Introduction

In 1991 Britain's government forced through one of the most sweeping transformations ever of a health care system, from an administered governmental service to an internal market of contracts between purchasers and providers.1 Confronted by hospitals running out of cash, the prime minister asserted that the NHS suffered not from underfunding but from inefficiencies that competition would eliminate.2 The model of managed competition used seemed ill suited at the time3 4 and has been shown to be deeply flawed.5 A recent review of the past six years concludes that the reforms scored some gains but raised costs, created new inefficiencies and inequities, left most old inefficiencies intact, and caused fragmentation.6

The new Labour government aims to heal these wounds, reduce inequalities, and install a cooperative model of commissioning for health gain.7 But it also risks not addressing why the NHS is still a fragmented, wasteful system. How can this government (not to mention doctors and their patients) avoid being pushed to the wall by clinical funding crises each winter, as Margaret Thatcher was in 1989?

Help may come from an analysis of what the most enlightened commissioning groups in America have learnt in their struggles to contain costs and increase value for money. Although America has the most costly, wasteful, and inequitable health care system in the world, one can extract from its struggles to control costs through purchasing, without a treasury to set a firm budget, powerful lessons for managing costs that the British government has not yet learnt.

From ineffective to effective purchasing

In America health care is paid for by employers and the government (through Medicare and Medicaid). In 1970 both payers felt that escalating costs would bankrupt them, and congress took the lead in efforts to rationalise services and contain costs through working with doctors …