CONTRACTS AND SUPPLY ASSURANCE IN THE UK HEALTH-CARE MARKET

We present a formal model of the relationship between a health care pu rchaser and a provider drawing on the recent experience of explicit co ntracting in the UK health sector. Specifically we model the contractu al relationships emerging between District Health Authorities, who are presently the dominant health care purchasers, and the providers of h ospital care. The comparative static analysis implies that the transac tion cost of using non-local hospitals, the expected patient demand, t he extent of excess capacity in local hospitals, and the proportion of that excess capacity expected to be lost to competitive purchasers, a re all important determinants of the choice of contract.