In the absence of a credible threat by health authorities to withdraw contracts from Trusts, contracting arrangements yield little improvement in service cost-effectiveness. The inability to monitor service provision and to directly measure service quality limited the usefulness of contracting and its potential safeguards. Highly centralized health care systems with centralized accountability requirements may not produce incentives for purchasers to enter into optimal contracts

Background: Like other jurisdictions, Ontario has opted to use health service contracts in particular sectors (e.g. home care). Little research has examined the models and outcome of using contracts for health services. This study examines the use of health services contracts between purchasers and providers since the introduction of the internal market reforms in the U.K. National Health Service (NHS). Prior to the reforms, purchasers and providers were members of the same organization. Since reform, there are two types of purchasers: 1) district health authorities, who are responsible for acquiring services for residents of a large geographic area; and 2) General Practitioner Fundholders, which purchase primary care for their rostered patients. The providers of health care services, such as district nursing, were formed into community health care "Trusts".

This study aimed to understand which of two contract models are used in the NHS: classical or relational. In a classical contract model parties freely enter into a contract; exercise choice and are able to negotiate the terms of the contract; and are able to resolve disputes through recourse to the courts. In the relational contract model, the contract is based upon a trust relationship between the parties; not all contract terms are necessarily written; and litigation is avoided in an effort to avoid costs and secure the parties' relationship.

Method: A socio-legal and economic framework was used for the analysis. A case study of 2 community health Trusts providing district nursing services in London was conducted to test policy makers' assumption that classical contracts were being used. Data collection methods were: (a) interviews with key stakeholders from purchaser and provider organizations, (b) observation of district health nursing, (c) observation of contract negotiations and meetings, and (d) analysis of contractual documentation.

Findings: Elements of classical contracts were used by the district health authorities while General Practitioner Fundholders' contracts contained elements of relational contracting. Purchasers, particularly large ones, were interested in maintaining market stability with continued access to multiple providers. Purchasers demonstrated a lack of trust, fear of being taken advantage of, and feelings of being "locked in" once contracts were signed. Purchasers were unable to completely specify or monitor the services that they were purchasing. Contract documents were found to be incomplete and poorly drafted. Providers were advantaged by their access to information.

Conclusions: In the absence of a credible threat by health authorities to withdraw contracts from Trusts there was weakened potential for contracting arrangements to yield improvements in service cost-effectiveness. Moreover, the inability to monitor service provision and to directly measure service quality limited the usefulness of contracting and its potential safeguards. For instance, elements of relational contracting were more evident between the Trusts and Fundholders, but this did not improve the ability of Fundholders to specify quality standards any better than health authorities. Highly centralized health care systems with centralized accountability requirements may not produce incentives for purchasers to enter into optimal contracts.

Reference: Allen P. A socio-legal and economic analysis of contracting in the NHS internal market using a case study of contracting for district nursing. Social Science and Medicine 2002; 54: 255-266.

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