HEALTH ECONOMICS, VOL. zyxw 2: 201-204 (1993) GUEST zyxwvutsr EDITORIAL CONTROLLING HEALTH CARE: FROM REGULATION ECONOMIC INCENTIVES TO MICRO-CLINICAL MICHAEL BOROWITZ zyxwv Battelle MEDTAP, London U.K. AND TREVOR SHELDON Centre for Health Economics, University zyxwv of York Over the last two decades, health services researchers have documented widespread inap- propriate use of health services, and it is estimated that as much as a quarter of all health services currently provided may be unnecessary. 1,2p3,4 The issue of unnecessary care raises fundamental ques- tions concerning what we are purchasing for our vast and increasing expenditures on health ser- vices. Many critics have argued that health care spending does not appear to generate com- mensurate benefits in terms of improved health or patient satisfaction. One function of a health care system is to allocate resources to the areas that maximize health and well-being. From a technical standpoint, this is known as allocative efficiency: the allocation of resources which gener- ates ‘the right’ (the most valued) mix of outputs. The evidence of inappropriate care suggests that current health care systems worldwide are not efficiently allocating health care resources. To control health care costs and to improve the efficiency of the health system, it is essential that health policies be put in place that decrease inappropriate utilization. Unfortunately, the traditional tools of health policy, which consist primarily of altering the financial incentives in the health financing system, appear to be inadequate to control inappropriate utilization. These tools (such as global budgeting of hospitals, rate setting mechanism such as prospective payment by DRGs, capitated payments to physicians, and co- payments by patients) operate at a macro-clinical level and are too blunt to address the clinical factors that lead to inappropriate utilization. To control inappropriate utilization requires a new strategy in health policy aimed at regulating the clinical practice of medicine. Previously, the decisions of doctors were a black box that could not be opened; clinical autonomy was sacrosanct. In the future, clinical decision-making will be increasingly opened to scrutiny, and health pol- icies that control physician behaviour will become an essential instrument of health policy. The key policy instrument leading to this change will be the development of practice guidelines. To understand the need for practice guidelines, it is necessary to understand what health service researchers believe is the principal underlying cause of inappropriate utilization-medical uncer- tainty. The hypothesis that medical uncertainty causes inappropriate utilization developed out of the rich literature on small area variations (SAV) which has documented widespread variation in the rate of health services use across geographic areas. To understand the extent of this variation, an example from John Wennberg may help. ‘Even though [Boston and New Haven have] very similar demographic characteristics related to the need for care... a Bostonian is about twice as likely to undergo a carotid endarterectomy as a New Havenite; for coronary bypass operations the risk is the reverse. New Haven residents experience substantially higher rates for hysterec- tomies and back surgery, while the rates for knee 1057-9230/93/030201-04$07.00 zyxwvuts @ 1993 by John Wiley & Sons, Ltd.