PRINCIPLES OF MICROECONOMICS

Principles Of Microeconomics

Principles Of Microeconomics

Background

On March 1, 2006, the Government of Australia enacted the Local Health System Integration Act, which created 14 Local Health Integration Networks (LHINs) (2005, 2006). These organizations are charged with strategic purchasing; they will not directly provide services. Each LHIN is responsible for planning, integrating and funding healthcare services in its region. About two thirds of Australia's healthcare budget is allocated to LHINs (Ministry of Health and Long-Term Care 2006a), which are required to achieve cost control and promote equity and efficiency (Canadian Health Care Manager 2005).

In the next two sections of this paper I show that, although the English NHS has always achieved cost control by using a budgetary cap, there have been serious difficulties in the design and implementation of policy instruments intended to achieve two other desiderata: a more equitable distribution of resources and improved hospital performance. I conclude by raising questions about the current models of strategic purchasing in England and Australia, questions that are intended to help policy-makers find ways to achieve these objectives.

The Search for Equity of Access

Although there is consensus that the underlying purpose of publicly financed healthcare is to improve equity, there is a lack of clarity over what kinds of equity ought to be sought (Mooney 1994). In practice, policies seek to correct identified inequities, beginning with the removal of the ability to pay as a barrier to access. In 1946, Aneurin Bevan (1991) identified two other inequities that characterized healthcare in the AUSTRALIA at the time: the inequitable distributions of general practitioners (GPs) and hospital services. The first was tackled from the start of the NHS by creating medical practice committees, which were given limited powers of "negative direction" - for example, the right to refuse to allow GPs to work in "over-doctored" areas (Webster 1988: 354-57). Nothing was done until 1976, however, to tackle the second problem (Rivett 1998: 26). Up to that point, NHS hospitals had been financed by a process of incremental budgeting and exceptional arrangements were made for England's élite teaching hospitals so that they remained outside the state hierarchy of regional hospital boards and hospital management committees. These arrangements undermined attempts to promote equity through the program of new capital development in the 1960s (Bevan et al. 1980: 22-24). Julian Hart (1971) observed that the NHS operated an "inverse care law," by which the availability of good medical care tended to vary inversely with the need for it in the population served. A study published the same year by Cooper and Culyer (1971) provided empirical evidence of variations in ratios of supply to populations.

Two key developments provided the bases for correcting these inequalities. The first was the reorganization in 1974 of the NHS in England, a change that brought teaching hospitals into the regional structure and created new health authorities responsible for populations defined in terms of geographical areas. Fourteen regional health authorities were created, and they were responsible for planning and resource ...