INTERNATIONAL JOURNAL OF HEALTH PLANNING AND MANAGEMENT, VOL.

10,247-264 (1995)

HEALTH CARE REFORM: INFORMING

DIFFICULT CHOICES
h A N MAYNARDAND KAREN BLOOR
Centrefor Health Economics, University of York, York Y O 1 SDD, E n g W

SUMMARY

During the last decade, policy makers in a large number of countries have attempted
various reforms of their health care systems. Health care reform has been described as
a ‘global epidemic’ (Klein, 1993). All health care reforms consist of very complex
policy choices, some of which are examined in this article. After an introductory
exploration of ideological issues, the objectives of health care reformers are considered.
Three major policy objectives of health care reform are examined: cost containment;
efficiency; and, equity. Three types of reform which have been advocated are also
considered public planning; market regulation; and provider-advocated reforms such
as a ‘basic package’ with copayments and alternative means of finance. Finally,
appropriate features of efficient health care reform are suggested, addressing explicit
policy goals.
KEY WORDS: Health Reform; United Kingdom; Health Policy; Regulation

INTRODUCTION

The purpose of this article is to stimulate debate about the complex policy
choices in health care reform. It is written from a particular perspective; in
particular, it emphasizes that value judgements about policy goals need to be
explicit and choices between structures and outcomes be informed by
evidence. After an initial exploration of ideological issues and the objectives
of health care reformers, the issue of ‘what works’ in the armoury of the
health care reforms is explored. A final section outlines some of the
characteristics of efficient health care reform given a set of explicit policy
goals.

Ideological h u e s
The health care policy debate is usually derived from ideological beliefs
which were summarized by a philosopher, Gallie:

‘The kernel ideas of liberal mortality, commutativejustice, the meritorious individual,

the moral necessity of free choice and contract (especially in economic life) and the
self-limitingcharacter of good government are countered by the ideas of distributive
justice, the contributing individual, freedom as essentially freedom to be not to get,

CCC 0749-6753/95/040247-18
01995 by John Wiley & Sons, Ltd.
248 A. MAYNARD AND K. BLOOR

and collective action in economic affairs. It is as if the parable of the talents were
countered by the parable of the vine-yard.’
Gallie (in Laslett, 1956)

These ideological issues have been elaborated by Donabedian (1971).

Donabedian’s viewpoint A may be loosely termed the conservative (or liberal
market) approach, in which access to health care is part of society’s reward
system and where people should be permitted to use their income and wealth to
gain more or ‘better’ health care if they so deserve. Viewpoint B may be loosely
termed the collectivist approach, where access to health care is a citizen’s right
(like access to the courts of justice and access to the ballot box), which ought
not to be influenced by income and wealth.
Summarizing these viewpoints, access to health care can be determined
by:

(a) the willingness and ability to pay of consumers (the ability to pay
principle); or,
(b) ‘need‘or the capacity of patients to benefit from care per unit of cost (the
benefit principle).

Most societies (even that in the USA, where over 40 cents in the health care
dollar are funded by government) recognize that the role of government in
health care markets has to be considerable.
These simple principles are, in all democracies, confused by politicians
anxious to buy political support. The political debate everywhere consists of
those criticizing the actual performance of the health system they oppose, and
advocating the ideal characteristics of the health system they support. The
behaviour of politicians in the pursuit of votes may be neither logical nor
consistent. For instance, the socialist architect of the UK NHS, Aneurin
Bevan, was a convinced egalitarian (viewpoint B); but, at the margins of the
NHS, he exhibited values which are similar to those of libertarians (viewpoint
A) and politicians such as Reagan and Thatcher. Thus, in 1946, when
demanding that local authority social services should be allocated in the ability
to pay principle, he argued:

‘I really must resist this amendment. Does the Hon Member suggest that everything
shall be free? . . . It is a perfectly reasonable proposition that, where domestic help
of this sort is needed and the persons concerned are able to provide it for
themselves, they should do so, and, where they are able to make a contribution,
they should make it . . . it seems to me to be wholly unjustified that we should
provide a service of this sort without any payment whatever.’

and
 HEALTH CARE REFORM 249

‘Our objection to the means’ test was that it was devised for the purpose of
withholding money from people. This means’ test is for the purpose of giving services
to people who are in need of these services . . . and where people can make a
contribution towards the cost, they should make it.’
House of Commons Debates (1946)

Margaret Thatcher, an ardent advocate of the market ideology, argued in

1983:

‘The principle that adequate health care should be provided for all, regardless of their
ability to pay, must be the foundation of any arrangements for financing health care.’
Margaret Thatcher (1983)

This argument is consistent with viewpoint B (NHS collectivism) and

supportive of public systems of health care.
Thus, the health care policy debate appears to involve the often deliberate
confusion of objectives and ideologies by politicians gathering votes in the
political market place. This is an essential part of the democratic system,
although it does not facilitate clear thinking or logical decision making.
Furthermore, it usually alienates the government from the academic research
community. As the economics Nobel prize winner George Stigler argued:

‘A scholar ought to be tolerably open minded, unemotional and rational. A reformer

must promise paradise if his reform is adopted. Reform and research seldom march
arm in arm.’
Stigler (1966)

POLICY OBJECTIVES OF HEALTH CARE REFORMERS

Policy makers are often reluctant to define their objectives, as clarity about
what they are seeking to achieve may enhance their accountability and the
political distress caused when policy targets are not achieved. There are three
important targets in all health care systems: macroeconomic cost control;
microeconomic efficiency; and, equity.

Macroeconomic cost control

Spending limits are necessary because the combined effects of private market
failure and government policy lead to both excess demand and excess supply of
health services. A policy goal which dominates governments’ behaviour world-
wide is the control of expenditure growth in health care systems. During recent
decades in many countries, the rate of growth of health care expenditure has
exceeded the inflation rate. For example, in the US health care system, growth
of this nature has led to over 15 per cent of the US-GDP being spent annually
on health care ($1000 billion). The Congressional Budget Office estimated in
1994 that this would rise to 20% of GDP without the Clinton Plan, and 19%
with it (Congressional Budget Office, 1994). With or without reform it seems
250 A. MAYNARD AND K. BLOOR

that 1 in 5 American dollars will be spent on health care in the early years of
the next millennium.

Microeconomic eficiency
Enhancements in the length and quality of life should be produced at
minimum cost by balanced investment in health care and other determinants of
health (e.g. income redistribution, education and housing) which take account
of externalities. Dynamic efficiency goals require the identification of structural
arrangements (e.g. technology assessment) which increase the productivity of
the health sector.
The identification of ullocutive efficiency requires both the determination of
the cost-effectiveness of competing interventions (technical efficiency) and the
preferences of society. The results of economic evaluation can inform public
choices, but the eventual decision about who will be treated and who will not
should reflect social values. As Fuchs (1974) argued:

‘At the root of most of our major health problems are value choices. What kind of
people are we? What kind of life do we want to lead? What kind of society do we
want to build for our children and grandchildren? How much weight do we want to
put on individual freedom? How much to equality? How much to material progress?
How much to the realm of the spirit? How important is our own health to us? How
important is our neighbour’s health to us? The answers we give to these questions, as
well as the guidance we get from economics, will and should shape health care
policy.’
Fuchs (1974). p . I48

Thus, it may be technically inefficient to treat elderly people with some

diagnoses for which therapies are costly and ineffective; and, it may be
inefficientfor society to keep alive very low birth weight babies because of the
high incidence of physical and intellectual disability. However, societies may
decide that letting neonates and elderly people die prematurely is unacceptable
and that the health care system should deliver care which is inefficient in terms
of cost-effectiveness but desired by society.

Equity
If societies (and the governments which represent the wishes of the
electorate) wish to allocate access to health care, not on the basis of willingness
and ability to pay, but in relation to need, it is necessary to articulate the
benefit principle. Policy makers and resource allocators have to make two
judgements if their actions are directed by this principle. Such governments
must:

(a) identify which treatments are cost-effective, as only then can they target
scarce resources to maximize ‘health gains’ from the health care budget;
and,
 HEALTH CARE REFORM 251

(b) decide how much they will pay from public expenditure to buy additional
health gains (e.g. quality adjusted life years).

Policy background: the nature of health care markets

The aura of science as an attribute of medicine is well established but
unsubstantiated (see, for example, Cochrane, 1972; Bunker et al., 1977). It is
likely that this aura has a considerable placebo effect: although primary care
doctors often do not know exactly what is wrong with us as patients, their
contident style reassures us and the placebo effect ensures that many recover
naturally (Skrabanek and McConnick, 1989).
Certain central characteristics of health care are often ignored:

(i) The majority of interventions in w e today have no scientific basis, i.e. their
costs and effects have not been evaluated systematically.
(ii) Clinical choices are ill-informed and made under great uncertainty and, as a
consequence, there are large variations in how clinicians treat patients of
similar age, sex, and other characteristics (Andersen and Mooney, 1990). For
example, a study of 30 hospital markets in Maine, USA demonstrated up to
eight-fold variations in surgical and medical practice (Table 1). Medical
practice variations exist within countries: Coulter et al. (1988) found three-fold
variations in gynaecological admissions to hospital between general practices
in Oxfordshire. They also exist between countries; for example, McPherson et
al. (1982) compared the incidence of seven common surgical procedures in
England, Norway and the USA.This study found that English and Norwegian
rates were lower than the USA for all procedures except appendectomy.
Hysterectomy and tonsillectomy were four times as common in the USA than
Norway, prostatectomy was twice as common in the USA than England.
Variations in medical practice have been comprehensively reviewed by
Andersen and Mooney (1990).
Such variations exist today in all health care markets and are generally
ignored both by policy makers and health care managers. Furthermore, the
evidence demonstrates that unproven therapies may be over-used and proven
therapies under-used (Brook et al, 1990). Of course, clinicians, wherever they
are located in these distributions of practice, assert that their practices are
appropriate and this confidence is difficult to counter because of the general
ignorance about ‘what works’ in clinical practice.
(iii) Available evidence of effectiveness and cost-effectiveness is generally
ignored, leading to overuse of some inefficient interventions and underuse of
some efficient ones. For example, the diagnostic dilation and curettage rate in
England is six times that in the US and available evidence indicates this excess
brings no clinical benefits, at high cost and with risks to patients (Coulter et al.,
1993). Young children are treated inappropriately with surgical interventions
for glue ear and deafness: ‘watchful waiting’ ensures the children recover from
their deafness autonomously in time, avoids the risks of anaesthesia and saves
252 A. MAYNARD AND K. BLOOR

Table 1. Magnitude of systematic variation (in ascending order) for selected causes of
admission among 30 hospital market areas in Maine: 1980-82.

Variation Medical Surgical

Low: Inguinal hernia repair

I S-fold range Hip repair
Moderate: Acute myocardial infarction Appendectomy
2.5-fold range Gastrointestinalhaemorrhage Major bowel surgery
Cerebrovascularaccident Cholecystectomy
High Respiratory neoplasms Hysterectomy
3.5-fold range Cardiac arrhythmias Major cardiovascular operations
Angina pectoris Lens operations
Psychosis Major joint operations
Depressive neurosis Anal operations
Medical back problems Back and neck operations
Digestive malignancy
Adult diabetes
Very high: Adult bronchiolitis Knee oDerations
8.5 +-fold range Chest pain Transuiethral operations
Transient ischaemic attacks Extraocular operations
Minor skin disorders Breast biopsy
Chronic obstructive lung disease Dilation and curettage
Hypertension Tonsillectomy
Atherosclerosis Tuba1 interruption
Chemotherapy
~

Source: McPherson (1989).

resources (Freemantle et al., 1992). The use of selective serotonin reuptake

inhibitors in treating depression has spread widely since their introduction,
without evidence of superior efficacy and patient compliance characteristics
and with prices up to 30 times higher (Freemantle et al., 1993). Cheap proven
therapies are often underused: for example, prophylactic use of antibiotics in
Caesarean section, which save the lives of mothers and infants (Chalmers et al.,
1989); underuse of aspirin in patients at risk of cardiovascular events
(Antiplatelet Trialists’ Collaboration, 1994; Moher et al., 1994a,b).
Attempts to use ‘expert panels’ to define appropriateness guidelines to
evaluate clinical practice demonstrates that, in generously funded health care
systems (e.g. the US) and also in parsimoniously funded health care systems
(e.g. the UK), there appears to be much waste produced by medical
practitioners. Using American processes of expert panels to determine
appropriateness, angiography and coronary by-pass practices in the Trent
region of England were evaluated. The authors concluded:

‘inappropriatecare, even in the face of waiting lists, is a significant problem in Trent.

In particular, by the standards of the UK panel, one half of coronary angiographswere
performed for equivocal or inappropriate reasons, and two fifths of CABGs were
 HEALTH CARE REFORM 253

performed for similar reasons. Even by the more liberal US criteria, the ratings were
29% equivocal or inappropriate for coronary angiography and 33% equivocal or
inappropriate for CABG.’
Bernstein et al. (1993)

(iv) Changing the behaviour of decision makers is a complex task. At the macro-
level the policy problem is that expenditure on health care, public or private,
produces jobs and income for health care providers. Thus, any attempt to
control expenditure threatens pay and jobs in hospitals, the pharmaceutical
industry, medical professions and insurers. ‘Losers’ always act with vigour to
countervail reform proposals and ‘winners’ (particularly consumers) tend to be
complacent, in part because the benefits of the reforms are theoretical and, on
past performance, often prove to be illusory. This behaviour was well
illustrated by the responses of potentially injured parties to the Clinton health
care reform proposals in 1993-94, where insurers spent $250-300 million,
including extensive television advertising.
At the micro-level, changing inappropriate practices and inducing know-
ledge-based behaviour from practitioners in all health care specialtiesis resisted
by trade unions (e.g. associations of medical practitioners), systems of
education and training (with often unsystematic arrangements which are not
knowledge based), and perverse incentives (i.e. remuneration systems which
can reward inefficient rather than cost-effective practices).
However, whilst it is clear that payment on a fee per item of service induces
over-production and cost inflation and that capitation payments may produce
a more appropriate incentive (an inducement to do less), the behaviour of
doctors and other health professionals is affected by non-financial factors as
well as money. The doyen of libertarian economics, Adam Smith, argued:

‘Those general rules of conduct when they have been fixed in our mind by habitual
reflection, are of great use in correcting the misrepresentations of self-love concerning
what is fit and proper to be done in our particular situation. . . . The regard of those
general rules of conduct, is what is properly called a sense of duty, a principle of
greatest consequence in human life, and the only principle by which the bulk of
mankind are capable of directing their actions.’
Smith (1790)

Self-regulation by the medical profession is an essential input into medical

care. Bunker (1994) suggested that:

‘As employees of the NHS, and therefore of the government, doctors are inescapably
and directly subject to managerial control, and they are also inevitably, willingly or
unwillingly, pawns in the competitive restructuring of health care. . . . There is an
urgent need to find the right balance between regulation of medical practice to ensure
accountability and the autonomy essential to the doctor-patient relationship.’
Bunker (1994)

Relman (1991) expressed concern about medical practice in the more

commercial US medical market place.
254 A. MAYNARD AND K. BLOOR

‘For the vast majority of physicians, however, professional commitments have

dominated business concerns. There was always more than enough work for any
physician to do, and few physicians had to worry about competition or earning a
livelihood. . . . All that seems to be changing now in this new era of medical
entrepreneurialism and health care marketing.’
Relman (1991)

Professional activity which is governed by duty, particularly if that motive is

executed in a knowledge-based manner, may be more cost-effective than the
creation of bureaucratic regulation in public and private markets. Current
estimates of the management costs of US managed care indicate that 15-1 7 per
cent of expenditure is used to monitor behaviour. However, the cost-
effectiveness of alternative ways of changing clinical behaviour is not well
researched. As Lomas (1993) has argued, we know all too little about ‘how to
teach old (and not so old) docs new tricks!’; although, as the pharmaceutical
industry demonstrates regularly, behaviour can be changed quickly, in
particular by converting peer group leaders.
The policy background for all health care reform can be summarized by two
points: we do not know which interventions are cost-effective; and, even when
we recognize what works, we know little about the cost-effectiveness of
alternative ways of changing professionals’ behaviour.

REFORM POLICIES: WHICH ONES ARE EFFECTIVE?

The common characteristic of both medical practice and health care reform is
that most policies have not been evaluated and their cost-effectiveness is
unknown. This section will explore three reform issues: bureaucratic public
planning; bureaucratic market regulation, as advocated by Enthoven (1980),
(1985) and (1992); and, advocacy by groups such as the international
pharmaceutical industry, of restricted (‘core’) packages of benefits and changed
financial arrangements (in particular, the extensive use of patient copayments).
These proposals do not cover the views of all would-be reformers, although
they do cover issues raised by many of them.

Bureaucratic public planning

The response of the first Reagan administration to cost inflation in health
care was to introduce policies similar to those used in planned economies.
Hospital and physicians’ fees had been determined for decades by the UCR
principle: usual, customary and reasonable. The health care industry had used
the UCR principle to produce a system of cross subsidization between funders
along the lines depicted in Figure 1. By charging private (for profit) insurers
and the Blues prices in excess of costs, hospitals could generate funds to cross
subsidize Federal (Medicare) and State (Medicaid) patients as well as the
poor.
 HEALTH CARE REFORM 255

I cost

+
Type
of I Blue CrosslBLue Shield
I
FdCI

Medicdedieaid

Fig. 1. Cross subsidies inherent in US ‘UCR payment schedules.

The Reagan administration, in an effort to control hospital expenditure on

Medicare, decided to plan hospital prices by introducing a system of
prospective remuneration: diagnostic related groups (DRGs). For over 400
ICD disease classifications, they fixed a price which would be paid for all
treatments in that category.
Faced by this public price fixing, hospital decision makers adopted a variety
of strategies to prosper:

(i) with hospital revenue fixed by DRGs, managers focused on cost reduction
and there was an initial large reduction in patient length of stay. This
effect took 5-6 years to work its way through the system and gave a one-
off substantial benefit. Concern that this reduction in length of stay
produced a ‘quicker-sicker’ problem (i.e. early hospital discharge could
lead to higher levels of mortality and morbidity) was shown to be
misplaced by a Rand Corporation study (Kahn et ul., 1990).
(ii) reduced length of stay meant that hospital bed vacancies rose and some
hospitals faced financial challenges. The scope for hospital managers to
cross subsidize between funders (Figure 1) was reduced because private
insurers drove prices down as DRGs were adopted by the Federal
Government. Hospitals serving poor and rural communities were driven
out of business: thousands of hospitals have closed in the last decade.
These hospitals with education and research functions had to be rescued
by Federal policies which channel billions of dollars into their funding as
supplements to the DRG process (Mitchell, 1985).
256 A. MAYNARD AND K.BLOOR

(is)computer software companies have produced packages: (a) to allocate

patients to the most lucrative DRG category possible; and, (b) to facilitate
‘DRG creep’ (Ginsburg and Carter, 1986). As has been remarked before,
a healthy patient is one who has not been investigated adequately! Once in
hospital, investigation will confirm multiple health defects and substantial
scope for DRG creep (i.e. movement up DRG categories to maximize
revenue).
(iv) DRG prices once fixed are difficult to change. Sometimes technology
improves rapidly and unit costs fall rapidly. Thus, the cost of a 10-year-
old intervention may be 50-60 per cent or more cheaper now than it was
when it was introduced. Thus a DRG price from 10 years ago gives the
provider an increasing profit over time. These profits provide an incentive
for suppliers to resist changes in DRG prices as they threaten their profits.
The transaction costs of continually adjusting DRG prices are consider-
able as the annual revision process is contentious.
(v) DRGs did not cover psychiatry, outpatients and physicians’ fees. It is
argued that as a consequence, DRGs fuelled technological change such as
the development of day care. The process of regulating physicians’ fees
proved contentious. Eventually, in the 1980s, following work by William
Hsiao and his colleagues at Harvard, a system of ‘relative value’ physician
fees was proposed and is being introduced (Hsiao, 1989; Hsiao et al.,
1988a-q 1992). These fees, with their higher rewards for family physicians
and fee reductions for specialists such as radiologists and surgeons,
proved contentious and unpopular with the losers in this planned system.

In summary, DRGs provided a uniform pricing system for hospital activities

(excluding physician pay) with significant benefits, particularly in the short
term. However, they have not halted cost inflation in the USA: health care
costs continue to rise in excess of inflation. Because these prices reflect
bureaucratic judgements they bear little relation to opportunity costs and their
rigidity inhibits competitive market pressures for economy above and beyond
these values. The costs of designing, implementing and operating a DRG
system (particularly adjusting DRG prices as relative prices change) are
considerable and their effects on efficiency are unknown.

Bureaucratic market regulation

Many policy observers appear to believe that ‘free markets’ have existed
and/or can be created. However, all markets (i.e. networks of buyers and
sellers), public or private, are regulated. As the economist Coase has argued,
even in the absence of government intervention, markets are regulated by
private sector interests who establish rules to constrain decision makers’ choice
in the setting of prices, output volume and quality.
 HEALTH CARE REFORM 257

‘It is not without significance that these exchanges, often used by economists as
examples of a perfect market and perfect competition, are markets in which
transactions are highly regulated (and this quite apart from any government
regulation that there may be). It suggests, I think correctly, that for anything
approaching perfect competition to exist, an intricate system of rules and regulations
would normally be needed.’
Come (1988)

Thus, private capitalists and public bureaucrats create formal and informal
rules which reduce the discretion of market participants by controlling the
prices, volumes and qualities of the goods and services that are traded.
Enthoven has argued for nearly 20 years that by carefully designing health
care institutions and regulating the behaviour of market participants, it is
possible in principle to create a market in health care which would be equitable
(with universal access), efficient (include incentives for providers to be cost-
effective) and would control costs (Enthoven, 1980, 1985, 1992).
The most recent variants of these policies (Ellwood et ul., 1992) were
influential in the formulation of the 1994 Clinton health plan. Previously these
ideas have influenced health care reforms in Britain (the 1989 White Paper) and
New Zealand (1993 reforms; Borren and Maynard, 1994), although not in the
Netherlands where the 1987 Dekker proposals were devised independently
(Government Committee on Choices in Health Care, 1992).
Whilst UK policy makers implemented regulated competition (competition
on the supply side only, with maintenance of a single source of public finance),
policy makers in The Netherlands and New Zealand have sought to introduce
managed competition (i.e. competition on both the supply and funding
(demand) sides of the market). Experience with both forms of competitive
arrangements is very limited. US evidence about the use of the competitive
mechanism in the 1980s is unconvincing: competition does not appear to have
‘worked’ (Maynard 1993a). The Dutch reforms have slowed and were
described as having ‘failed’ in the British Medical Journal (Sheldon, 1994).
The New Zealand reforms after less than a year, are described as being a
process of ‘jumping on the spot’ which have required significant increases in
funding to sustain (Cooper, 1994; Borren and Maynard, 1994).
The UK reforms were introduced in conjunction with large increases in N H S
funding and the effects of the reforms and funding changes on activity are
difficult to separate (Bloor and Maynard, 1992). Whilst general practitioner
fundholding has shifted power significantly from hospital medicine to primary
care, the rest of the reform process has been limited by legislation, which
centralizes power, and by regulations, which have been designed inadequately
and implemented clumsily (Maynard, 1993b; Robinson and Le Grand, 1994;
Maynard, 1994; Dawson, 1994). Guidelines attempting to regulate the N H S
internal market (Department of Health, 1994) were not released until
December 1994, 5 years after the release of the original White Paper, and
3% years after implementation of the reforms. The consistency of these
guidelines has been questioned, particularly with regard to the concentration of
market power in the hands of purchasers (Dawson, 1995).
258 A. MAYNARD AND K.BLOOR

Bureaucratic market regulation by public and private agents is unavoidable

if competition is to be used in health care markets (Reinhardt, 1978). However,
competition is a means and not an end in itself. Empirical evidence about
whether markets facilitate efficiency, equity and cost containment is not
available. The advocacy of the principles of market competition may be
attractive and they have been marketed well by its advocates. However, such
mechanisms should be used with caution.

Provider advocated reforms

The Dolder Club consists of a group of senior international executives from

the pharmaceutical industry. At great cost, they hired an international
consultancy group, National Economic Research Associates (NERA) to
examine the experiences of over a dozen developed countries in managing their
health care systems and to devise an ‘ideal’ health care reform package. The
proposals they put forward (Hoffmeyer and McCarthy, 1994) are consistent
with the economic interests of NEWSsponsors, who, as a group, feel
threatened financially by the potential effects of some proposed reforms; in
particular, those suggested by Clinton in 1994 (and rejected as a result of the
operation of US interest groups) and the efforts of European governments to
control pharmaceutical costs.
The NERA proposals consist of: the provision by government of a basic
package of proven health care benefits; the extension of the use of copayments;
and, the encouragement of private insurance finance. Each of these elements
has considerable problems associated with it.

(i) The identification of the basic package. Most health care interventions are
unproven and, if government provided only that which was proven cost-
effective, it would be a very small and inexpensive package! Dutch policy
makers have demonstrated how in principle a basic package might be defined
(Dunning Report, 1992), and the Oregonians have shown how it is very
difficult to translate such principles into practice (Strosberg et al., 1992;
Maynard, 1993a). In New Zealand, as part of a ‘purchaser-provider split’
reform, the government has sought to define the ‘core’ of services that should
be publicly provided. This task was allocated to the Core Services Committee
in 1992. At first it was thought that the health and disability support services to
which people were entitled (or excluded from) could be identified by using a
simple list. By mid-1994 this approach had been rejected:

‘In the two and half years we have been working to define core services, the
Committee has found that on clinical grounds alone, without any consideration of
fairness or equity, explicitly identifying core services is not as straightforward as
might first have been thought possible. A ‘yes/no’ or ‘in/out’list approach is just too
simplistic. It would either have to be so broad and lacking in definition as to be
meaningless, much the situation the Committee inherited, or its explicitness would
 HEALTH CARE REFORM 259

make it too arbitrary and inflexible resulting in people being unfairly excluded from
services. Either way it would fail.’
Lynette Jones, Core Services Chairman (1994)

Enthusiasticadvocacy of ‘basic packages’ of care is fine in principle but difficult

to implement in practice when the cost-effectiveness of most interventions is
unknown. Furthermore, if the basic package includes proven, cost-effective
therapies, why should consumers buy private insurance for unproven, cost-
ineffective interventions?

(ii) Copayments. There are many reasons why health policy makers may
require users to pay (copayments) for health care. In places such as the former
Soviet Union and in developing countries, tax revenues are uncertain and
copayments are a useful way of raising revenue, i.e. copayments are a disguised
tax. Furthermore, in such countries, such pricing devices can be used to divert
patients and resources from high technology hospital care to community care
using different technologies (e.g. nurse practitioners). Such switches of
resources require management skills, which are usually Scarce and may be
perverted by the political power of high technology providers with access to
urban political lobbying potential.
In Western Europe and North America, taxes can be raised more easily.
Policy makers use copayments because politicians, for ideological reasons, wish
to reduce direct taxes and seek to exploit the fiscal ignorance and fiscal illusion
of their electorates. Also, some policy makers believe that such payments
reduce ‘misuse’ of health care services. This is a defective argument: given the
technical complexity of diagnosis, therapy and prognosis, if health services are
mis-used this is the result of inappropriate decisions by providers, rather than
patients. Penalizing patients for the inefficiency of providers is a curious policy,
with considerable administrative costs, particularly if certain groups are
exempt from payments. If poor and chronically ill people are not exempt from
such charges, the utilization effects may be that ill patients are dissuaded from
seeking care early in their disease processes. As Barer et al. concluded in 1979
and 1994, user charges are ‘misguided and cynical attempts to tax the ill and/or
drive up the total cost of health care while shifting some of the burden out of
government budgets’ (Barer et ul., 1979; Stoddart et al., 1994).

(iii) Alternative funding sources. Copayments and the advocacy of other

alternative (i.e. private) funding sources are consistent with the interests of
health care providers threatened by government policies seeking to reduce the
rate of growth of health care expenditure. Figure 2 illustrates that expenditure
equals income. Expenditure ultimately comes from householders’ incomes (i.e.
from levies on the assets they own which produce for them wages, profits,
interests and rent) and can be paid in a variety of ‘funding pipes’ (i.e. taxes,
insurance premia and copayments).
Those countries which have achieved some success in controlling health care
costs (e.g. Britain, Sweden, New Zealand, Germany and Canada [relative to the
260 A. MAYNARD AND K. BLOOR

HEALTHCARE

Fig. 2. The two facets of health care financing: householders’ expenditure creates providers’
incomes.

US]) have done so by relying on a single payer (the government or some other
unique collectivity), and global budgets. This major achievement is much
reviled by providers who suffer (in terms of their reduced income and
employment) by its success; but, it does appear to be one of the better proven
policies in the uncertainties of the health care reform world-wide.
The abandonment of global budgets, and the cost control they provide,
would mean that instead of one funding pipe, there would be three to control:
taxes (including social insurance premia), insurance premia and copayments.
The control task is such that it seems better to focus attention on one funding
‘pipe’: evidence suggests that multiple funding sources create cost inflation.

Overview
An appraisal of the recent reform ‘epidemic’ as reviewed above demonstrates
that it is driven by rhetoric, incomplete theorizing and little evidence. As a
consequence, public policy in health care, which is often radical, usually ill-
conceived and rarely based on cost-effectiveness data, may be confused by
opinion and misinformed by spurious evidence.

TOWARDS EFFICIENT HEALTH CARE REFORM

Hence, let us assume that cost control is the priority and within controlled
growth in expenditure, the challenge is to create efficiency and equity. What are
the appropriate features of health care reform in these circumstances?

The principles of reform

(i) Global budgets (with a single payer) are more likely to achieve cost
control than multiple funding (and many payers);
 HEALTH CARE REFORM 26 1
(ii) market economies do not use the market mechanism to govern health
sectors. Most decisions about resource allocation in health care systems
are not left to the market but are based on often ill-managed benefit
principles. Market forces, when they are used, are used cautiously and at
the margin in most countries;
(iii) ‘free’ markets never produce equity, efficiency and cost containment;
(iv) commercial (for profit) insurance in the health care sector produces
inequity, inefficiency and cost inflation. Where insurance mechanisms
exist, they are either public or highly regulated and not for profit;
(v) the control of health care utilization requires a primary care ‘gatekeeper’,
paid on a capitation basis (to minimize incentives for increased activity),
treating most patients in the community, and economically mediating
access to hospital care;
(vi) health care funding should always be modest. Its benefits are unproven and
clinical practice exhibits large unexplained variations. If societies are
serious about improving the health of their populations, they should
reduce harmful activities such as tobacco use (everywhere) and guns
(especially in the USA). Governments declare health goals (e.g. Depart-
ment of Health, 1992) but rarely implement effective policies to achieve
them becasue of their fear of powerful (e.g. tobacco and gun) lobbies;
(vii) more effort needs to be made to identify the cost-effectiveness of therapies.
The price of knowledge is high but the cost of ignorance is greater.
Research funding is usually cut first in any ‘economy’ programme, thus
ensuring ignorance dominates policy choice and resource allocation.

Finally, it is important to remember that all health and health care choices
are derived from the complex intermingling of limited knowledge, often
implicit judgements and wishful thinking. The propensity of decision makers
world-wide to base their reform proposals on false premises and false evidence
ensures that much resource is wasted and powerful provider lobbies remain
dominant. Both policy makers and researchers should follow the advice of
Mark Twain: ‘whenever you are on the side of the majority, it is time to pause
and reflect’!

ACKNOWLEDGEMENT

A previous version of this paper was originally prepared for a conference of the
Representative Association of Medical Schemes of South Africa, held at
Victoria Falls, Zimbabwe, July 1994.

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