The purpose of this article is to use the ideas of path dependency to understand why policies implemented by governments for health care in England were and are suboptimal in terms of the control of total costs, the equitable distribution of hospital services, and effi ciency in delivery. We do this by relating the economic logic of achieving these objectives to the political logic of a state-hierarchical system in which ministers are accountable for the effects of policies and doctors largely decide the supply and demand of health care. The initial policy path of the National Health Service (NHS)controlled costs but lacked systems to achieve equity and efficiency in the funding of hospitals. Policies were introduced to achieve equity, but not effi ciency, in the 1970s. The Thatcher government sought effi ciency through a budgetary squeeze in the 1980s, which culminated in the NHS funding crisis of 1987–1988. The result was the policies of the NHS internal market, which promised effi ciency by introducing a purchaser-provider split and a system of provider competition in which money would follow the patient. These promises justifi ed an injection of extra funds for three years, but only a pallid model of the internal market was implemented. The Blair government abandoned the rhetoric of competition but maintained the purchaser-provider split and continued to constrain total NHS costs, which resulted in the funding crisis of 1998–1999. Current policies are to substantially increase spending on health care and reintroduce a system of provider competition in which money will follow the patient.

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