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From global rationing to target setting in the U.K.

From Global Rationing to Target Setting in the U.K. Since its founding in 1948, Britain's National Health Service has worked on the basis of an implicit concordat between the state and the medical profession. The state has allocated capped, global budgets to health authorities which, in turn, have adopted the same method in setting the spending limits for individual hospitals. In exchange, the British medical profession has enjoyed far greater freedom from scrutiny than doctors in the United States. The bargain was clear: the state achieved firm control over health care spending in total; the medical profession retained clinical autonomy. The state could not determine the way in which resources were used at the point of service delivery; doctors had to accept the budgetary limits set for them. For almost forty years everyone seemed satisfied. But as the NHS passed its fortieth anniversary in 1988, there were clear signs that the concordat was breaking down. The state was becoming ever more determined to influence the activities of the NHS, which meant telling doctors what they should be doing; and the medical profession was beginning to regret what they increasingly saw as a Faustian bargain, whereby it was left to them to ration inadequate resources in the name of clinical decisionmaking. When the government published its review of the NHS in January, 1989--its manifesto, as it were, for health care delivery in Britain in the twenty-first century--it was clear that a new contract between the state and the medical profession was in the making.[1] The basis of resource allocation in the NHS is simple. It is a tax-financed service and the central government annually determines the global budgetary allocation to the NHS. This tends to be a highly politicized process, and passions run high both inside and outside the Cabinet. Indeed, the system gives every incentive to those working in the NHS to advertise its shortcomings to attract more resources. Once the global allocation has been made, however, the process of distribution is much more technical. Since the 1970s the Resource Allocation Working Party (RAWP) formula has been used to allocate funds to the regions to achieve distributional equity across the country. The formula weights allocations by demographic characteristics and relative mortality--crude, and much-criticized, proxies for need. The regions, in turn, allocate the funds to the district health authorities (DHAs) on the same principle, although here the process becomes more untidy. Finally, the DHAs fix the budgets for each hospital or health care delivery unit. The system has two main characteristics. First, the Treasury exercises absolute control over total expenditure, with the exception of spending on primary health care where the allocatory process is somewhat different and more demand-led. Second, this control is exercised over the global sum, not the activities. That is, it was designed as a system of financial control, not as a way of controlling the outputs of the NHS. In the 1970s there were indeed attempts by central government to change the pattern of spending, by pushing more resources to the least-favored services, such as those for the elderly and mentally ill.[2] But essentially the machinery of resource allocation remained unchanged. Turning to the other side of the balance sheet, the system of resource control meant that over the decades successive governments of all political persuasions were content to leave it to those who deliver service to decide what they did within their budgets. There were a number of reasons for this. The creation of the NHS involved a deal with the medical profession, and part of that deal was that NHS would be allowed to run its own affairs.[3] British governments, almost uniquely, did not have to worry about health care cost explosions: the NHS was the international model of parsimony--and even today less than 6 percent of the national income is spent on health care. …