Longer-term agreements for health care services: what will they achieve?

Government policy announced in the White Paper is to require purchasers and providers in the NHS to move from annual contracting cycles to longer-term contracts (agreements). It would appear the original arguments for this change came from the economics literature, suggesting longer-term contracts would help deal with problems of asset specificity, promotion of new entry and transactions cost. The Labour government emphasises longer-term contracting as a means of shifting the focus of purchaser provider relations from price and activity to quality of service and strategic planning. This Discussion Paper reports the results of research into the extent and nature of long-term contracting in the NHS. It is based on examination of contracts from a sample of six health authorities and their GP Fundholders, supplemented by interviews with individuals from these Health Authorities and Trusts who were involved in the contracting process. The paper considers the extent to which the problems identified in the theoretical literature on duration of contract are likely to be observed in the NHS and the extent to which it is likely a movement to longer-term contracting will achieve the benefits expected.