#2911 - Topic 1 Reading How Purchasing Decisions Are Made In The Mixed Economy Of Community Care - Accounting in the New Public Sector

A new system of providing the social care services and support required by people who are affected by problems associated with ageing, mental illness, learning difficulties, or physical disability

• Known as Community Care

• Fully implemented in April 1993

• Give local authorities responsibility of assessing the requirements of those in need, of designing a package of care and of purchasing that care from a range of providers, many in the voluntary or private sector

Two broad sets of influences on the purchasing decision:

• The ‘macro’ environment which determines the broad framework within which any decision is made

• The ‘micro’ environment, pertaining to a particular user

Before 1993, social care service provided and funded by range of agencies

• NHS, local government and Benefits Agency

Those receiving residential care before the new arrangements came into force in general continue to receive care from the same source

Only referrals since April 1993 have been assessed under the new system

Older people are by far the largest group affected by the reforms

A ‘quasi-market’ in community care therefore has been established along the lines of those already operating in health and education in the UK (Le Grand and Bartlett, 1993)

1990 National Health Service and Community Care Act

• recommends social service departments obtain the necessary information in order to assess whether potential suppliers are reliable, commercially viable and share the values of the purchasing authority (Hudson, 1994)

Principal mechanism for allocating resources and controlling activity is the contract between purchaser and provider

• Open tendering – all providers are invited to tender

• Select list tendering – providers are short-listed on certain criteria

  • Competing mainly on price

• Direct negotiation with suppliers – service specifications are developed jointly between purchasers and providers

The standard model of choice employed by economists is based on the neoclassical critique

• Basis on marginal utility

• Strengths: rigour and internal consistency

• Weaknesses: criticized for unrealistic axioms which it is based (Earl, 1983)

Sociological approach to the market:

• Traditional neoclassical economic theory overstates the role of price in regulating patterns of exchange (Bradach and Eccles, 1991)

• Purchasing decisions assumed to be determined less by costs and demand, but rather are socially constructed through a process of bargaining within networks of social actors

• Informal information transmitted through social networks concerning issues such as trust, status and reputation are viewed as possibly more important determinants of competition than price, particularly in complex markets

• Small but developing literature in this area (Hudson, 1992, Hoyes and Means, 1993)

Sako determines 3 kinds of trust:

• 1) Contractual trust

• 2) Competence trust

• 3) Goodwill trust

Trust is a concept that may be of central importance to the new community care market not only because it is likely to be used to economise on contracting costs, but also because many of the characteristics of conventional markets – such as product failure and the associated disruption to users – may be unacceptable

• Local authorities are likely to be highly risk averse regarding the possibility of abuse of older clients in residential homes

• Previous record of providers may play a crucial part (Mannion and Smith, 1997)

• In economic terms, trust can be regarded as an intangible capital asset (Sako, 1991)

• Where trust exists, behavioural uncertainty is reduced and the likelihood is increased that promises will be honoured

Plays little part in the traditional neoclassical approach to the analysis of markets

A producer’s status has been defined as the perceived quality of its product in relation to that of its competitors (Podolny, 1992)

It is a relative concept

If one producer gains status, at least one other producer must possess less

If quality is difficult to specify and monitor, there many be a loose linkage between actual quality and a producer’s perceived status

There may be time lag between changes in the quality of a product and changes in the purchaser’s perceptions

An increase in status attached to a product leads to increases in consumers’ willingness to pay, as the higher status implies less risk that the good will turn out to be below a quality threshold

Closely associate with qualitative aspects of a product which cannot be incorporated into a formal contract

May form judgements about the future quality of its products on the basis of such historical observations (Laffont and Tirole, 1993)

Status tends to be thought of as a public attribute, reputation is often treated as a private judgement regarding future quality

May vary from consumer to consumer

Reputation is likely to be important where:

• Qualitative aspects of the product are important

• There is difficulty in writing complete contracts

• Contracts are long term

• The quality of the product can only be judged after it has been used

It is important to have a clear idea of the organizational, financial and legal environment in which decisions are made

The concept of ‘needs’ is in itself problematic (Doyal and Gough, 1991)

Needs criteria are likely to be based on national guidelines, interpreted at the local level in the light of resource constraints

Few independent direct measures of needs exist

Funded from 3 main sources:

• Central government grants

• Local residential tax

• User charges

Local authorities are not allowed to borrow to fund current expenditure

Standard Spending Assessment (SSA) is the central government’s estimate of how much a local authority should spend if it were to deliver a standard level of services

Central government also specifies an expenditure cap for each local authority

• Most spend at their caps so the cap effectively determines the total budget for an authority

Every social service department therefore receives an annual budget for community care which determines the global financial constraint within which the system must operate

Special Transitionary Grant was issued to help smooth transition to the new system

The size of the local community care budget is ultimately determined by local political preferences

• The authorities choice is in practice severely circumscribed by its existing community care commitments, by its global expenditure cap and by the size of the STG

The new system is specifically intended to change the nature of social care by shifting the emphasis from residential to domiciliary and respite care

In London, there was a major concern with the lack of affordable residential services within easy reach of the user’s current home

High degree of information asymmetry existing between purchasers and providers

Lack of reliable information concerning the quality of services delivered by providers in the unregulated domiciliary care market

• A common response to the shortcomings in the information was the for the local authority to contract with independent providers mainly for social care rather than personal care

  • Minimizing the opportunity for abuse or serious neglect

• Problem of quality was really one of trust in a situation where quality could be neither monitored nor enforced

The willingness and ability of local GPs to collaborate in social care may affect purchasing decisions

Local authorities were adopting a range of organizational forms to deliver community care

Three aspects of organizational structure relevant to purchasing services

• Geographic organization

  • Whether social services departments are divided on an area basis or function basis

• The purchaser-provider split

  • The extent to which in-house services are treated as an autonomous provider

• Financial devolution

  • Important implications for purchasing decisions

  • High level of devolution will be associated with tighter bureaucractic controls

    • i.e. limiting the range of options open to purchasers and strict reporting requirements

    • Audit Commission (1993) found that local authorities are increasingly devolving budgets from the centre

      • Now common for local authorities to devolve budgets to area, team or even care manager level

Choice of contractual form is also crucial

• Some authorities place considerable emphasis on ‘block’ contracts with large providers

• Some had ‘spot’ contracts which afford a greater...