Have their place but need to be evaluated and used to promote appropriate goals

George Bernard Shaw put it well. “That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair…”1 The problem, according to Shaw, was that the profit motive and doctors' entrepreneurialism create the wrong incentives for good medical practice. The creation of the NHS solved the problem of perverse incentives. Or did it?

Certainly the NHS eliminates the need for practitioners to perform excessive medical procedures to achieve economic security. But all payment systems create incentives. They differ in strength, effect, and the activities they encourage. The NHS pays general practitioners in part by capitation to reward doctors who serve more patients. Since its creation the NHS has also provided distinction awards—salary premiums for a select group of practitioners—as a strategy to recruit and retain doctors who might otherwise choose careers …