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Progress of the UK health reforms and the role of information: what can the "dismal science" contribute?

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  • Brian Ferguson
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    Abstract

    Five years after the implementation of the UK health and social care reforms it is still difficult to evaluate objectively their success or failure. It is an opportune time to stand back and assess what were the real objectives of the reforms, and what have been their essential features. The reason for this is not to dwell upon history, but rather to provide an objective assessment of the future contribution which economics can make to the markets which have evolved. Six main conclusions emerge from this overview of the UK health reforms and the contribution of economics. There is a need to guard against the development of local bilateral monopolies, which have considerable implications for the nature of market regulation required. Consideration should be given to ways in which competition can be stimulated on the purchasing side of the market; this is particularly important given the continued spread of GP fundholding and the lack of information available for consumers to assess the purchasing ability of their GPs, not to mention their host Health Authorities. The importance of culture needs to be recognised, in particular achieving a balance between cooperation and competition. The incomplete and asymmetric nature of information in health and social care must be recognised. There is a need to evaluate seriously the potential of information and communications technology in reducing the degree of imperfect information and thereby the level of transaction costs. Finally, improving the information base on the volume, quality and cost of services could do more than any structural reform to secure efficiency gains. It is a moot point whether this requires a quasi-market and competitive pressures, but if it is the demand/supply separation which has focused attention upon the general paucity of information, then the reforms have made progress. At least three central themes demand attention from economists in any future research agenda in health economics: 1) the measurement and valuation of the impact of health and social care interventions (“outcomes research”); 2) analysis of health and social care markets; and 3) the economics of information, The last of these may in time become the most important, as the presence of imperfect information constitutes a significant constraint to outcomes research and the development of health and social care markets. Its importance should not be underestimated given the conclusion of Rothschild and Stiglitz (1976) that “some of the most important conclusions of economic theory are not robust to considerations of imperfect information”. This paper takes a preliminary look firstly at the nature of information generally, recognising its public good and externality dimensions, and secondly at information within the context of health. Focusing upon informational asymmetries is critical un understanding the various forms of strategic behaviour which characterise health and social care markets. Given that such markets in practice are characterised by imperfect information, with perfect information an unattainable ideal, consideration is given to different definitions of efficient levels of investment in information about health and social care services. Individual patients and service users (either on their own or through the agency relationship), as well as parties to formal contracts, will expend time and energy attempting to reduce the degree of information imperfection. Useful insights can be gained from the literature on optimal search strategies, with important implications for the level of transaction costs generally in health and social care contracting. Recognising the importance of imperfect information and strategic behaviour in turn will influence the nature and extent of regulation required in monopolistic or oligopolistic markets.

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    File URL: http://www.york.ac.uk/media/che/documents/papers/discussionpapers/CHE%20Discussion%20Paper%20145.pdf
    File Function: First version, 1996
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    Bibliographic Info

    Paper provided by Centre for Health Economics, University of York in its series Working Papers with number 145chedp.

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    Length: 32 pages
    Date of creation: Jan 1996
    Date of revision:
    Handle: RePEc:chy:respap:145chedp

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    Keywords: reform;

    References

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    1. Chalkley, M. & Malcomson, J.M., 1995. "Contracts and competition in the NHS," Discussion Paper Series In Economics And Econometrics 9513, Economics Division, School of Social Sciences, University of Southampton.
    2. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 141-62, April.
    3. Propper, Carol, 1995. "Agency and incentives in the NHS internal market," Social Science & Medicine, Elsevier, vol. 40(12), pages 1683-1690, June.
    4. Hsiao, William C., 1995. "Abnormal economics in the health sector," Health Policy, Elsevier, vol. 32(1-3), pages 125-139.
    5. Kirsteen Smith & Ken Wright, 1994. "Principles and agents in social care: who's on the case and for whom?," Working Papers 123chedp, Centre for Health Economics, University of York.
    6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
    7. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
    8. Robinson, James C. & Luft, Harold S., 1985. "The impact of hospital market structure on patient volume, average length of stay, and the cost of care," Journal of Health Economics, Elsevier, vol. 4(4), pages 333-356, December.
    9. Milgrom, Paul & Roberts, John, 1987. "Informational Asymmetries, Strategic Behavior, and Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 184-93, May.
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