Podium: The dangers of giving doctors control

IN 1990, the internal market reforms in the NHS changed the incentives of participants in the UK health care market. Perhaps the most contentious aspect of these reforms was allowing a subset of family doctors to act as purchasers under the GP fundholding scheme.

Under the previous arrangements, family doctors had been gatekeepers to all forms of medical care. They provided primary care in their surgeries, referred patients to hospital for further treatment or diagnostic tests and prescribed pharmaceuticals. But they were not responsible for the costs of either hospital treatment or their prescribing.

Under the reforms, the fundholder scheme gave family doctors budgets for these two activities. The outcome has been hotly debated.

On the one hand, it has been argued that fundholders have been better purchasers because they have better information on patients' pre- and post-hospital treatment. They have been able to innovate, to change methods of treatment and to improve the efficiency of hospital care suppliers. This has benefited their own patients but may also have had positive spill- over effects for other patients.

On the other hand, it has been argued that the scheme has resulted in a two-tier service with more resources available to the patients of fundholders, leading to better treatment for this group at the expense of all other patients and, possibly, also higher incomes for fundholders.

Fundholding was designed to close the gap between the fundholders' decisions over referral and prescribing and the financial consequences of these decisions.

The essence of the problem is that fundholders were given budgets based on their activity before they became fundholders and were subject to relatively little monitoring in how they used these funds. They therefore had unintended incentives to increase activity in the statutory waiting period before becoming a fundholder, and to decrease activity after becoming a fundholder to retain the surplus from the fund. The concern is whether they responded to these incentives.

Our results show clearly that fundholders have responded to financial incentives. But, in terms of welfare, does this matter?

First, the size of the increase in elective admissions in the year preparatory to becoming fundholding is very similar to the fall in the year after. This suggests that the increase in referrals in the preparatory year represents a bringing forward of cases who would have otherwise had to wait for treatment. This is a once-off gain to this group.

Second, the rise in preparatory-year referrals means that fundholders' budgets are inflated for the whole of the period that they are fundholders. Since fundholders' budgets are deducted from the total allocation to the health authority, larger budgets for fundholders means fewer funds available for non-fundholders. This represents a real shift of resources away from non-fundholding practices to fundholding practices.

Third, we observe a decline in admissions in the year of becoming a fundholder which means that fundholder patients get less hospital treatment in that year. But this does not necessarily mean fundholders' patients are getting poorer health care. Decreases in hospital admissions are not necessarily welfare decreases. GPs may be substituting treatment in their surgeries for hospital treatment. Or they may be substituting treatment in the private sector for NHS treatment.

The withdrawal of fundholders' business from NHS hospitals may have beneficial effects for all patients, including non-fundholders', if it forces the hospitals to become more efficient. Conversely, it may lead to a superior service for fundholders' patients compared with non-fundholders' if the hospitals try to attract back the more mobile fundholder business.

We cannot deduce from the fall in admissions to NHS hospitals after a GP practice becomes a fundholder that patient treatment is worse.

However, the scheme clearly has had unintended equity consequences. These are not in accord with the popular view - that fundholder patients get more hospital treatment - but that fundholding GPs have been able to increase their budgets for hospital care by bringing referrals forward.

The cash constraints on the NHS means that this leaves less money for the hospital care of patients not in fundholder practices. Whether it also means there was better care available for patients in fundholder practices depends on how exactly fundholders used their additional funds.