Financing Medicine

The British Experience Since 1750

Martin Gorsky, Sally Sheard

• Publisher: Routledge
• Year: 2006
• Print ISBN: 9780415350259
• eBook ISBN: 9781134268764
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Financing Medicine brings together a collection of essays dealing with the financing of medical care in Britain since the mid-eighteenth century, with a view to addressing two major issues:

• Why did the funding of the British health system develop in the way it did?
• What were the ramifications of these arrangements for the nature and extent of health care before the NHS?

The book also goes on to explore the 'lessons' and legacies of the past which bear upon developments under the NHS.

The contributors to this volume provide a sustained and detailed examination of the model of health care which preceded the NHS - an organization whose distinctive features hold such fascination for the scholars of health systems - and their insights illuminate current debates on the future of the NHS.

For students and scholars of the history of medicine, this will prove essential reading.

1 Introduction

Martin Gorsky and Sally Sheard

As the World Health Report 2000 observed, the development of health systems in the twentieth century has been driven in part by the desire to address health needs with efficiency, fairness and responsiveness to expectations.¹ Some states pin their faith on market solutions, trusting to the incentives of competition to ensure quality and access. Others depend on a combination of private medicine and social insurance, operating within a statutory framework.² Since the midtwentieth century Britain has chosen to rely principally on direct, general taxation and hierarchical government control, an approach which, while not unique, is untypical. It differs, for example, from neighbours France and Germany, which rely to a greater extent on social and private health insurance, and from the United States, in which the private sector plays a larger part.³ Nonetheless the National Health Service (NHS) initially proved both popular and successful, in that it was deemed to be meeting the desired health outcomes without imposing an excessive burden on the public purse.⁴

However, since the oil shock of the 1970s and the subsequent curbs to welfare state expansionism, policy-makers in Britain have increasingly looked abroad for inspiration.⁵ Does the American system show that market disciplines will increase efficiency and responsiveness?⁶ Does non-profit self-government for hospitals, for example following the Spanish Alcorcon model, enhance service delivery?⁷ Does the Scandanavian reliance on local government as health-service provider offer greater accountability to the public?⁸ Do levels of expenditure and satisfaction in Western Europe suggest that insurance enhances social willingness to pay for health care and ensures greater responsiveness to consumers?⁹ Conversely, the virtues of the British system hold their own allure. A service that, at least nominally, aims to deliver universal, comprehensive provision free at the point of use is attractive to societies in which coverage is costly and partial.¹⁰ And, in circumstances of market failure due to poorly informed consumers, might a strong central bureaucracy not be the most effective way of containing costs of pharmaceuticals and doctors’ services? Thus the cross-national assessment of the costs and benefits of private, non-profit and public delivery of health services provides an essential tool for those who seek to understand and develop health systems

The starting point of this volume is that analysis of the historical record is an equally valuable tool. This is particularly so in the British case, and not simply because its recent past provides a prime example of central funding and direction. Prior to the National Health Service Acts (England, 1946; Scotland, 1947) Britain offered perhaps the pre-eminent illustration of a mixed economy in health care.¹¹ A substantial private sector operated, with those on middle incomes and above for the most part paying commercial rates to their doctors.¹² Statutory health insurance covered workers on lower incomes for general practitioner care, while non-profit contributory schemes provided hospital care on a quasi-insurance basis. Teaching hospitals and major general and special hospitals lay within the voluntary sector, and drew their income principally from philanthropic and private sources.¹³ A panoply of services was provided by local government through local taxation, including the sanitary infrastructure; general, maternity and infectious disease hospitals; and schemes for addressing venereal diseases, tuberculosis and infant welfare.¹⁴ Finally, on the boundary of health and social care, the workhouses and infirmaries of the Poor Law (Public Assistance after 1929) accommodated the impoverished elderly, the sick poor and the mentally ill.¹⁵ The British past therefore offers its own rich resource for examining different forms of health-service provision, the attitudes of our predecessors towards these, and the changing ways in which they were paid for.

The theme of this book, then, is the development of the British medical services viewed from the perspective of their mode of finance. Its coverage extends from the later eighteenth century to the late twentieth century, and its focus lies on four main areas. First, it considers the history of the voluntary hospital, depicting its shift over the long run from an institution reliant on the charity of the rich on behalf of the needy, to a service funded principally by its users. Second, it examines the growing role of the state and the local taxation system in hospital care. This was manifested initially in the tendency of the Poor Law to differentiate its health care from its relief duties, and later in the willingness of local government to enter the field of institutional provision. Third, it traces the advance of health insurance, from its beginnings with friendly society sickness benefit to the emergence of a ‘club’ system which provided medical care for the working class, which in turn supplied the model for the more extensive national health insurance (NHI) arrangements instituted by the Liberal government in 1911. Fourth, it explores the financial ramifications of the NHS structure, as health competed for resources with other spending departments, as new questions were raised about how to distribute expenditure equitably, and as persistent doubts arose over the advisability of tax-based rather than insurance-funded health provision.

How does this range of subjects fit into the broader history of British health service financing? We begin by outlining some key aspects of the economic history of medical services since about 1750. In the course of this we will highlight the contributions which the authors in this collection make to current knowledge. What do they show about why the funding of the health system developed in the way that it did? And what were the implications of these arrangements for the nature and extent of health care?

Philanthropy and the voluntary hospitals

The eighteenth century witnessed ‘an unusually spectacular blossoming of commercial medicine’ in which the market for attendants and therapies was highly diverse and unregulated.¹⁶ Practitioners of conventional medicine vied with a host of quack doctors and amateurs for the business of the public, who might equally prefer self-medication.¹⁷ Institutional care in 1700 was minimal: Britain’s earliest public hospitals had been religious foundations with mixed pastoral functions, many of which were suppressed in the Henrician Reformation. ¹⁸ Subsequent charitable effort had been directed towards schooling and almshouses rather than hospitals dedicated to medical care. Parish poor relief gave financial aid to those made destitute through sickness, but the Poor Law contained no statutory remit to provide medical services.¹⁹

The coming of mass, urban industrial society, then, both created a need for new forms of health provision and furnished the wealth which would pay for them. The most visible and highly capitalised of these new forms were the voluntary hospitals, which were founded in British towns and cities from the mid-eighteenth century. These institutions drew their income principally from the philanthropic gifts of wealthy local supporters, and relied on the unpaid labour of honorary consultants and management committees recruited from local elites.²⁰ The timing of their appearance makes it tempting to see the voluntary hospitals as an integral element of the transition to industrial capitalism, a means by which the property-owning class safeguarded and restored its human capital. There is certainly good evidence that employers loomed large amongst the hospital’s supporters and that its prime function was to address acute disease experienced by younger workers, rather than the health needs of the economically inactive.²¹ The admissions system, under which the sick needed to solicit a letter of recommendation from a hospital subscriber, seems to have operated in the early industrial era as personal patronage which instilled deference and strengthened social bonds.²² However, the emergence of voluntary hospitals was also driven by non-economic factors. These included their function in the political world of the town and county, where they provided a new venue for the exercise and display of power; their appeal both to old and new money as a means of displaying wealth and status; their utility to doctors in a competitive marketplace who used hospital work to gain prestige, experience and lucrative connections; and the allure of hospital charity as a means of expressing the humanitarian impulses of the late eighteenth century or the ‘feeling heart’ of nineteenth-century evangelicalism.²³

The early history of voluntary hospital financing is examined through detailed case studies in Chapters 2 and 3. Both show how economic imperatives shaped the interaction of lay trustees, medical men and patients, with important consequences for the character of care. Croxson’s study (Chapter 2) focuses on London’s Middlesex Hospital and the world of the eighteenth-century benefactor, whose annual subscriptions provided the bedrock of financial support. The control which benefactors exercised over admissions defined the hierarchical relationship between philanthropic elites and working people – a dialectic of dependence and obligation, related to labour market, service, property ownership and so on. Reviewing the tensions between the doctors and hospital benefactors over control of admissions, Croxson suggests that initially both groups were forced by a fund-raising imperative to give primacy to maximising the number of successful cures. However, from the mid-nineteenth century medical professionals gained greater autonomy, as admissions by letter of recommendation fell and new hospitals abandoned the system.

This decline in the rights of the subscriber, alongside the ‘medicalisation’ of the hospital, is clarified further in Reinarz’s study of the voluntary hospitals of Birmingham during the nineteenth century (Chapter 3). The great manufacturing centre of the Midlands contained a range of teaching, specialist and general hospitals, and Reinarz explores their relationship with a specific urban economy and philanthropic milieu in which they competed for funds. He shows how in the course of the century they expanded their funding base so that individual subscription, with its accompanying rights, assumed a lesser importance. This was a period of transition in which the dominance of lay individuals and the church as the major donors gave way to that of business, the leisure industry and organised mass funding, a process characterised by Reinarz as one of democratisation. However, the removal of individual scrutiny by the subscriber also meant that charity needed to become more ‘scientific’, to prevent abuse of the free services by patients who could afford to pay for themselves. Reinarz notes that such developments sit uneasily with historical claims for a ‘de-personification’ of the patient ushered in by the rise of laboratory diagnostics. In contrast, the financial concerns of voluntary hospitals ensured that almoners and clerical staff continued to address the ‘whole’ patient.

Public hospitals before 1914

While the voluntary hospitals were associated with medical advance and prestigious institutional development, it was the public sector that contributed more to the betterment of population health. The Europe-wide fall in mortality which began in the mid-eighteenth century had slowed in England in the early nineteenth century, as the mushrooming cities exacted an ‘urban penalty’ on their more vulnerable citizens.²⁴ Town living meant exposure to heightened risks of occupational and infectious diseases in an unregulated environment of poor housing and inadequate drainage and water supply. Although the resumption of a decline in mortality from about 1870 was partly attributable to improvements in nutritional status following rising living standards, it was also due to the gradual adoption of sanitary reform measures, implemented by local government and funded by local taxpayers.²⁵ Alongside its role in prevention, the public sector also assumed increasing responsibilities for care and cure. Medical activities financed by the Poor Law increased in number. Poor claimants were able to access doctors’ services both through the workhouse and in the home, with some areas providing relatively generous subsidies for medical care and vaccination.²⁶ After the Poor Law Amendment Act of 1834 this situation changed, as government sought to apply the tenets of economic liberalism to the problem of poverty.²⁷ Out-relief (domiciliary support) was now to be targeted at the infirm and incapacitated, while the workhouses were subject to disciplinary regimes that would act as a deterrent to claimants. Alongside this agenda of ‘less eligibility’ to motivate the work-shy went a reform of the administrative structure, with power removed from parishes to larger Unions overseen by Boards of Guardians, who embarked on a major workhouse building programme.²⁸ To some extent the Dickensian image of the workhouse as Poor Law Bastille has been modified by studies which demonstrate that the harshness of central policy was modified by humane local practice.²⁹ None the less, medical care was not a central consideration and the quality of provision for the sick initially fell far below that of the voluntary hospitals.³⁰

Chapter 6, on the Victorian Poor Law, explores the financing of public medicine in the wake of the 1834 Amendment Act. The process is exemplified by Waddington’s study of the Whitechapel Union, located in London’s East End, which, although comparatively small, had an income far in excess of that which a voluntary hospital could muster. Initially reliance on limited resources drawn from the local rates prevented the development of medical services, but from the 1860s expenditure rose, following diversification of the financial base through greater borrowing, the charging of patients’ relatives and central government grants. Revenue growth allowed the Union to separate the infirmary from the workhouse and provide for the development of specialist medical care, both under the Poor Law and by contracting from voluntary hospitals. However, Waddington’s anal...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Notes on contributors
• Acknowledgements
• 1 Introduction
• Part I Voluntary funding and the growth of hospital care
• Part II Local government and medical institutions
• Part III General practice and health insurance
• Part IV Contemporary issues