Health sector reform has been described as ‘sustained, purposeful change to improve the efficiency, equity and effectiveness of the health sector’. There is no universal package of health care reforms, but the most widespread elements include restructuring public sector organisations, linking reward to performance, encouraging plurality and competition, funding through non-tax revenue and increasing the role of the consumer in the health system. The diversity of reforms makes it difficult to identify reforming and non-reforming countries, and most countries (industrialised and developing) have implemented some reforms. Usually, reform of the health sector goes hand in hand with a more general reform of public services called ‘New Public Management’, a shift from direct service provision to delegation and oversight of public services.
Neo-liberal economic arguments explain that state intervention is required in the health sector because market forces do not function adequately. However, simply identifying the failure of the market does not explain how to offset the failure, and these failures are highly country-specific. This chapter’s findings include:
- Government-controlled health sectors may lack the disciplinary power of market forces which would otherwise punish inefficiency, waste, poor quality service and low output.
- The dominance of medical professionals with little management training in the Health Sector often results in weak management, leading to inefficiency and inequity in service delivery.
- Many transactions involve principals delegating to an agent, who may then be tempted to pursue their own objectives. The problem is even more acute when multiple principals delegate to a single agent (for example, hospital and patient to doctor).
- New Institutional Economics suggest that there are three mechanisms for ensuring accountability: The risk of customer desertion (‘exit’); customer involvement in decision making (‘voice’); and upward accountability stem (‘hierarchy’).
- Neo-liberal economic theory assumes that agents possess perfect information, but in fact patients are rarely well informed and have little choice but to place their trust in professionals.
As a result of the above findings, the following policy implications may be drawn out:
- Institutions which evolve to compensate for lack of consumer information are slow to change and do so in line with the relative power of different sectors of society, so it is not always possible to transfer systems from one society to another.
- The lack of information among healthcare consumers renders ‘exit’ ineffective as a mechanism for regulating the health sector. Consequently more reliance must be placed on ‘voice’ and ‘hierarchy’.
- During consultations patients are in a weak position and often feel powerless, so ‘voice’ is best achieved through the creation of hospital boards and healthcare committees.
- The requirement for and cost of healthcare is irregular and unpredictable. Whereas the market would normally deal with this through insurance, this is not ideal in the healthcare sector where adverse selection is a matter of life or death.
- Healthcare for children and the severely mentally ill (among others) are areas which are too important to leave to private choice, and thus government intervention is essential.
