Education And Debate

Managing the NHS market

BMJ 1994; 308 doi: (Published 26 March 1994) Cite this as: BMJ 1994;308:845
  1. Chris Ham, director,
  2. Alan Maynard, directora
  1. Centre for Health Economics, University of York, York YO1 5DD
  2. a Health Services Management Centre, University of Birmingham, Birmingham B15 2RT
  1. Correspondence to: Professor Maynard.

    The purpose of the present NHS reforms is to introduce a managed market; developing some of the incentives for greater efficiency that are often found in markets while still being able to regulate proceedings to prevent market failures. If government intervenes too much there will be no incentive to improve efficiency and streamline operations: too little intervention may result in some areas having inadequate health service cover or monopoly powers abusing their position. Effective management of the NHS market requires eight core elements: openness of information, control of labour and capital markets, regulation of mergers and takeovers, arbitrating in disputes, protection of unprofitable functions such as research and development, overseeing national provision of health services, protection of basic principles of the NHS, and handling of closures and redundancy. Management of the market would best be performed by the NHS management executive and health authority purchasers acting within a framework set by politicians.

    The key challenge facing ministers in implementing NHS reforms is to strike the right balance between competition and regulation. Although the term internal market is often used to describe the reforms, it would be more accurate to call it a managed market. One reason for preferring this terminology is that competition is not confined to NHS providers but includes providers outside the NHS. Even more important is the fact that it has never been the intention, as some observers have contended, to introduce a free market. Rather, the aim has been to develop some of the incentives that are often found in markets in the structure of the NHS and to regulate the operation of these incentives to avoid the problems of market failure.

    Implementing the reforms

    In the early stages of the reforms ministers pursued a policy of gradual and controlled change. The watchwords in 1991 and ‘92 were “steady …

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