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7.5.1 The Development of Market Forces

The central tenant of the market refonns was the introduction of contracting for services. Appleby has shown that the majority of both DHA purchasers and providers conducted contracting using specialist teams (Appleby J 1994). The composition of the team was dependent on the experience of the facility in contracting out. The teams included financial and public health expertise. However the effectiveness of the financial controls has been brought into question. Reviews have indicated that many managers are ill equipped to deal with their financial tasks (Marriott N and Mellett H 1994). Given this background, the major problems faced by the contracting teams within the DHA were the

• Lack of information on the needs of the local population, its preference for current services and the performance of hospital units.

• Conflict between purchasers and providers over the importance of services and how they should be provided.

• Difficulties in the assessment of service quality, and the mechanisms to include quality in the contracting process.

• Difficulties in adjusting DHA contracts for GP Fundholder activity

• Conflict with central priorities in as the need to demonstrate performance runs against local needs.

As a result of these problems, the impact of competition in the service has not been as large as expected (Le Grand J and Vizard P 1998; West P 1998). Appleby used the Hirchmann-Herfindal index to assess the strength of competition introduced by the reforms (Appleby J 1994). Their study - based in the West Midlands - showed little change in competition and in potential competition pre- and post-reform, with a quarter of hospitals being in a monopoly position.

These findings were emphasised in the research of Bartlett and Harrison in 1993. In a health authority based study, the market resembled a bilateral monopoly. There was little by way of competitive bidding processes and there was much evidence of non­ market interactions - with deals often being struck between purchasers and providers (Bartlett W and Harrison L 1993). These deals were often conducted in the full knowledge, if not encouraged by the NHSME. In this manner many of the difficult political problems of hospital closure could be avoided (Ham CJ 1992).

In addition to highlighting the apparent monopoly position of providers of care, all of the studies performed on DHA purchasing have emphasised that the development of market forces was made more difficult by the lack of information. In addition the reviews have found that large transaction costs are associated with contracting (Appleby J 1994; Bartlett W and Harrison L 1993). This makes the exact nature of the contractual relationship difficult to understand, however both Appleby and Bartlett have indicated that the market was biased in favour of the local hospitals and suppliers of care.

Similar findings have been made in the study of contracting by GP Fundholding (Audit Commission 1996). The Audit Commission report on Fundholding found that

while in general GP Fundholders were best placed to contract for the care of patients in their practice, the lack of information contributed to problems in defining contracts and left the providers of care in a strong position. The relationship of GP and DHA contracting was also not helped by the way in which the guidance for the funding of practices had been inconsistently applied - leading to some practices being over funded, and others under. The lack of accountability of Fundholders in this aspect has made the situation difficult to rectify and had a negative influence on contracting (Audit Commission 1996; HFMA 1994)

Taken as a whole the studies of both Fundholding and DHA purchasing would argue that market forces have been slow to develop and, where present, they are weak and decision making is dominated by supplier pressure (Appleby J 1994 West P 1998). The problems in DHA contracting and market development led to a failure of the market to direct funding flow and the absence of ‘money following the patient’. In a study of regional neurosurgery, Adams commented that the structure of the market penalised efficient units. Many hospitals have demonstrated efficiency gains every year without merit for previous gains being granted. In addition those units capable of attracting private income have had no incentives to do so. Indeed it has been remarked that the accounting rules introduced, as part of the market changes, acted as a disincentive for the generation of private income (Adams CBT 1995; Appleby J Little V 1993). The authors of other studies have also doubted that market forces were sufficiently developed or well managed to allow the purchasing of clinical services (Audit Commission 1994; Clinical Standards Advisory Group 1993).

effectiveness of the market developments. Reviewers have commented on the fact that far from market reforms, purchasers and providers have suffered under a stream of central commands (Best G Knowles D and Mathew D 1994). In addition the Government intervened at times where it looked as though market powers would result in unpopular decisions, and failed to intervene to protect services as needed. Ham and Maynard have argued that in this the Government have not acted as a regulator of the internal market but that the internal market has become politicised in a way that protected the provision of services, (Ham C and Maynard A 1994).

The key example of the politicisation of the markets has been the impact of performance management (Propper C 1995). Appleby and Sheldon commented on the way in which performance measures, such as the efficiency index, were applied led to short-termism and political gain without contributing to market regulation or the efficient distribution of resources (Appleby J, Sheldon T and Clarke A 1993; Donaldson LJ, Kirkup W, Craig N and Parkin D 1994). It is a similar situation with regard to measures such as the Patients Charter, where the introduction of minimum standards has led to the weakening of market incentives (Laing AW and Shiroyama C 1995). Where performance targets have been introduced with a linkage to health care, for example the Health of the Nation, these targets were secondary to the activity targets and introduced without guidance or indication about importance or incentives to achieve them (Ham C 1994). It would therefore appear that the use of performance management has the primary political aim of influencing the state-economy interaction. This acts to augment the position of the providers of care in the new market and re-enforces their monopoly position (Propper C 1995).