Managed Competition in Health Care

‘Managed competition’ seeks to use market incentives to increase economic efficiency, but within a framework which maintains equity and universal access for health care services.

In essence, it involves the government funding — through a system of risk-adjusted payments — competing ‘budget holders’ to purchase health care services, on behalf of their enrollees, from competing providers.

Dr Richard Scotton’s managed competition model for Australia is one of a number of similar proposals for addressing perceived weaknesses in health care systems across a number of countries.

The introduction of managed competition would involve substantial changes to Australia’s health financing and service delivery arrangements. As such, it would represent a ‘big-bang’ reform.

Among workshop participants, there was limited support for the implementation of the full Scotton model. The model is complex and presents a number of challenging implementation issues. These relate, for example, to the restructuring of the existing multiple program structure and the development of effective contractual arrangements between budget holders and service providers.

Many judged that it would be preferable to give priority to related incremental reforms offering the prospect of clearer net gains to the community in the short to medium term.

A number of proposals consistent with the Scotton model were identified as worthy of further investigation, including:

• evaluating the merits of giving doctors, through the Divisions of General Practice, greater responsibility for purchasing medical services and pharmaceuticals for their patients; and
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• assessing the merits of giving regionally based, public non-competing budget holders the responsibility for purchasing a full range of health services for their residents.