A recent report from the Audit Commission and the Healthcare Commission, Is the Treatment Working?, examines the success of the government’s programme for system reform of the NHS in England, promulgated in 2000 and 2002.1 2 3 The report, which includes evaluation of four important innovations—the creation of foundation trusts, greater NHS use of the independent sector, provision of more choice for patients, and payment by results—finds little hard evidence of benefits.

In most developed countries, healthcare systems have three main goals—to control total costs, to achieve equity in access by need, and to achieve excellence in performance (short waiting times, satisfied patients, and good outcomes).The economic logic is that—to achieve these three goals—we need three economic instruments. Since 1976, the NHS has successfully controlled costs with a cash limited budget and sought equity by distributing funds to populations in relation to their needs. The problem has been with improving the performance of providers. Before 1991, the NHS had a hierarchical integrated model, in which the same organisations were responsible for meeting the needs …