Organising the Finance of Hospitals by Simulated Markets

Examination focuses on ways of improving the financial management of the UK's National Health Service (NHS) through the use of simulated markets to determine hospitals' budgets. One country that exhibits a polar extreme to the UK is the US, where health services are organized and financed by a wide range of organizations. Recent developments in both countries are compared. In the US, the major developments are: 1. prospective reimbursement based on the measurement of a hospital case mix by diagnosis-related groups, and 2. capitation-based finance through health maintenance organizations (HMO). Attention is focused on how measures of case mix could be employed to develop a simulated market for hospital budgets in the UK and how this might be seen as the UK version of the HMO. The nature of the potential convergence of the 2 systems is illustrated, and the case for introducing simulated markets is summarized. Given the overwhelming evidence of the inadequacies of finance methods based on the residential populations of districts, it may be time for serious consideration of determining hospital targets by workload.