Contracting for Services and Limits to Managed Competition

The introduction of market forces into the NHS has led to an operational divorce between health care providers and those who need health‐care. Central to this change has been the widespread use of contracts. As a management problem, contract negotiation must incorporate consideration of full cost recovery to establish prices for hospital services sold and to ensure that available information is employed in assessing external services purchased. Ignoring the important issue of information availability in identifying relevant costs, it is the difficulty in specifying the cost of an episode of treatment, for example, that has led to contracts being negotiated in block form. Argues that this may be the only contract that can be effectively established. An important consequence of this is that the complexity of hospital services and requirements will work against a wider implementation of piecemeal managed competition and will form a natural barrier to market forces in the NHS.