Efficiency and administrative costs in primary care

Area of Science:

• Health economics
• Healthcare management
• Public health policy

Background:

• Primary care administrative costs in England significantly increased between 1989/1990 and 1994/1995.
• The drivers of this cost increase and their impact on healthcare efficiency require detailed examination.

Purpose of the Study:

• To formally model the implications of endogenous managerial effort on healthcare efficiency.
• To investigate the substantial rise in primary care administrative costs in England during the specified period.

Main Methods:

• Application of a formal economic model to analyze healthcare administrative costs.
• Econometric analysis to identify cost determinants, including general practitioners (GPs), economies of scale and scope, and fund-holding.
• Adjustment for changes in practitioner numbers, primary care quality, and fund-holding extent.

Main Results:

• The number of general practitioners (GPs) was the primary cost determinant.
• Economies of scale were present, but not economies of scope.
• Fund-holding had a small positive effect on administrative costs; its abolition may not significantly reduce costs.
• Most of the cost increase remained unexplained after accounting for measured factors, suggesting unmeasured administrative burden from the 1990 reforms.
• Little variation in relative efficiency was observed across different areas.

Conclusions:

• The significant increase in primary care administrative costs was primarily driven by factors beyond the number of GPs, economies of scale/scope, or fund-holding.
• The 1990 reforms likely introduced unmeasured administrative burdens contributing to cost escalation.
• Policy changes like the abolition of fund-holding may have limited impact on reducing these administrative costs.
• Healthcare efficiency in primary care showed minimal variation across geographical areas during this period.