Prescribing costs in UK general practice: the impact of hard budget constraints

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Abstract
The development of an internal market in UK public sector health care has introduced hard budget constraints for those general practitioner purchasers who elect to hold their own budgets or ‘funds’. Prescription medicines constitute an element of the fundholder's budget and a theoretical model is developed to explain how hardening constraints might be expected to impact upon prescribing decisions. The model is based on a trade-off between prescribing and budget surplus and it predicts, inter alia, that both the prescribing costs and volume of medicines prescribed by fundholders will be lower than for non-fundholders. A reduction in X-inefficiency is also predicted, manifested as a higher rate of generic prescribing and the use of computerized prescribing management. The model is found to be consistent with the observed facts in one English health authority (Lincolnshire).