Quasi-Markets, Contracts and Quality in Health and Social Care: The US Experience

Abstract

As we have seen in earlier chapters, the recent reforms of the mechanisms for delivery of care in health and social care markets in the UK are intended to establish internal or quasi-markets; markets in which government agencies arrange care for their clients by placing contracts for the delivery of care with independent, ‘arm’s-length’ suppliers. The supporters of these reforms argue that the separation of provision and finance will allow competition on the supply side, resulting in increased efficiency in service delivery, increased choice and increased responsiveness to the needs of clients. However, while government monopoly in both finance and delivery may be associated with inefficiency and a lack of responsiveness to consumer needs, so too can contracting relationships have associated inefficiencies (Bartlett, 1991a). The central problem is the asymmetry of information between provider and purchaser under a contracting relationship. The separation of purchaser and provider means that the purchaser has less information about the technology and conditions of production than the provider. The provider can exploit this to extract rent from the purchaser and/or engage in inefficient production, so increasing the amount the purchaser has to pay for a given level of the service.