London
1926, Cmnd. 2596.
7 British Medical Association, A General Medical Service for the Nation, BMA:
London 1930; Socialist Medical Association, A Socialized Medical Service.
SMA: London 1933.

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3
The social transformation of American
medicine: the rise of a sovereign profession
and the making of a vast industry
Paul Starr
Extracts from Starr P (1982) The Social Transformation of American Medicine:
The Rise of a Sovereign Profession and the Making of a Vast Industry. New York,
Basic Books.

Doctors, corporations, and the state

The great illusion of physicians and the hospital industry in the 1970s was that
liberal government was causing their troubles. The real threat to their autonomy
lay in the demands they were placing upon private health insurance as well as
public programs. Private insurers and employers want medical expenditures to be
controlled. And though business has become more wary of planning and regula-
tion, it wants medicine put under constraint of some kind.
In the early 1980s, spokesmen for business are calling for control over costs by
the private sector. Though this approach has ideological affinities with the
competitive model in health policy, the two are not exactly the same. The chief
instance of private-sector regulation is the business coalition. In 1974 the Business
Roundtable, whose members consist of the chief executive officers (CEOs) of the
largest corporations in the United states, created a new organization called the
Washington Business Group on Health. The initial purpose was to defeat national
health insurance, but the group increasingly became involved in other medical
policy issues, particularly cost containment. Local business coalitions to encourage
containment of medical costs have been the next step. By early 1982 about eighty
such coalitions were in process of formation around the United States. Their
agenda includes such issues as utilization review and review of capital spending by
medical institutions, not altogether different from the concerns of the PSROs and
HSAs that the Reagan administration was intent on dismantling. The attack on
regulation may not presage its disappearance but rather a transfer of functions
from federally-sponsored organizations to business-sponsored organizations and
the states. It is not difficult to imagine a situation in which some corporations (i.e.,

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THE SOCIAL TRANSFORMATION OF AMERICAN MEDICINE 15

employers) lean on other corporations (i.e., insurers, HMOs, hospital chains),

which, in turn, lean on the professionals to control costs. However, some critics
object the employers wont lean hard enough because their stake is too small.1
The emergence of corporate enterprise in health services is part of two broad
currents in the political economy of contemporary societies. The older of these two
movements is the steady expansion of the corporation into sectors of the economy
traditionally occupied by self-employed small businessmen or family enterprises. In
this respect, the growth of corporate medical care is similar to the growth of
corporate agriculture. The second and more recent movement is the transfer of
public services to the administrative control or ownership of private corporations
the reprivatization of the public household.
As Ive already indicated, liberal and conservative policies, in opposite ways,
have both promoted corporate health care. Medicare and Medicaid stimulated the
huge growth in proprietary nursing homes and hospitals and later the rise of
dialysis clinics, home care businesses, and emergicenters. Cutbacks in financing
have encouraged the same developments. This shift was not inevitable. The legal
rule against the corporate practice of medicine might conceivably have been
steadfastly enforced by the courts. The early liberal programs might have empha-
sized neighborhood health centers instead of Medicaid and more generally have
fostered public facilities instead of public financing for private health care. The
great irony is that the opposition of the doctors and hospitals to public control of
public programs set in motion entrepreneurial forces that may end up depriving
both private doctors and local voluntary hospitals of their traditional autonomy.
The profession was long able to resist corporate competition and corporate
control by virtue of its collective organization, authority, and strategic position in
mediating the relation of patients to hospitals, pharmaceutical companies, and use
of third-party payment. Today, physicians still hold authority and strategic posi-
tion, but these have eroded. Specialization has diminished the scope of relations
between doctors and patients. Although patients who have established satisfactory
relationships with private physicians are less likely to enroll in HMOs, HMOs have
been developing more rapidly than before partly because ties between doctors and
patients are so much weaker. (The rise in malpractice suits against private
physicians has the same cause.) Employers and the government have become
critical intermediaries in the system because of their financial role, and they are
using their power to reorient the system.
In addition, the profession is no longer steadfastly opposed to the growth of
corporate medicine. Physicians commitment to solo practice has been eroding;
younger medical school graduates express a preference for practicing in groups.
The longer period of residency training may cultivate more group-oriented
attitudes. Young doctors may be more interested in freedom from the job than
freedom in the job, and organizations that provide more regular hours can screen
out the invasions of private life that come with independent professional practice.
The AMA is no longer as devoted to solo practice either. We are not opposed
to the corporate practice of medicine, says Dr. Sammons of the AMA. There is
no way that we could be, he adds, pointing out that a high proportion of the

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16 A READER IN HEALTH POLICY AND MANAGEMENT

AMAs members are now involved in corporate practice. According to AMA data,
some 26 percent of physicians have contractual relationships with hospitals; three
out of five of these doctors are on salary.2 About half the physicians in private
practice have set up professional corporations to take advantage of special
tax-sheltering provisions.3 Many physicians in private practice receive part of their
income through independent practice associations, HMOs, and for-profit hospitals
and other health care companies. The growth of corporate medicine has simply
gone too far for the AMA to oppose it outright. Dr. Sammons explains that the
AMA would oppose any interference by organizations in medical decisions, but
says that he is satisfied that none of the forms of corporate practice currently
threaten professional autonomy.4 However, at the local level, medical societies
often still vigorously oppose HMOs and other forms of integrated control.5
Doctors are not likely, as some sociologists have suggested, to become
proletarianized by corporate medicine. Proletarianized suggests a total loss of
control over the conditions of work as well as a severe reduction in compensation.
Such a radical change is not in prospect. Corporations will require the active
cooperation of physicians. Profit-making hospitals require doctors to generate
admissions and revenues; prepaid health plans, while having the opposite incen-
tives, still require doctors cooperation to control hospital admissions and overall
costs. Because of their dependence on physicians, the corporations will be
generous in granting rewards, including more autonomy than they give to most
other workers. The new generation of women physicians may find the new
corporate organizations willing to allow more part-time and intermittent work than
is possible in solo practice.
Nonetheless, compared with individual practice, corporate work will necessar-
ily entail a profound loss of autonomy. Doctors will no longer have as much
control over such basic issues as when they retire. There will be more regulation of
the pace and routines of work. And the corporation is likely to require some
standard of performance, whether measured in revenues generated or patients
treated per hour. To stimulate admissions, Humana offers physicians office space
at a discount in buildings next to its hospitals and even guarantees first-year
incomes of $60,000. It then keeps track of the revenues each doctor generates.
They let you know if youre not keeping up to expectations, says one young
physician. Humanas president is frank about what happens if they fail to produce:
Im damn sure Im not going to renegotiate their office leases. They can practice
elsewhere.6
Under corporate management, there is also likely to be close scrutiny of
mistakes, if only because of corporate liability for malpractice. An enthusiastic
management consultant writes that individual incompetence and sloppy clinical
performance will be less tolerated there than in freestanding large voluntary
hospitals The large conglomerate can purchase and/or develop sophisticated
quality-of-care control programs managed by statisticians. Working at corporate
headquarters, the statisticians will not be concerned about individual physicians
reactions. Their reports, however, will supply individual hospitals with results
about physicians who are not measuring up Senior management at the corpo-

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THE SOCIAL TRANSFORMATION OF AMERICAN MEDICINE 17

rate level will constantly be mindful that the corporations reputation comes
first 7 This, of course, may be management fantasy, but unlike PSROs, which
this control system resembles, it cannot be denounced as government regulation.
New distinctions will need to be made among owning, managing, employed,
and independent physicians. The rise of corporate medicine will restratify the
profession. A key question will be the control over the appointment of managing
physicians. If the managers are accountable to doctors organized in medical
groups, the profession may be able to achieve some collective autonomy within the
framework of the corporation (as they do in Kaiser). Another key issue will be the
boundary between medical and business decisions; when both medical and
economic considerations are relevant, which will prevail and who will decide?
Much will depend on the external forces driving the organization. Thus far,
conflict has been muted by affluence. A regime of medical austerity will test the
limits of professional autonomy in the corporate system.
One reason that there will be a loss of autonomy is that the organizations in
which physicians work are themselves likely to become heteronomousthat is, the
locus of control will be outside the immediate organization. Professional autonomy
has been protected by the institutional autonomy of hospitals. In the multihospital
systems, centralized planning, budgeting, and personnel decisions will deprive
physicians of much of the influence they are accustomed to exercise over
institutional policy.
Perhaps the most subtle loss of autonomy for the profession will take place
because of increasing corporate influence over the rules and standards of medical
work. Corporate management is already thinking about the different techniques for
modifying the behavior of physicians, getting them to accept managements
outlook and integrate it into their everyday work. That way they do not need to be
supervised and do not sense any loss of control. Sociologists have long talked
about the professional socialization that takes place in medical school as students
acquire the values and attitudes of mature physicians. Now they will have to study
corporate socialization as young doctors learn to do things the way the plan or
the company has them done.8
The rise of a corporate ethos in medical care is already one of the most
significant consequences of the changing structure of medical care. It permeates
voluntary hospitals, government agencies, and academic thought as well as
profit-making medical care organizations. Those who talked about health care
planning in the 1970s now talk about health care marketing. Everywhere one
sees the growth of a kind of marketing mentality in health care. And, indeed,
business school graduates are displacing graduates of public health schools,
hospital administrators, and even doctors in the top echelons of medical care
organizations. The organizational culture of medicine used to be dominated by the
ideals of professionalism and voluntarism, which softened the underlying acquisi-
tive activity. The restraint exercised by those ideals now grows weaker. The health
center of one era is the profit center of the next.
No less important than its effect on the culture of medical care institutions is
the likely political impact of the growth of corporate enterprise. As an interest

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18 A READER IN HEALTH POLICY AND MANAGEMENT

group, the new health care conglomerates will obviously be a powerful force. In
one casethe renal dialysis clinicsthe influence of one corporation prevented
Congress from adopting legislation that would have cut federal health care costs,
which is to say corporate profits. The profit-making hospitals clearly benefit from
the structure of private health insurance and can be counted on to oppose any
national health program that might threaten to end private reimbursement. The
corporate health services industry will also represent a powerful new force resisting
public accountability and participation.
A corporate sector in health care is also likely to aggravate inequalities in
access to health care. Profit-making enterprises are not interested in treating those
who cannot pay. The voluntary hospital may not treat the poor the same as the
rich, but they do treat them and often treat them well. A system in which corporate
enterprises play a larger part is likely to be more segmented and more stratified.
With cutbacks in public financing coming at the same time, the two-class system in
medical care is likely to become only more conspicuous.
This turn of events is the fruit of a history of accommodating professional and
institutional interests, failing to exercise public control over public programs, then
adopting piecemeal regulation to control the inflationary consequences, and, as a
final resort, cutting back programs and turning them back to the private sector.
The failure to rationalize medical services under public control meant that sooner
or later they would be rationalized under private control. Instead of public
regulation, there will be private regulation, and instead of public planning, there
will be corporate planning. Instead of public financing for prepaid plans that might
be managed by the subscribers chosen representatives, there will be corporate
financing for private plans controlled by conglomerates whose interests will be
determined by the rate of return on investments. That is the future toward which
American medicine now seems to be headed.
But a trend is not necessarily fate. Images of the future are usually only
caricatures of the present. Perhaps this picture of the future of medical care will
also prove to be a caricature. Whether it does depends on choices that Americans
have still to make.

Notes

1 Paul W. Earle, Business Coalitions A New Approach to Health Care Cost

Containment. (American Medical Association, January 1982); for two reports
on business views, see John Iglehart, Health Care and American Business,
New England Journal of Medicine 306 (January 14, 1982), 12024, and idem,
Drawing the Lines for the Debate on Competition, New England Journal of
Medicine 305 (July 30, 1981), 29196. For a skeptical view that business is not
really that much interested in health costs, see Harvey M. Sapolsky, Corpo-
rate Attitudes toward Health Care Costs, Milbank Memorial Fund Quarterly
59 (Fall 1981), 56185.
2 American Medical Association, SMS Report [Sociomedical Monitoring Sys-
tem] (February 1982), 1.

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THE SOCIAL TRANSFORMATION OF AMERICAN MEDICINE 19

3 Goldsmith, Can Hospitals Survive?, 3334.

4 Interview, January 15, 1982.
5 Clark Havighurst, Professional Restraints on Innovation in Health Care
Financing, Duke Law Journal (May 1978), 30387.
6 Kinkhead, Humanas Hard-Sell Hospitals, 76.
7 Johnson, Health Care 2000 A.D., 4950.
8 Freidson distinguishes between physicians technical autonomy in defining
the content of their work and their social and economic autonomy in
controlling the organization or terms of work. Eliot Freidson, Profession of
Medicine (New York: Dodd, Mead, 1970), 373. This distinction may become
increasingly untenable as corporate organizations make the technical standards
an object of modification.

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4
Securing our future: taking a long-term view
Derek Wanless
Extracts from Wanless D (2002) Securing our Future: Taking a Long-term View.
HM Treasury, April 2002.

Introduction
1.1 The Acts of Parliament which founded the National Health Service (NHS)
set out a vision of: a comprehensive health service designed to secure improve-
ment in the physical and mental health of the people and the prevention,
diagnosis and treatment of illness.1 In the half century since, the NHS has
established itself as the public service most valued by the people of the UK.
1.2 To meet its original vision in future, and to justify the value which people
attach to it, the health service requires radical reform.
1.5....In March 2001, the Chancellor of the Exchequer commissioned this
Review to examine future health trends and the resources required over the next
two decades to close the gaps in performance and to deliver the NHS Plan and the
vision of the original Acts.
1.6 This is the first time in the history of the NHS that the Government has
commissioned such a long-term assessment of the resources required to fund the
health service. Making a long-term projection of this kind is, of course, fraught
with uncertainty, but there are good reasons for attempting it.
1.7 Many decisions about resources need to be made for the long term; for
example, the number of people to be trained, the skills they will require, the types
of buildings likely to be needed and the information and communication technolo-
gies upon which the efficient operation of the system will depend. The whole
system, including prevention, diagnosis and treatment, rehabilitation and long-
term care must be seen from the perspective of the individual patient, with
appropriate structures in place to produce sensible incentives and to direct
resources efficiently.
1.8 It is hoped that this Review will help to contribute towards greater
stability in the funding and delivery of health care over the next 20 years. While
total health spending has risen on average by 3.9 per cent a year in real terms over
the past 40 years, annual changes in real terms have varied substantially from
reductions, to an increase of over 10 per cent. Such instability in funding acts as a

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SECURING OUR FUTURE: TAKING A LONG-TERM VIEW 21

serious barrier to long-term planning. Taking a long-term view should also provide
the opportunity for more effective management of the health service. Good
management requires clarity about the long-term, strategic direction of the service
coupled with flexibility to respond decisively and appropriately to changes as they
occur.
1.12 The Review has considered the resource requirements for a publicly
funded, comprehensive and high quality health service. Although the Terms of
Reference relate to health care, it is clear that social care is inextricably linked to
health care. They must be considered together. The Review has therefore at-
tempted to identify and draw out some of the key relationships between the two
and, as a first step, sets out illustrative projections of resource requirements for
social care for adults (especially older people) based on the present position
adjusted for changes in the population and in the level of ill health. However, with
the time and resources available, it has not been possible to develop social care
projections in the same amount of detail as the projections for health care. Further
work is required as part of a whole systems approach to analysing and modelling
health and social care.
1.13 Public funds are used to commission services not only from the NHS
and local authorities but also from private and voluntary organisations. The
Review has made no judgement about the relative merits of different forms of
public and private delivery; the resource estimates make no assumption about the
public/private mix in the delivery of services in 20 years time.

Financing of care
6.54 The Review was established to estimate the resources needed to deliver a
high quality health service over the next two decades. Its remit was not to look at
how those resources should be financed. Nevertheless, it has been important to
examine whether the way health care is financed might itself be a driver of the total
resources required.
6.55 Chapter 4 of the Interim Report considered this issue and concluded
that the current method by which health care is financed through general taxation
is both fair and efficient and that a continuation of a system of funding broadly
similar to that at present is not, in itself, anticipated to be a factor leading to
additional resource pressures over the next 20 years. The Interim Report took the
view that it is therefore appropriate to conduct the Review on the basis of a
continuation of the current system for funding UK health care.
6.56 The Interim Report identified four main mechanisms for financing
health care:

+ general taxation: general taxation revenues, incorporating both direct and

indirect tax receipts, collected by government;
+ social insurance: earnings-related employee contributions and/or employer
payroll taxes;
+ out-of-pocket payments: payments made directly by patients for the use of
particular health services in either the public or private sector; and

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22 A READER IN HEALTH POLICY AND MANAGEMENT

+ private insurance: private medical insurance taken out by individuals or by

employers on their behalf.

6.57 Most countries use a combination of these to finance their health care
systems, although the balance differs between countries. The UK and Sweden have
the highest share of public funding: in both, under a fifth of total health spending
is privately financed, compared to between a quarter and a third in the other
comparator countries considered in Chapter 5 of the Interim Report.
6.58 Drawing on evidence from these comparator countries, the Interim
Report considered the four financing mechanisms against three objectives: effi-
ciency, equity and choice. A summary is provided in paragraphs C.15 to C.24 of
Annex C.

Consultation views
6.59 The consultation responses generally supported the Interim Reports con-
clusions about the efficiency and equity of general taxation financing and that the
current mechanism of funding health care in the UK is unlikely itself to be a driver
of cost. Strong support for a continuation of the current financing system was
received from some respondents. The Kings Fund recently stated that on the
grounds of equity and efficiency of collection, the existing financing arrangements
predominantly through general taxation are currently the best way of paying for
health care2. UNISON supported the broad conclusions of the Review, i.e. that
the NHS should continue as a tax funded service. However, a few responses
questioned the Interim Reports conclusions.
6.60 Some claimed a causal link between financing health care predomi-
nantly through general taxation and the historic under-investment in the health
service. For example, the Association of British Insurers said that the UKs
publicly financed health care system has been associated with a significant
cumulative under-investment in resources, infrastructure and poor service provi-
sion. While there has undoubtedly been significant under-investment in the NHS
in the past as a result of the failure of successive governments to commit sufficient
resources to the health service, the Review does not believe that this is an inevitable
feature of tax-financed systems. For example Sweden, which has a predominantly
tax funded system, is not generally considered to have suffered from such a
problem. Levels of health care spending vary significantly across countries irre-
spective of the particular financing system used.
6.61 It was suggested that the UKs method of financing health care hides
the real cost of health care, so impacting adversely on patient responsibility and
engagement. The funding of health care from general taxation does obscure its
cost, but it is not evident that a greater exposure of patients to the costs involved
would necessarily lead them to take more responsibility for their own care. People
covered by social and private insurance systems are more directly aware of the
amount they are paying but there is no evidence that this constrains demand. In
systems such as France where patients face direct charges they often take out

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SECURING OUR FUTURE: TAKING A LONG-TERM VIEW 23

additional insurance to cover these costs. The Review accepts that it is important
that the public should be better informed about the cost of delivering health care.
6.62 It was also suggested that, in private or social insurance schemes, where
people choose regularly whether to stay with their existing insurer or move to
another, they could exert more influence over what is provided, could show their
willingness to pay more for better services and could help exert discipline on total
spending. The Review accepts that these are possible benefits although it appears
not to have been the recent trend in many countries. For example, benefits
packages tend to be the same or very similar across social insurance funds and, as
noted in the Interim Report, cost containment has been a growing issue in many
countries. The governments of France and Germany have been trying to limit the
growth in social insurance contributions.
6.63 It has also been suggested that the UKs method of financing restricts
patient choice and limits the responsiveness of the service. The major private
medical insurers and some research groups made this point strongly in consulta-
tion. The Review believes it is entirely appropriate that under a publicly-funded
system choices about what clinical services are and are not provided should be
made centrally and transparently on the basis of best available evidence. In
England and Wales, this is the developing role of NICE.
6.64 But in any insurance system there will be rules laid down about what is
and what is not covered. Private providers are free to make their own decisions,
and provide choice about what is covered. In terms of non-clinical services, the
Review recognises that people will increasingly demand greater choice and
responsiveness, and that financing greater choice in this area through general
taxation may be neither acceptable nor equitable. As discussed below, introducing
charges for certain additional non-clinical services would be one way of expanding
the degree of choice.
6.65 It should also be noted that in the UK in the past, and at present, the
opportunity for introducing greater choice has been restricted by a lack of capacity
in the system. If such capacity constraints can be alleviated in the period ahead,
this will open up the possibility of introducing greater choice across the service.
The Government has made clear its intention to do so and it is certainly necessary.
The Review accepts that it will require patients expressing their views to ensure
this happens efficiently and in an appropriately responsive way.
6.66 The points presented above are all important, although some appear to
relate more to the particular experience of the UK in the past than to inevitable
consequences of the health care financing mechanism. The Review has carefully
analysed the views which were put to it in meetings and in written submissions. It
has considered the administrative burden of any changes at a time when the NHS
is under such pressure for change. It is clear that there are deeply held beliefs about
the extent to which private financing should exist in health care and that other
countries, notably Canada, are engaged in similar debates over the best way of
funding health care. However, the Review still does not believe that there is an
alternative financing method to that currently in place in the UK which would
deliver a given level and quality of health care either at lower cost to the economy

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24 A READER IN HEALTH POLICY AND MANAGEMENT

or in a more equitable way. The issue is the sustainability of the individual

components of the financing mechanism, and that needs to be addressed in the
context of long-term estimates of the resource requirements.
6.67 The projected resource requirements for the health service over the next
two decades set out in the previous chapter are very high and, should subsequent
reviews confirm projections of similar magnitude, they will clearly present signifi-
cant financing challenges. As expectations and quality standards rise, there will
also be significant challenges in defining both clinical need and what level of
patient choice can and should be accommodated through public funding.

Out-of-pocket payments
6.68 Out-of-pocket payments could play a role in meeting this challenge, both in
terms of generating extra income for the service and in terms of providing extra
choice for patients.
6.69 What role such payments should play in the future is not a matter for
this Review, but for the government of the day. As noted in the Interim Report,
decisions on the balance of financing should, on a continuing basis, be addressed
in the context of the macroeconomic background against which the Chancellor
considers the implications of the estimates of future resource requirements for the
Governments wider economic and fiscal strategy and, in particular, considers the
capacity of the UKs general taxation base.
6.70 Whatever role they do play, however, such charges should only be
considered in cases where the principle that access to health care should be based
on clinical need and not ability to pay can be assured. With this in mind, two
factors are particularly important in considering the possible role of such pay-
ments: the scope of charges and the exemptions applied for those who cannot
afford to pay.
6.71 Charges already exist in the UK for a limited number of clinical services
(mainly prescriptions, dental treatments and sight tests, glasses and contact lenses)
and non-clinical services (for example, single maternity rooms, televisions, tel-
ephones and car parking).
6.72 The Review remains of the view that it would be inappropriate to
extend out-of-pocket payments to clinical services such as visits to a GP or a
specialist. As discussed in the Interim Report, such charges are inequitable unless
accompanied by adequate exemptions and risk increasing inequalities in access to
care. A few responses advocated such charges but NACABs work on patient
charges argued strongly against them.3 While they could yield substantial revenues,
they would also involve additional administrative costs.
6.73 The impact on equity of out-of-pocket payments for items, such as
prescriptions, depends on how effective a safety net is in place to exempt all of
those who cannot afford such payments.
6.74 Currently 50 per cent of the population of England is exempt from
prescription charges, including the young, the elderly, the unemployed and those
on low incomes. As a result, 85 per cent of prescription items dispensed by

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community pharmacists and appliance contractors in England in 2000 were free to

patients. Yet in consultation, NACAB pointed to research commissioned from
MORI showing that of those liable to pay, 1 in 20 had failed to get all of a
prescription dispensed and a further 1 in 50 had failed to get part dispensed,
because of the cost. On the other hand, some of those who are exempt could easily
afford to pay and are unlikely to be deterred by the level of charges, especially as
they are capped by prepayment certificate arrangements.
6.75 Recognising the political sensitivities and the limited amount of money
which might be raised, this may not be a priority for attention. However, the
present structure of exemptions for prescription charges is not logical, nor rooted
in the principles of the NHS. If related issues are being considered in future, it is
recommended that the opportunity should be taken to think through the rationale
for the exemption policy.
6.76 The Review believes that there is an argument for extending out-of-
pocket payments for non-clinical services and recommends that they should be
kept under review. Such services are likely to become more important as demand
for greater patient choice increases and it may prove difficult to justify the public
financing of such services. For example, payments could be considered for the
provision of IT facilities in patients rooms. This would offer a way of allowing
patients to experience a greater choice in non-clinical services while at the same
time enabling the health service to preserve its resources for clinical services. Better
information technology will help to ensure that increased administrative costs do
not use up the incremental income.

Annex C

Financing health care

C.16 This Review has been commissioned to estimate the resources required to
run the NHS in 20 years time. It is not set up to examine the way in which those
resources are financed. My Terms of Reference specify that I should examine the
resources required for a publicly funded, comprehensive and high quality health service
and I am asked to identify the key factors that will determine the resources
required. I have therefore needed to consider whether the method of funding the
health service is itself a factor determining the resources required.
C.17 Health spending in most major countries is predominantly publicly
financed the US being the main exception. In the UK, 83 per cent of health
spending is publicly funded. This is high by international standards the EU
average is 75 per cent.4 Although a higher proportion of health spending is publicly
funded in the UK, publicly-funded health spending accounts for a smaller share of
GDP than in any of the seven European and Commonwealth countries considered
as the most important comparators for this Review.5
C.18 Public funding of health care can come from two sources: general
taxation and social insurance. Private funding comes mainly from medical insur-
ance and out-of-pocket payments by patients. Work by the OECD (Organisation

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26 A READER IN HEALTH POLICY AND MANAGEMENT

for Economic Development and Co-operation) suggests that a greater share of

public financing of health care is associated with better population health out-
comes for a given level of expenditure. In terms of its impact on the economy, the
evidence suggests that, in general: private health spending has no advantages over
public health spending. The most obvious consequence of shifting from public to private
spending is to shift the burden from the relatively rich to the relatively poor.6
C.19 There are relatively high levels of dissatisfaction with health systems in
many developed countries, whatever the funding system and overall level of
resources devoted to health. The UK system of financing appears to be relatively
efficient and equitable. It delivers strong cost control and prioritisation and
minimises economic distortions and disincentives. A further key advantage of the
UKs funding system is its fairness, providing maximum separation between an
individuals financial contributions and their use of health care.
C.20 The main disadvantage of a predominantly social insurance based
model is that the revenue base is more concentrated, falling on employment to a
greater extent than in countries with a higher proportion of general taxation
funding. As a result, many countries such as France with a tradition of social
insurance have been shifting the balance in their funding towards general taxation.
C.21 Private funding mechanisms tend to be inequitable, regressive (those
with greater health needs pay the most), have weak incentives for cost control, high
administration costs and can deter appropriate use.
C.22 My conclusion is that there is no evidence that any alternative financing
method to the UKs would deliver a given quality of health care at a lower cost to
the economy. Indeed other systems seem likely to prove more costly. Nor do
alternative balances of funding appear to offer scope to increase equity.
C.23 The main weakness of public financing of health care (whether through
general taxation or social insurance) is that it provides limited scope for expression
of individual preferences and choice. Where there is a clinical need for a particular
service, a process is needed to decide whether the service will be available through
the NHS or not. Such a process must be acceptable to the public. The National
Institute for Clinical Excellence (NICE) and NSFs provide the main building
blocks for this process. On equity grounds, I do not think it right that some
individuals should be able to access clinically necessary services through the NHS
by paying when others whose need is at least as great could not simply because
they could not afford to pay.
C.24 However, as patient expectations increase, the UK will need to consider
whether to provide a mechanism to allow patients to express their preferences for
greater choice in non-clinical services. There are currently limited charges for
non-clinical services such as single maternity rooms and car parking. The NHS
Plan announced the Governments intention to negotiate contracts with private
companies to install bedside TVs and phones with modest charges for the service.
It may not be considered appropriate for public money to be used to offer patients
greater choice of non-clinical services when these resources could be used for
better treatment and clinical care for all. Such patient charges for non-clinical
services may offer a way to extend choice for these services without diverting NHS

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SECURING OUR FUTURE: TAKING A LONG-TERM VIEW 27

resources away from clinical care. These are matters for consideration, if thought
necessary, after this Review, or subsequent reviews, have reported on the likely
total resources required in the long term.
C.25 The key conclusion for my Review is that the current method by which
health care is financed through general taxation is both a fair and efficient one. I
believe that a continuation of a system of funding broadly similar to that at present
is not, in itself, a factor which will lead to additional resource pressures over the
next two decades.

Notes

1 National Health Service Act (England and Wales) 1946, National Health
Service Act (Scotland) 1947, Health Services (Northern Ireland) Act 1948.
2 Kings Fund (2002), The future of the NHS: a framework for debate,
discussion paper, January 2002.
3 National Association of Citizens Advice Bureaux (NACAB) (2001), Un-
healthy charges: CAB evidence on the impact of health charges, July 2001.
4 1998 unweighted average.
5 France, Germany, the Netherlands, Sweden, Australia, Canada and New
Zealand.
6 Normand C (1998), Ten popular health economic fallacies, Journal of Public
Health Medicine 20: 129132.

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PART 2
The policy-making process
Introduced by Naomi Chambers

Senior health care managers are constantly seeking clarity about how and why
policy is developed. There is always a powerful need to sense-make at a local
level; to be able to tell the story convincingly to staff, patients and above all to
themselves. Managers are further concerned with how policy should be imple-
mented, in order to understand their role and contribution, and as a touchstone
for personal priority setting in their day-to-day work. In terms of clear answers, the
policy process literature appears largely at first a chimera, although there are
some beguiling models and theories that do help to make sense of what appears
to be a messy picture; indeed, described by Kingdon (1995) as the primeval
soup of problems, policies and politics.
This part focuses on four classic texts in relation to health policy development
and implementation to illuminate the topic and to clarify the potential role of
managers as policy entrepreneurs rather than policy victims (Roberts and King,
1991). One of the four texts has been drawn from a wider canvas rather than from
the health-related field, to underline the perspective that there are lessons to be
drawn for health care from the broader public policy arena. The texts have also
been selected on the basis of their durability, either because the ideas that they
introduced have already entered the lexicon, or because in our judgement they will
do.
To set the scene however, it is helpful to begin by referring to Lindbloms
classic text. The memorably entitled article The science of Muddling through
(1959) elegantly puts the case that policy formulation and execution are
intertwined rather than separate, and sets the scene for later elucidations of his
argument for successive limited comparisons , partisan mutual adjustment and
bureaucratic intelligence. His argument is that attempts to formalize rational
policy formulation have emphasized an idealized and comprehensive approach
(the rational-comprehensive or root method) whereas the alternative (the succes-
sive limited comparisons or branch method) has heretofore been relatively
neglected. Lindblom provides the theoretical explanation for managers as policy

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A READER IN HEALTH POLICY AND MANAGEMENT 29

actors as they go about the iterative business of putting new policies into practice,
in a way that has echoes of Mintzbergs (1973) critique of the realities of
managerial life some time later.
Dilys Hill (1978), meanwhile, provides a helpful analysis of the concept of
political ambiguity that elucidates how policy is made and implemented when the
decision-making process is, as it usually is, based on compromise. Hill describes
how ambiguity allows the political system to take the strain when there are
divergent values about a public issue, how national and local structures pulling in
different directions can produce policy ambiguity, and how ambiguity in implemen-
tation can have both beneficial and harmful results when there is a groundswell of
societal disagreement concerning public welfare area. Continuing with the theme
of continuous and iterative production of policy, and far from the popularized
notion of civil servants as either conspirators, bureaucrats or wise counsellors as
popularized by Yes, Minister,1 Michael Hill (2005) offers a measured and nuanced
analysis of the role of civil servants; an area that can puzzle and confuse even
very senior health managers. Rather than holding with the traditional dichotomy of
politics (the agenda-setting processes of the politicians) and administration
(the arrangements for implementation handled by the civil servants), Hill argues
that the latter belong at the very centre of the policy community, and thus shape,
interpret, translate and reinvent policy.
Turning to the four selected readings, Michael Lipskys (1971) particular
contribution lies in his analysis of the process of implementation and recreation of
policy at the grassroots, in his notion of street-level bureaucrats, which has now
entered the canon. Lipsky starts with the premise that there are two opposite
belief systems in place when policy is implemented at street level: public service
workers believe they are doing a good job but the recipients of their services
disagree and transfer that belief in their judgement of the whole bureaucracies in
which they work. Lipsky argues that perceived inadequacy of resources, threats
and challenges to authority and contradictory or ambiguous job expectations all
contribute to worker stress and, as a defence mechanism kicks in, the combina-
tion leads workers to routinize, simplify, distort and reinterpret their role, thereby
reinventing government policy at street level. Lipskys prescriptions lie both in
greater decentralization and neighbourhood control and in the recruitment of new
cadres of graduates with intellectual acumen, staying power and a public service
orientation to reinvigorate the street-level workforce. This has resonances with the
problem of middle management (Sergeant, 2003) and the aspirations of, for
example, the UK NHS graduate training schemes in challenging the way we do
things round here, although the jury must be out as to the enduring impact of
such graduate schemes, given the apparent entrenchment of street-level bureauc-
racy in healthcare organizations.
Turning now to the politics of health, Rudolph Kleins oeuvre over a quarter of
a century, focusing largely on an analysis of the UK health policy context, is one of
the most compelling and illuminating, drawing as it does on the authors
journalistic roots. His article in 1998 heralding the new (and New) Labour
governments health policy priorities also succinctly sets the historical context,

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30 A READER IN HEALTH POLICY AND MANAGEMENT

summarized as a centralized service based on the principle of parsimony, giving

the medical profession a stronger hold on policy than in countries with more
diverse and devolved systems of health care. The author is generally remarkably
prescient about enduring UK health policy paradoxes and challenges a decade
later across the themes of decentralization, incentives for performance improve-
ment and challenges to medical autonomy, although not altogether accurate in his
prediction about Labours repudiation of the market by 2008 (at least in England).
This paper outlines the influence of US health policy and how its central tenets of
competition, markets and managed care come up against very different domestic
politics that results in the emergence of new language or as Klein puts it new
ways of thinking about health care in the UK.
Stephen Harrison and Bruce Wood (1999), in their critique of reorganizations
over a period of 30 years, have identified subtle changes in health service
reorganization policy, moving away from the early days of prescriptive blueprints
spelling out the detail of the desired landscape (e.g. in The Grey Book2) to what
they term bright ideas, which are then translated by local incentivized policy
actors into specific new arrangements in a process that they term manipulated
emergence. The concept can be applied beyond reorganization into other areas of
health policy; for example, in relation to care closer to home, configuration of
acute care, and so on. The question remains whether this is a cyclical process;
that is, whether there will be a return to the prescriptive emphasis or whether, as
part of Whitehall letting go of the NHS, manipulated emergence will endure as a
favoured health government policy tool. Talbots (2005) thesis would favour the
former: the paradox of human nature played out in policy terms would indicate
that those policy makers who are keen to spell it out in full in advance will again
come to the fore in due course. Indeed, there are already examples of different
styles coexisting: for example, the blueprint for reducing unplanned hospital
admissions among over 65s (precise numbers of community matrons and job
descriptions were issued by the Department of Health in 2006) as opposed to the
uneven playing out of practice-based commissioning policy (in contrast with
fundholding rules) from 2005 onwards with probably rather weakly incentivized
local policy actors.
The final reading offers a painstaking economic analysis of the development
of the NHS since 1948. Gwyn Bevan and Ray Robinson (2005) show how the
theory of path dependency has continuously acted upon health policy develop-
ment and implementation to slow it down and dilute it. Path dependency
essentially is about the power of history, previous decisions, existing institutions
and country-specific structural forces to constrain really new policy ideas and to
prevent them from being implemented (Wilsford, 1994). The authors argue that
the three economic logics in healthcare of controlling total costs, the equitable
distribution of hospital and community services and efficiency are undermined by
the political framework of a state hierarchical system and one in which GPs and
hospital doctors, in a long-term collegial relationship, determine demand and
supply. Occasionally, forces come together, as they did in the early 1990s, to
force policy into a new trajectory, with the introduction of the internal market,

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A READER IN HEALTH POLICY AND MANAGEMENT 31

money following the patient and the purchaser-provider split. The longer-term
result, despite Labours apparent ideological protests while in opposition, was an
incremental readjustment and dilution following their coming into power, with the
anticipated impacts of productivity and cost control remaining a mirage.
What space can health managers occupy in terms of health policy develop-
ment and implementation in the light of the theories and arguments developed in
these selected readings? What prospects are there for them to be policy
entrepreneurs? The literature on policy implementation (e.g. Hogwood and Gunn,
1984) indicates that there are a number of circumstances in which managers can
stumble in the gaps between policy formation and implementation. Three main
areas of insight are particularly relevant. First, the recognition that the policy
process is likely to be iterative, ambiguous, compromised and emergent (Lind-
blom, 1959; Hill, 1978; Harrison and Wood, 1999) provides a steer for the
sense-making contribution and the management of expectations at local level.
Second, an understanding of the part played by street-level bureaucrats (Lipsky,
1971) should lead to more of a focus on the values, beliefs, behaviours and
actions of front-line staff in checking out the realpolitik of policy implementation.
Finally, a more strategic reading of the shape and durability of particular policy
initiatives is enabled by reference to theories about manipulated emergence and
path dependency.

Summary

+ Many writers have described the messiness and iterative nature of the
policy process.
+ The influence of US health policy on the English health system is
significant and long term but initiatives have been diluted because of the
different paths taken by the two countries.
+ Health managers may have a particular role to play in policy implemen-
tation and are better placed if they have insights with regard to the part
played by front-line staff, the power of path dependency and the
management of policy ambiguity.

Notes

1 Yes Minister is a popular 1980s satirical British situation comedy set in

Whitehall (and rumoured to have been Margaret Thatchers favourite TV
programme).
2 The Grey Book is the colloquial term for the administrators handbook that
characterized the bureaucracy of the NHS during the 1970s. It contained
highly structured and detailed descriptions of policies, structures and lines of
accountability.

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32 A READER IN HEALTH POLICY AND MANAGEMENT

References and further reading

Hill, D. (1978) Political ambiguity and policy: the case of welfare, Social and
Economic Administration, 12(2): 89119.
Hill, M. (2005) Civil servants and policy formulation, in M. Hill (ed.) The Public
Policy Process. London: Pearson Education Limited.
Hogwood, B. and Gunn, L. (1984) Policy Analysis for the Real World. Oxford:
Oxford University Press.
Kingdon, J.W. (1995) Agendas, Alternatives and Public Policies. New York:
Addison, Wesley, Longman.
Lindblom, C.E. (1959) The science of muddling through, Public Administration
Review, 19(2): 1988.
Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper & Row.
Roberts, N. and King, P. (1991) Policy entrepreneurs: their activity structure and
function in the policy process, Journal of Public Administration Research and
Theory, 1(2): 14775.
Sergeant, H. (2003) Managing not to Manage. London. Centre for Policy Studies.
Talbot, C. (2005) The Paradoxical Primate. Exeter, UK: Imprint Academic.
Wilsford, D. (1994) Path dependency, or why history makes it difficult but not
impossible to reform health care systems in a big way, Journal of Public
Policy, 14: 25183.

The readings
Lipsky, M. (1971) Street-level bureaucracy and the analysis of urban reform,
Urban Affairs Review, 6: 391409.
Klein, R. (1998) Why Britain is reorganizing its health service yet again, Health
Affairs, 17(4): 11125.
Harrison, S. and Wood, B. (1999) Designing health service organisation in the UK,
19681998: from blueprint to bright idea and manipulated emergence.
Public Administration, 77(4): 75168.
Bevan, R.G. and Robinson, R. (2005) The interplay between economic and
political logics: path dependency in healthcare in England, Journal of Health
Policy, Politics and Law, 30(1,2): 5378.

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5
Street-level bureaucracy and the analysis of
urban reform
Michael Lipsky
Extracts from Lipsky M (1971) Street-level bureaucracy and the analysis of urban
reform, Urban Affairs Review, 6: 391409.

In American cities today, policemen, teachers, and welfare workers are

under siege. Their critics variously charge them with being insensitive, unprepared
to work with ghetto residents, incompetent, resistant to change, and racist. These
accusations, directed toward individuals, are transferred to the bureaucracies in
which they work.

Street-level bureaucracy

Men and women in these bureaucratic roles deny the validity of these criticisms.
They insist that they are free of racism, and that they perform with professional
competence under very difficult conditions. They argue that current procedures
are well designed and that it is only the lack of resources and of public support and
understanding which prevents successful performance of their jobs. Hence bureau-
crats stress the need for higher budgets, better equipment, and higher salaries to
help them do even better what they are now doing well, under the circumstances.
How are these diametrically opposed views to be reconciled? Do both sides
project positions for advantage alone, or is it possible that both views may be valid
from the perspective of the policy contestants? Paradoxically, is it possible that
critics of urban bureaucracy may correctly allege bias and ineffectiveness of
service, at the same time that urban bureaucrats may correctly defend themselves
as unbiased in motivation and objectively responsible to bureaucratic necessities?
What is particularly ominous about this confrontation is that these street-level
bureaucrats, as I call them, represent American government to its citizens. They
are the people citizens encounter when they seek help from, or are controlled by,
the American political system. While, in a sense, the Federal Reserve Board has a
greater impact on the lives of the poor than, say, individual welfare workers
(because of the Boards influence on inflation and employment trends), it

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34 A READER IN HEALTH POLICY AND MANAGEMENT

nonetheless remains that citizens perceive these public employees as most influential
in shaping their lives. As ambassadors of government to the American people, and
as ambassadors with particularly significant impacts upon the lives of the poor and
of relatively powerless minorities, how capable are these urban bureaucrats in
providing high levels of service and responding objectively to individual grievances
and needs?
It is one conclusion of this paper that both perspectives have some validity.
Their simultaneous validity, reflecting differences in perspective and resulting from
the responses of street-level bureaucrats to problems encountered in their jobs,
focuses attention on one aspect of the institutional racism with which the Kerner
Commission charged American society.
In analyzing the contemporary crisis in bureaucracy, and the conflicting claims
of urban bureaucrats and their nonvoluntary clients, I will focus on those urban
bureaucrats whose impact on citizens lives is both frequent and significant. Hence
the concentration on street-level bureaucratsthose government workers who
directly interact with citizens in the regular course of their jobs; whose work within
the bureaucratic structure permits them wide latitude in job performance; and
whose impact on the lives of citizens is extensive. Thus, the analysis would include
the patrolman on the beat, the classroom teacher, and the welfare investigator. It
would be less relevant to the public school principal, who deals primarily with
subordinates rather than with pupils, or to the traffic cop, whose latitude in job
performance is relatively restricted.
Further, I want to concentrate on ways in which street-level bureaucrats
respond to conditions of stress imposed by their work environment, where such
stress is relatively severe. Analytically, three kinds of stress may be readily observed
in urban bureaucracies today.
(1) Inadequate resources. Street-level bureaucracies are widely thought to lack
sufficient organizational resources to accomplish their jobs. Classrooms are over-
crowded. Large welfare caseloads prevent investigators from providing all but
cursory service. The lower courts are so overburdened that judges may spend their
days adjourning but never trying cases. Police forces are perpetually understaffed,
particularly as perceptions of crime and demands for civic order increase (Silver,
1967).
Insufficiency of organizational resources increases the pressures on street-level
bureaucrats to make quick decisions about clients and process cases with inad-
equate information and too little time to dispose of problems on their merits.
While this may be said about bureaucratic decision-making in general, it is
particularly salient to problems of street-level bureaucracy because of the impor-
tance of individual bureaucratic outcomes to citizens subject to the influence of
urban institutions. The stakes are often highboth to citizen and to bureaucrat.
(2) Threat and challenge to authority. The conditions under which street-level
bureaucrats work often include distinct physical and psychological threats. Police-
men are constantly alert to danger, as are other street-level bureaucrats who
function in neighborhoods which are alien to them, are generally considered
dangerous, or are characterized by high crime rates. Curiously, it may make little

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STREET-LEVEL BUREAUCRACY AND THE ANALYSIS OF URBAN REFORM 35

difference whether or not the probabilities of encountering harm are actually high,
so long as people think that their jobs are risky.
Even if actual physical harm is somewhat remote, street-level bureaucrats
experience threat by their inability to control the work-related encounter. Teachers
especially fear the results of loss of classroom discipline or their ability to manage a
classroom. Policemen have been widely observed to ensure the deference of a
suspect by anticipatory invocation of authority.
(3) Contradictory or ambiguous job expectations. Confronted with resource inad-
equacies and threats which increase the salience of work-related results, street-level
bureaucrats often find their difficulties exacerbated by uncertainties concerning
expectations of performance. Briefly, role expectations may be framed by peers, by
bureaucratic reference groups, or by public expectations in general (Sarbin and
Allen, 1968). Consider the rookie patrolman who, in addition to responding to his
own conceptions of the police role, must accommodate the demands placed upon
him by
(i) fellow officers in the station house, who teach him how to get along and try to
correct the teachings of his police academy instructors;
(ii) his immediate superiors, who may strive for efficiency at the expense of
current practices;
(iii) police executives, who communicate expectations contradictory to station-
house mores; and
(iv) the general public, which in American cities today is likely to be divided along
both class and racial lines in its expectations of police practices and behavior.
One way street-level bureaucrats may resolve job-related problems without internal
conflict is to drift to a position consistent with dominant role expectations. This
resolution is denied bureaucrats working under conflicting role expectations.
Controversy over schools, police behavior, or welfare practices exacerbate
these stress conditions, since they place in the spotlight of public scrutiny behavior
which might otherwise remain in the shadows. These stresses result in the
development of psychological and behavioral reactions which seem to widen the
already existing differences between street-level bureaucrats and spokesmen for the
nonvoluntary clienteles.
In their need to routinize and simplify in order to process work assignments,
teachers, policemen, and welfare workers may be viewed as bureaucrats. Signifi-
cantly, however, the workload of street-level bureaucrats consists of people, who in
turn are reactive to the bureaucratic process. Street-level bureaucrats, confronted
with inadequate resources, threat and challenge to authority, and contradictory or
ambiguous role expectations, must develop mechanisms for reducing job-related
stresses. It is suggested here that these mechanisms, with their considerable impact
on clients futures, deserve increasing attention from students of urban affairs.

Public policy reform in street-level bureaucracies

Although much more could be said about the stresses placed on street-level
bureaucrats, the remainder of this paper will focus on the implications for public

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36 A READER IN HEALTH POLICY AND MANAGEMENT

policy and for public perceptions of urban bureaucracy, of an analysis of the ways
street-level bureaucrats react to problems related to specified work conditions.
Where does this kind of analysis lead?
First, it may help bridge the gap between, on the one hand, allegations that
street-level bureaucrats are racist and, on the other hand, insistence by individuals
working in these bureaucracies that they are free from racism. Development of
perceptual simplifications and subtle redefinitions of the population to be
servedboth group psychological phenomenamay be undetected by bureaucracies
and clientele groups. These phenomena will significantly affect both the perception
of the bureaucrats and the reactions of clienteles to the bureaucracies. Perceptual
modes which assist bureaucrats in processing work and which, though not
developed to achieve discriminatory goals, result in descriminatory bias may be
considered a manifestation of institutional as opposed to individual racism. So
there must be a distinction between institutional routinized procedures which
result in bias and personal prejudice.
Second, we may see the development of human relations councils, citizen
review boards, special equal opportunity units, and other community relations
bureaus for what they are. They may provide citizens with increased marginal
access to the system, but, equally important, they inhibit institutional change by
permitting street-level bureaucrats to persist in behavioral patterns because special
units to handle human relations problems have been created. These institutional
developments do not fundamentally affect general bureaucratic performance.
Instead, they insulate bureaucracies from having to confront behavioral factors
affecting what appears to be racist work performance. These observations particu-
larly obtain when, as is often the case, these units lack the power to impose on the
bureaucracy decisions favorable to aggrieved citizens.
Third, tracking systems, vocational schools with basically custodial functions,
and other institutionalized mechanisms for predicting capacities should be recog-
nized as also serving to ease the bureaucratic burden at the expense of equal
treatment and opportunity.
Fourth, the inherent limitation of human relations (sensitivity training,
T-group training) training for street-level bureaucrats should be recognized as
inadequate to the fundamental behavioral needs of street-level bureaucrats. Basic
bureaucratic attitudes toward clients appear to be a function of workers back-
ground and of socialization on the job. Training designed to improve relationships
with black communities must be directed toward helping bureaucrats improve
performance, not toward classroom lessons on equality which are soon forgotten
(McNamara, 1967). The psychological forces which lead to the kinds of biased
simplifications and discriminatory behavior mentioned earlier, appear sufficiently
powerful to suggest skepticism over the potential for changing behavior patterns
through human relations training efforts.
Fifth, just as training should be encouraged which relates to job performance
needs, incentives should be developed which reward successful performance-

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STREET-LEVEL BUREAUCRACY AND THE ANALYSIS OF URBAN REFORM 37

utilizing indicators of clientele assistance. While performance standards can be

trivialized, avoided, or distorted through selective use statistics, their potential
utility has hardly been explored.
Sixth, this analysis is more generally supportive of proposals for radical
decentralization and neighborhood control. Advocacy of neighborhood control has
recently revolved around five kinds of possible rewards resulting from a change in
present organizational arrangements. It has been variously held that neighborhood
control would

(1) increase loyalty to the political system by providing relatively powerless groups
with access to governmental influence;
(2) increase citizens sense of well-being as a result of greater participation;
(3) provide greater administrative efficiency for overly extended administrative
systems;
(4) increase the political responsibility and accountability of bureaucracies cur-
rently remote from popular influence; and
(5) improve bureaucratic performance by altering the assumptions under which
services are dispensed (Altshuler, 1970; Kotler, 1969).

The analysis of street-level bureaucracy presented here has been supportive of that
strand of neighborhood control advocacy which focuses on the creation of
standards by which to judge improved bureaucratic performance. Specifically, it
has been proposed, among other things, that the performance of policemen,
teachers, and other street-level bureaucrats is significantly affected by the availabil-
ity of personal resources in the job situation, the sense of threat which is
experienced, the ambiguity of role expectations, and the diversity of potential
clientele groups. Most community control proposals are addressed to these
considerations.
This analysis is further supportive of proposals for radical decentralization to
the extent that minority group employment under community control would be
increased through changes in recruitment methods and greater attraction (for
some) of civic employment. Increasing minority group employment in these
street-level bureaucratic roles is not suggested here for the symbolism of minority
group inclusion or for the sake of increasing minority groups opportunities
(although these reasons are entirely justified). Rather, this analysis suggests that
such people will be less likely to structure task performance simplifications in
stereotypic ways.
These comments are made in full recognition that they are supportive of
structural and institutional changes of considerable magnitude. If the analysis
developed here is at all persuasive, then it may be said that the bureaucratic crises
I have described are built into the very structure of organizational bureaucratic life.
Only structural alterations, made in response to a comprehensive analysis of the
bureaucratic crisis, may be expected to be effective.

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38 A READER IN HEALTH POLICY AND MANAGEMENT

Conclusion
Let me conclude and summarize by indicating why the current situation, and this
analysis, point to a continuing crisis in city politics. It is not only that bureaucracy-
client antagonisms will continue to deepen or that black separatism will continue
to place stress on street-level bureaucracies which they are poorly equipped to
accommodate. In addition to these factors, we face a continuing crisis because
certain modes of bureaucratic behavior effectively act to shield the bureaucracies
from the nature of their own shortcomings.
Street-level bureaucrats, perceiving their clients as fully responsible for their
actionsas do some policemen, mental hospital workers, and welfare workersmay
thereby absolve themselves from contributing to the perpetuation of problems.
Police attribution of riots to the riff-raff of the ghetto provides just one illustration
of this tendency (see Rossi et al., 1968: 110113).
On the other hand, attributing clients performance to cultural or societal
factors beyond the scope of human intervention also works to absolve bureaucrats
from responsibility for clients futures (Rossi et al., 1968: 136). While there may be
some validity to both modes of perception, the truth (as it often does) lies
somewhere in between. Meanwhile both modes of perception function to trivialize
the bureaucrat-client interaction, at the expense of responsibility.
Changing role expectations provides another mechanism which may shield
street-level bureaucrats from recognizing the impact of their actions. This may take
at least two forms. Bureaucrats may try to influence public expectations of their
jobs, so as to convince the public of their good intentions under difficult
conditions. Or they may seek role redefinition in such a way as to permit job
performance according to role expectations in some limited way. The teacher who
explains that I cant teach them all, so I will try to teach the bright ones, is
attempting to foster an image of fulfilling role expectations in a limited way. While
this may be one way to utilize scarce resources and deserves some sympathy, it
should be recognized that such tendencies deflect pressures away from providing
for more adequate routine treatment of clients.
But perhaps most significantly, it is difficult for street-level bureaucrats to
acknowledge the impact of their behavior toward clients because their very ability
to function in bureaucratic roles depends upon routines, simplifications, and other
psychological mechanisms to reduce stress. Under such circumstances, attacks
upon the substance or content of these reactions to job stress may be interpreted as
criticisms of the basic requirements of job performance. As such, the criticisms are
interpreted as ignorant or inaccurate.
Even if street-level bureaucrats are prepared to accept the substance of
criticisms, they are likely to view them as utopian in view of the difficulties of the
job. They may respond by affirming the justice of criticism in theory, but reject the
criticism as inapplicable in the real world. Because they (and we) cannot imagine a
world in which bureaucratic simplifications do not take place, they reject the
criticism entirely.
This inability to recognize or deal with substantive criticism is reinforced by
the fact that street-level bureaucrats find the validity of their simplifications and

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STREET-LEVEL BUREAUCRACY AND THE ANALYSIS OF URBAN REFORM 39

routines confirmed by selective perception of the evidence. Not only do the

self-fulfilling prophecies mentioned earlier confirm these operations, but street-
level bureaucrats also affirm their judgments because they depend upon the
routines that offer a measure of security and because they are unfamiliar with
alternative procedures which might free them to act differently. That street-level
bureaucrats are in some sense shielded from awareness of the impact to their
job-related behavior ensures that the crisis between street-level bureaucrats and
their clients will continue; even while administrators in these bureaucracies loudly
proclaim the initiation of various programs to improve community relations,
reduce tensions among clientele groups, and provide token measures of represen-
tation for clientele groups on lower-level policy-making boards.
The shelter from criticism may contribute to conservative tendencies in
street-level bureaucracies, widely commented upon in studies of bureaucracy
generally. For our purposes they may help to explain the recourse of community
groups to proposals for radical change, and the recognition that only relatively
radical alternatives are likely to break the circle of on-the-job socialization, job
stress, and reaction formation.
An illustration of relatively drastic changes may be available in the recent
recruitment of idealistic college students into the police and teaching professions.1
These individuals are not only better educated, but are presumed to approach their
new jobs with attitudes toward ghetto clients quite different from those of other
recruits. What higher salaries, better working conditions, and professionalization
were unable to accomplish is being achieved on a modest level by the selective
service system, the war in Vietnam, and the unavailability of alternative outlets for
constructive participation in reforming American society. Higher salaries (which go
mostly to the kinds of people who would have become policemen and teachers
anyway) have not previously resulted in recruitment of significantly more sensitive
or skillful people in these bureaucracies, although this has been the (somewhat
self-serving) recommendation for bureaucratic improvement for many years. On
the contrary, the recruitment of college students whose career expectations in the
past did not include this kind of public service orientation may accomplish the task
of introducing people with the desired backgrounds to street-level bureaucratic
work independent (or even in spite) of increased salaries, professionalization,
seniority benefits, and the like.
It is obviously too early to evaluate these developments. The new breed of
street-level bureaucrat has yet to be tested in on-the-job effectiveness, ability to
withstand peer group pressures and resentments, or staying power. But their
example does illustrate the importance of changing basic aspects of the bureau-
cratic systems fundamentally, instead of at the margin. If the arguments made here
are at all persuasive, then those who would analyze the service performance of
street-level bureaucracies should concentrate attention on components of the work
profile. Those components discussed hereresource inadequacy, physical and
psychological threat, ambiguity of role expectations, and the ways in which
policemen, teachers, and other street-level bureaucrats react to problems stemming
from these job-related difficultiesappear to deserve particular attention.

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40 A READER IN HEALTH POLICY AND MANAGEMENT

Notes

1 See, for example, the New York Times of February 13, 1970.

References and further reading

Altshuler, A. (1970) Community Control: The Black Demand for Participation in
American Cities. New York: Western.
Becker, H. (1957) Social class and teacher-pupil relationships, in B. Mercer and
E. Carr (eds.) Education and the Social Order. New York: Holt, Rinehart.
Bordua, D. [ed.] (1967) The Police: Six Sociological Essays. New York: John
Wiley.
Clark, K. (1965) Dark Ghetto. New York: Harper & Row.
Downs, A. (1967) Inside Bureaucracy. Boston: Little, Brown.
Gittell, M. and A. G. Hevesi [eds.] (1969) The Politics of Urban Education. New
York: Praeger.
Glazer, N. (1969) For white and black community control is the issue. New York
Times Magazine (April 27).
Goffman, E. (1969) Asylums. Chicago: Aldine.
Kotler, M. (1969) Neighborhood Government. Indianapolis: Bobbs-Merrill.
Lazarus, R. (1966) Psychological Stress and the Coping Process. New York:
McGraw-Hill.
Lipsky, M. (1969a) Is a hard rain gonna fall: issues of planning and administra-
tion in the urban world of the 1970s. Prepared for delivery at the Annual
Meetings of the American Society of Public Administration, Miami Beach,
May 21.
. (1969b) Toward a theory of street-level bureaucracy. Prepared for delivery at
the Annual Meetings of the American Political Science Association, New York,
September 20.
McNamara, J. (1967) Uncertainties in police work: the relevance of police
recruits background and training, in D. Bordua (ed.) The Police: Six
Sociological Essays. New York: John Wiley.
Niederhoffer, A. (1967) Behind the Blue Shield. New York: Doubleday.
ROGERS, D. (1968) 110 Livingston Street. New York: Random House.
Rosenthal, R. and L. Jacobson (1968) Pygmalion in the Classroom. New York:
Holt, Rinehart & Winston.
Rossi, P. et al. (1968) Between white and black, the faces of American institutions
in the ghetto. Supplemental Studies for the National Advisory Commission
on Civil Disorders. Washington, D.C.
Sarbin, T. and V. Allen (1968) Role theory, in G. Lindzey and E. Aronson (eds.)
The Handbook of Social Psychology. Reading, Mass.: Addison-Wesley.
Silver, A. (1967) The demand for order in civil society, in D. Bordua (ed.) The
Police: Six Sociological Essays. New York: John Wiley.
Skolnick, J. (1967) Justice Without Trial. New York: John Wiley.
Walker, D. (1968) Rights in Conflict. New York: Bantam.
Waskow, A. (1969) Community control of the police. Transaction (December).

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STREET-LEVEL BUREAUCRACY AND THE ANALYSIS OF URBAN REFORM 41

Wilson, J. Q. (1968) Varieties of Police Behavior. Cambridge, Mass.: Harvard

Univ. Press.

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6
Why Britain is reorganizing its National
Health Service yet again
Rudolf Klein
Extracts from Klein R (1998) Why Britain is reorganizing its National Health
Service yet again Health Affairs 17(4) 11125.

Britains National Health Service (NHS) has succeeded in combining univer-

sal coverage and rigorous cost controltwo aims that have persistently eluded
American policymakers. Britain spends only a little more than half the proportion
of its national income on health care than the United States spends while
guaranteeing access to the entire British population. Yet Prime Minister Tony
Blairs Labour government is celebrating the fiftieth anniversary of the NHS by
introducing yet another reorganization, the fifth shake-up in the past twenty-five
years in the way the NHS is run. The governments plans for reorganization, set
out in a White Paper, have been presented as a reaffirmation of the fundamental
values of the NHS.1 But they underline, as did the 1991 reforms of Prime Minister
Thatchers administration, the tensions in the systemthe fact that the NHS, in
common with all health care systems, faces competing and, in practice, conflicting
objectives.2 Although the NHS has indeed managed to provide comprehensive care
at a remarkably low cost and achieved a large degree of equity in access to care, it
is perceived to have failed in meeting rising demands, ensuring uniformly high
quality care, and responding to consumers preferences.3 If rationing by exclusion
is the hallmark of the U.S. system, rationing by professionally defined need is the
distinguishing characteristic of the NHS; that is, if the forty million uninsured
Americans are a symbol of the U.S. systems shortcomings, the more than one
million Britons on waiting lists are the symbol of the NHSs shortcomings.
Successive governments obsession with tinkering with the structure of the
NHS can be seen as an attempt to devise a formula that will reconcile the various
competing aims of policy. In making this attempt, Conservative and Labour
administrations have, as we shall see, followed different strategies. But despite the
inflated political rhetoric of clashing assertions, there has been consensus about the
central architectural feature of the NHS: It remains, as it was constituted in 1948,
a predominantly tax funded service in which access is a right of residence and
copayments are marginal both in their scope and in the contribution they make to

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WHY BRITAIN IS REORGANIZING ITS HEALTH SER VICE YET AGAIN 43

the budget. For Labour this is an article of faith, deriving from its pride in setting
up the NHS in the first place, the one achievement of the postwar Labour
government that still commands overwhelming public support. For Conservatives
the consensus marks the acceptance that alternative systems of
fundingconsidered but rejected in the review that generated the 1991
reformswould be less effective in containing costs.4
The NHS internal market, as originally conceived, was something of a hybrid:
a market within a publicly financed service. However, this quasi or mimic market
(as it was variously labeled) was conceived as having one key characteristic:
competition among providers for purchasers. Competition was to provide the
dynamic of the new system, creating the incentives to achieve greater efficiency
and responsiveness. However, competition wasto exaggerate only a
littleconspicuous by its absence. By 1996 one commentator concluded that
quietly in the night, competition in British health care has slipped away, its
passing unremarked and little noticed by those who brought it into being.5

Why competition failed

There are many reasons why the internal market failed to live up to the
expectations of its sponsors. There was the asymmetry in the information available
to purchasers and providers, favoring the latter, compounded by the inadequate
quality of many of the information systems. There was the lack of expertise and
skill among purchasers: Looking at the British scene from an American perspec-
tive, one commentator concluded, There is no serious purchaser in the NHS.6
There was the heavy reliance by health authorities on block contracts (that is,
buying specified levels of activity).7 One result of this was that money did not, as
anticipated, necessarily follow patients; once the specified level of activity had been
achieved, providers had no incentive to treat more patients. The pre-1991 pattern
of many hospitals stopping operations near the end of the financial year persisted.
But the two main reasons for failure of the internal market spring from the
very nature of the NHS. First, the fact that the NHS is funded out of general
taxation means that the secretary of state for health is accountable to Parliament
for everything that happens in the service. As the creator of the NHS, Aneurin
Bevan, put it, When a bedpan is dropped on a hospital floor, its noise should
resound in the Palace of Westminster.8 Everything that happens in the NHS is
therefore likely to be politicized. Decisions cannot be left to the market, since
ministers will be left with the consequences. Far from leading to the devolution of
decision makingthe ultimate logic of a market systemthe Conservative reforms
led to increasing centralization. From the start, ministers insisted that the internal
market should not cause disruption. For example, when market competition
threatened the viability of some London hospitals, given their high costs, the
government intervened to set up a committee to plan services in the capital.9 In
short, competition was hobbled by central regulation and direction; the logic of
market competition and the logic of NHS politics pulled in opposite directions.

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44 A READER IN HEALTH POLICY AND MANAGEMENT

Second, the importation of U.S. notions of competition into Britain meant

transplanting ideas born in an environment of plenty into an environment of
scarcity. The anarchy of the U.S. health care system has tended to produce
surpluses of both doctors and beds. The rigorous financial discipline of the NHS
has led to tight control over the number of both. This is not to claim that central
planning has succeeded in avoiding all duplication of facilitiesclosing down
hospitals is not easy given the politicization of decision making in the NHSbut
simply to assert that there is less scope for competition to slice out fat in the United
Kingdom than in the United States. Further still, competition as a concept is alien
to the NHS culture, and in repudiating it, Labour is going, for better or worse,
with the grain of the services history.

Overall assessment

The 1991 reforms, then, did transform the institutional landscape of the NHS
and, perhaps even more important, change ways of thinking about health care in
the United Kingdom. But did they achieve Conservatives hopes? Did they, by
improving efficiency and responsiveness, allow the NHS to move closer to
achieving all of its competing and conflicting policy objectives? The available
evidence, based on research studies rather than a systematic evaluation, is
incomplete and inconclusive.10 It does not yield a clear answer, except on one
point: Transaction costs certainly increased.

A central paradox

Nothing in Labours White Paper in 1997 has changed the central paradox of the
NHS: a centralized service based on the principle of parsimony gives the medical
profession a stronger hold on public policy than it has in countries with more
diverse and devolved systems of health care. There is, in effect, an implicit
concordat between the state and the profession. On the one hand, successive
governments over the past fifty years have allowed the profession an extraordinary
degree of autonomy in the way in which it uses public resources. On the other
hand, the profession has accepted responsibility for rationing resources. Political
decisions about resource allocation have been translated into clinical decisions
about whom to treat and how, thus shielding politicians from the consequences of
their budgetary policies.11 To the extent that governments start infringing on
medical autonomy, the profession may be tempted to renege on its side of the
concordat by giving visibility to rationing decisions and putting responsibility for
them onto politicians. Indeed, there were signs of this happening under the
Conservative government. If improved performance went hand in hand with
increasing public dissatisfaction, as already noted, it was in part because the
medical profession was determined to lay the blame for any shortcomings on the
doorstep of ministers.

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WHY BRITAIN IS REORGANIZING ITS HEALTH SER VICE YET AGAIN 45

Labour therefore is engaged in an extraordinarily delicate balancing act. If the

NHS is to deliver the hoped-for improvements in quality and effectiveness, there
will have to be changes in the way doctors practice. But if changes are seen to be
introduced by central government diktat, government will alienate the profession.
The gamble therefore is that Labour will succeed where its predecessors have
failedin persuading the medical profession to trade collective autonomy for
individual autonomy. In short, will the threat of ever-greater government control
persuade the medical profession to exercise more collective control over its
members as the lesser evil?

Cautious optimism

There may be reason for cautious optimism on this point. The reason is, once
again, that Labour is building on a legacy from the Conservatives. One of the
hallmarks of the Thatcher government was precisely that it challenged the power of
the trade unions and the professions. In a sense, the medical profession was given
warning that it no longer had a veto on public policy and that more rigorous
self-regulation was the only alternative to greater managerial control. The relatively
enthusiastic reception given to Labours White Paper may be an indication that the
message has been received and understood by the professions leaders, although
whether the same is true for the rank and file is another matter.
But Labours strategy also carries a risk: that the emphasis on strengthening
the grip of the center on the NHS will lead to an even greater degree of
centralization of blame. If all goes according to plan, ministers will receive the
credit. But if the rhetoric of collaboration and cooperation is not translated into
practice, ministers will take the blame. One must therefore doubt whether the
1997 White Paper will be the last attempt to reform the structure of the NHS. If
the political costs of maintaining the existing structurewhere the price of
containing expenditure is the centralization of political blamestart to become too
high, ministers may start reflecting on what makes the NHS unique. This is not
that it is a universal, tax-financed service, but rather that it is a health care system
funded and operated by central government.

Notes

1 Secretary of State for Health, The New NHS: Modem Dependable (London: Her
Majestys Stationery Office, Command 3807, 1997).
2 A. Weale, The Search for Accountability, in Cost and Choice in Health Care,
ed. A. Weale (London: Kings Fund, 1988).
3 M.A. Powell, Evaluating the National Health Service (Buckingham: Open
University Press, 1997).
4 R. Klein, The New Politics of the National Health Service, 3d ed. (London:
Longman, 1995).

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46 A READER IN HEALTH POLICY AND MANAGEMENT

5 C. Ham, Contestability: A Middle Path for Health Care, British Medical

Journal (13 January 1996): 7071.
6 D.W. Light, Is NHS Purchasing Serious? An American Perspective, British
Medical Journal (17 January 1998): 217220.
7 M. Goddard, R. Mannion, and B. Ferguson, Contracting in the UK NHS:
Purpose, Process, and Policy. Discussion Paper 156 (York: Centre for Health
Economics, University of York, 1997).
8 Quoted in P. Nairne, Parliamentary Accountability and Control, in Working
with People, ed. R.J. Maxwell and V. Morrison (London: Kings Fund, 1983).
9 J.H. James, Transforming the NHS: The View from Inside (Bath: Centre for the
Analysis of Social Policy, University of Bath, 1994).
10 J. Le Grand et al., Models of Purchasing and Commissioning Review of the
Research Evidence (forthcoming). I am grateful to the authors for allowing me
to draw on thisthe first comprehensive review of the available research
evidencebefore publication.
11 R. Klein, P. Day, and S. Redmayne, Managing Scarcity: Priority Setting and
Rationing in the National Health Service (Buckingham: Open University Press,
1996).

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7
Designing health service organization in the
UK, 1968 to 1998: from blueprint to bright
idea and manipulated emergence
Stephen Harrison and Bruce Wood
Extracts from Harrison S and Wood B (1999) Designing health service organisa-
tion in the UK, 1968 to 1998: from blueprint to bright idea and manipulated
emergence Public Administration 77(4) 75168.

Introduction
Critiques, on both normative and empirical grounds, of those aspects of rational
top-down policy models that entail a sharp distinction between policy and
action/implementation go back a long way (Lindblom 1959; Barrett and Fudge
1981) and, despite many criticisms (Etzioni 1967; Hill 1997) have been carried
through into modern models of policy analysis such as those of Hogwood and
Gunn (1984) and Parsons (1995). The approach to policy analysis espoused by
these latter authors is eclectic, containing a number of stages which can be
represented as more or less logical, but in respect of which no claims to sequential
occurrence or overall rationality are made; the all-too-obvious possibility of errors,
iterations and implementation failures is fully recognized. But these are the
comments of analysts: until recently at least policy practitioners themselves have
continued to be insistent on the maintenance of the policy/action distinction
(Stewart 1996), perhaps partly because the rationale of many of their job roles is
built upon it.
We characterize the change in health service reorganization policy as occurring
on two related but analytically distinct dimensions. First, as our title suggests, there
has been a shift away from the presentation of a blueprint as the intended endpoint
of reorganization, and its replacement by the bright idea: a rather unspecific
vision of how to proceed. Second, the role and timing of advice and consultation
has changed from a situation where expert advice significantly shaped the content
of the blueprint to one in which the expert contribution lay in the translation by
incentivized local actors of the bright idea into specific organizational arrange-
ments which accord with the philosophy behind the original idea; we term this
manipulated emergence.

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48 A READER IN HEALTH POLICY AND MANAGEMENT

In order to illustrate this claim of a change in the mode of policy making, we

discuss four specific moments of NHS reorganization, the first three of which
manifest a progressive dissolution of the policy/action dichotomy. The first is the
April 1974 reorganization, literally conducted according to a blueprint which had
been carefully developed over a period of several years. The second is the series of
health service reforms of the 1980s associated with the late Sir Roy Griffiths: the
introduction of general management and of community care. Both took forms
which were not intended by those who commissioned them, and can be seen as
examples of policy-making on the hoof, that is something of an accidental
dissolution of the dichotomy. The third is the reorganization along the lines of the
purchaser/provider split introduced in 1991 following the Conservative white
paper Working for Patients (Secretaries of State for Health 1989). This latter
document was brief and vague, the very antithesis of a blueprint, and gave rise to
an emergent new organizational form; 1974 was the integrated outcome of a
proactive process whilst 1991 was the fragmented product of policy making on the
hoof. Between these two extremes occurred what with hindsight can be seen as a
transitional period characterized by the accidental dissolution of the policy/action
distinction. The fourth moment of reorganization is that proposed in the recent
Labour white paper The New NHS: Modern, Dependable (Secretary of State for
Health 1997); at the time of writing (July 1998), the consequences of this have not
fully unfolded but there are clear signs of both continuity with, and departure from
the trend that we have identified and we therefore examine how far these latest
changes might represent the beginning of a reversal.

The 1974 reorganization

The details of the new organization were conveyed to the NHS in a document
which became known as the Grey Book (DHSS 1972b), a detailed and densely
packed 174 page organizational prescription of structures, and institutional,
managerial and professional roles and relationships, including elaborate consulta-
tive mechanisms and formal powers of veto. It is difficult to convey the character of
this volume in a few sentences, but to describe it as a blueprint is not an
exaggeration. Successive chapters discuss organization in general and of particular
skill groups, and management and planning processes. The document contains
sixteen detailed diagrams of different segments of DHSS and NHS organization,
specifying functions and relationships between statutory bodies, and managerial
and professional relationships within and between them; a key element of this was
the system of consensus decision making which was to operate within the various
multi-disciplinary top management teams (Harrison 1982). An appendix contains
27 detailed role specifications, together with definitions of key terms such as
manager, accountable, monitor and co-ordinate. The blueprint was uniformly
implemented throughout the service on 1 April 1974, at the same time as
corresponding changes to the structure of local government.
The character of the Grey Book was to some extent the reflection of a specific
approach to organization, developed in the Health Services Organization Research

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DESIGNING HEALTH SER VICE ORGANIZATION IN THE UK, 1968 TO 1998 49

Unit at Brunel University (Rowbottom et al. 1973). This approach seems to have
been built on the assumption that most organizational problems were, at root,
problems of misunderstanding of role; consequently, its prescriptions very much
emphasized clarity of definition of roles and relationships. But the Grey Books
approach was also consonant with contemporary received wisdom which stressed
planning, integration of social policy and the various health and social services. For
whatever reason however, the history and outcome of the 1974 reorganization of
the NHS manifests a clear policy/action distinction; there was a long period of
careful planning and design of the new policy, which transcended changes of
government and was then adopted almost in its entirety by the government of the
day, and implemented nationally and uniformly.

From 1974 to 1989: the accidental death of the blueprint

It is important to note that during this period, the dissolution seems to have
occurred accidentally rather than as the article of policy which it later became. We
illustrate this in terms of two important NHS organizational reforms of the 1980s,
the introduction of general management and of community care, both associated
with the late Sir Roy Griffiths, and both taking forms which were not intended by
those who commissioned them.
In the case of general management, Harrison (1994) has shown the series of
accidents that occurred. The government attempted in 1982 to commission an
inquiry into NHS manpower. The person offered its chair declined the offer.
Ministers and officials did not have an immediate substitute in mind and sought
advice from a number of industrial confidants; Griffiths, then Managing Director of
the Sainsbury supermarket chain, who had no previous contact with government,
was proposed and was subsequently offered the role. Griffiths declined, on the
ground that if there were problems with the size of the workforce, that was only a
symptom of a deeper problem, one of management; he would accept the chair only
if the terms of reference were changed to focus upon NHS management. The
government conceded this. The eventual policy recommendations were radical and
included the abolition of the system of consensus team decision making and its
replacement with individual general managers/chief executives. But the recommen-
dations were also vague; the Griffiths I report (NHS Management Inquiry 1983)
took the form of a 24 page, double spaced typescript letter from Griffiths to the
secretary of state and contained only the sketchiest account of the functions of
various new institutions. Thus the roles of the new general managers and the shape
of local organizational structures were left to emerge.
In the subsequent case of community care, Wistow and Harrison (1998) have
shown how Griffiths, with one success and some NHS experience under his belt
and now known to policy makers, was asked in 1986 to examine what was
recognized to be an intractable problem of community care. A central government
which had clearly demonstrated its hostility to local government and its powers and
had already moved to abolish the GLC and metropolitan county authorities
(Stoker 1988) could hardly be expected to anticipate that Griffiths would recom-

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50 A READER IN HEALTH POLICY AND MANAGEMENT

mend the allocation of the lead role in community care to local authorities and that
the financial resources to support this should be transferred from the central Social
Security budget to local authority coffers (Griffiths 1988). Yet that is what
happened. Despite various attempts to sabotage the recommendation, including
the official publication of the report on the eve of a statutory holiday, while
Griffiths himself was recovering from coronary artery surgery, some fifteen months
later the Prime Minister was eventually convinced that there was no logical
alternative. Nevertheless, there was a further two years before implementation in
1993 during which other important details of Griffiths recommendations, such as
the role of care managers, were left to emerge.

The 1991 reorganization

The 1991 introduction of the quasi-market was very different from that of the
1974 reorganization in four respects. One was a characteristic shared by the policy
accidents described above; the process of initial design of the reforms was shorter
and more closed. The remaining three, however, seem to signal a move towards a
new style of policy making: a deliberate eschewing of blueprints in favour of the
promulgation, in vague terms, of a core set of ideas combined with an invitation to
relevant actors (which they could not easily refuse) to constitute the formal
institutions which would embody these ideas. The key differences were as follows.
First, the White Paper Working for Patients (Department of Health et al. 1989),
though some 102 pages long, devoted substantial space to Scotland, Wales and
Northern Ireland and had a generously spaced and repetitive text containing only
the barest account of the purchaser/provider split, the role of health authority
purchasers, NHS trusts (providers) and general practice (GP) fundholders. Sec-
ond, and presumably as a result, even by the formal implementation date of April
1991 aspects of the reorganization fundamental to the purchaser/provider split, not
least the contracting process, had not been thought through, in some cases with
disastrous results for individual institutions (Harrison et al. 1994). Third, the
implementation arrangements were not uniform, but rather centred upon a process
of annual waves of volunteers for (as the case may be) trust or fundholding status.
The criteria for admission of volunteers to the new status were developed on the
hoof in parallel with the application process.
Indeed, there were incentives for managers and senior professionals not only to
acquiesce in the innovations, but to volunteer to participate in their development,
hence our description of the process as manipulated emergence. Early adopters of
trust or fundholding status stood themselves to gain, to contribute to the
plausibility of the projects success, and to diffuse the perception that this was the
direction which others would either be compelled to follow, or would suffer
deprivation for not following (Lee-Potter 1997).
Thus, in terms of implementation, the bright idea approach to NHS
reorganization under the Conservative governments of 1987 to 1997 can be seen
as highly successful. The absence of a blueprint allowed unannounced policy
adjustment to emerge when deemed necessary.

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DESIGNING HEALTH SER VICE ORGANIZATION IN THE UK, 1968 TO 1998 51

Post-1997 labour policy for NHS organization: bright idea or blueprint?

The initial proposals of a further reorganization appeared in a White Paper The

New NHS: Modern, Dependable (Secretary of State for Health 1997) which, despite
86 pages and several diagrams is actually quite insubstantial. Considerable
repetition of central ideas is accompanied by only the sketchiest details of key
institutions and processes.
Three of the four key elements of the bright idea approach practised by the
Conservative administration in respect of the 1991 reorganization clearly apply to
Labour policy; the white paper was developed in a secret process; it gave only bare
details of policy content (though certain of these were fleshed out in the later
consulation document) and it provided for the subsequent development of policy
on the hoof . However, it did largely abandon the fourth element, that is the
strategy of implementation by volunteers, underpinned by material incentives.
Unlike GP fundholding (which is to be abolished), membership of a Primary Care
Group will be compulsory for all GPs, and there will be strict rules about the
geographical coverage of such groups.
Whatever the outcome, incentivized volunteering, arguably a key feature of the
success of implementation after 1991, is not at present such a prominent feature of
policy as before. The future of policy making on the hoof in respect of NHS
reorganization is unclear.

Manipulated emergence: understanding the new approach

We have shown that a new approach to health policy making in respect of NHS
organization arose between about 1983 and 1991 and has largely been retained by
the new Labour government. This approach may be characterized as a deliberate
attenuation of the policy/action dichotomy formerly regarded by policy practition-
ers as an essential feature of their task; the outcome of the new approach is that
policy is emergent, yet seems to have an overall strategic direction shaped by
prevailing government ideology and propelled by incentives for the relevant actors
to volunteer to participate. We have labelled this new approach manipulated
emergence. It is important to note that this is not the same as the decentralization to
local managers of the choice of how to implement predetermined objectives. One
way of seeking to understand this shift is through the changing context of
assumptions in the UK about government, policy and organization. We emphasize
that, despite superficial appearances arising from the chronology, these cannot
clearly be attributed to party politics. For the 1960s and early 1970s, these
assumptions, which are somewhat interrelated, can be briefly characterized as
follows.
First, there was a strong belief in the role of science and technology, loosely
defined. Second, there was a belief in expertise, one manifestation of which was what
could be termed technocratic politics, that is a belief that policy and administration
could and should be separated (Self 1972), with the latter being left to non-elected

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52 A READER IN HEALTH POLICY AND MANAGEMENT

officials. Third, there was a set of related assumptions about both the value and
feasibility of planning at all levels as a means of determining the future.
Three strands of literature seem useful in characterizing the organizational and
management prescriptions which predominantly flowed from acceptance of the
above set of beliefs and assumptions. First, there was an approach to policy,
involving a clear policy/action dichotomy, which is highly consonant with the kind
of rational model of decision making posited by Simon (1957). Second, there was
an acceptance of a large part of the Fordist notion that there is a single best way
of production: mass production by a large integrated organization (Hoggett 1990).
The third strand centres on the acceptance of bureaucracy, with clear hierarchies
and clear procedures, as the appropriate form of organization, with concepts such
as span of control and line/staff management current in the vocabulary.
The context of prevailing assumptions described above had greatly changed by
the 1980s; the new situation can be characterized in terms of the following four
interrelated components. First, faith in science and technology (at least in social
situations) had been somewhat overtaken by the recognition that fast-moving
events tended to render carefully thought-out policies obsolete; something of a
preference for gut feeling developed in its place. Sir Roy Griffiths was opposed on
principle to pilot studies on the ground that they served merely to obstruct or delay
implementation (Wistow and Harrison 1998). Second, a suspicion of experts had
developed and there was something of a resurgence of politics, especially when
informed by strong ideological conviction. As a consequence, professionals were
no longer immune from scrutiny and public sector managers were expected to
work under tighter political control. At the same time, the growth of anti-politics,
that is negative public beliefs about politics and politicians encouraged the strategy
of what Klein (1983, p. 140) has termed blame diffusion: the appropriation of
credit by politicians for perceived policy successes, accompanied by the attribution
of blame for failures to those to whom implementation has been delegated. Third,
faith in planning and bureaucracy as the means of social co-ordination was
increasingly replaced by a preference for interactive, especially market approaches. No
doubt this was partly ideological, stemming from Conservative beliefs about the
virtues of markets and the perceptions of professions as cartels, but it was also a
result of manifest planning disasters (Hall 1980; see also Hood 1976). And,
fourth, beneath all these was anti-statism, a complex of assumptions about why the
state could not solve social and economic problems, theorized by such New Right
authors as Bacon and Eltis (1976) and Niskanen (1971).
The usual polar opposites to rational theory which occur in the policy-making
literature do not do justice to manipulated emergence. The latter cannot be
described as either incremental politics (since it resulted in radical change) or
incremental analysis (since it did not consist simply of heuristic responses to
current problems) (Lindblom 1979), though the interim period of policy acci-
dents can perhaps be seen as having led to policy learning (Hall and Taylor
1996). Nor does manipulated emergence accord with the kind of irrationalist
approaches typified by garbage can theory (Cohen et al. 1972), since it clearly
involves deliberate strategic choice.

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DESIGNING HEALTH SER VICE ORGANIZATION IN THE UK, 1968 TO 1998 53

Concluding remarks

We have shown that over the period of some three decades, from about 1968 to
1998, government policy making related to NHS organization progressively
changed away from the production of a blueprint of what was to be implemented
and towards the promulgation of a bright idea which local actors were given
incentives to develop in accordance with government philosophy. We have termed
this partial dissolution by policy makers themselves of the policy/action distinction
manipulated emergence. We have related this development to broader changes in
prevailing assumptions about the nature of government in the UK, and have raised
the question of whether new Labour policy for NHS organization marks continuity
or a departure from this, suggesting that it embraces almost all of the key
characteristics.

References and further reading

Audit Commission. 1996. What the doctor ordered: a study of GP fundholders in
England and Wales. London: HMSO.
Bacon, R.W. and W.A. Eltis. 1976. Britains economic problem: too few producers.
London: Macmillan.
Barrett, S. and C. Fudge. 1981. Policy and action. London: Methuen.
Burch, M. and B. Wood. 1983. Public policy in Britain. Oxford: Martin Robertson.
Child, J. 1984. Organization: a guide to problems and practice. London: Harper and
Row.
Cohen, M.D., J.G. March and J.P. Olsen. 1972. A garbage can model of
organizational choice, Administrative Science Quarterly 72, 1, 125.
Committee on the Functions of the District General Hospital. 1969. Report.
London: HMSO.
Committee on the Management of Local Government. 1967. Report. (Maud)
London: HMSO.
Day, P. (ed.). 1992. Managing change: implementing primary health care policy. Bath:
University of Bath Centre for the Analysis of Social Policy.
Department of the Environment. 1972. The new local authorities: management and
structure. (Bains) London: HMSO.
Department of Health. 1989. Self-governing hospitals: an initial guide. London:
HMSO.
DHSS. 1970. The future structure of the National Health Service. (The Crossman
Green Paper) London: HMSO.
. 1972a. National Health Service reorganisation: England. Cmnd 5505. London:
HMSO.
. 1972b. Management arrangements for the reorganised National Health Service.
London: HMSO.
DHSS and Welsh Office. 1979. Patients first: consultative paper on the structure and
management of the National Health Service in England and Wales. London:
HMSO.
Donnison, D. 1982. The politics of poverty. Oxford: Martin Robertson.

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54 A READER IN HEALTH POLICY AND MANAGEMENT

Etzioni, A. 1967. Mixed scanning: a third approach to decision making, Public

Administration Review 27, 4, 38592.
Friend, J.K. and W.N. Jessop. 1969. Local government and strategic choice: an
operational research approach to the process of public planning. London: Tavistock.
Glennerster, H. 1981. From containment to conflict: social planning in the
seventies, Journal of Social Policy 10, 1, 3151.
Glennerster, H., M. Matsaganiz, P. Owens and S. Hancock. 1994. Implementing
GP fundholding: wild card or winning hand? Buckingham: Open University
Press.
Griffiths, R. 1988. Community care: agenda for action. London: HMSO.
Hall, P. 1980. Great planning disasters. London: Weidenfeld and Nicolson.
Hall, P.A. and R.C.R. Taylor. 1996. Political science and the three new institu-
tionalisms, Political Studies XLIV, 5, 93657.
Harrison, S. 1982. Consensus decision making in the National Health Service: a
review, Journal of Management Studies 19, 2, 37794.
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Chapman and Hall.
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8
The interplay between economic and
political logics: path dependency in health
care in England
Gwyn Bevan and Ray Robinson
Extracts from Bevan G and Robinson R (2005) The interplay between economic
and political logics, path dependency in health care in England, Journal of Health,
Policy, Politics and Law 30(1) 2: 5378.

David Wilsford (1994), using the ideas of Paul David (1985), argues that path
dependency explains why health care policies that are actually in place in any
country are typically suboptimal. This is because the inertia from the history of
previous decisions and existing institutions dominated by structural forces mean
that policy movements are typically incremental, and strong conjunctural forces are
required to move from an existing path onto a new trajectory. We use the ideas of
path dependency to see whether they help us understand why policies as imple-
mented in the National Health Service (NHS) in England were and are suboptimal
in terms of achieving the control of total costs, the equitable distribution of supply,
and efficiency in delivery. We recognize that each of these desiderata may conflict
and is, like Lukess argument about the power of ideas, well described as being
essentially contestedthat is, intrinsically open to dispute (Lukes 1974: 9). Cost
control follows from decisions on the total budget, and economics cannot decide
what the United Kingdom ought to spend on health care, and defining, and hence
measuring, equity and efficiency are problematic.
Robert Evans and others, in analyzing the natural experiment offered by
Canada, with universal coverage free at the point of delivery, and the United
States, with partial coverage and high user charges, have shown how Canadas
policies, adopted on grounds of equity of access, were better able to contain the
total costs of health care (Evans 1987; Evans, Barer, and Hertzman 1991; Evans et
al. 1989). These and other studies (Evans 2003) emphasize that the explanation
for this economic paradox is political and that once this is grasped, cost control is
in essence a remarkably simple process. All that is required is to design a payment
system in which all expenditures flow through one budget and then place that
budget in the hands of government with the political authority and motivation to

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58 A READER IN HEALTH POLICY AND MANAGEMENT

limit its growth. The downside is that this makes government open to allegations of
underfunding, as in the financial crisis in the UK NHS that confronted the
Thatcher government in the winter of 19871988 (Webster 1998: 183186;
Timmins 1996: 453458).
The Thatcher review explored and rejected pluralism in finance and then
sought policies to generate incentives for efficiency in the NHS (Webster 1998:
183186; Timmins 1996: 453458). The outcome was the policies of the
governments White Paper Working for Patients (UK Department of Health 1989a).
This transformed the NHS from a hierarchical organization to an internal market
in which public and private providers could competea model followed, and then
rethought, in Sweden (Saltman 1998) and New Zealand (Gould 2000; Devlin,
Maynard, and Mays 2001). The UK internal market was a mix of continuity and
radical change. The NHS continued to be financed through taxation (based on
ability to pay), free at the point of access (in principle available according to need),
with resources allocated within the NHS using capitation formulas (to promote
geographical equity). The radical change was to create purchasersdistricts and
general practitioners (GPs) who opted to be fundholdersthat were separate from
providers. The objectives of this change, as promulgated in Working for Patients,
were that purchasers funded equitably would seek efficiency by meeting patients
needs and choosing between competing providers on the basis of cost and quality
(Robinson and Le Grand 1994). This is an interesting combination of socialism
and capitalism: indeed, one young adviser to the prime ministerial review team is
reported to have described this combination as what Aneurin Bevan, in creating
the NHS in 1948, would have introduced if only he had had the imagination.
Wilsford (1994) used the ideas of path dependency to understand the
formulation of the radical policies of the internal market in the United Kingdom.
He argues that this was due to a rare confluence of factors: a majority government
in its third successive term with the authority and will to enact policy changes
intended to change the mix of instruments and the balance of influence. His
comparison with Germany, France, and the United States led him to conclude that
the structures of the British system give strategically placed actors, through
hierarchy and centralization, a more leveraged hand against history. This means
that these actors are more successful at prosecuting big reform and better able to
direct systems along more optimal policy paths and, as conditions render the status
quo less desirable, establish new paths that significantly deviate from the status
quo.
Carolyn Tuohy (1999a) echoes Wilsfords analysis of the conjunctural forces
that enabled the policies of the internal market to be formulated in the United
Kingdom. But she uses Maurice Shocks graphic language to distinguish this
blitzkrieg from the much more difficult exercise of policy implementationakin to
being an army of occupation (Shock 1994). Her comparison with Canada and the
United States comes to quite a different conclusion from Wilsfords, albeit one that
powerfully illustrates path dependency, and explains why the model of the internal
market as implemented by two successive conservative governments turned out to
be only a pallid version of the core ideas originally promulgated. She argues that

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THE INTERPLAY BETWEEN ECONOMIC AND POLITICAL LOGICS 59

the logic of the NHS is that of a state-hierarchical system with two key structural
elements that inevitably tempered market-oriented reforms based on contracts
between purchasers and providers. First, at the micro-level, as decisions on
individual patients continued to be made by GPs and hospital doctors, contracts
had to be designed to accommodate, rather than challenge, these collegial
relationships. Second, ministers remained accountable when purchasers sought to
use the internal market to shift contracts that threatened to destabilize whole
hospitals or even the closure of hospital departments. This is in sharp contrast to
the United States, where private investors have driven rapid and volatile change.
Tuohy (1999a, 1999b) considered the Labour Partys response to the policies
of the internal market to be a move from apocalyptic and vitriolic denunciation of
the internal market when in opposition to, when in government, adapting this
pallid model. But, in response to another financial crisis in the NHS, the Blair
government is now committed to increasing substantially the level of NHS funding
and to reintroducing a provider market (U.K. Department of Health 2002a).
Tuohys analysis raises troubling questions about these policy commitments. How
can the United Kingdom build on a system that contains costs and promotes
equity to deliver efficiency? Can the U.K. government deliver efficiency only
through the austerity of a budgetary squeeze and not when it increases NHS
resources? Will it be unable to implement lessons from America on ways to
improve efficiency, which include both the models of finance by capitation through
health maintenance organizations (HMOs) and case-based prospective payment of
hospitals by diagnosis-related groups (DRGs) (Enthoven 1985; Maynard,
Marinker, and Gray 1986; Bardsley, Coles, and Jenkins 1987; Havighurst et al.
1988; Enthoven 1990; Weiner and Ferris 1990; Robinson and Steiner 1998;
Enthoven 1999; Feachem, Sekhri, and White 2002; U.K. Department of Health
2002b; Ham et al. 2003)?
To examine path dependency in the NHS, we outline what we see as the
economic implications of market failure in health care for policies that aim to
optimize performance in terms of cost control, equity, and efficiency. We then
consider how and why the policy paths actually taken were at variance with what
economic analysis would suggest over four periods marked by significant structural
change: the creation of the NHS, the 1974 reorganization, the 1991 internal
market, and finally the policies of the Labour government since 1997. We begin
with a brief outline of these different eras in the funding of the NHS and conclude
with some observations on economic and political logics and path dependency.
This article is essentially about the NHS in England. Prior to 1997, policies that
applied in England set the model for other countries in the United Kingdom; since
then there have been important differences following devolution. Scott Greer
(2004) has characterized these differences as follows: England has focused on
regulation and markets, whereas Scotland has opted for professionalism, Wales for
localism, and Northern Ireland for permissive managerialism.

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60 A READER IN HEALTH POLICY AND MANAGEMENT

Conclusions

We began by asking whether the ideas of path dependency help us understand why
policies as formulated and implemented in the NHS in England were and are
suboptimal in terms of achieving cost control, equity, and efficiency. To achieve
these three desiderata, economic logic suggests allocating a cash-limited budget by
capitation to purchasers that employ GPs to manage demand, regulating their
performance, and letting them decide whether to contract with or manage local
providers. Economic analysis can also identify whether policies in place offer the
requisite mix to achieve these three desiderata. The NHS in England, as Tuohy
(1999a. 1999b) has argued, has its own political logic of a state-hierarchical system
in which GPs and hospital doctors determine demand and supply. This means that
the government can use its position and authority as a single payer to secure cost
control and equity, but also that ministers are accountable for policies that entail
reductions in local services. This logic drives path dependency, which explains why
NHS policies for hospitals began by incremental budgeting, sought equity by
leveling up, and implemented the internal market to avoid destabilizing hospitals:
contracts became a new way of incremental budgeting, and efficiency was sought
by an index that preserved, rather than challenged, relative (in)efficiencies. Path
dependency also illuminates how the seeds of the 19871988 crisis were sown forty
years earlier, when the political logic that shaped the creation of the NHS put it on
a policy path of an organization that was committed to equity but privileged
teaching hospitals, and illustrates why the manifest policy response to that crisis,
the internal market, was not used to resolve the problem. Path dependency also
suggests that although current policies aim to promote equity and efficiencyby
introducing a case-based payment for providers within finance by capitation of
purchasersthe way these policies will be implemented is unlikely to achieve either
goal.
Finally, our account brings out the latent and dynamic force of path depend-
ency. It is, of course, natural to focus on the actors engaged in conjunctural events,
the blitzkrieg of policy formulation, and the new policies that emerge. But, as
Lukes (1974) emphasized, the subtleties of power require us to look beyond
interests explicitly represented. Path dependency emphasizes how policies that
have continued will have renewed force and reflect powerful interests. In contrast,
as Machiavelli warned, those seeking to implement the new policies are subject to
many difficulties, which are well described as akin to those of an army of
occupation.

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66 A READER IN HEALTH POLICY AND MANAGEMENT

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PART 3
The allocation and distribution
of resources
Introduced by Kieran Walshe

Every countrys health care system faces two basic but difficult questions: how to
raise money to pay for health services, and how to spend it. This part brings
together a number of seminal contributions from the last two decades that
address the policy challenges and complexities of the latter question how
resources for health care are or should be allocated and distributed. It is a
question on which health economists (like Alan Williams and Anthony Culyer,
whose work is included in the selections for this part) have often seemed to
dominate debate, though as contributors like medical sociologists (Angela Coul-
ter), political scientists (Chris Ham) and others have regularly noted, decisions
about resources are not simply technical matters to be dealt with technocratically,
to a set of economic rules designed to maximize some notion of utility. They are
often fundamentally moral or philosophical matters, which turn on values and
ideas like individual liberty and freedom of choice, social solidarity, the nature of
community obligations and rights, and notions of equity or equality in health and
healthcare. Concepts like the rule of rescue whether life-saving treatments,
even when they are not particularly cost-effective, should have priority over other
demands for resources; and the fair innings whether we should accord greater
importance to the healthcare needs of the young and middle-aged than to the
elderly, on the basis that each person is entitled to the opportunity of a certain
lifespan involve intensely difficult moral choices and value judgements that can
spark heated debates. As such, what might sometimes seem a dry subject-
whether the health benefits, measured in quality adjusted life years, of
treatment A are greater than those of treatment B becomes at times a matter of
life and death, and the stuff of newspaper headlines and TV documentaries.
The allocation of resources involves decisions about both who will receive
funding for health services and what will be funded. While these two sets of
decisions cannot be simply separated, it is helpful to consider them separately
because they involve different sorts of choice, as the diagram below illustrates.

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A READER IN HEALTH POLICY AND MANAGEMENT 69

Who gets treated?

Non-selective Selective
Access to health services Access depends on who
is open to all, regardless you are. For example, are
of who they are and what you insured? Do you live
services they need. in a town with good
Might be seen as the health services? Does
Non-selective
Ideal of a universal your education and class
tax-funded health service, affect your ability to seek
but in practice all health and use services?
systems ration or limit
access explicitly or
What implicitly
treatments get
funded?
Access depends on what Access depends both
you need. For example, on what you need and
your insurance may only who you are. For example,
cover hospital services but access to infertility
Selective not primary care or services may be rationed
pharmaceuticals. on the basis of age and
Experimental treatments medical history, while
may not be included. access to joint
Cosmetic procedures and replacement surgery may
treatments of known low be limited according to
effectiveness may be pain, mobility and
excluded capacity to benefit

Choices about who gets treated turn on how health care systems control or
organize access for individuals or groups of people. For example, in a system
based on private or employer-paid insurance, some people will be uninsured and
their access to health services will obviously be limited (unless they are able to
pay for themselves from their own pocket). They are likely to suffer greater
morbidity and mortality because they do not have access to needed health
services. But in a tax-funded health care system, decisions about how to allocate
those tax resources may also shape or constrain access for people. If, for
historical reasons, the money goes to long-established hospitals and health
systems in big cities, then suburban and rural areas are likely to be underserved.
Because doctors in primary care tend to go to work in affluent areas, if the money
simply follows the doctors, then more economically and socially deprived areas
will suffer the double injustice of getting less than their fair share of health care
resources. If tax-funded budgets are capped, then once the cash runs out, access
will be rationed through some sort of waiting list for treatment.
In contrast, choices about what treatments get funded turn on the way health
care systems assess the value or benefit of different sorts of treatment. At its
simplest, this may involve working out whether treatment A or treatment B works
better for a given disease or condition. But even here, two important complications

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70 A READER IN HEALTH POLICY AND MANAGEMENT

soon emerge. First, we often find that treatment A is more effective but more
expensive than treatment B so a judgement has to be made about whether the
improvement in effectiveness is worth the cost. Second, we sometimes do not
have two or more possible treatments just the options of treatment A or leaving
the patient untreated and allowing the disease to progress. This often leads to
great pressure to do something for the patient on the basis that a treatment of
limited effectiveness is better than no treatment at all. However, the really difficult
challenge of making choices about which treatments to fund comes when we have
to compare different treatments for different patients with different conditions.
Should we fund dialysis and renal transplantation services for elderly people with
kidney failure, or put money into joint replacement surgery for other elderly
people, or fund infertility treatment for young and middle-aged people who want to
start a family, or invest in neonatal intensive care to save the lives of very
premature babies? Can we make fair or meaningful comparisons in such cases, or
should we even try to do so?
In some of the readings for this part, the two issues of whose health care
needs should we meet and what treatments should we fund are inevitably and
inextricably intertwined, but the first two papers are mainly concerned with the
first question. The first reading is an extract from a thoughtful and reflective paper
on equity and equality in health by Anthony Culyer and Adam Wagstaff (1993).
They explore the way in which we talk and write about equity and equality does it
mean spending the same on every person, or spending proportionate to each
persons health needs, or giving people equal opportunity to access healthcare, or
aiming to give each person equal health benefits (in terms of their morbidity and
mortality). Culyer and Wagstaff point out that these different equity principles
conflict, and they argue that the tenets of moral philosophy demand an approach
based on equity in health, though they concede that its implementation is not
straightforward. This is followed by a much less theoretically inclined and more
policy-oriented paper by Finn Diderichsen, Eva Varde and Margaret Whitehead
(1997) about resource allocation to health authorities. They describe how in a
number of countries with tax-funded health care systems (they focus on the UK
and Sweden) decisions need to be made about how to allocate resources to
health care funders and providers. They outline the long history (three decades or
more in the UK) of efforts to move away from patterns of resource allocation
based simply on historical precedent, which served to reinforce long-standing
inequalities between cities, towns and rural areas and between affluent and less
affluent areas. In their place, governments put funding formulae that tried to take
account of health needs and the health consequences of wider social and
economic deprivation, and to redistribute resources accordingly. They outline how
this approach was used in Sweden, and then highlight the political and methodo-
logical challenges involved in measuring need, taking appropriate account of
deprivation, and implementing changes when they involve taking money away from
some parts of the healthcare system. In both countries, this kind of resource
reallocation has had to be done slowly and incrementally, and has been easier at
times of overall resource growth.

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A READER IN HEALTH POLICY AND MANAGEMENT 71

Then to the second question how to make decisions about what treatments
to fund. Alan Williams (1995) was a pioneering British health economist and a
leading advocate of the quality adjusted life year (QALY) invented as a currency
to allow us to make comparisons between treatments on the basis of the health
benefit they provide. He offers a robust defence both of the technical construction
of QALYs and the moral and ethical case for making such comparisons and
collective judgements, in a world where we cannot, he argues, fund all healthcare
for everyone. From a much more practical perspective, David Banta (2003)
describes the international growth of the health technology assessment industry,
with the rise of government agencies like NICE (the National Institute for Health
and Clinical Excellence) in England, established to assess new and existing health
technologies, often using tools like QALYs, and to make recommendations on
which treatments should be funded. He highlights many of the political and
organizational challenges that arise when policy makers try to put the theories of
priority setting into practice, but also makes a good argument that such systems
for health technology assessment are here to stay.
The final paper examines the complex and difficult business of priority setting
or rationing. Chris Ham and Angela Coulter (2001) explore the process of priority
setting in practice, arguing that while the gap between what medicine can do and
what society can afford has created a growing need to ration health care, our
ability to make these difficult and complex decisions has lagged behind. They
suggest the politics of rationing favours an implicit and incremental approach or
muddling through, an approach discussed more fully in Part 2 of this reader. This
is hard to sustain in the face of public demands for transparency, the prospects of
judicial review, and pressure from stakeholders including pharmaceutical compa-
nies and powerful patient groups.
The further reading and references list contains a wide range of additional
materials on the topic of allocating resources for healthcare, including an
excellent edited volume of international contributions from Chris Ham and Glenn
Roberts.

Summary

+ Allocating resources for health services involves two related and difficult
sets of questions who will receive funding, and what services will be
funded? These are complex and value-driven questions not simply a
matter of arithmetic or economics.
+ Decisions about who will receive funding usually focus on ideas of equity
or equality, but determining fairness is difficult and depends in part on
how much you hold individuals responsible for their own health and allow
them to make their own decisions about health care (as they do, by and
large, on education, social care and other services).
+ Decisions about what services to fund are often focused on ideas of
effectiveness or efficiency what treatments work best, and how expen-
sive they are. There have been great advances in health technology

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72 A READER IN HEALTH POLICY AND MANAGEMENT

assessment that enable us to make complex quantitative evaluations of

the cost-effectiveness of treatments.
+ All countries ration healthcare one way or another, and there are
advantages and disadvantages to being tough and explicit about ration-
ing decisions, or leaving latitude and scope for variation and clinical
judgement.

References and further reading

Birch, S. and Gafni, A. (2004) The NICE approach to technology assessment: an
economics perspective, Health Care Management Science, 7(1): 3531.
Braveman, P. (2006) Health disparities and health equity: concepts and measure-
ment, Annual Review of Public Health, 27: 16794.
Churchill, L.P. (1987) Rationing Health Care in America: Perceptions and Princi-
ples of Justice. Paris: University of Notre Dame Press.
Ham, C. and Roberts, G. (eds) (2003) Reasonable Rationing: International
Experience of Priority Setting in Health Care. Maidenhead: Open University
Press.
Macinko, J. and Starfield, B. (2002) Annotated bibliography on equity in health
19802001, International Journal for Equity in Health, 1(1): 120 published
online: doi: 10.1186/1475-9276-1-1.
Maynard, A. (1999) Rationing health care: an exploration, Health Policy, 49(1):
511.
Mullen, P.M. (1998) Rational rationing? Health Services Management Research,
11(2): 11323.
Ubel, P.A. (2000) Pricing Life: Why its Time for Health Care Rationing. Cam-
bridge, MA: The MIT Press.
Williams, A. (1988) Priority setting in public and private healthcare, Journal of
Health Economics, 7: 17383.

The readings
Culyer, A. and Wagstaff, A. (1993) Equity and equality in health and healthcare,
Journal of Health Economics, 12: 43157.
Diderichsen, F., Varde, E. and Whitehead, M. (1997) Resource allocation to health
authorities: the quest for an equitable formula in Britain and Sweden, British
Medical Journal, 315: 87578.
Williams, A. (1995) Economics, QALYs and medical ethics: a health economists
perspective, Health Care Analysis, 3: 22126.
Banta, D. (2003) The development of health technology assessment, Health
Policy, 63: 12132.
Ham, C. and Coulter, A. (2001) Explicit and implicit rationing: taking responsibility
and avoiding blame for health care choices, Journal of Health Services
Research and Policy, 6(3): 16369.

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9
Equity and equality in health and healthcare
Anthony Culyer and Adam Wagstaff
Extracts from Culyer A, Wagstaff A (1993). Equity and equality in health and
healthcare. Journal of Health Economics, 12: 43157.

Introduction

Equity is widely acknowledged to be an important policy objective in the health

care field. Despite the relatively high profile accorded to equity by policy-makers,
and despite the relatively large academic literature on equity in health care, there
appears to be considerable confusion over what is meant by equity in this context.
This led McLachlan and Maynard (1982) to remark somewhat cynically that
equity, like beauty, is in the mind of the beholder (p. 520). Our purpose in
this paper is to try to clarify some of the confusion surrounding the term equity.
Mooney and Le Grand have identified several definitions of equity in the
context of health care provision, of which we explore four. The first is equality of
expenditure per capita. This definition, which underlies the regional budget
allocation formulae used in some countries, is open to the obvious objection that it
makes no allowance for need. So, the second definition to be explored is
distribution according to need. Exploration of this definition, which is to be
found in several policy documents and is frequently encountered in the academic
literature, is severely hampered by the absence of agreement as to the meaning of
need. The third definition of equity which we explore is equality of access. This
definition is more common in policy documents than any other definition but, as
will become apparent, there is at least as much confusion if not more about the
meaning of the term access as there is about need. The fourth definition of
equity we explore is equality of health a definition which underlies the Black
Report [Black (1980); Townsend and Davidson (1982)] and which has produced
an enormous empirical literature.
The claim that health care ought to be distributed according to need is
frequently encountered in both the academic literature and policy documents. The
principle comes in two versions: a horizontal version (persons in equal need should
be treated the same) and a vertical version (persons with greater needs should be
treated more favourably than those with lesser needs). In what follows we adopt
the Aristotelian version of the latter and require that persons in unequal need be

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74 A READER IN HEALTH POLICY AND MANAGEMENT

treated in proportion to the inequality in need. Non-proportionality in respect of

vertical equity may be assumed without damage to the arguments which follow.
Horizontal and vertical equity by reference to need as a relevant respect are thus
similar to horizontal and vertical equity in respect of, for example, desert.
The notion that access to health care ought to be the same for everyone is also
a popular distributive principle in the context of health care as it is, of course, in
certain other areas of social policy. Occasionally [cf. e.g. Mooney (1986)] this
principle is coupled with the notion of need, the idea being that access ought to be
the same for those in equal need but different for persons with different needs. In
this case, therefore, the horizontal vertical distinction arises as before.

Which equity principle should dominate?

That the equity principles will, in general, tend to conflict with one another raises
the question: is there any compelling reason for selecting one in preference to the
others? It is not, of course, the first time this question has been asked and before
we indicate which is our preferred principle and why, it is worth going through the
conclusions reached by previous writers.

Mooneys equality of access

Mooney (1983) comes out firmly against equality of utilization and equality of
health, arguing that equality of utilization is too elitist. I cannot accept the
notion of compulsory health care Equality of health is simply too expensive in
terms of the other good things in life (p. 122). Instead, Mooney favours equality
of marginal met need, but indicates that if this cannot be made a practical
alternative, he would opt for a mix of equal inputs for equal need and equal
access for equal need, the mix to be determined empirically by examining the
trade-off between access and health (p. 120).
Several points seem worth making. First, we have argued that equality of
marginal met need is better interpreted as an efficiency principle rather than as an
equity principle. Second, we find the argument that equality of health is an
unacceptable equity principle because it is too expensive rather odd. Attaining or
at least getting as close as possible to equality of health may well entail a
substantially lower per capita health status than would otherwise be the case. But
that is not an argument for rejecting equality of health as an equity principle. One
should not surely allow efficiency considerations to determine which equity
principle is to be favoured over others, since this makes a nonsense of the notion
that equity exists as a separate principle from efficiency. Third, it is unclear why
equality of utilization entails an unacceptable degree of compulsion whilst equal
utilization for equal need does not. The latter surely entails just as much
compulsion as the former; it is just that need determines the appropriate amount of
utilization in the latter but not in the former. Fourth, it is far from clear just how

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EQUITY AND EQUALITY IN HEALTH AND HEALTHCARE 75

the proposed mix between equal access for equal need and equal inputs for equal
need is to be worked out, or indeed why this solution is to be preferred.
More recently, in this Journal, Mooney [Mooney et al. (1991, 1992)] has come
out firmly in favour of equality of access, interpreted in terms of utilization costs.
One argument is that equality of access is what policy-makers understand by
equity. As we have indicated elsewhere [Culyer et al. (1992a, 1992b)], this
argument is unconvincing. Many policy documents contain references not only to
the principle of equality of access but also to the principles of distribution
according to need and equality of health [cf. e.g. Le Grand (1982)]. Moreover,
there is no evidence that policy-makers always share the interpretation by Mooney
et al. of access as the costs incurred in receiving health care. Policies which profess
to be based on the notion of equalizing access are very frequently directed at
equalizing expenditures (often adjusted for need).
Another argument proffered by Mooney et al. is that, unlike other equity
principles, equality of access does not imply a departure from Paretian welfare
economics, since it respects consumer preferences. This argument is also uncon-
vincing since it takes for granted that the value judgements underlying Paretian
welfare economics ought also to be those which govern ones choice of equity
principle a premise which is at odds with the revealed preferences of policy-
makers in the context of health care [cf. Williams (l976)]. That the principles of
equal treatment for equal need and equality of health are inconsistent with such
value judgements may, therefore, actually be a point in their favour, since they are
at least candidates for what might supersede the Paretian value judgements. By the
same token, that equality of access is consistent with such judgements would seem
to be a point against it.

Le Grands equality of choice sets

Le Grand (1987, 1991) rejects all the principles of equity considered in the
previous sections. He rejects distribution according to need on the grounds that it
fails to accord sufficient status to desert (some individuals may, by their actions
say, robbing a bank reduce their entitlement to health care, whilst others by
honourable actions going to the rescue of a policeman under fire from the
robber increase their entitlements) and to preferences (risk averse individuals
may prefer not to opt for a risky operation). He also rejects equality of access, in
part because the equality of prices interpretation fails to take into account that
people have some control over the costs they face (people may choose to live in a
remote rural area) and in part because the OlsenRodgers definition appears to
lead inexorably towards equalizing access to all commodities and hence fails to face
the fact that people are concerned about access to commodities such as health care
but not about access to commodities such as skiing holidays. Finally, Le Grand
also rejects equality of health on the grounds that it accords insufficient status to
preferences (is it fair to attach as much importance to restoring the health of a
smoker as it is to restoring the health of a non-smoker?).

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76 A READER IN HEALTH POLICY AND MANAGEMENT

Le Grands favoured conception of equity is equality of choice sets. He argues

that providing individuals are making choices under equal constraints, inequalities
in health are not inequitable. Thus if two well-informed and otherwise identical
individuals have different health statuses simply because one smokes and the other
does not, the health disparity is to be deemed to be equitable. Interestingly,
however, Le Grand argues that it would be inequitable for such differences in
health-related behaviour to have any bearing on the way people are treated by the
health care system.1 Rather it is in the finance of health care that such health-
related behaviour ought to be taken into account. He suggests that it would be
inequitable for smokers who fall ill to be charged the full cost of their treatment,
since whether or not they fall ill depends not only on whether they smoke but also
on chance. Rather all smokers should pay an annual premium to cover the expected
costs of treatment. Having paid this, they should then receive the same treatment
(or access to treatment) as non-smokers.
There are several problems with this argument. It is surely inconsistent to
claim, on the one hand, that it is equitable for health differences to exist where they
are the result of different choices made from the same choice set and, on the other,
that people who damage their health through their own actions nonetheless have
the same rights to health care as those who look after their health. One cannot, in
other words, consistently maintain that it is equitable both that smokers have a
lower health status than non-smokers and that they have the same rights as
non-smokers to receiving treatment to restore their health when they fall ill. If the
health differences between smokers and non-smokers are equitable, then treatment
to restore the health of smokers must surely be inequitable!
The problem seems to lie in the claim that it is equitable that people making
different choices end up with different health statuses. If it is unfair that the health
care costs associated with smoking are borne only by those smokers who fall ill, then
it is surely also unfair that the distress and disability associated with smoking-related
diseases be borne only by those smokers who fall ill. Just as it is fair for all smokers
to pay the expected costs associated with their consumption, so too ought it to be
considered fair that all smokers bear the distress and disability associated with
smoking-related diseases. But since it is impractical and unethical to harm peoples
health deliberately (in this case the health of those smokers who do not contract any
smoking-related illness), this cannot happen. The fairest option therefore would be
to give smokers the same entitlements to health care as non-smokers. This provides
a rationale for Le Grands suggestion that smokers should not be treated differently
by the health care system, but since it implies that smokers who fall ill will be
treated, it follows both that some equity principles are required to determine the
distribution of health care expenditures and that any health differences between
smokers and non-smokers that are attributable to the fact that members of one
group smoke while members of the other do not must be inequitable.

An alternative view

It seems to us that in order to answer the question which equity principle is to be

preferred?, one has to answer a logically prior question, namely why should health

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EQUITY AND EQUALITY IN HEALTH AND HEALTHCARE 77

care be a concern for equity purposes in the first place?. What is it, in other words,
that accounts for the facts that (i) equity considerations seem to feature promi-
nently in discussions about the distribution of some commodities but not others (a
phenomenon labelled by Tobin (1970) as specific egalitarianism) and (ii) health
care is one of these commodities?
Le Grands (1991) answer to this is that people demand health care because
they fall ill and that, since whether or not they fall ill is not within their control, the
demand for health care is qualitatively different from the demand for, say,
televisions and other commodities where equity considerations do not feature
prominently if at all. It is for this reason, contends Le Grand, that the term need
is applied to health care but not to televisions. This argument seems weak. There
is, of course, a large stochastic component to the demand for health care. But an
individuals health and hence his demand for health care is also affected by his
behaviour. Once this is accepted, it becomes hard to use this line of argument to
draw a meaningful distinction between health care and other commodities whose
demand is also subject to uncertainty. An individuals demand for automobile
spares, for example, is highly stochastic, but is also influenced by the way the
individual drives and how carefully he looks after his vehicle.
A more plausible answer to the question what is special about commodities
like health care? is to be found, we believe, in much of the moral philosophy
literature. There it is argued that entities such as good health are necessary for an
individual to flourish as a human being.2 Insofar as health care is necessary to
good health, this provides a strong ethical justification for being concerned with
the distribution of health care and not with the distribution of, say, automobile
spares, and for using the word need in the context of health care and not in the
context of, say, skiing holidays.
But this raises the question: what is a fair distribution of health? It appears to
be accepted in the moral philosophy literature that a position other than one in
which everyone has the same opportunity to flourish would be hard to defend.
Insofar as health is a necessary condition for flourishing, it follows that a just
distribution of health is an equal distribution. This also appears to follow from our
remarks above concerning Le Grands notion of equity as equality of constraints. If
it is accepted that differences in health-related behaviour cannot, after all, provide
a justification for differences in health, and if it is accepted that differences that are
not attributable to different choices are unjustifiable, it would indeed appear to
follow that all inequalities in health must be inequitable.
It follows from this that an equitable distribution of health care is simply one
which gives rise to an equal distribution of health. Of course, this will almost
certainly have to be qualified by a side condition that greater equality cannot be
achieved by reducing the health of some as a deliberate act of policy. Moreover, to
say that the fairness of a distribution of health care cannot be assessed without
reference to the resultant distribution of health does not imply that all aspects of
health care will equally the object of equitable concern. Ineffective health care
cannot be of any equitable concern at all, save insofar as resources wasted in its
provision are denied to uses that might promote equity. Nor, we conjecture, are

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78 A READER IN HEALTH POLICY AND MANAGEMENT

some of the complementary services provided by hospitals, such as private, or

semi-private rooms (save in special cases), better than two-star hotel services in
hospital, or bed-side office services. It may be perfectly satisfactory for these to be
allocated according to willingness-to-pay, either directly or via insurance packages
whose benefits include such services and up-grades. But these provisos aside,
equity in health care implies distributing health care so as to equalize health.
Our argument clearly implies a rejection of the principle of equalizing health
care expenditures. It also implies a rejection of the principle of distribution
according to need, since irrespective of how one interprets need, equality of
health will not be attained if persons in equal need are treated the same and
persons in unequal need are treated in proportion to the relevant inequalities.
Furthermore, our argument implies a rejection of the principle of equality of
access to health care, since irrespective of how one interprets access, and
irrespective of whether equality of access is applied only to those in equal need
(however this is interpreted), application of the principle of equality of access to
health care will not yield an equal distribution of health.
This does not imply, of course, that the concepts of need and access are
irrelevant to resource allocation decisions in health care. The administration of
health care which does not have a positive marginal product and hence is not
needed seems hard to defend on either efficiency or equity grounds. The notion
of need thus picks out which resources are to be distributed. What it does not do
is indicate the appropriate distribution of these resources. Access to health care
also has a part to play, since policy-makers are unlikely to want to coerce people
into consuming health care against their wishes. What policy-makers can do is alter
the size and shape of the individuals feasible sets (and hence alter their access) in
the hope that they will consume the appropriate type and amount of health care.
But this will not entail giving everyone the same access, irrespective of how access
is defined, or even giving, say, everyone with the same capacity to benefit the same
access. Rather it will involve manipulating feasible sets in such a way that the
post-treatment distribution of health will be as close to being equal as is feasible.
There is, however, one sense in which equality of access would appear to be a
necessary condition for getting as close as possible to an equal distribution of
health, namely equality of access to diagnosis. But it ought to be more than merely
equal. It should also be cheap. The allocation of effective treatments so as to
promote greater equality of health can, after all, only be done if output functions
have been determined first.
The objective of health equality cannot be an absolute ethical imperative for
there may be other conditions to meet with which it may conflict if individuals are
to flourish and to flourish more equally. One way of tempering the apparent
severity of the objective is to invent a social welfare function (SWF) embodying
inequality-of-health aversion [cf. Wagstaff (1991)]. Another would be to adopt
specific weights in a SWF that accorded the health of some a higher priority than
that of others (say, on grounds of desert). It may, moreover, be that the claim of
equal liberty is more conducive to an equitable distribution of flourishing than is
an equal distribution of health and which would provide both a warrant for

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EQUITY AND EQUALITY IN HEALTH AND HEALTHCARE 79

discretionary choices of treatment3 and for refusing even highly effective treat-
ments (such as the right of Jehovahs Witnesses to decline potentially life-saving
blood transfusions). Despite these qualifications, however, (which would apply,
mutatis mutandis, to the other equitable principles for determining the inter-
personal allocation of health care), we consider that equity as equality of health
has substantial advantages over the other principles in this paper. Moreover, it is
grounded in a more general and fundamental egalitarian objective (viz. equal
flourishing).
Enduring gross inequalities in lifetime health and their systematic association
with other dimensions of deprivation are a notable feature of wealthy societies,
even those with a long-standing political rhetoric of equality. The removal of such
gross inequalities is not in self-evident conflict with liberty or other primary goods,
and may indeed serve to promote equal liberty for all and a more effective
enjoyment of other primary goods. Allocation in proportion to need (equal
allocation for equal need; proportionately greater allocation for greater need) may
actually serve to widen these gross inequalities in health a possibility that
highlights the most apparent deficiency of allocation principles built on need: that
they lack a plausible equitable distributive purpose. The pursuit of equality of
health provides an answer to the question which needs ought to be met?, which
the other principles signally fail to do. What, after all, is ethically compelling about
an allocation of resources that matches resources to sickness, or capacity to benefit,
or marginal capacity to benefit, or that ensures equal access? If they have any
ethical attraction at all, they have it only insofar as they promote efficiency in
maximizing health. But even if these principles do promote efficiency in this sense
(and it is far from self-evident that they do), to be efficient is not the same thing as
to be equitable. And if it is ethically important to maximize health, may it not also
be important to ensure its equitable distribution too?

Conclusions

We have demonstrated that previous analyses of interpersonal equity in the

distribution of health care are subject to serious objections. Moreover, they are, in
general, mutually incompatible. We have attempted to develop an analysis that is
free from these objections. The mutual incompatibility of previous analyses (and of
ours with each of them) forces one to choose. The ultimate criterion that we
propose for evaluating the equity of distributions of health care is (conditional)
equality of health, which is, in turn, a necessary condition for (conditional)
equality of flourishing. In this (consequentialist) sense, the demand for equity in
health care is a derived demand from the equality of health and acquires its
especially compelling nature in contrast with some other forms of consumption
from the compelling character of health and flourishing. Equality of health is
conditional upon a respect for personal preferences (or, in medical ethics, the
principle of autonomy) and upon a prohibition on reductions in current health
(flow or stock interpretation).

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80 A READER IN HEALTH POLICY AND MANAGEMENT

All equity claims seem to derive from egalitarian claims. Even libertarian
claims for the equity of inequalities of holdings and portfolios of personal
characteristics are typically based on a claim of equal liberties for each. Within the
sphere of health, we have argued that equality of health is a preferable equity goal
to other contenders, such as equality of marginal products or equal expenditures
for equal needs. Similarly, in considering vertical equity, we have argued that
resource allocation in proportion to differential needs (of whatever type) is likely to
lead to inequity in the distribution of health.
The analysis leaves unsettled a number of questions which remain for further
investigation. One of these is the way in which health equality may be traded off
against other desiderata (there is a similar agendum for other research programmes
in health-related distributional questions, such as the trade-off between such
desiderata and the fair meeting of need according to other criteria of fairness).
Another concerns the interpersonal comparison of health for individuals of
different ages (which is particularly important when health is interpreted as a
stock). Another concerns intergenerational issues and the manner in which poor
health may be transmitted from one generation to another by, for example, poor
quality parenting. A further area of enquiry generalizes the latter issue by asking
about the non-medical determinants of health and ill-health, the non-medical
determinants of flourishing and would seek to develop a more general theory of
the equitable distribution of every (relevant) thing.

References and further reading

Aday, L.A. and R. Andersen, 1975, Access to medical care (Health Administration
Press, Ann Arbor).
Barry, B., 1965, Political argument (Routledge and Kegan Paul, London).
Barry, B., 1991, Political argument (Harvester Wheatsheaf, Hemel Hempstead).
Black, D., 1980, Inequalities in health (HMSO, London).
Braybrooke, D., 1987, Meeting needs (Princeton University Press, Princeton, NJ).
Collins, E. and R. Klein, 1980, Equity and the NHS: self-reported morbidity,
access and primary care, British Medical Journal 281, 11111115.
Culyer, A.J. 1976, Need and the National Health Service (Martin Robertson,
Oxford).
Culyer, A.J. 1978, Need, values and health status measurement, in: A.J. Culyer
and K.G. Wright, eds, Economic aspects of health services (Martin Robert-
son, London).
Culyer, A.J. 1989, The normative economics of health care finance and provision,
Oxford Review of Economic Policy 5, 3458.
Culyer, A.J., E. van Doorslaer and A. Wagstaff, 1992a, Comment: Utilisation as a
measure of equity, Journal of Health Economics 11, 9398.
Culyer, A.J., E. van Doorslaer and A. Wagstaff, 1992b, Access, utilisation and
equity: A further comment, Journal of Health Economics 11, 207210.
Daniels, N., 1985, Just health care (Cambridge University Press, Cambridge).

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EQUITY AND EQUALITY IN HEALTH AND HEALTHCARE 81

Davis, K., 1993, Equity and health care policy: The American experience, in: E.
van Doorslaer, A. Wagstaff and F. Rutten, eds, Equity in the finance and
delivery of health care: An international perspective (OUP, Oxford).
Gillon, R., 1986, Philosophical medical ethics (Wiley, Chichester).
Gilson, L., 1988, Government health care charges: Is equity being abandoned?,
Publication Number 15 (Evaluation and Planning Centre for Health Care,
London School of Hygiene and Tropical Medicine).
Le Grand, J., 1978, The distribution of public expenditures: The case of health
care, Economica 45, 12545.
Le Grand, J., 1982, The strategy of equality: Redistribution and the social services
(Allen and Unwin, London).
Le Grand, J., 1984, Equity as an economic objective, Journal of Applied Philoso-
phy 1, 3951.
Le Grand, J., 1987, Equity, health and health care, Social Justice Research 1,
257274.
Le Grand, J., 1991, Equity and choice (Harper Collins, London).
Lockwood, M., 1988, Quality of life and resource allocation, in: M. Bell and S.
Mendus, eds, Philosophy and medical welfare (Cambridge University Press,
Cambridge).
McCloskey, H.J., 1976, Human needs, rights and political values, American
Philosophical Quarterly 13, 111.
McLachlan, G. and A. Maynard, 1982, The public/private mix in health care: The
emerging lessons, in: G. McLachlan and A. Maynard, eds, The public/private
mix in health care: the relevance and effects of change (Nuffield Provincial
Hospitals Trust, London).
Miller, D., 1976, Social justice (Clarendon Press, Oxford).
Mooney, G., 1983, Equity in health care: Confronting the confusion, Effective
Health Care 1, 179185.
Mooney, G., 1986, Economics, medicine and health care (Wheatsheaf, Brighton).
Mooney, G., J. Hall, C. Donaldson and K. Gerard, 1991, Utilisation as a measure
of equity: Weighing heat?, Journal of Health Economics 10, 475480.
Mooney, G., J. Hall, C. Donaldson and K. Gerard, 1992, Reweighing heat:
Response to Culyer, van Doorslaer and Wagstaff, Journal of Health Economics
11, 199205.
Nordenfeldt, L., 1984, On the circle of health, in: L. Nordenfeldt and B.I.B.
Lindahl, eds, Health, disease and causal explanations in medicine (Reidal,
Dordrecht).
ODonnell, O. and C. Propper, 1991, Equity and the distribution of UK National
Health Service resources, Journal of Health Economics 10, 120.
Olsen, E.O. and D.L. Rodgers, 1991, The welfare economics of equal access,
Journal of Public Economics 45, 91106.
Puffer, F., 1986, Access to primary care: A comparison of the US and UK, Journal
of Social Policy 15, 293313.

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82 A READER IN HEALTH POLICY AND MANAGEMENT

Salkever, D.S., 1975, Economic class and differential access to health care:
Comparisons among health care systems, International Journal of Health
Services 5, 373395.
Steele, R., 1981, Marginal met need and geographical equity in health care,
Scottish Journal of Political Economy 28, 186195.
Thatcher, M., 1989, Foreword to Working for patients: The health service, caring
for the 1990s (HMSO, London).
Tobin, J., 1970, On limiting the domain of inequality, Journal of Law and
Economics 13, 263278.
Townsend, P. and N. Davidson, 1982, Inequalities in health: the Black report
(Penguin, Harmondsworth).
Van Doorslaer, E., A. Wagstaff and F. Rutten, eds, 1993, Equity in the finance and
delivery of health care: An international perspective (OUP, Oxford).
Wagstaff, A., 1991, QALYs and the equity-efficiency trade-off, Journal of Health
Economics 10, 2141.
Wagstaff, A., E. van Doorslaer and P. Paci, 1991, On the measurement of
horizontal equity in the delivery of health care, Journal of Health Economics
10, 169205.
Weale, A. 1978, Equality and social policy (Routledge and Kegan Paul, London).
Wiggins, D., 1984, Claims of need, in: T. Honerich, ed., Morality and objectivity
(Routledge and Keegan Paul, London).
Wiggins, D., 1987, Need, values, truth (Basil Black well, Oxford).
Williams, A., 1974, Need as a demand concept (with special reference to health),
in: A.J. Culyer, ed., Economic policies and social goals (Martin Robertson,
London).
Williams, A., 1976, Cost-benefit analysis in public health and medical care:
Comments on a thesis written by Bengt Jnsson, Report 1976:28 (Depart-
ment of Economics, University of Lund).
Williams, A., 1978, Need: An economic exegesis, in: A.J. Culyer and K.G. Wright,
eds., Economic aspects of health services (Martin Robertson, London).
Williams, A., 1986, The cost-benefit approach to the evaluation of intensive care
units, in: D. Reis Miranda and A. Langehr, eds., The ICU: A cost-benefit
analysis (Elsevier, Amsterdam).
Williams, B., 1962, The idea of equality, in: P. Laslett and W.G. Runciman, eds.,
Philosophy, politics and society (Basil Blackwell, Oxford).
Williams, B., 1973, Utilitarianism: For and against (Cambridge University Press,
Cambridge).

Notes

1 This argument appears, in fact, only in the 1987 version of Le Grands article.
2 Cf. e.g. Braybrooke (1987), Daniels (1985), Gillon (1985), Lockwood (1988),
Miller (1976), Wiggins (1987).
3 The effectiveness of most treatments is so uncertain, so frequently contingent
upon individual circumstances, and so bound up with individual attitudes to

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EQUITY AND EQUALITY IN HEALTH AND HEALTHCARE 83

risk and uncertainty, that the scope for personal discretion, even within a
health care system that is tightly constrained by insurers or governments to
offer only effective health care, is extremely broad. There is a danger in
straining out the gnat of offending personal liberty that one swallows the camel
of enduring and outrageous inequalities of health.

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10
Resource allocation to health authorities:
the quest for an equitable formula in Britain
and Sweden
Finn Diderichsen, Eva Varde and Margaret
Whitehead
Extracts from Diderichsen F, Varde E and Whitehead M (1997) Resource
allocation to health authorities: the quest for an equitable formula in Britain and
Sweden. British Medical Journal 315: 875878.

In recent years countries with very different healthcare systems have been showing
increasing interest in resource allocation policies based on weighted capitation. In
countries whose healthcare systems have competing health insurers the main
concern has been to construct capitation formulas that prevent favourable risk
selection or cherrypicking. Reforms to the American Medicare programme and
Dutch healthcare proposals have stimulated renewed efforts to find a way of
overcoming this problem.1 2 3 4
Countries with national health services, such as the United Kingdom and
Sweden, have also experienced far-reaching reforms of health care, with important
implications for equity in access to care.5 6 Risk selection should be less of a
problem, at least with health authority purchasing, as the population is assigned to
a purchaser based on area of residence. The new role of local purchaser, however,
calls for more exact methods to allocate purchasing power, because local areas
will show stronger variation in relative need than regions and counties.
We outline British experiences in attempting to devise an equitable formula
then present the new model that we have developed in Sweden for Stockholm
County Council. We discuss what lessons these experiences hold for other
countries facing a similar challenge.

British developments
In Britain serious attempts to devise more equitable mechanisms for resource
allocation for the NHS date back to the 1970s, when it became clear that funding
to the regions based on historical activity had perpetuated the inequalities in
funding that existed before the NHS. Since then, development work has gone
through three distinct phases.7

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RESOURCE ALLOCATION TO HEALTH AUTHORITIES 85

In the first phase the formula created by the Resource Allocation Working
Party was developed for distributing resources from central government to regions.
It used mortality in each area as an indicator of healthcare need.8 The formula was
in use from 197790 and gradually managed to redistribute resources from the
metropolitan regions to the poorer regions in the north.9
In the second phase the argument that the measurement of need should be
based on empirical data led to a new formula for weighted capitation, applied from
1991 to 1995.10 This empirical approach was severely criticised on methodological
grounds and because it seemed inequitable.11 12 13 14 15 16
Clearly, the Department of Health needed a more sophisticated model for
allocating funds directly to local districts now that they were purchasers. It
commissioned health economists at York University to develop a more sensitive,
empirically based model, to be incorporated into a third allocation formula from
April 1995 onwards.
The York model is based on an ecological study of small areas to identify the
determinants of use of hospital services.17 18 The need variables identified include
both health and socioeconomic factors (Table 10.1). In addition, statistical models
were developed to distinguish several confounding influences on the use of
services, such as the supply of hospital beds and general practitioners. The effect of
applying the formula in full at the district level would be to redistribute funds
towards poorer, inner city areas.18 The Department of Health decided, however,
that the full York model would apply to only 76% of funding and the new
arrangements would be introduced only gradually over several years. Other
adjustments for market forces were also added. In effect, these adjustments
watered down the full potential of the York model to allocate resources equitably.
As about 70% (23bn a year) of NHS funding is distributed through these
formulas, even slight adjustments can make a big difference to local allocations.

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86 A READER IN HEALTH POLICY AND MANAGEMENT

Table 10.1 Need variables used in the current British formula for resource
allocation (York model)18

Need variables General and Psychiatric

acute model model
Standardised limiting long standing illness ratio <75
Standardised mortality ratio <75
Proportion of economically active people who are unemployed
Proportion of people of pensionable age living alone * *
Proportion of dependents in single carer households
Proportion of persons in single parent households
Proportion of dependants in no carer households
Proportion of adult population permanently sick
Proportion of population born in New Commonwealth

*These variables are included in both models but with different coefficients.

Table 10.2 Matrix (abridged version) used in Stockholm for resource allocation
to hospital care showing cost (Kr per inhabitant) spent by health authorities in
Stockholm County Council, 1994

Acute and non-acute Psychiatric care

medical and surgical care
Age of inhabitant (years) Owner Rented Owner Rented
occupied home occupied home
home home
0 to <1 7200* 0 0
124 1900 2100 400 600
2564 cohabiting:
Higher non-manual 3100 3600 400 800
Lower/intermediate non-manual 3700 4300 600 900
Manual 4000 4400 900 1300
Not employed 5300 6400 1400 2400
2564 living alone:
Higher non-manual 3600 3900 900 1600
Lower/intermediate 3600 4200 1000 2400
non-manual
Manual 3900 4600 1400 3800
Not employed 5100 6400 4900 12 700
6584 years:
Cohabiting 13 500 16 500 500 1000
Living alone 15 400 18 200 1100 2100
85 years:
Cohabiting 27 600 29 800 300 1000
Living alone 24 200 29 400 500 1000

*Split between both categories of housing.

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RESOURCE ALLOCATION TO HEALTH AUTHORITIES 87

New approach in Sweden

Like Britain, Sweden has a national health service, publicly funded and provided.
Of the total healthcare budget of Kr82bn (8bn), 82% comes from regional
income taxes raised by the 26 county councils responsible for administering health
care.
This regional funding has until recently been distributed directly to public
hospitals and primary care centres on the basis of historical activity, adjusted for
inflation. This has changed in the past four years in counties that have introduced
an internal market. In particular, Stockholm has been at the forefront of the
introduction of a purchaser-provider split, and associated developments in re-
source allocation have consequently gone further than in the other counties.
Stockholm County Council serves a population of 1.7 million with a health-
care budget of 1,6bn. Most (90%) of the county budget is distributed to nine
health authorities, each covering populations of between 50 000 and 300 000.

Basis of model

The contrasting features of the Swedish and British approaches are listed in the
box. Individual level analysis was chosen not only because of the practical
availability of data but also because of the problems inherent in ecological
analysis.19 20

Distinctive features of resource allocation in Sweden and Britain

Sweden (Stockholm model)

Need for health care is measured by demographic and socioeconomic

variables rather than mortality or other health status indicators.
Analysis is based on individual level data rather than at a small area
(ecological) level.
Actual, rather than estimated, relative costs of health care used.

Britain (York model17 18

)

Need is measured by mortality, self reported morbidity, and various

socioeconomic variables.
Analysis based on an ecological study of small areas to identify the
determinants of impatient services.
The estimates are adjusted for the confounding influences of supply on
geographic variations in use.
Estimated costs of health care are used.

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88 A READER IN HEALTH POLICY AND MANAGEMENT

Finding a direct indicator of health status for measuring healthcare need that could
be linked to individual use of health care and cost data proved difficult. The model
therefore uses various socioeconomic indicators as proxies for healthcare need,
over and above that created by the demographic profile of the population. The
choice was based on evidence showing that use of hospital services in Sweden was
proportional to the relative need of major socioeconomic groups.21 22 Higher use
by more socially disadvantaged groups is assumed to translate into higher costs of
care, for which health authorities need to be funded.
Psychiatric services, however, were used at a low level by non-Nordic immi-
grants, perhaps not reflecting all their needs.22 Immigrant status was therefore
excluded from the analysis. A different model was devised for primary care (not
reported here).

Statistical analysis

The analysis makes use of the personal identification number, which everyone in
Sweden has and which can link healthcare records with census and other
socioeconomic databases. Since a new system of payment was introduced in 1994,
actual costs of care billed to purchasers have also been available for each individual
in the population. The analysis has four main stages.
Stage 1We created two new databases each year, linking the records on
healthcare use and related costs to data on age, sex, socioeconomic group,
education, cohabitation and marital status, country of birth, and housing condi-
tions. One database covered a 30% random sample of the countrys population,
containing their socioeconomic characteristics and any health care they had used.
The other database included all people with inpatient care and their background
variables.
Stage 2We then tested different models (with multivariate Poisson regression
of outpatient and inpatient episodes) to select the demographic and socioeconomic
variables that had the greatest effect on use, controlling for other variables. The
variables selected by this process for the final model were (a) age in 10 classes; (b)
socioeconomic groups in four groups based on occupation and employment
(education for pensioners); (c) cohabitation and marital status in four classes; and
(d) housing in five classes, according to tenure and size. Sex was not included in
the final model. The effect of including sex made a negligible difference to the
distribution of resources as the distribution of men and women did not differ
between districts.
Stage 3A matrix was constructed in which each cell represented a unique
combination of the selected variables. In each cell, weights were calculated equal to
average costs per inhabitant. Separate weights were calculated for acute medical
and surgical care, non-acute care, and psychiatric care. Because actual costs were
not available for psychiatry, the costs for this specialty were estimated on the basis
of number of bed days and outpatient visits. Table 10.2 shows an abridged version
of the matrix.

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RESOURCE ALLOCATION TO HEALTH AUTHORITIES 89

Stage 4A corresponding matrix with the number of inhabitants in each of the

nine health authority areas was then constructed, and each individual was ascribed
a weight based on their social and demographic characteristics. These weighted
individuals were then summarised for each area and the budget calculated as a
proportion of the total sum for the whole county council (Table 10.3).

Table 10.3 Per capita weighting for the nine health authorities in Stockholm
County Council, according to Stockholm model, 19957

Per capita weights

Health authority Interim model, 1996 1997
1995
Norrtlje 98.5 96.4 100.6
North east 96.7 96.6 97.9
North west 91.4 94.5 94.2
Central Stockholm 127.7 120.3 119.2
West Stockholm 99.1 100.3 98.6
South Stockholm 122.7 116.3 117.4
South west 97.6 99.5 98.1
South east 83.4 85.9 86.2
Sdertlje 93.0 96.0 95.7
Whole Stockholm county 100* 100* 100*

*100=Kr9166 per inhabitant in 1995; Kr9082 per inhabitant in 1996; Kr8979 per inhabitant in 1997.

Implementation

The model has been applied gradually in calculating health authority budgets in
Stockholm County Council since 1992. Before 1996, costs were estimated from
the number of admissions and bed days, whereas the 1996 budget was based on
actual costs for the purchasers.
Overall, the model has allocated more resources for the care of people living in
more disadvantaged socioeconomic circumstances (Table 10.2). The resulting
ranking of authorities in Table 10.3, based on these costs, follows the known
differentials in health, demographic, and socioeconomic factors in the county.23
The interim model used in 1995, based on estimated costs, allocated a large
share of the budget to areas containing a high proportion of elderly people and
people living alone. As the year unfolded, it became apparent that the interim
model might have overcompensated for the costs of providing health services for
elderly people. In fact, central Stockholm, with the highest proportion of elderly
people, could not spend all its allocated budget, whereas the suburban areas with
young families ran up budget deficits. When actual costs became available for the
1996 model, it was found that each bed day was cheaper for elderly than for
younger age groups. In 1996 therefore the share of the budget was reduced for
central and south Stockholm and increased for suburban areas (a shift of 1.4% of

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90 A READER IN HEALTH POLICY AND MANAGEMENT

the budget) (Table 10.3). Politically, this was seen as too great a shift to be
achieved in one year. The county council therefore gave extra funds in the 1996
allocation to the authority hardest hit by the redistribution.

Insights from these developments

What are the lessons from these British and Swedish experiences? In both
countries the principle has been firmly established that healthcare resources should
be distributed in proportion to the relative needs of local populations. It is a step
forward that serious attempts are being made to translate this principle into
practice, but the quest for improvements continues.

Making best use of available data

The experiences illustrate two different ways of going about the task, largely
determined by the need to make the best use of whatever data are routinely
available in each country. This has led to an analysis based on area of residence
(ecological analysis) in Britain and an approach based on data from individuals in
Sweden. Several commentators have concluded that individual level analysis is the
better option, to reduce the problems of confounding and misclassification.24 25
The Swedish approach has made the most of the opportunity offered by newly
available individual data, though this was the only practicable option for Sweden
because the small numbers obtained from area based data would have made the
resulting statistical models unstable. It did, however, restrict the choice of
indicators of need. For example, no suitable health indicators were available that
could be linked to the other individual level data.
The York model has to rely on data for small areas, not directly linked to
individuals, which brings added problems of interpretation. On the other hand,
with care it can include additional local data on mortality and morbidity,
increasing its sensitivity to geographical variations that are not simply the sum of
individual variations in the basic sociodemographic characteristics.

Proxies for need

Both the British and Swedish approaches are based on the assumption that the
different needs for health care of the various sections of the population are
matched by their differential use of services. But in practice the use of services is
influenced not only by legitimate need but also by supply and many other
socioeconomic factors, so the match is not perfect. Given the circumstances,
informed judgments have to be made on the most practical solutions. The Swedish
decision, for example, to leave out an indicator of ethnic group from the final
analysis was based on the evidence that non-Nordic immigrants have higher
psychiatric morbidity but a relatively low rate of use of psychiatric services.

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RESOURCE ALLOCATION TO HEALTH AUTHORITIES 91

Incorporating a factor based on use by ethnic group would have led to fewer
resources being allocated to health authorities with large immigrant populations.

Taking deprivation into account

Both approaches consider it essential to take social and material deprivation into
account. They have both selected employment factors and living alone as impor-
tant indicators of increased need for healthcare resources. Sweden has added
indicators of poorer housing, and Britain has added households containing
singlehanded carers (including single parents) as well as direct health indicators.
Two new relevant findings emerge from the Swedish data on differential costs
of care. Firstly, the analysis of actual costs for care of different groups provides a
direct demonstration of the higher costs incurred by more disadvantaged groups in
the population and the need for extra resources in areas where the proportion of
people from these groups is greatest. Secondly, the comparison of estimated costs
in 1995 with actual costs in 1996 revealed the scale of the bias introduced when
only estimated costs are used. A similar problem with estimated age-cost weights
was encountered in the British formula introduced in 1991, when it was applied to
populations at district level.16

Political reality

Both experiences illustrate the highly political nature of resource allocation. The
Swedish model ran into some difficulties when quite large shifts had to be achieved
in the switch from the interim model in 1995 to the full model in 1996, particularly
as the overall funding per inhabitant was falling over the same period. Although full
implementation was agreed for 1996, a one-off compensation, as mentioned
above, was given to the authority that stood to lose the most. Agreement on full
implementation for 1997 was politically easier, as the shifts in funding were not as
great.
In 1995 the York model was not implemented in full in Britain because of the
governments nervousness over the size and direction of the implied shifts in
resources, generally from suburban towards poorer areas. Identifying two separate
models (Table 10.1) allowed room for subsequent manoeuvre. There are even
suggestions now that the market forces factor, introduced into the British formula
by the Department of Health, is seriously undermining the models attempt to
allocate resources according to need.26
This illustrates the need to ask continually whether the policy as implemented
is achieving its original objectives of equitable resource allocation.

Effects of cost containment

Finally, both approaches illustrate the complications of trying to devise and

implement an equitable formula in a time of cost containment, when any

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92 A READER IN HEALTH POLICY AND MANAGEMENT

redistribution of resources is much more painful. Some commentators suggest that

the strain imposed by the prolonged underfunding of the British NHS in the 1980s
was a key factor in the decision to overhaul the original formula created in the late
1970s.13 The drastic cuts that have had to take place in Sweden in the 1990s with
the economic recession mean that the effects of resource allocation are not easy to
disentangle from the effects of cutbacks.
Yet it is at just such times that efforts need to intensify. The joint effects of
cutbacks and market-style reforms could be especially damaging to access to
healthcare for the sections of the population in greatest need, as in a more
competitive environment resources tend to flow to more prosperous areas and
groups. It is important that the quest for equitable methods of resource allocation
continues and is taken up by the growing number of other countries facing a
similar challenge.

Summary

+ The United Kingdom and Sweden face similar problems in how to

achieve a fair allocation of resources within a purchaser-provider system.
+ In contrast with the British formula, the new Swedish approach is based
on individual level data and uses demographic and socioeconomic
variables as proxy measures of healthcare need.
+ The Swedish model incorporates actual, rather than estimated, costs of
care.
+ The resulting model allocates proportionately more resources to popula-
tions with poorer health and socioeconomic characteristics.
+ Both the Swedish and British approaches illustrate the practical problems
and the highly political nature of resource allocation.
+ These experiences hold important lessonsnot least for the growing
number of other countries with a similar quest.

Notes

1 Newhouse J, Manning W, Keeler E, Sloss E. Adusting capitation rates using

objective health measures and prior utilisation. Health Care Financing Review
1989;10:4154. [Medline]
2 Brown RS, Hill JW. The effects of Medicare risk HMOs on Medicare costs
and service utilization. In: Luft HS, ed. HMOs and the elderly. Ann Arbor, MI:
Health Administration Press, 1994.
3 Van Vliet RCJA, Van den Ven WPMM. Towards a capitation formula for
competing health insurers. An empirical analysis. Soc Sci Med
1992;34:103548.
4 Van Vliet RCJA, Van den Ven WPMM. Capitation payments based on prior
hospitalizations. Health Economics 1993;2:17788.

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RESOURCE ALLOCATION TO HEALTH AUTHORITIES 93

5 Whitehead M. Who cares about equity in the NHS? BMJ 1994; 308:12847.
6 Diderichsen F. Market reforms in health care and sustainability of the welfare
state. Health Policy 1995;32:14153.
7 Mays N. Geographical resource allocation in the English national health
service 197194: the tension between normative and empirical approaches. Int
J Epidemiol 1995;24:96102.
8 Department of Health and Social Security. Sharing resources for health in
England: report of the resource allocation working party. London: HMSO, 1976.
9 Holland W. The RAWP review: pious hopes. Lancet 1986;ii:108790.
10 NHS Management Board. Review of the resource allocation working party
formula. London: Department of Health and Social Security, 1988.
11 Judge K, Mays N. Allocating resources for health and social care in England.
BMJ 1994;308:13636.
12 Mays N. NHS resource allocation after the 1989 white paper: a critique of the
research for the RAWP review. Community Med 1989;11:17386.
13 Sheldon T, Carr-Hill R. Resource allocation by regression in the NHS: a
critique of the RAWP review. J R Stat Soc A 1992;155:40320.
14 Sheldon T, Davey Smith G, Bevan G. Weighting in the dark: resource
allocation in the new NHS. BMJ 1993;306:8359.
15 Royston G, Hurst J, Lister E, Stewart P. Modelling the use of health services
by populations of small areas to inform the allocation of central resources to
larger regions. Socioeconomic Planning Science 1992;26:16980.
16 Raftery J. Capitation funding: population, age, and mortality adjustments for
regional and district health authorities in England. BMJ 1993;307:11214.
17 Carr-Hill R, Sheldon T, Smith P, Martin S, Peacock S, Hardman G.
Allocating resources to health authorities: development of methods for small
area analysis and use of inpatient services. BMJ 1994;309:10469.
18 Smith P, Sheldon T, Carr-Hill R, Martin S, Peacock S, Hardman G.
Allocating resources to health authorities: results and policy implications of
small area analysis of use of inpatient services. BMJ 1994;309:10504.
19 Diderichsen F, Spetz C-L. Need based planning in health care. Stockholm:
National Board of Health Care and Social Welfare, 1987. (In Swedish.)
20 Morgenstern H. Uses of ecological analysis in epidemiological research. Am J
Public Health 1982;72:133644.
21 Health policy targets and need based planning. Health care in the 1990s.
Stockholm: Allmnna Frlaget, 1984:401. (In Swedish.)
22 Haglund B. Equity in care. Stockholm: National Board of Health and Welfare
(Socialstyrelsen), 1994:3. (In Swedish.)
23 Diderichsen F, ed. Public health report 1994. Stockholm: Stockholm County
Council, 1995. (In Swedish.)
24 Benzeval M, Judge K. The determinants of hospital utilisation: implications
for resource allocation in England. Health Economics 1994;3:10516.
25 Carr-Hill R, Rice N, Roland M. Socioeconomic determinants of rates of
consultation in general practice based on fourth national morbidity survey of
general practices. BMJ 1996;312:100813.

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26 Hacking J. Capitation funding: is it worth the weight? Health Service Journal

1996;18 Jan:267.

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11
Economics, QALYs and medical ethics: a
health economists perspective
Alan Williams
Extracts from Williams A (1995) Economics, QALYs and medical ethics: a health
economists perspective. Health Care Analysis 3: 221226.

Introduction

This paper explores how medical practice ought to be conducted, in the face of
scarcity, if our objective is to maximise the benefits of health. After explaining
briefly what the cost-per-QALY criterion means, a series of ethical objections to it
are considered one by one. The objectors fall into four groups:

a. those who reject all collective priority-setting as unethical;

b. those who accept the need for collective priority-setting, but believe it is
contrary to medical ethics;
c. those who accept the need for collective priority-setting, and do not believe
that it is contrary to medical ethics, but reject the role of QALYs in it;
d. those who accept the need for collective priority-setting in principle, but are
unwilling to specify how it should be done in practice.

The purpose of this discussion paper is to give each group a hard time!
Economics is about scarcity. Quality Adjusted Life Years (QALYs) are about the
benefits of health care. Medical ethics are about the way in which medical practice
ought to be conducted. This paper is therefore about how medical practice ought
to be conducted, in the face of scarcity, if our objective is to maximise the benefits
of health care.
Commonsense tells us that in the face of scarcity we should use our limited
resources in such a way that they do as much good as possible. In health care,
doing good means improving peoples life expectancy and the quality of their
lives. Since people value both of these fundamental attributes of life, we need a
measure of outcome which incorporates both, and which reflects the fact that most
people are willing to sacrifice some quality of life in order to gain some additional
life expectancy, and vice versa. This is precisely the role of the Quality Adjusted

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96 A READER IN HEALTH POLICY AND MANAGEMENT

Life Year. If some health care activity would give someone an extra year of healthy
life expectancy, then that would be counted as one QALY. But if the best we can
do is provide someone with an additional year in a rather poor state of health, that
would count as less than one QALY, and would be lower the worse the health state
is. Thus the QALY is to be contrasted with measures such as survival rates,
commonly used as the sole success criteria in clinical trials, which implicitly
assume that only life expectancy is of any concern to people. The essence of the
QALY concept is that effects on life expectancy and effects on quality of life are
brought together in a single measure, and the bulk of the empirical work involved
in making the concept operational is concerned with eliciting the values that people
attach to different health states, and the extent to which they regard them as better
or worse than being dead. For the purpose of priority-setting in health care, being
dead is regarded as of zero value. A QALY measure can in principle embrace any
health-related quality-of-life characteristic that is important to people. The par-
ticular measure with which I am most familiar (the Euroqol measure) covers
mobility, self-care, usual activities, pain-discomfort, and anxiety/depression. Note
that usual activities are whatever the individuals usual activities are, and are not
restricted to work activities. So although developed primarily by economists, the
QALY is not a measure of peoples economic worth, but a measure of whatever
aspects of life they themselves value.
In the presence of scarcity, resources devoted to the health care of one person
will be denied some other person who might have benefited from them. Clinicians
are quite used to this phenomenon with respect to the allocation of their own time,
and of any other resources that they control as practice managers. They are trained
to discriminate between those who will benefit greatly from treatment and those
who wont, and by this means clinical priorities are established, which are based
on some broad assessment of risks, benefits and costs. The role of costs here is
crucial, because they represent sacrifices made by other potential patients who did
not get treated. Thus the economists argument that medical practice should
concentrate on those treatments that are known to be cost-effective, is designed to
ensure that the benefits gained by the treatments that are actually provided should
be greater than the benefits sacrificed by those who were denied treatment. That is
what doing as much good as possible with our limited resources means.

Objections

I am constantly amazed at how controversial these commonsense propositions seem

to be. Priority-setting is inevitably painful, and its consequences are bound to be
unfortunate for someone or other. It is therefore understandable that many people
cling, with childlike naivety, to the romantic illusion that if only more resources were
devoted to health care they can escape from the process altogether. But when more
resources are made available, we still have to decide which are the highest priority
uses to which they should be put, so this is really no escape route at all.
The more interesting and substantial objections come from those who accept
the fact of scarcity, and are willing to face up to its implications, but reject the
approach I have outlined. They fall into four groups:

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ECONOMICS, QALYS AND MEDICAL ETHICS 97

1. those who reject all collective priority-setting as unethical;

2. those who accept the need for collective priority-setting but believe that it is
contrary to medical ethics;
3. those who accept the need for collective priority-setting, and do not believe
that it is contrary to medical ethics, but reject the role of QALYs in it;
4. those who accept the need for collective priority-setting in principle, but are
unwilling to specify how it should be done in practice.

By collective priority-setting I mean priority-setting intended to guide the use of

public resources devoted to health care. I will summarise the key points at issue for
each group in turn.

Is all collective priority-setting unethical?

Those who reject all collective priority-setting as unethical typically assert that it is
immoral for one person to sit in judgement on the worth of other peoples lives,
which is what collective priority-setting requires us to do. However, since they
accept the fact of scarcity, they acknowledge that some people must be denied the
benefits of health care, but they want that done in a manner which is free of any
interpersonal judgements of relative worth. They believe that this can be done by
recourse to a lottery. The trouble with this supposed solution is that lotteries do
not fall like manna from heaven, but have to be devised and run by people, who
have to determine who shall be eligible, when, and under what conditions, for each
and every treatment that is on offer. So recourse to a lottery simply brings us back
to the very same priority-setting issues that it was supposed to avoid. They simply
appear in a different context, i.e. determining who is eligible to enter the lottery,
and with what probability they may win each prize.
Instead of seeking to avoid the making of interpersonal judgements of lifes
value, it seems more fruitful to seek as much detachment as possible when making
them. An entirely different sort of lottery could have an important role to play in
that process. What I have in mind is the thought experiment involved in
approaching collective priority-setting from behind the veil of ignorance. We have
to imagine ourselves outside the society of which we are members, and then
choose that set of rules for collective priority-setting which would be most likely to
achieve the distribution of health benefits that we think best for our society. Then,
and only then, will we be assigned, by lottery, an actual place in that society. We
may find ourselves favoured by our rules, or we may be one of the unfortunate
people who are disadvantaged by them, but we would have achieved a set of rules
which we would have to accept as fair. The question which I would ask the reader
to consider is whether, under these conditions, you would choose a set of rules
which would maximise the health of the community as a whole, as measured in
QALY terms, and, if not, why not?

Is collective priority-setting contrary to medical ethics?

My second group of objectors are those who accept the need for collective
priority-setting, but believe that it is contrary to medical ethics. In the extreme,

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98 A READER IN HEALTH POLICY AND MANAGEMENT

such people believe that it is the doctors duty to do everything possible for the
patient in front of him or her, no matter what the costs. But in a resource-
constrained system cost means sacrifice (in this case the value of benefits
foregone by the person who did not get treated). Thus no matter what the costs
means no matter what the sacrifices borne by others. This does not sound to me
like a very ethical position to be in. Indeed, people who behave regardless of the
costs of their actions are usually described as fanatical, not as ethical. Moreover,
if medical ethics include an injunction to deal justly with patients, then there has to
be some weighing of the benefits to one person against the sacrifices of another. So
I think that this supposed ethical conflict between the economists argument that
costs (i.e. sacrifices) must be taken into account in every treatment decision, and the
precepts of medical ethics, is non-existent, because medical ethics does not require
everything possible to be done for one patient no matter what the consequences for
any of the others.

Why might QALYs be unethical?

My third group consists of those who accept the need for collective priority-
setting, and do not believe that it is contrary to medical ethics, but cannot accept
the QALY approach to it. There seem to be four distinct ethical issues raised here.
First, whose values should count? Second, how should we move from individual
values to group values? Third, should we not be concerned with the distribution of
the benefits of health care across different people, as well as with the total amount
of such benefits? Fourth, are there other benefits from health care which QALYs
do not pick up. I will tackle each of these in turn.

Whose values should count?

Whose values should count? As a health economist it is really not for me to say.
Nor, as a health economist, do I have to say, because the QALY concept is
extremely accommodating in this respect. In principle it can accept anybodys
views about what is important in health-related quality of life, and anybodys views
about the trade-off between length and quality of life. In practice, the early
empirical work was based on professional judgements (mostly those of doctors).
More recent work has been based on the views of patients and of the general
public, and my own work has concentrated on the latter, because I am anxious to
find out whether the values of the practitioners, their patients, and the general
public coincide. What the QALY concept does, quite properly, is bring this
question to the fore, and points up the difficulties that are likely to arise if the
priorities of a particular group of patients differ from those of their doctors or of
the wider society of which they are part. In principle, since every treatment
decision entails benefits to some and disbenefits to others, in a democratic society
the views of all affected parties should count. Since the sacrifices involved in
treating particular groups of patients will be widely spread and difficult to identify

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ECONOMICS, QALYS AND MEDICAL ETHICS 99

with any precision, this points inexorably to the general public as the most
appropriate reference group. Some people have advocated using the values of a
particular reference group as the collective view (e.g. the views of the most
disadvantaged, or of people with particular moral, legal or political authority). At a
personal level I feel distinctly uncomfortable about such proposals, preferring a
simple populist stance. But, as I said earlier, adoption of the QALY approach does
not require you to adopt this particular stance, although I must confess that it is
one that I personally find very compelling.

Individual values or group values?

How should we move from individual values to group values? Once again, as a
health economist, who am I to say? Once again, I dont have to say, because there
is nothing in the QALY approach which requires aggregation to be accomplished
in any particular way. But collective priority-setting does require a collective view,
so some method of aggregation has to be adopted, and whatever method is used, it
will have strong ethical implications. The simplest method is to postulate that
everybodys views count equally, and a simple average is then taken to represent
the collective view. A somewhat more complicated position is involved in taking the
median view as the collective view. The median view is the one that would
command a simple majority in a voting system. With a skewed distribution of
values (which is what is commonly found) it gives less weight to extreme views
than would the taking of a simple average. But whichever position is taken on this
issue, the QALY approach has the great advantage that it is not possible to hide
what you have done, so it is quite easy for others to tease out the ethical
implication and help ensure that you are held accountable!

Is the distribution of QALYs important?

The next set of objections to the QALY approach concentrates on whether simple
maximisation of health (with all its utilitarian overtones) is really an adequate
representation of social objectives in the health care field, or whether we are not
also concerned with how the benefits of health care are distributed with the
population. My theme here is the same as before there is nothing in the QALY
approach which requires QALYs to be used only in a maximising context, although
it was QALY maximisation that I asked you to think about earlier as a collective
prioritising rule. The use of QALYs in more complex rules is perfectly possible,
and almost certainly needed if collective priority-setting is to reflect the views of
the general public. The simplest and commonest use of QALY calculations at
present is based on the assumption that a year of healthy life expectancy is to be
regarded as of equal value to everybody. Note that this does not say that it is of
equal value to everybody, because that is unknowable. What it says is that if that
social judgement is appropriate, then what follows from it will be appropriate. If it
is not, then what follows will be irrelevant. A strong egalitarian case could be made

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100 A READER IN HEALTH POLICY AND MANAGEMENT

for that assumption, since it implies that it does not matter at all who the
beneficiary is. Like Justice, it is Blind. There is no discrimination on grounds of
race, sex, occupation, family circumstances, wealth or influence. In this respect it
follows precisely the assumptions underlying the use of the more conventional
outcome measures used in clinical trials, which just count the number of people
with the specified outcomes characteristic. But following hallowed tradition may
not carry much weight if a sizeable majority of the general public would prefer
some discrimination between potential beneficiaries according to their personal
characteristics or circumstances. For instance, there is ample evidence that most
people (including the elderly) would give extra weight to benefits accruing to
young people over the same benefits accruing to old people. There is a similarly
widespread view that people with young children should have some priority over
their childless contemporaries. It is quite possible to build these differential
weightings into QALY calculations, the implication being that instead of maximis-
ing unweighted QALYs, we would need to weigh them according to the relative
priority assigned to the particular characteristics of the beneficiary. There are some
especially interesting issues concerning the preferential treatment of the poor. The
general principle, which is widely assented to, is that access to health care should
not depend on peoples wealth. This implies that it should not depend on peoples
lack of wealth either! So discrimination in favour of the poor seems inconsistent.
But if it is desired to use the health care system as a way of compensating people
for other deprivations they suffer, then again, QALYs can be weighted accordingly.

Are there benefits other than health improvements?

Last in this group of objectors are those who assert that there are other benefits
from health care than improvements in health. There obviously are. For instance,
the provision of health care generates a livelihood for millions of people. Moreover,
some people get satisfaction from health care in ways which do not show up as
improved health. But the question is, how relevant are these other benefits for
priority-setting in health care? To the extent that health improvements are the
dominant consideration, then QALYs, in some form or other, must be the
dominant concept, on the benefit side, in collective priority-setting. If the
improvement of health plays only a subsidiary role, then QALYs will play only a
subsidiary role. There seems little more to be said, except possibly to challenge
those who reject QALYs to say what they believe the main benefits of health care
are, if they are not improvements in the length and quality of peoples lives.

Fine in theory but unacceptable in practice?

This brings me to my final set of people, those who accept the need for collective
priority-setting in principle, but are unwilling to specify how it should be done in
practice. At a personal level they have my sympathy, because of all the difficulties I
have outlined. But at a professional level I feel somewhat aggrieved by their

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ECONOMICS, QALYS AND MEDICAL ETHICS 101

behaviour, because a typical stance is to point out all the difficulties involved with
some particular approach, and then to sit on the fence waiting for the next
candidate to come by, and then do the same again. This would be fine if the
implied ideal method were available to us, or if we could suspend all health care
decision-making until it were. But there is no perfect system on offer, and we cant
wait. As with a well-conducted clinical trial, the new has to be compared
systematically, according to preselected criteria, with what already exists. This is
what needs to happen in the field of priority-setting. If the same criteria as are used
to criticise the QALY approach were used in an even-handed way to criticise
current practice, or any feasible alternative to it, how would these other methods
make out?
So let me end with my favourite Maurice Chevalier story. When he was getting
quite old he was asked by a reporter how he viewed the ageing process. Well he
said there is quite a lot I dont like about it, but its not so bad when you consider
the alternative!
Perhaps the same is true of the QALY approach to collective priority-setting in
health care. If so, we should beware of rejecting potential improvements simply
because they fall short of perfection!

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12
The development of health
technology assessment
David Banta
Extracts from Banta D (2003) The development of health technology assessment.
Health Policy 63: 12132.

Introduction

Health technology assessment (HTA) was first conceptualised in about 1976.1

During the last decade, the field has grown remarkably, especially in Western
Europe, and it gains visibility and support everyday. At the same time, important
related evaluation activities, such as the Cochrane Collaboration (CC) and the
evidence-based medicine (EBM) movement, have also developed.
This paper attempts to answer three questions:

1) Why has the evaluation of health interventions grown so rapidly?

2) Whose interests are driving this development?
3) What can be expected from HTA in the future?

An important point to keep in mind is that the context of HTA is crucial. The
health system of any country reflects its history, its culture, and many values and
preferences. The same applies to HTA, which is part of that health system.
Therefore, any global conclusions concerning HTA can only be partial and
tentative, and may risk excessive dependence on partial evidence, anecdote and
stereotype.
Furthermore, those working in HTA are not academics. They are not involved
in comparative analysis of what they do and why. Nor are they under any pressure
to develop conceptual clarity. Instead, they are involved in the demanding,
everyday business of trying to help policy-makers solve difficult problems. There-
fore, even good descriptions of HTA activities are hard to find. As to answering
why a particular country has chosen a particular model for its programme and a
particular model of HTA, such information is just not available in a formal and
analytical sense.

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THE DEVELOPMENT OF HEALTH TECHNOLOGY ASSESSMENT 103

A historical perspective on health technology

Despite the long history of health technology, effective therapies were rare until
recently. In 1980, Beeson compared treatments recommended in a 1927 textbook
of medicine to those recommended in 1975. He rates the value of 60% of the
remedies in 1927 as harmful, dubious, or merely symptomatic, while only 3%
provided fully effective treatment or prevention.2 By 1975, effective regimens
increased sevenfold and dubious ones decreased by two-thirds.
Technology can be simply defined as: the systematic application of
scientific or other organised knowledge to practical tasks.3 This definition, in its
breadth, emphasises the pervasiveness of technology. Health care technology may
be defined as The drugs, devices, and medical and surgical procedures used in
healthcare, and the organisational and supportive systems within which such care
is provided.4 Thus, a cardiac monitor is a technology. At the same time, an
intensive care unitone of its component parts being the monitoris itself also a
technology.
Scientific evaluation is largely a development of very recent times. Throughout
recorded history, physician assessment has had an important role in the selection
of therapy. Most studies, however, utilised personal and anecdotal information.5
The singlemost important problem with this early research was lack of a control or
comparison group to assure that the observed effect was in fact due to the
intervention.
It was not until Bradford Hill formulated the principles of the randomised
controlled clinical trial (RCT) in the mid-1930s that scientific assessment began to
be accepted. The first randomised, controlled, double blind study was directed by
Hill and tested a vaccine for pertussis (whooping cough). Hill also collaborated
with Daniels in developing a randomised clinical trial of streptomycin in tubercu-
losis, published in 1948.5 By 2002, hundreds of thousands of RCTs have been
carried out. Cost-benefit and cost-effectiveness analyses (CEA) is a development
of the 20th century; the growth in the number of CEAs in health care began in the
mid-1960s.6 In recent years, a great effort has gone into developing more
standardised and valid methods of economic appraisal.7
A landmark in the development of the field of HTA was the 1972 publication
of Archie Cochranes book Effectiveness and Efficiency.8 He proposed a thorough-
going reform of health care evidence generation: Its [the RCTs] importance
cannot be exaggerated. It opened up a new world of evaluation and control which
will, I think, be the key to a rational health service(8, p. 11). Cochrane noted that
the increase in input since the start of the NHS has not been matched by any
marked increase in output in the cure section (8, p. 67). He advocated a marked
increase in knowledge through applied medical research, referring particularly to
randomised controlled trials to determine the efficacy (benefits) of interventions
(8, p. 78). With rare prescience, he suggested that the then Department of Health
and Human Services might organise applied medical research to meet the need of
assessing medical research priorities and assuring that appropriate research was
carried out (8, p. 79). The United Kingdom actually did set up such a programme

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104 A READER IN HEALTH POLICY AND MANAGEMENT

in 1990.9 Cochrane recognised that an increase in applied medical research would

result in a probable decrease in clinical and administrative freedom (8, p. 81).

Development of HTA

The term HTA was first used in the United States Congress in about 1967, and
the U.S. Congressional Office of Technology Assessment (OTA) was established in
1972. The general definition of technology assessment used was: a comprehensive
form of policy research that examines the short- and long-term social conse-
quences of the application or use of technology (1, p. 45). In the health field, OTA
recognised that assessment would emphasise efficacy, since the goal of health
care is to improve health. The impact of health technology depends on its
pervasiveness; it touches virtually everyones life. Nonetheless, an important
motivation for development of the field was the rising expenditures for health care.
Therefore, costs and cost-effectiveness analysis have also been an important part of
HTA, gaining increasing attention.10
Simultaneous with the beginnings of the OTA in the U.S., Swedish researchers
began to evaluate selected health care technologies. The pressures were similar:
high expenditures for health care, the visibility of new technologies, and the
necessity to begin to rationalise health care technology.11 As the ideas of technol-
ogy assessment gradually spread to other countries, formal technology assessment
activities started.12 During the 1990s almost all Member States of the European
Union (EU) developed national and regional public HTA agencies and pro-
grammes.
Much of what the OTA did in its early years was transferred readily to other
industrialised countries, especially in Europe. Assessments were done in similar
style, focusing on effectiveness and cost-effectiveness. Policy analysis, however, has
not been as central a part of technology assessment in Europe. In part this is
because policy analysis in the broader sense is not as developed in Europe as it is in
the United States. Nevertheless, technology assessments done in Europe have
tended to pay more attention to broader social implications, especially issues such
as ethics and threats to solidarity.
In the United States, technology assessment has not been effectively estab-
lished within the national government. The Congress established a national
programme, the National Centre for Health Care Technology (NCHCT) in
1978,13 but it was abolished in 1981 as the result of budget cuts. The OTA was
itself abolished in 1997 because of cuts in the Congress own budget.
With time, HTA began to operationalise its original definition of technology as
applied knowledge. The term medical technology was more-or-less dropped,
to be replaced by health care technology. Within the last few years, the term
health technology has been more favoured. This change goes hand-in-hand with
the change in focus of HTA.
The CT scanner was OTAs first target for HTA. Other early assessments dealt
with coronary artery bypass surgery, radical mastectomy, and other common and
expensive surgical procedures. Assessments of intensive care units and diagnostic

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THE DEVELOPMENT OF HEALTH TECHNOLOGY ASSESSMENT 105

equipment and tests were also undertaken. Over time, other areas of health care
have become the subject of assessments in HTA programmes. Nursing care,
mental health care, physiotherapy, and the doctorpatient relationship have been
the subject of assessments in recent years. The focus of HTA has shifted away from
technology to focus more often on health needs in what is sometimes termed
needs-based technology assessment.14 Again, the term health technology has
been increasingly operationalised. For example, assessments of strategies to help
people quit smoking, including the use of tax policies or regulations concerning
smoking in public places, have been carried out. The scope of HTA today is
enormous, potentially covering all determinants of health.
Beginning in 1987 in Sweden, formal public HTA programmes associated
with ministries of health developed in Western Europe, and in many other
countries of the world.

Discussion

It seems obvious to say that HTA has developed and grown up in a time of
heightened concern for rising health care expenditures, associated in part with
rapid technological change. These expenditures and their apparently obvious link
to new technologies helped lead to a search for the culprit.15 The culprit seems
to be technology, associated with the ageing of the population and increased
population demands. At the same time, clinicians and researchers have produced
growing evidence of poor quality of care, use of ineffective and untested technol-
ogy, and overuse and inappropriate use of technology.11 This has led to calls for
value for money in health care.
In effect, concerns about expenditures have drawn attention to technology, its
benefits and harms. Clinicians and clinical epidemiologists have laboured to
produce evidence of this poor quality when it occurs; and policy-makers have, in
general, been sensitive to this evidence. However, despite considerable media
attention to these problems, the general public in most countries has not yet been
drawn into a public debate, nor into the search for solutions.
Despite early concerns about social and ethical issues surrounding the devel-
opment and diffusion of health technologies, these have been relatively invisible in
the growing field of HTA. In effect, the field has been driven since its early days by
policy-makers concerns about expenditures (costs). With time, quality concerns
have become increasingly prominent. Clinicians, especially those dedicated to
EBM, have advocated a new form of practice, which would address quality
directly. Managers and administrators have generally not yet actively embraced
HTA.

The future of HTA

The future is not easy to predict. One thing is clear, however. The linkage of HTA
and formal policy-making has its limits. Formal policies provide a structure for

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106 A READER IN HEALTH POLICY AND MANAGEMENT

administrative and clinical decisions, but they leave a great deal of freedom to
make decisions, especially with physicians. For this reason there is increasing
attention given to the dissemination and implementation of HTA.16 In essence,
this means actions at the operational level of clinical medicine.17 There is also
increasing discussion of the importance of involving the lay public in these matters.
As Cochrane observed more than 20 years ago, the development of better and
better information to guide decisions seems to imply a decrement in professional
and managerial freedom.8 This judgement seems correct. As better and better
evidence for benefits and cost-effectiveness becomes available, it seems unlikely
that practice not in accord with the evidence will be tolerated by consumers and
policy-makers. Coverage decisions are already made more and more frequently
based on HTA. Still, implementing HTA results into clinical practice remains a
formidable challenge.
International co-ordination and co-operation is not yet well-developed, but it
seems to offer large advantages in the future. The main reason for this is the sheer
magnitude of the task. Thousands of health technologies need to be assessed.
Many of these have never been assessed and remain unproven. Others are
efficacious for some indications but are over-used. The task of identifying
candidates for assessment, synthesising the evidence, and, where necessary, carry-
ing out prospective research such as RCTs, is the work of many years.

Notes

1 Office of Technology Assessment. Development of medical technology: oppor-

tunities for assessment. Washington DC: U.S. Government Printing Office,
1976.
2 Beeson KPB. Changes in medical therapy during the past half century.
Medicine 1980;59:7999.
3 Galbraith J. The new industrial state. New York: The New American Li-
brary, Inc, 1977:31.
4 Office of Technology Assessment. Assessing the efficacy and safety of medical
technologies. Washington DC: U.S. Government Printing Office, 1978.
5 Bloom BS. Controlled studies in measuring the efficacy of medical care: a
historical perspective. International Journal of Technology Assessment in
Health Care 1986;2:299310.
6 Elixhauser A, Luce B, Taylor W, Reblando J. Health care cost-benefit and
cost-effectiveness analysis from 1979 to 1990: a bibliography. Paper delivered
to Academy for Health Services Research and Health Policy Annual Meeting
(AHSR), 1992.
7 Davies L, Coyle D, Drummond M. Current status of economic appraisal of
health technology in the European Community: report of a network. Social
Science and Medicine 1994;38:16017.
8 Cochrane A. Effectiveness and efficiency. Abingdon: Burgess & Son, 1972:11.
9 Peckham M. Research and development for the National Health Service.
Lancet 1991;33:36771.

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THE DEVELOPMENT OF HEALTH TECHNOLOGY ASSESSMENT 107

10 Office of Technology Assessment. The implications of cost-effectiveness analy-

sis of medical technology. Washington DC: U.S. Government Printing Office,
1980.
11 Banta H David, Bryan Luce. Health care technology and its assessment, an
international perspective. Oxford: Oxford University Press, 1993:22336.
12 Banta, H. David, Gelband, Hellen, Jonsson, Egon, Battista, Renaldo. Health
care technology and its assessment in eight countries, Health Policy
1994;30(13) (special issue).
13 Perry S. The brief life of the National Centre for Health Care Technology.
New England Journal of Medicine 1982;307:1095100.
14 Feeny D, Guyatt G, Tugwell P. Health care technology: effectiveness, effi-
ciency and public policy. Montreal: The Institute for Research on Public
Policy, 1986:41.
15 Altman S, Blendon R, editors. Medical technology: the culprit behind health
care costs? Washington DC: U.S. Department of Health, Education, and
Welfare (DHEW Publication No. PHS 79-3216), 1979.
16 Battista R, Banta HD, Jonsson E, et al. Lessons from the eight countries. In:
Banta HD, Gelband H, Battista R, Jonsson E, editors. Health care technology
and its assessment in eight countries. Washington DC: U.S. Government
Printing Office, 1995:33554.
17 Granados A, Jonsson E, Banta HD. EUR-ASSESS project subgroup report on
dissemination and impact. International Journal of Technology Assessment in
Health Care 1997;13:22086.

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13
Explicit and implicit rationing: taking
responsibility and avoiding blame for health
care choices
Chris Ham and Angela Coulter
Extracts from Ham C and Coulter A (2001) Explicit and implicit rationing: taking
responsibility and avoiding blame for health care choices. Journal of Health
Services Research and Policy 6(3): 16369.

Introduction

In an era of ever-increasing medical possibilities, publicly financed health care

systems face the challenge of determining what services should be covered for the
insured population. This challenge, usually referred to as health care rationing or
priority-setting terms we shall use interchangeably has led governments in a
number of countries to take a more systematic approach to the determination of
service coverage than has usually been the case in the past. Specifically, policy-
makers in these countries have encouraged explicit debate about priority-setting,
starting in the second half of the 1980s and continuing into the 1990s. In so doing,
they have built on efforts to strengthen health technology assessment and to
determine coverage of pharmaceuticals in order to address priority-setting in the
round.
One of the earliest examples was the US state of Oregon, whose work to draw
up a list of priorities for Medicaid as a way of expanding population coverage has
been widely studied and reported.1 The experience of Oregon finds echoes in
countries as diverse as Denmark, Finland, Norway, Sweden, the Netherlands, New
Zealand, Israel and now the UK as policy-makers seek to square the circle of
increasing demands and limited resources.2 In all of these systems, work has been
undertaken to develop more explicit approaches to rationing at a macro level in
recognition that diffusing blame and muddling through may no longer be suffi-
cient. In parallel, there have been efforts to strengthen decision-making at the meso
and micro levels in recognition that responsibility for rationing is located at many
different points. This work can be seen as an attempt by policy-makers to
supplement political bargaining over the allocation of health care resources with
efforts to puzzle more intelligently about priority-setting. This paper summarises

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EXPLICIT AND IMPLICIT RATIONING 109

the results of these efforts and assesses the implications for those charged with
making rationing decisions.

Rationing all around the world

Experience in systems that have sought to be more systematic in their approach to

determining what services should be covered for the insured population demon-
strates the menu of possibilities available to health policy-makers in setting
priorities at a macro level. Despite the attention given in health policy debates to
the development of a basic benefits package or a set of core services, only in
Oregons Medicaid programme has the priority-setting dilemma been addressed
mainly by excluding certain categories of treatments from funding. In Oregon this
was done by drawing up a list of conditiontreatment pairs and ranking these in
order of priority.
When it was implemented in 1994, the Oregon Health Plan funded 565 out of
696 treatments, the main exclusions being treatments for minor medical conditions
or those for which evidence of effectiveness was lacking. In taking this approach,
policy-makers in Oregon were seeking to increase population coverage by limiting
service coverage, although even the original Oregon Plan included some services
that had previously been outside Medicaid, such as dental care. Subsequent
revisions have tended to increase the scope of service coverage to the extent that
most treatments are now covered.3 An example is cochlear implants, which were
added to the list of funded services when new evidence on the benefits offered by
implants became available.
Oregon aside, those responsible for rationing have adopted an approach
centred on the development of national frameworks to guide priority-setting rather
than on defined lists of treatments or services to be covered. The Netherlands and
New Zealand exemplify this approach. In the Netherlands, politicians have shied
away from the exclusion of services from funding after flirting with this strategy.
One of the reasons for their reluctance to go down the road of exclusions was
criticism from groups opposed to the removal of services from funding. An
example was the proposal to exclude funding of contraceptive pills from coverage
in the Netherlands, a proposal that was withdrawn after opposition from womens
groups and family planning organisations. Similarly, in New Zealand, the
government-appointed Core Services Committee declined to draw up a list of
services to be publicly funded, even though it was charged with this task. The view
of the Committee was that priority-setting was best approached not by limiting
service coverage but by determining how services could be targeted on those
patients most likely to benefit. In both the Netherlands and New Zealand, effort
has focused on the development of evidence-based guidelines intended to ensure
that services are provided appropriately.
Research into explicit rationing at a macro level demonstrates that there are no
simple or technical solutions that can resolve the dilemmas facing decision-makers.
As Oregon discovered, techniques drawn from economics designed to compare the
costs and outcomes of health technologies are not sufficiently developed to provide

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110 A READER IN HEALTH POLICY AND MANAGEMENT

a reliable basis for decision-making.4 This was starkly illustrated by the ranking of
tooth-capping above appendicectomy in the original Oregon list. Anomalous
results of this kind show the difficulties of applying economic analysis in practice
and also reveal gaps in the availability of information on costs and benefits.
Yet, even if information were more complete, the results of economic analysis
would still have to be interpreted by policy-makers in the process of determining
priorities, given that the aim of health policy is not simply to maximise health gain
for the resources available. As an example, the pursuit of equity may result in
resources being allocated to services for which the cost of achieving a certain
quantum of benefit is greater than for alternatives. Trade-offs of this kind are made
all the time in health policy and indicate the potential incompatibility of efficiency
and equity objectives.
Those responsible for priority-setting therefore have to confront the need to
make decisions in conditions of incomplete information and likely conflicts
between objectives. While one response has been to seek to fill the gaps in
information and to refine the tools to support decision-making for example,
through an investment in health technology assessment and evidence-based
medicine another approach has been to widen the debate beyond the experts
(whether physicians or economists) to include other stakeholders. An important
motivation in this context is that choices in health care involve making judgements
about the relative priority to be attached to different objectives and services. It
follows that these choices need to be informed by an understanding of community
preferences if they are to gain acceptance among those affected.

Public involvement in rationing

It was for this reason that decision-makers in Oregon, for example, sought to
strengthen their approach by drawing on public consultation and evidence of
community values in determining priorities for Medicaid. Other systems have also
endeavoured to engage the public in debate about rationing and a wide range of
methods have been used for this purpose. In part, this has been stimulated by a
concern to inform the public about the inevitability of rationing, and in part it has
been designed to use the publics views to inform decision-making.
The need to make trade-offs in health care rationing has also led to an interest
in clarifying the values that should guide decision-making. In some systems, such
as in the Netherlands, Oregon and Sweden, values have been defined explicitly,
whereas in others they have emerged implicitly. The work done on values has been
used to aid the process of rationing by identifying criteria for making choices and
in some cases for ordering priorities. A distinctive feature of the Swedish approach
is the attempt to rank values, the highest priority being attached to respect for
human dignity, followed by solidarity or equity and then by efficiency.5 The
experience of Sweden reinforces our earlier observation on the potential conflict
between objectives.
With few exceptions, the articulation of values has remained a high-level
activity and little effort has been put into the use of values in decision-making or in

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EXPLICIT AND IMPLICIT RATIONING 111

day-to-day clinical practice. As a consequence, there is often a gap between the

proposals put forward by government committees and expert groups in relation to
rationing and what happens at the meso and micro levels. This is most apparent in
the case of countries like Norway and Sweden where the emphasis has been placed
on the promulgation of ethical frameworks at a macro level to guide decision-
making. The impact of such frameworks, based on the identification of core values
rather than core services, is difficult to determine precisely because they are
expressed in general terms and their effects have not been fully evaluated.
Set against this, explicit rationing may result in more resources being allocated
to the health care budget if the approaches adopted are sufficiently specific to
expose areas of underfunding and unmet need. This was one of the effects of the
Oregon Health Plan in that the legislature voted more resources for Medicaid to
enable the cut-off point for funding to be lowered when the effects of maintaining
previous funding levels became transparent. Similarly, in New Zealand, the
government provided extra funds to reduce waiting lists for surgery when it was
possible to identify patients who would benefit from treatment but were not
receiving it because of financial constraints. Experience in Israel reinforces this
point, with the government there increasing the health care budget to enable new
and relatively expensive drugs for cancer care to be included in the benefits
package following publicity demonstrating the denial of treatment to patients
(including children) in need.6

The politics of rationing

One clear conclusion from experience so far is the sheer messiness of health care
decision-making and the inherently political nature of priority-setting. The alloca-
tion of scarce resources between competing demands is both an economic
challenge and a political puzzle. Giving higher priority to one service means giving
low priority to another when budgets are fixed, and the evidence indicates that this
is likely to stimulate lobbying among those groups affected. One of the reasons
political leaders have been reluctant to engage in explicit rationing at a macro level
in the past is that in determining priorities they are also accepting responsibility for
what may be unpopular choices. This helps to explain why politicians in most
countries have declined to ration by excluding treatments or services from funding
even though priority-setting has become more explicit.
In these circumstances, there is a tendency for policy-makers to seek to avoid
blame either by ducking tough choices or by devolving responsibility to others.
Rationing by guidelines rather than exclusions is one manifestation of this in that it
leaves ultimate responsibility for deciding who should get access to health care
resources to agencies such as sickness funds and health authorities at the meso
level and to physicians at the micro level. The tendency of political leaders to avoid
blame for rationing is consistent with research into the motivations of politicians.7
It is also congruent with the findings of research into comparative social policy
demonstrating that retrenchment strategies are more likely to take the form of
relatively incremental and invisible initiatives than direct cut-backs.8

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112 A READER IN HEALTH POLICY AND MANAGEMENT

Partly because of this, but also because of the obstacles to developing more
systematic approaches, some writers argue that muddling through is a virtue rather
than a sin and that whatever its weaknesses is to be preferred to the fruitless quest
for a technical fix. In other words, disillusion with the results of systematic
attempts to setting priorities is used to justify the status quo ante and to caution
against the pursuit of more rational solutions. This is the contention of, among
others, Mechanic, who argues that implicit decision-making offers greater flexibil-
ity in circumstances in which judgements about treatments are surrounded by
uncertainty and the needs of patients are diverse.9 Mechanic acknowledges that
explicit approaches have a part to play at the macro and meso levels, but even so he
maintains that these approaches are liable to political manipulation and are not
sufficiently responsive to change. Mechanics view is endorsed by Hunter, who
contends that muddling through elegantly is the most that can be expected and
who is even more sceptical than Mechanic about the desirability of explicitness.10
A related argument is advanced by Klein, who is sympathetic to the case for
muddling through but places greater emphasis on the need to strengthen the
institutional basis of decision-making. Writing as a policy analyst, Klein sees
priority-setting as inescapably a political process in which debate and discussion
between different interests are inevitable.11 It follows from this that the challenge is
to devise mechanisms for addressing the intractable questions involved, while being
cautious about the likelihood of finding answers. Klein is here echoing Holms
analysis of experience in the Nordic countries which points to the increasing
interest in transparent and accountable decision-making processes at a macro level
rather than the pursuit of technical solutions.12
As Holm shows, policy-makers in these countries have turned their attention
to ways of strengthening decision-making processes to generate legitimacy for
rationing as the limits of technical approaches have been exposed. Specifically,
expert committees in both Denmark and Norway have made proposals for
widening the debate about priority-setting and involving a range of stakeholders.
The importance of transparent and accountable decision-making processes is
reinforced by Daniels and Sabins analysis of limit-setting decisions in managed
care organisations. On the basis of their analysis, Daniels and Sabin set out four
conditions that have to be met to demonstrate accountability for reasonable-
ness:13

1 Publicity condition: decisions regarding coverage for new technologies (and

other limit-setting decisions) and their rationales must be publicly accessible.
2 Relevance condition: these rationales must rest on evidence, reasons and
principles that all fair-minded parties (managers, clinicians, patients, and
consumers in general) can agree are relevant to deciding how to meet the
diverse needs of a covered population under necessary resource constraints.
3 Appeals condition: there is a mechanism for challenge and dispute resolution
regarding limit-setting decisions, including the opportunity for revising deci-
sions in the light of further evidence or arguments.
4 Enforcement condition: there is either voluntary or public regulation of the
process to ensure that the first three conditions are met.

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EXPLICIT AND IMPLICIT RATIONING 113

The relevance of these conditions has been demonstrated in studies of priority-

setting decisions in the UK as well as the USA, suggesting that the characteristics
of defensible decision-making apply regardless of differences in the funding and
provision of health care. This was clearly illustrated by the case of Child B, in
which an English health authority that declined to fund further intensive treatment
for a girl with end-stage leukaemia found itself vulnerable because of weaknesses in
the decision-making process.14 The common thread in both North American and
European experience is the need to show that the way in which priorities are set is
fair and reasonable even if agreement on the outcome is not possible. A similar
motivation can be detected in New Zealand where the work of the Core Services
Committee (since renamed the National Health Committee) has given particular
emphasis to raising public awareness of priority-setting in health care and bringing
choices out into the open.15 Having made this point, those involved in this work
recognise that much remains to be done to promote public involvement in and
understanding of priority-setting. In other words, just as techniques drawn from
economics and other disciplines are still in the process of development, so too
methods of public participation and stakeholder debate need to be refined.

A new synthesis?

To articulate these arguments is to illustrate that approaches to priority-setting do

not simply involve a choice between muddling through implicitly or pursuing
systematic and explicit alternatives. Our reading of the international evidence is
that these and related dichotomies fail to capture the complexity of rationing in
practice. Put another way, the policy learning that has occurred in the decade or so
since political leaders in Oregon and elsewhere grasped the nettle of explicit
priority-setting has highlighted not only the absence of technical solutions but also
the need to join together approaches that have often been presented as alterna-
tives.16
The argument can be taken a stage further by invoking the debate between
Klein and Williams that formed the centrepiece of the second international
conference on priorities in health care.17 Writing as an economist, Williams
challenged Kleins contention (see above) that strengthening the institutional basis
of rationing was the issue that needed most urgent attention. Rather, Williams
maintained that effective priority-setting required clarity about objectives, informa-
tion about costs and outcomes, and the ability to measure performance. In other
words, Williams reasserted the case for technical solutions. For his part, Klein
responded that the key task was less to refine the technical basis of decision-
making than to construct a process that enabled a proper discussion to occur given
that questions of rationing cannot be resolved by an appeal to science.
Our view is that the debate between Williams and Klein is a defining example
of the false antitheses that have been so much in evidence in discussions in this
field, even accepting that their respective positions may have been artificially
polarised for the purpose of debate. The choice available to policy-makers is not
between more information and stronger institutions; rather it is how the work of

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114 A READER IN HEALTH POLICY AND MANAGEMENT

institutions can be enhanced through the provision of better information and other
mechanisms. Expressed in the language used earlier in this paper, the challenge is
to improve both technical approaches and decision-making processes to enable the
judgements that lie behind rationing to be as soundly based as possible. In relation
to techniques, this means developing further the work of economists and others to
inform decisions on priorities. And in relation to decision-making processes, it
entails developing institutions capable of using these techniques and also of
involving the public and other stakeholders in debating priorities and making
choices.
To make this point is to suggest that strengthening information and institutions
also involves transcending another dichotomy namely, that concerning the role of
experts and lay people in rationing. The challenge here is to find ways of enhancing
the contribution of the public in its many different guises alongside that of experts.
International experience testifies to the efforts that have been made to consult the
public and to promote democratic deliberation in health care through the use of
surveys, focus groups, consensus conferences and other methods. In parallel, the
advice of experts has been drawn on through membership of government commit-
tees set up to advise on priority-setting and use of the findings of evaluative
research. A new synthesis requires that the input of both experts and lay people is
seen as legitimate and relevant to decision-making on priorities and that continu-
ing efforts are made to find the most appropriate mechanisms for securing this
input. This has recently been recognised in the UK with the proposal to set up a
citizens council to advise the national agency charged with advising government
on priority-setting.
Similar considerations apply to the debate about the comparative advantages
of explicit and implicit decision-making. As experience shows, the choice between
explicit and implicit rationing hinges on how political leaders deal with controver-
sial choices when they arise. In the case of Israel, for example, an explicit approach
to the determination of additions to the services that should be covered was
combined with the imposition of limits on an implicit basis. Confirming our
reading of international experience, analysts of this approach have concluded that
The Israeli case suggests that explicit and implicit approaches to rationing and
priority-setting are not exclusive alternatives but rather complementary tools which
support each other.6
Much the same applies in the UK, which is belatedly following the example of
the other countries reviewed here through the establishment of the other countries
reviewed here through the establishment of the National Institute for Clinical
Excellence (NICE) to advise politicians on priority-setting. The modus operandi
of NICE follows (unconsciously) the precepts of Daniels and Sabin with a
commitment to transparency and accountability in decision-making on the funding
of new technologies. This explicit approach goes hand in hand with a continuation
of implicit decision-making in many other aspects of rationing within the National
Health Service (NHS), including the decisions that physicians make on the
implementation of NICE guidelines and advice. Explicit rationing at a macro level

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EXPLICIT AND IMPLICIT RATIONING 115

is in this way combined with implicit rationing at a micro level. And at the meso
level, health authorities have adopted both explicit and implicit approaches in
discharging their responsibilities.1820
The other element of the new synthesis is the use of exclusions as well as
guidelines in addressing the priority-setting dilemma. We have emphasised the
political obstacles to rationing by exclusion but, in addition, it has to be
acknowledged that there are other reasons for avoiding this approach to priority-
setting. The weight of evidence suggests that there are few treatments that are
wholly good or entirely bad and the challenge for decision-makers is to ensure that
services are funded and provided to those patients who stand to benefit. This was
expressed clearly by the chairman of the New Zealand Core Services Committee:

The approach we decided to take was one that has flexibility to take account of
an individuals circumstances when deciding if a service or treatment should
be publicly funded. For example instead of a decision that says hormone
replacement therapy (HRT) is either core or non-core the committee has
decided that in certain circumstances HRT will be a core service and in others
it wont be. The committee has recommended that HRT be a core service
where there is clinical and research-based agreement that it constitutes an
appropriate and effective treatment.21

It is this that provides the rationale for the development of guidelines designed to
target services and resources to achieve the most health gain for the population
served. In reality, guidelines can be used alongside exclusions, as in the approach
taken in the Netherlands, which combines the exclusion of a limited number of
services examples being cosmetic surgery, adult dental care and homeopathic
medicines with the use of guidelines for the majority of services in a manner that
is also finding favour elsewhere. Another example is the UK, where the exclusion
of new drugs such as Relenza from NHS funding is occurring at the margins, with
the main emphasis being placed on the use of guidelines intended to ensure that
those services that are funded are used appropriately and effectively. Indeed, in the
UK, NICE has since reversed its original decision on Relenza and the drug can
now be prescribed within defined guidelines. A further example is Oregon, where
the inclusion of services on the list of funded treatments is accompanied by the use
of guidelines to ensure that these services are provided appropriately. It might be
added that setting priorities through guidelines preserves the degree of discretion
in the treatment of individual patients that, for Mechanic, provides the basis for
implicit rationing in health care.9
Having made this point, it is important to recognise the force of Norheims
argument that guidelines themselves need to be developed through fair and open
procedures. That is, the increasing reliance on guidelines in rationing requires the
same rigour in relation to how guidelines are determined as decisions on whether
or not to exclude services entirely from funding. Only in this way, Norheim argues,
will it be possible to demonstrate that guidelines are acceptable and the decisions
on which they are based defensible.22

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116 A READER IN HEALTH POLICY AND MANAGEMENT

Conclusion

In conclusion, it is not necessary to subscribe to a view of policy-making as red in

tooth and claw to recognise the way in which debates about priority-setting
illustrate the quest for power and influence in the health sector. This is evident in
the role of pressure groups in lobbying for additional resources for their priorities
and the strategies used by political leaders to evade responsibility for unpopular
choices. One of the conundrums in this context is the willingness of politicians to
be brave (or foolish, depending on your point of view) in some systems, but not in
others, by encouraging explicit rationing at the macro level. The point here, to
reiterate our earlier argument, is that explicitness tends to enhance accountability
by making transparent the location of decisions and runs counter to the blame
avoidance strategies that often motivate politicians.
Having made this point, there is evidence of learning in the policy process,
exemplified by the retreat from purely technical solutions and the efforts made to
involve the public in debates on rationing. There is also an increasing focus in
what Holm describes as the second phase of priority-setting23 on the process of
determining priorities. The interest in decision-making processes is at once a
response to the shortcomings of technical solutions and an attempt to earn
legitimacy for what will often be difficult choices. Furthermore, by widening the
circle of participants in decision-making and demonstrating that the way in which
decisions are made is rigorous and fair, those responsible for rationing are,
consciously or unconsciously, striving to achieve accountability for reasonableness
in the rationing process.
There is also evidence of learning in the partial retreat from explicitness in
some countries. The renewed (in some cases, continuing) focus on the meso and
micro levels of rationing can be interpreted as a return to blame avoidance as
decision-makers respond to the costs of being explicit about priorities at the macro
level by shifting (or maintaining) the emphasis and responsibility to agencies such
as sickness funds and health authorities and to physicians. If this interpretation is
correct, then the recent interest in explicit rationing may be a temporary aberration
in a much longer history of muddling through and evading responsibility. In other
words, the political costs of explicitness may outweigh the benefits and this could
result in a return to previous decision-making processes.
The force of this observation is underlined by experience in those countries
such as the USA that (with limited exceptions like Oregon) have chosen not to
ration explicitly. As the US experience suggests, there remain fundamental political
obstacles to adopting a different approach, not least because:

The American way of rationing is to decentralize (in political terms hide) the
choices; the result is rationing through an accumulation of narrow public
policies, private decisions and luck.24

This is because, in the USA, attempts to ration health care explicitly are political
dynamite. Nevertheless, decisions about limits to coverage and whether to fund
new technologies have to be taken. In the USA, these decisions fall to public

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EXPLICIT AND IMPLICIT RATIONING 117

agencies, insurers and managed care organisations. Whether they like it or not,
these agencies are involved in rationing.25,26
In both the USA and elsewhere, the release of the rationing genie from the
bottle has had the effect of initiating a debate that will be difficult to halt. At a time
when there is increasing public awareness of the possibilities created by medical
advances and the denial of access to treatment, the challenge is not how to avoid
discussion of rationing at the macro level but rather how to develop an informed
democratic consensus model in which through broad mechanisms of public
deliberation there is debate about how limited health care resources can be
distributed. The rationale for encouraging democratic deliberation is that choices
in health care involve moral issues that should be neither hidden nor fudged.27 If
those responsible for rationing continue to obfuscate and fail to confront the
dilemmas directly, then public confidence in the legitimacy of decisions and those
charged with making them will be further undermined. In this sense, the case for a
systematic approach is at root an argument to maintain, and in some cases restore,
faith in the political system and to strengthen democratic practices. It is also an
argument for finding a way of increasing the resources available for health care in
the light of evidence that explicitness makes it more difficult for policy-makers to
evade responsibility for difficult choices.

Notes

1 Strosberg M, Wiener J, Baker R, Fein I, eds. Rationing Americas medical

care: the Oregon plan and beyond. Washington: The Brookings Institution,
1992
2 Coulter A, Ham C, eds. The global challenge of health care rationing.
Buckingham: Open University Press, 2000
3 Jacobs L, Marmor T, Oberlander J. The Oregon health plan and the political
paradox of rationing: what advocates and critics have claimed and what
Oregon did. Journal of Health Politics, Policy and Law 1999; 24: 161180
4 Hadorn D. Setting health care priorities in Oregon. Cost effectiveness meets
the rule of rescue. Journal of the American Medical Association 1991; 265:
22182225
5 Swedish Parliamentary Priorities Commission. Priorities in health care: ethics,
economy, implementation. Stockholm: Ministry of Health and Social Affairs,
1995
6 Chinitz D, Shalev C, Galai N, Israeli A. Israels basic basket of health services:
the importance of being explicitly implicit. BMJ 1998; 317: 10051007
7 Weaver K. The politics of blame avoidance. Journal of Public Policy 1986;
6: 371398
8 Pierson P. Dismantling the welfare state. Cambridge: Cambridge University
Press, 1994
9 Mechanic D. Muddling through elegantly. Health Affairs 1997; 16: 8392
10 Hunter D. Rationing dilemmas in healthcare. Birmingham: National Associa-
tion of Health Authorities and Trusts, 1993

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118 A READER IN HEALTH POLICY AND MANAGEMENT

11 Klein R. Puzzling out priorities. BMJ 1998; 317: 959960

12 Holm S. Goodbye to the simple solutions. BMJ 1998; 317: 10001002
13 Daniels N, Sabin J. The ethics of accountability in managed care reform.
Health Affairs 1998; 17: 5064
14 Ham C, Pickard S. Tragic choices in health care: the story of child B. London:
Kings Fund, 1998
15 Edgar W. Rationing health care in New Zealand how the public has a say. In:
Coulter A, Ham C, eds. The global challenge of health care rationing.
Buckingham: Open University Press, 2000
16 Martin D, Singer P. Priority setting and health technology assessment: beyond
evidence-based medicine and cost-effectiveness analysis. In: Coulter A, Ham
C, eds. The global challenge of health care rationing. Buckingham: Open
University Press, 2000
17 Klein R, Williams A. Setting priorities: what is holding us back inadequate
information or inadequate institutions? In: Coulter A, Ham C, eds. The global
challenge of health care rationing. Buckingham: Open University Press, 2000
18 Hope T, Hicks N, Reynolds DJM, Crisp R, Griffiths S. Rationing and the
health authority. BMJ 1998; 317: 10671069
19 Ham C. Priority setting in the NHS: reports from six districts. BMJ 1993;
307:435438
20 Klein R, Day P, Redmayne S. Managing scarcity. Buckingham: Open Univer-
sity Press, 1996
21 Jones L. The core debator. Wellington: National Advisory Committee on Core
Health and Disability Services, 1993
22 Norheim OF. Healthcare rationing are additional criteria needed for assess-
ing evidence based clinical practice guidelines? BMJ 1999; 319: 14261429
23 Holm S. Goodbye to the simple solutions. BMJ 1998; 317: 10001002
24 Morone JA. The bias of American politics: rationing health care in a weak
state. University of Pennsylvania Law Review 1992; 140: 19231938
25 Rodwin MA. Promoting accountable managed health care: the potential role
for consumer voice. School of Public and Environmental Affairs, Indiana
University, 2000 (www.consumerfed.org/hmoreport.pdf)
26 Daniels N. Accountability for reasonableness. BMJ 2000; 321: 13001301
27 Fleck LM. Just health care rationing: a democratic decision making approach.
University of Pennsylvania Law Review 1992; 140: 15971636

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PART 4
Markets and choice in health care
Introduced by Naomi Chambers

As noted in the introductory chapter to this reader, governments throughout the

world (OECD, 2005) have been attracted by the use of markets and choice in
health and public sector reforms in order to drive up efficiency, quality and
responsiveness. This part identifies those key texts that have influenced both the
marketization of health care and the increasing emphasis on choice.
The evidence base for this policy direction is not clear. The USA, for example,
is an extreme example of the use of markets both in financing and provision of
health care and demonstrates both the best features (clinical outcomes and
resource utilization) and the worst (population coverage) of this policy, described
vividly by Walshe (2001).
Certain writers have provided the rationale for the use of markets. Above all,
Enthovens analysis of the principles of managed competition in relation to health
care has been particularly influential (Enthoven, 1993). Enthoven writes from a US
health system perspective, with its strong cultural preferences for limited
government, pluralism and individual choice, and in which, for the majority of the
population, the employer provides health insurance as part of the remuneration
package. Managed competition is defined as a purchasing strategy to obtain
maximum value for money for employers and consumers. The price competition
that it focuses on is the annual premium for comprehensive health care services,
not the price for individual services. Crucial to the concept of managed competi-
tion is also the role of the sponsor, which is the employer, or representative of
the employer (but could also be a state government in the case of Medicaid and
Medicare programmes for the poor and elderly) who establishes rules of equity,
selects plans and manages the enrolment process, and creates price elasticity
(reduced prices with increased demand). To underline the influence of Enthoven, it
could be argued that successive health system reforms in many other countries;
for example, the UK, the Netherlands and New Zealand have been predicated
largely on the virtues of the principles of managed competition but further
influenced by a communitarian or solidarity ethos that is largely absent in the US
cultural tradition.

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120 A READER IN HEALTH POLICY AND MANAGEMENT

Julian Le Grand offers an interesting argument around the need to take

account of human motivation and behaviour in the development of quasi-markets
and the growth of legal welfare (legislation about minimum wage, working hours,
etc.) in social policy. The quasi-market has been seen as a response to the
wastefulness, inefficiency and unresponsiveness of post-war welfare institutions
financed and operated by the state. Le Grand argues however that the increasing
preoccupation of policy makers with viewing, respectively, the providers (particu-
larly the professionals) as no longer knights (public spirited altruists), and
recipients of welfare as no longer pawns (passive and grateful), but both sets as
knaves (in one way or another self-interested) is essentially flawed as the reality
is much more complex and not yet well understood. Clumsily constructed policies
can crowd out altruism and turn knights into knaves and what is required instead
is robust policies that do not depend on any simplistic view of human behaviour
(Le Grand, 1997).
One of the operating tools of the quasi-market in health care has been the
discipline of commissioning, which also incorporates the activities of purchasing,
contracting and procurement. Evidence for the impact in terms of efficiency and
effectiveness is mixed, although there are signs that as far as responsiveness is
concerned, at least in terms of access, some gains have been made (Ham,
2008). Asymmetry with regard to power and influence with provider organizations
and lack of integrated clinical governance and clinical engagement structures
appear to continue to hamper efforts of commissioners, at least in the UK (Light
and Dixon, 2004; Woodin, 2006).
When Alain Enthoven first turned his gaze to the UK NHS in 1985, he coined
the term the internal market, which has been a cornerstone of (at least) English
health policy ever since, and out of which the commissioning discipline was
developed. His reflections, from an academic public policy perspective, and as
someone with no NHS background but a sophisticated grasp of the US health
system, go nicely hand in hand with the Griffiths Management Inquiry report,
produced by a prominent UK businessman, also without NHS experience, which
was published two years earlier and is examined in some detail, with original
extracts, in Part 7 of this reader. Enthoven talks compellingly of the gridlock of
forces that make change difficult to come about, mirroring Griffiths metaphor of
the NHS as a directionless and floating mobile. In addition to the notion of the
internal market, Enthovens prescription includes the need for demonstration
projects (pilots), the necessity of understanding costs of services and the
construction of a competing health maintenance organisation (HMO) model of
care. Over 20 years later, the NHS has made considerable progress with regard to
costing and pricing, but still underuses the discipline of piloting to assess the
appropriateness of policy interventions. The HMO model continues to be scruti-
nized. Presciently, and in remarkably similar terms to Griffiths, he talks of the
need for medical leadership to be strengthened.
The lack of an evidence base for the greater use of markets in health care has
already been touched on. Celia Davies, Paul Anand, Lidia Artigas et al. (2005)
take the three forms of governance of markets, hierarchies and networks, and,

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A READER IN HEALTH POLICY AND MANAGEMENT 121

using the governance-incentives-outcomes (GIO) model, explore differences be-

tween them in relation to incentives and with regard to outcomes. The thrust is a
rich and dense multidisciplinary literature review covering the domains of econom-
ics, psychology, organizational studies, political science and socio-legal studies.
They provide a useful framework that link four main modes of governance and
types of incentive, and alert us to the dangers of building individualized incentives
into organizational design. The authors arrive at four main conclusions of
particular relevance to health care managers. First, in an echo of Le Grands note
of caution on this point, an expanded, more rounded and more critical framework
of thinking around incentives is required. Second, a clearer focus on the impact of
management practice rather than organizational form on outcomes is timely.
Third, issues of co-governance and multi-level governance are highlighted in an era
when partnership and whole system working is coming to the fore. Finally, the
study develops the notion of democratic anchorage as an approach to assessing
performance that goes beyond measurement as the meeting of central govern-
ment dictated targets.
The final text relating to the place of markets in health care is a powerful
antidote to its allure. Richard Titmuss (1970) in the Gift Relationship makes a
conceptual connection from the procurement of human blood to social policy in a
plea for a non-market system based on altruism. He does this through a study of
the private market in blood in the USA and concludes that, in economic terms, it
is inferior in terms of efficiency as it is highly wasteful of blood, it is administra-
tively inefficient, costs five to fifteen times as much as the voluntary system in
the UK, and finally it is inferior in quality with higher risks of contamination. In
ethical terms, he argues that it results in redistribution of blood from the poor to
the rich. But his central point is that the buying and selling of blood (and, by
extension, the marketization of care) represses the expression of altruism and the
possibility of providing this lifegiving gift to the universal stranger.
Debate about markets and choice seemingly go hand in hand. Titmuss argues
that the true nature of choice in the social policy field is not made apparent by
those who argue for the market approach to medical care, as choice cannot be
considered independently from its social context (Titmuss, 1970: 312). Richard
Saltman (1994) cogently lays out the terrain with regard to choice within publicly
operated health systems. First, he provides a typology of patient empowerment
that appears to correspond closely to Arnsteins frequently cited ladder of citizen
participation (Arnstein, 1969). The central point here is the degree of individual
leverage over specific service delivery decisions. Second, he goes further by
distinguishing two world views about patient choice: one is of economic man or
patient as consumer (or object) in a business-driven model and the other is of
political man or patient as user (or subject) in a democratically driven analysis.
The former focuses on patient satisfaction indicators, about which he is scathing,
in a fashion that would now be deemed by some as dated, but provides a timely
reminder of the limitations of the patient satisfaction perspective. He provides a
critique of the primary and secondary factors that impact on the ability and desire
of patients to exercise choice. Finally, he argues for the long-term political benefits

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122 A READER IN HEALTH POLICY AND MANAGEMENT

of an educated empowered population, which go beyond the specifics of service

delivery and are a reminder of Wanless fully engaged scenario (Wanless, 2002).
Perri 6 (2003) asks what can be learned from recent history in an analysis of
the experience of providing more choice across nine fields of UK public services.
He establishes that there is little consistency in the level of achievement of goals
that appear to have been achieved across the nine fields and identifies a number
of unintended consequences including distributional and efficiency problems
exacerbated by issues related to political risk. The former set of problems were
highlighted by Titmuss (1970). In contrast, however, Perri 6 argues that despite
the technical challenges and conflicts of values presented by choice policies,
incremental increases in satisfaction and efficiency can be achieved as long as
clear goals are set and policies are adequately funded to bear the costs of
conscientious choice (Perri 6, 2003: 265). His main caveat is that the policy
inheritance (an echo of the path dependency argument rehearsed in Part 2 of this
reader) may define the range of organizational capabilities of the service that is
required to provide choice.

Summary

+ Use of markets in health care has an enduring appeal despite a lack of

evidence about its effectiveness as a policy tool.
+ Managed competition is seen as a means of bridging the apparent
economic advantages of a market with ensuring desired social policy
goals.
+ A number of writers are appealing for a more nuanced understanding of
the complexity of human motivations when constructing a market model
of health care.
+ The construction and implementation of patient choice is not straightfor-
ward nor is it well understood but may be worth while in terms of
engagement and empowerment of patients, and building political legiti-
macy and responsiveness of services.

References and further reading

Arnstein, S. (1969) A ladder of citizen participation, Journal of the American
Planning Association, 35(4): 21624.
Enthoven, A. (1993) The history and principles of managed competition, Health
Affairs 12 (Supplement 1): 2448.
Ham, C. (2008) Competition and integration in the English National Health
Service, British Medical Journal, 336: 80507.
Le Grand, J. (1997) Knights, knaves or pawns? Human behaviour and social
policy, Journal of Social Policy, 26 (02): 14969.
Light, D. and Dixon, M. (2004) Making the NHS more like Kaiser Permanente,
British Medical Journal, 328: 76365.

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A READER IN HEALTH POLICY AND MANAGEMENT 123

OECD (2005) Modernising Government: The Way Forward. Paris: OECD.

Walshe, K. (2001) Dont try this at home: health policy lessons for the NHS from
the United States, Economic Affairs, 21(4): 2832.
Wanless, D. (2002) Securing our Future: Taking a Long-term View. London: HM
Treasury.
Woodin, J. (2006) Healthcare commissioning and contracting, in K. Walshe and J.
Smith (eds) Healthcare Management. Maidenhead: Open University Press.

The readings
Enthoven, A. (1985) Reflections on the Management of the National Health
Service: An American Looks at Incentives to Efficiency in Health Services
Management in the UK. London: Nuffield Provincial Hospitals Trust.
Davies, C., Anand, P., Artigas, L. et al. (2005) Links Between Governance,
Incentives and Outcomes: A Review of the Literature. NCCSDO.
Titmuss, R. (1970) The right to give, in The Gift Relationship: From Human Blood
to Social Policy. London: Allen & Unwin.
Saltman, R. B. (1994) Patient choice and patient empowerment in northern
European health systems: a conceptual framework, International Journal of
Health Services, 24(2): 20129.
Perri 6 (2003) Giving consumers of British public services more choice: what can
be learned from recent history? Journal of Social Policy, 32: 23970.

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14
Reflections on the management of the
National Health Service: an American looks
at incentives to efficiency in health services
management in the UK
Alain Enthoven
Extracts from Enthoven A (1985) Reflections on the Management of the National
Health Service: An American Looks at Incentives to Efficiency in Health Services
Management in the UK. London: Nuffield Provincial Hospitals Trust.

Summary

This essay is meant to be a sympathetic review of some problems of organization

and management in the National Health Service (NHS), with particular focus on
incentives for efficiency and innovation.
The NHS enjoys widespread support in Britain, and it produces a great deal of
care for the money spent. But given the tight limits under which it must operate,
the NHS will find it increasingly difficult to meet the demands placed upon it. The
NHS will need to find ways to produce even more value for money if it is to make
effective new medical technology available to all who can benefit from it at the
standards enjoyed in other industrialized democracies.
The NHS is caught in a gridlock of forces that make change exceedingly
difficult to bring about. Public policy should seek to create an environment for the
NHS that is hospitable to quality-improving and efficiency-improving change.
Opportunities for constructive change should be nurtured, not politicized or
otherwise abused.
The NHS runs on the ability and dedication of the many people who work in
it. But its structure contains no serious incentives to guide the NHS in the
direction of better quality care and service at reduced cost. In fact, the structure of
the NHS contains perverse incentives.
The Griffiths NHS Management Inquiry recommended establishment of a
Health Services Supervisory Board to se