Carolyn Tuohy: The institutional entrepeneur – a new force in health policy

The Institutional Entrepreneur – a New Force

in Health Policy?

Carolyn Hughes Tuohy, PhD, FRSC

Nuffield Trust, September 19, 2012

1

Entrepreneurs in Private and Public Sectors

entrepreneurs identify opportunities to recombine existing resources to create new value for some set of consumers.

business entrepreneurs: combine capital, labour, technology in private sector; seek financial profit

public/political/policy entrepreneurs: link problem definitions, policy remedies, political support to produce innovations in policy design; seek to augment political capital

The Concept of the Institutional Entrepreneur

Institutional entrepreneurs combine resources and power bases across the public and private sectors.

In health care, the principal bases of power are state authority, private capital and professional expertise

Institutional entrepreneurs combine authority (public mandates) with private capital and/or professional expertise

May operate from a principal base in any one of the three bases

Policy entrepreneurs vs institutional entrepreneurs

Policy entrepreneurs link problems with “solutions” in politically saleable ways to make changes in policy frameworks (the rules of the game)

Institutional entrepreneurs (IEs) link public mandates with private-sector resources to create hybrid public-private arrangements

Policy entrepreneurs and IEs may (or may not) act in complementary ways

The activity of IEs can drive reforms in unanticipated directions

Institutional entrepreneurs vs business entrepreneurs

Institutional entrepreneurs (IEs) act in lieu of the state in some matters – i.e. are “ordained” with public mandates

Business entrepreneurs may contract with government for certain deliverables, but they do not exercise state authority

A British example: the road from GP fund-holding to CCGs

Fundholding introduced as relatively minor aspect of 1990s internal market reforms – at initiative of “policy entrepreneurs” (Maynard, Clarke)

Combined public mandate (purchasing) with professional expertise

Seized upon by entrepreneurial GPs; became popular beyond expectations (>50% by 1997)

Multiple models of GP commissioning – multifunds, TPP, etc.

Political ramifications

Fundholding galvanized opposition to “two-tier” medicine among non-FH GPs who pursued “locality commissioning” relationship with HAs

Both groups established political associations (now NHS Alliance and NAPC) and links with politicians

Milburn and universalization of locality commissioning through PCT/PEC model

Return to “fundholding” with PBC

Lansley and GP consortia

Political ramifications

Clinical Commissioning Coalition supports Health and Social Care legislation

IEs took GP commissioning from margins to centre of policy framework

But, perhaps ironically, not involved in detail of design or broader architecture

Institutional entrepreneurs in health care reform: other nations

The Dutch Case

20-year reform process moved from bifurcation of social insurers and private insurers to “universal managed competition”

Sparked by Lubbers government, influenced by Enthoven’s ideas

First wave “liberated” social insurers from regional monopolies to compete nationally

The Dutch Case

Entrepreneurs took advantage of unique mixes of public resources (including publicly-mandated social insurance contributions) and private capital

distinction between sickness funds and private insurers blurred

some not-for-profit sickness funds drawn into broader holding companies with private insurers and other for-profit entities

private insurers established sickness funds as divisions

complex corporate structures

The Dutch Case – Unanticipated Consequences (1)

As risk-adjustment mechanisms were being developed, insurers were buffered against loss by government subsidies

But opportunities for profit also very limited by regulation.

Entrepreneurial activity aimed at increasing market share – led to increased market concentration

Number of sickness funds: 53 in 1985, 26 by 1993, 22 by 2003; Four large corporate umbrellas accounted for almost 90 percent of the market by 2009

increased market power of insurers vis-à-vis providers: especially re price in deregulated segment

The Dutch Case – Unanticipated Consequences (2)

Investments in information technology by insurers created an enhanced potential for risk selection on the basis of morbidity.

But also allowed regulators to respond by incorporating measures of morbidity into their risk adjustment formulae

These developments “softened up” the ground for final round of reform in 2006

Erosion of social/private distinction

market actors (including consumers) became accustomed to the new landscape.

The US case

An early example: HMOs in the 1970s:

Legislation mandated demand

But business entrepreneurs successfully lobbied for progressive dilution of HMO advantage

Current example: health insurance exchanges:

at the heart of the failed Clinton reform initiative of 1993: regional health alliances, with employer “play or pay” mandates

Other models developed at state level; taken up as

centrepiece of the Affordable Care Act of 2010

Health insurance exchanges: market players grounded in public authority

1990s: Attempts in numerous states to develop pooled purchasing arrangements for the small-group market e.g. California – began as state agency, later privatized,

closed.

All failed to achieve critical mass without employer or individual mandates

2000s: Massachusetts and Utah “bookends:”

MA: individual mandate, public subsidy

UT: employer-based defined contribution model; employees then select among competing plans, bearing any cost above the employer contribution

Massachusetts Health Connector

Market player whose power derives from mandated demand plus public subsidy

quasi-public agency: start-up public funding, then entirely

financed from premium surcharges

First executive director recruited from HMO (past connection to BCBS), second executive director moved from Governor’s office

operates two exchanges: for subsidized and non-subsidized clients)

focused on simplifying and streamlining choices; includes products from all major health plans in state

Massachusetts Health Connector - impact

Product: innovative web portal

98% MA residents now insured.

Needs to attract non-subsidized clients (individuals and small businesses) to validate model

Utah Health Exchange

public agency within a branch of the Governor’s Office

limited authority: reliant on insurer cooperation

Four of five major insurers participated, cooperated on risk-adjustment mechanism

Launched as a pilot project with innovative web portal in 2009

rolled out under somewhat strengthened rules in 2011

Utah Health Exchange - impact

Product: innovative portal and risk selection process

Little impact on uninsurance:

300,000 individuals without insurance prior to establishment

Exchange involved 300 employers with about 6500 covered lives by June 2012

US Health Reform at the Federal Level

Massachusetts as model for Affordable Care Act 2010:

Increased regulation of employer-based insurance

State-level health insurance exchanges

Medicaid expansion

Key actors from Massachusetts closely involved

Utah became Republican foil

US Health Reform at the Federal Level

By July 2012, 11 additional states had enacted legislation to establish exchanges.

10 under solid Democratic control of the legislature and governorship

In two more states, Democratic or Independent governors issued Executive Orders to establish exchanges after legislation failed.

Wide variation anticipated across states

Federal government will operate exchanges in some states by default

Institutional entrepreneurs in health care reform:

an explanatory framework

Institutional entrepreneurs thrive in heterogeneous contexts

resources are “loosely coupled” enough to be recombined in more productive uses.- cf Ostrom’s “polycentricity.”

policy frameworks vary in the extent to which they provide structural sites in which resources are loosely coupled enough to allow for recombination.

“market-oriented” reforms provide fertile ground

Those sites in turn differ in the power bases from which they make it possible for entrepreneurs to emerge:

state authority, private capital, professional expertise, etc.

Content of Policy Reform and Sites of Institutional

Entrepreneurialism

Britain Netherlands US

Content of reform

Purchaser-provider split replacing

hierarchy

Managed competition/universal

mandate replacing social/private

insurance

Managed competition/universal mandate grafted onto

mixed system

Site of entrepreneur-ialism

Fundholding Insurer competition Health insurance

exchanges

Institutional entrepreneurs

GPs Sickness funds State actors

Functional role of IE

Purchaser Underwriter, purchaser Broker, regulator

Base of IE power Clinical expertise Authority: State

mandate Authority: State position

Scope of IE power

State mandate Private revenue/capital Private revenue

Institutional entrepreneurs exploit uncertainty

Entrepreneurs make bets on an uncertain future: profit (or lose) from the difference between the value of the resources they invest at time T and the value of the product of those resources at time T+n.

i.e. they gamble that their predictions are more accurate than those of competitors.

Institutional entrepreneurs need to bet on conditions in both private and public sectors - i.e. political uncertainty is added to the mix

Institutional entrepreneurs exploit uncertainty

Uncertainty is heightened in episodes of major reform: timing and nature of uncertainty depends on political strategy of reform:

scale and pace attempted:

Big-bangs: large scale, fast pace

Blueprints: large scale, slow pace

Mosaics: small scale, fast pace

Increments: small scale, slow pace

Strategy of Policy Reform and Opportunities for Institutional

Entrepreneurialism

Britain Netherlands US

Strategy of reform

big-bang -> cycling -> mosaic blueprint mosaic

Duration of uncertainty

Big-bang: tight window for large-scale change

Cycling: extended window for small-scale change

Mosaic: Tight window for multiple deals; longer for implementation

Extended period for enactment of reform

in phases

Tight window for multiple deals; longer for

implementation

Type of uncertainty

Big-bang: Policy design, duration of political support

Cycling: political receptivity

Mosaic: Degree of political support, policy design

Policy design Degree of political

support, policy design

Britain – Big bang internal market reforms

political leadership solidified quickly among early-mover entrepreneurs; stayed stable through a period of policy cycling until the next episode of major change.

most apparent in the case of GP fundholding: early movers who “believed in a market” for fundholders rapidly adopted and adapted the model

different sub-set of GPs who objected to fundholding on

ideological grounds moved quickly to develop and promote a competing model. .

Britain – Cycling under Labour

Incremental change through centralist and decentralist cycles

For a time, GP entrepreneurs seemed to lose their bets on the future: GP commissioning eclipsed by Primary Care Trusts during centralist policy cycle after 1997.

But when the cycle turned again to attention to the need for clinical expertise in the making of purchasing decisions, entrepreneurial GPs found another foothold in PBC.

Britain: the Coalition Mosaic

Coalition reforms built on some Labour reforms, discarded others – rebranding, consolidation and acceleration

GP commissioning as centrepiece, but politically contested

NHS Alliance and NAPC not involved in drafting - – product of coalition “mosaic” of multiple compromises under time pressure

Clinical Commissioning Coalition mobilized in support

Britain: the Coalition Mosaic Implementation

Compromise required extended implementation timeframe

PBC provided nuclei for “pathfinder” commissioning groups created in anticipation of the passage of 2012 legislation.

The Dutch Blueprint

measured pace of “blueprint” strategy allowed for development of entrepreneurial talent among social insurers, gradually phasing in the transfer of risk

stalling of reforms in early stages created political uncertainty re whether social and private insurance would ultimately be merged

principal institutional entrepreneurs were the largest social insurers, who worked from the base of their public mandates to act increasingly as businesspeople pursuing market share.

Created technological infrastructure to support reforms

US (Massachusetts) Mosaic

MA: incrementalism accelerated under shadow of threatened loss of federal Medicaid funding

Multiple compromises in bipartisan environment

Key roles for policy entrepreneurs

Multiple uncertainties re market responses

Institutional entrepreneurs took the concept to market

US (federal) Mosaic

Historically: “bifurcated” welfare state confined entrepreneurialism to the private sector; state actors played classic regulatory and program management roles

2009: Like Coalition government in the UK, Democratic reformers adopted a “mosaic” strategy: multiple adjustments to the established system – including MA experiment.

compromises included delays in implementation of a number of key features of the reform, including the state-level exchanges

US (federal) Mosaic

Despite enactment of ACA in 2010, continued political uncertainty First state actors to respond had highest stakes in success

of exchange model – the political leaders of states in Democratic control.

ACA allows for a range of interpretation in implementation

considerable variety among states: different models of corporate structure, composition of the governing boards, etc.

Significant new political and economis actors

Institutional Entrepreneurialism: Implications

Shift in instruments:

England and NL:↑ use of exchange-type, market instruments: puts professional resources and private finance at risk

US: ↑ use of state authority, but as market player

Shift in balance of power – to private finance; or increased state regulation??

Summary

Institutional entrepreneurs (IEs) combine public mandates with a power base in the private sector.

Facilitated by certain policy designs and strategies of reform

bases from which institutional entrepreneurs emerge depends on policy design

IEs then affect the course of policy change

The impact of IEs depends on political strategy of reform: the scale and pace of change attempted

The growing importance of IEs raises new challenges of accountability