A socio-instutionalist critique of the 1990s' reforms of the United Kingdom's National Health Service *.

Abstract This paper argues that the on-going reforms to the UK's National Health Service initiated in the 1990s represent potentially profound institutional change to the values underpinning the process of care. The market-orientation of the reforms is highlighted, and it is asserted that the theoretical rationale for this is informed by the nascent neoclassical health economics and new institutionalist literatures, which exhibit utilitarian propensities in that both stress outcomes and at best relegate process. Drawing from the seminal contribution of Thorstein Veblen, the paper argues that market-oriented reform in the UK may induce a shift from a Hippocratic ethos to a more individualistic value system.

Keywords: Institutional change, neoclassical health economics, reform, utilitarianism

The microeconomics of the "third way" can be seen to be based on notions of "market failure" and "public goods" ... The validity of this approach ... rests on the validity of the neoclassical view of the operation of markers.... These features suggest to us that the "third way" is no more than "neo-liberalism with a human face".

(Arestis and Sawyer, 2001: 274-5, emphasis added)

The next decades will show whether the altruistic doctor really is an endangered species.

(Aasland, 2001: 173)

INTRODUCTION

Since its inception in 1948, the UK's National Health Service (NHS) has been subject to a bizarre schizophrenia regarding its own state of "health". It was/is frequently exulted as among the finest health care systems in the world, avoiding the inequities of the US system, while simultaneously perceived as being in a perennial state of (particularly financial) crisis. Yet this certainly was not the case in the 1950s or early 1960s (Powell 1997). The growth of financial concerns in the 1980s, combined with the adoption of neo-liberal welfare policies contributed to reservations over the structure of health care provision and accounting mechanisms utilized. The 2002 UK budget announced substantial increases in funding, the objective being to match European Union average health care expenditures. Accordingly by 2008 the UK is set to devote 9.4 percent of its GDP to health expenditure as opposed to the current 7.7 percent. This increased expenditure is accompanied by on-going structural reform. The latter is the focus of this paper.

The paper argues that the health service reforms introduced by the Conservative government in 1990, and from 1997 by the "New" Labour government represent potentially significant institutional change. Following Thorstein Veblen (1990 [1919]) institutional change may be represented as a change in values underpinning "settled habits of thought." The paper contends that the on-going NHS reforms are market-oriented, their rationale resting upon orthodox economic presumptions informed by a utilitarian value system. There are two key pre-requisites to the theoretical model influencing the process of reform: outcomes are necessarily measurable (presupposing closure), and human agency is motivated by utility maximization. It is contended that these prerequisites are deeply methodologically flawed, and can have a potentially deleterious impact on the value system of health care provision by shifting emphasis from the Hippocratic ethos to a more individualistic one.

The next section of the paper charts the introduction of "new public management" to the NHS following the 1983 Griffiths Report and the 1990 NHS and Community Care Act. The third section outlines and reviews the on-going post-1997 reform, arguing that the broad thrust of much of this is compatible with the previous government's emphasis. Following this the paper contests that many of the reforms are consonant with the nascent body of neoclassical health economics literature and its grounding in utilitarianism. The final section discusses the weaknesses of this in terms of underlying methodology, values, and human agency.

"NEW PUBLIC MANAGEMENT" AND THE NHS

Many commentators view the actions of the Thatcher government in the 1980s as the most obvious manifestation of the "Great Capitalist Restoration" (Stanfield and Stanfield 1996, Keaney 2001). The government appeared to accept much of the neo-liberal argument that the public sector generally acted as a drag on economic growth and performance through crowding out and low productivity. The market and private sector were viewed as efficiency enhancing, and where state enterprises could not be transferred to the private sector the market should be introduced into the (residual) state sector. The NHS was no exception. The early 1980s revealed two overtly market-oriented reforms: the introduction of contracting, and a more private sector oriented management style (McMaster 2002, forthcoming).

The former is associated with the implementation of competitive tendering. Health authorities throughout the UK were instructed to submit defined activities, such as catering, domestics, laundry and portering (the so-called hotel services), to tender (see McMaster and Sawkins 1996).

The second, frequently termed "new public management," or "new managerialism" (Hood 1991; Light 2001 et al.) in the health service is inextricably bound with the Griffiths Report. (1) The terms "new public management" and "new managerialism," arguably initially coined by Hood (1991), refer to (neo-Taylorist) features of managerial practise that typically include an emphasis on outputs or outcomes and performance as opposed to inputs, the vertical separation of organizational units into provider and client roles accompanied with devolved budgeting, thereby linking different segments of an organization through contractual processes, and contracting out functions as means of enhancing consumer or client options. Examples of these emerging traits are evident throughout the UK's welfare state, from education and housing to health care provision. (2)

The Griffiths Report concluded that the NHS performed poorly relative to the private sector. Notably, Griffiths argued that had Florence Nightingale been carrying her lamp, "through the corridors of the NHS today she would almost certainly be searching for the people in charge". The report criticised health service management on the grounds that it was unaccountable, lacked coordination, and embedded in "outdated corporatism." (3)

In essence Griffiths recommended that where possible health service management should endeavour to mimic "best practice" in the private sector, where, "Businessmen have a keen sense of how well they are looking after their customers. Whether the NHS is meeting the needs of the patient ... and can prove it is doing so, is open to question" (quoted in Klein 1995: 151). Thus, following the recommendations of the Griffiths Report the management of the health service was "strengthened," and concomitantly the influence of some groups, such as nursing staff was weakened. Administration gave way to management. In this respect Griffiths' report may be the most explicit initial importation of market-orientation to the NHS. According to Klein (1995) it invoked a marked shift from producer to consumer values: the NHS, analogous to a supermarket, was to satisfy its "consumers." This shift in emphasis not only represented institutional change, but also reflected a more general social change that was to influence further st ructural reform in the health service.

The 1990 Reform

The 1990 NHS and Community Care Act specified two objectives: to provide better health care for patients, and, following the geist of the Griffiths Report, to respond successfully to patients' "needs and preferences" (McMaster 2002, forthcoming), which is undoubtedly based on a presumption of patient as consumer (see Keaney, this volume). These objectives were to be achieved by introducing market-oriented interactions between actors in the health service by imposing a contractual relationship between different bodies in the NHS. The centerpiece of the reforms was the division between so-called "purchasers" and "providers," and the devolution of budgetary responsibility from health authorities. Change focused on hospital service, general practice (GPs) and community care.

The legislation established purchasers of health care as GPs and District Health Authorities (or health boards in Scotland), whereas (secondary) providers were hospital units. The government endeavored to increase the number of actors in the field by encouraging hospital units (suppliers) to seek NHS Trust status and GP practices to seek fund-holding status, which followed the characteristics of "new public management" in devolving managerial autonomy from health authorities and increasing budgetary responsibility. Trusts were encouraged to compete for contracts for secondary patient care. The underlying rationale was simple: those Trusts, or hospital units, not offering a sufficiently "responsive" service would experience diminished revenues and consequent financial difficulties. There were clear incentives for management to engage in practices that ensured "consumer satisfaction," and in a competitive market to achieve this efficiently. The relevant government minister had the power to replace the managemen t of poorly performing units.

The division between planning and delivery created by the market-oriented arrangements combined with a prominent role for the NHS Executive and central government in setting contract guidelines and regulating the conduct of providers and purchasers increased the role of managers. The deployment of the Purchaser Efficiency Index as an evaluatory benchmark for relative performance augmented managerial power, as it acted as a (limited) constraint on the discretion of clinicians in that NHS trust performance was (partially) judged on the throughput of patients. Trust managers could legitimately insist that clinicians adopt practices that were conducive to increasing the number of "consultant episodes." The index was also an incentive mechanism for Trusts and health authorities to reduce waiting lists and time for treatments. By encouraging a higher throughput of patients it was envisaged that waiting lists and time would decline. The whole process was compounded by the recruitment policy of managers. NHS trusts w ere encouraged to actively recruit mangers with private sector experience.

The reforms also transferred influence from hospitals and consultants to GP fundholding practices by empowering them with the right to switch referrals to alternative suppliers, including the private sector (Klein 1995; Chalkley and Malcolmson 1996). Under the fundholding arrangements finance for services flowed from the purchaser's budgets (both GP fundholders and health authorities). Theoretically, dissatisfied purchasers could ultimately seek alternative suppliers and as a result funds would be transferred to this new supplier. Contracts between commissioning bodies and Trusts were negotiated on an annual basis: a relatively short duration for the complex nature of some of the activities involved. In some cases specific individual treatment(s) represented a contractual agreement funded on a cost-per-case basis. This further enabled purchasers to exert influence over providers, given that in the case of dissatisfaction an alternative supplier would be sought for the following case. (4)

Although health authorities were mainly responsible for purchasing there was an increasing role for GP fundholders. GPs were judged to be in the best position to evaluate patients' health status. In this way the legislation augmented the "gatekeeper" role of the GP. GPs were to be a source of cost containment, and the reform attempted to fashion GPs' incentives in this manner. For instance, a clause in the legislation imposed contracts on GPs tailored to enhance patient choice of GP, and to furnish GPs with incentives to offer a greater range of primary care services, including minor operations. While the reforms enhanced the purchasing role of GPs they were also subject to constraints in the form of the ability of patients to substitute their source of primary care. Theoretically, given that funds were allocated on the basis of the number of people registered with a practice, GPs perceived not to be offering quality services would experience declines in registered patients and revenues. Conventional agency t heory indicates that partnership dynamics can constrain individual free-riding and inefficiencies, given suitably defined property rights. Under both the 1990 and 1997 reforms GPs' independent contractual status was preserved. However, whether those twin sources of competitive pressure actually materialized outside London, due to spatial and regulatory restrictions on rivalry, is rather doubtful (see Chalkley and Malcolmson 1996, Propper 1996, and Light 2001).

In sum, the separation of functions and devolution of budgetary …