Internal markets in the National Health Service: a review of the economic issues

The introduction of competition between health care providers in the NHS has been advocated as a means of promoting efficiency. In this paper we review one model of competition, internal markets, in which health authorities would be able formally to contract to buy and sell clinical services between themselves, as well as with the private sector. This paper examines the implications of internal markets for the health service and draws attention to the position of clinicians. In particular it notes that their widespread adoption would require much closer management of the consent of the workload of hospital doctors than is presently the case. The costs of adjustment to and maintenance of a market are considered, including the important role of capital markets. It is noted that the process of negotiation and monitoring of contracts would be improved by better costing information and a clear definition of the health care product. The potential contribution to be made by internal markets is assessed against the policy goals of equity and consumer choice as well as efficiency. It is concluded that at present there is insufficient evidence to justify imposing a variant of the internal market model on the whole NHS. However, in searching for a means to improve the performance of the NHS the authors support the case for experimentation coupled with appropriate evaluation of performance.