Capital Charging in Public Healthcare

Abstract

In those OECD countries which rely most heavily upon universal public healthcare systems, a profound sense of crisis has been produced by the clash between pressures for enhanced provision and the resistance of governments to spending more. In several countries, the ideas of New Public Management have been shaping policy, with the explicit objective of improving the efficiency of resource utilisation. Healthcare systems are both labour and facilities intensive. This paper examines the way in which capital charging for publicly financed healthcare assets has been used as one mechanism within the internal market package of healthcare reform implemented in the United Kingdom in 1991. This financial innovation has been motivated by the belief that productive efficiency has been damaged by the traditional treatment of National Health Service capital as a free good. Experience with implementation has highlighted a number of issues whose full significance had not previously been appreciated, notably: the complex nature of healthcare assets; the importance of purchaser-provider separation in structuring improved incentive systems; and the greater ease of managing a system which has limited interaction with the private sector. Overall, capital charging is a valuable but flawed tool, which is much better than the asset invisibility it replaced.