Contracting-out health care services: a conceptual framework

Contracting-out has become increasingly prominent in the health-care sector . It has been used in activities ranging from 'internal market' arrangement s in which providers compete for funding from government payers to purchase s of medical and non-medical inputs by service providers. While contracting -out arrangements for non-medical services have been widely adopted with ap parent success, the contracting-out of medical services has met with critic ism. Specifically, prominent 'market failures' have been identified which a llegedly make contracting-out inefficient and even potentially disruptive t o health care delivery. This paper presents and discusses a systematic fram ework for policymakers to identify and assess potential problems in contrac ting-out health care services, as well as some generic approaches to mitiga ting these potential problems. A key to the framework is the notion that co nditions contributing to potential market failure problems can often be mit igated by policymakers, and that the strategic choices of policymakers in t he 'first stage' of the contracting process should include an analysis of h ow the contracting-out environment can be changed to mitigate potential mar ket failure problems. (C) 1999 Elsevier Science Ireland Ltd. All rights res erved.