The Institutional Economics and Organizational Theory of Mixed Healthcare Systems

The authors review the institutional economics and the organizational underpinnings of mixed healthcare systems. They initially trace the historical context of healthcare systems as they have evolved over time. Then, they review the theoretical underpinnings of mixed healthcare systems from the perspective of both neo-classical microeconomics and organizational theory rooted in new institutional economics. This is followed by a detailed analysis of both market failure in private healthcare markets and government failure observed in large state-run national healthcare systems that are typical of government health services run by Ministries of Health at all country income levels. Following that the authors look at a range of instruments available to governments in addressing market failure — from least to most intrusive. These include doing nothing, requiring information disclosure, introducing regulations, contracting for services through prepayments, direct payments, subsidies through reimbursements, mandates, guaranteeing universal access, and public production. This is followed by a discussion on recent trends in the reform of mixed healthcare systems and what policymakers can do to take decisions about when to “make or buy” healthcare goods and services “in-house” or “contract out” to non-governmental and private funders and providers of healthcare. The final section of the chapter looks at how to get from “here to there” in terms of creating high-performing mixed healthcare systems. The authors conclude that policymakers could significantly improve the performance of their healthcare systems by empowering patients to get more involved in their own care by giving them a greater voice in their care and providing them an “exit” — “voting with their feet.” Such reforms would require policymakers to depart from their historical dependence on loyalty and trust by patients in underperforming healthcare, which is seen in so many countries, and instead secure a strong policy framework and high performance of mixed health systems. These topics are central to understanding mixed health systems.