Efficiency and administrative costs in primary care
We construct a simple model of the determinants of administrative managerial effort and apply it explain the doubling of the cost of administering primary care in England in real terms between 1989/90 and 1994/5 following the introduction of the internal market. We find that the main cost driver was the number of GPs, that there are economies of scale but not economies of scope in administration, and that fundholding appeared to increase administrative costs. Most the increase in administrative cost over the period could not be explained by the change in the cost drivers or fundholding, suggesting that the recent abolition of fundholding may do little to reduce primary care administrative costs.
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