Geographically-decentralized planning and management in health care: Some informational issues and their implications for efficiency

~ Pergamon 0277-9536(94)00283-5 Soc. Sci. Med. Vol. 41, No. 1, pp. 3-11, 1995 Elsevier Science Ltd. Printed in Great Britain

GEOGRAPHICALLY-DECENTRALIZED PLANNING AND MANAGEMENT IN HEALTH CARE: SOME

INFORMATIONAL ISSUES AND THEIR IMPLICATIONS FOR EFFICIENCY

J E R E M I A H H U R L E Y , 1"2'4 S T E P H E N B I R C H 1'2 and J O H N EYLES 1'2'3

tCentre for Health Economics and Policy Analysis, McMaster University, 1200 Main Street West, Hamilton Ontario, Canada L8N 3Z5, :Department of Clinical Epidemiology and Biostatistics, McMaster University, 1200 Main Street West, Hamilton Ontario, Canada L8N 3Z5, 3Department of Geography, McMaster University, 1200 Main Street West, Hamilton Ontario, Canada L8N 3Z5 and 4Department of Economics,

McMaster University, 1200 Main Street West, Hamilton Ontario, Canada L8N 3Z5

Abstract--Geographically decentralized plannirLg and management is an emerging theme within the health sector in many OECD countries. Advocates of decentralization argue that providing greater authority to local decision-making bodies can improve both the technical and allocative efficiency with which health care systems operate. Using concepts drawn from organizational theory and the economics of organizations, we examine the potential of centralized and decentralized planning and management structures to be efficient in light of the informational problems that musl be overcome to allocate resources efficiently. We focus in particular on the need to integrate information regarding: (1) the effectiveness and efficiency of alternative clinical interventions and of alternative ways organize the delivery of health care; (2) the needs, values, and preferences in the population; and (3) local circumstances that affect delivery of care across regions. Informational concerns suggest that decentralized structures have greater potential to be efficient. We then briefly discuss some principles for the design of decentralized structures to aid in realizing these potential efficiency gains.

Ke)' words--decentralized planning, informatio:a, efficiency

INTRODUCTION

A 'post-welfare' agenda has emerged in a number of O E C D countries advocating a new vision of government services, particularly those falling within social policy, and of relations both between levels of government and between governments and markets [1, 2, 3]. The framework within which the production and delivery of government services are viewed, proponents argue, must change from a supply-oriented, bureaucratic approach founded upon centrally- planned delivery of a uniform service, to an approach that views the production and delivery of such services in the context of exchange more akin to a market transaction. Where possible this has been accom- plished by actually transferring the production and delivery of government services to markets through privatization; but where this has not been feasible (or has been judged inappropriate) geographically decentralized approaches to decision making within the public sector have been advocated [1, 2, 4].

As one of the most important areas ofgovernmenla l activity, health care has not escaped this general trend. A number of recent health care reform initiatives in O E C D countries are founded upon decentralized systems of decision making with respect to a wide range of planning and management activities in an attempt to increase efficiency, improve accountability,

and give the public a greater voice in decision making [5, 6]. In essence, these reforms aim to alter the institutional arrangements by which resources are allocated in the health care sector. Institutional analyses have consistently documented that the nature of a good or service directly affects the set of feasible and efficient institutional arrangements for its production and delivery [7]. An obvious question therefore is whether, given the nature of health care, geographically decentralized planning and management structures in the health care sector are more likely to achieve these objectives than are centralized structures.

In the present paper we apply concepts drawn from organizational theory and the economics of information in an attempt to assess how informational considerations affect the potential for geographically- based decentralized planning and management structures within health care to improve system efficiency compared to centralized structures. That is, based on the nature of the information required by planners and managers in health care and the uses to which it is put, are there reasons for arguing that one of these institutional structures has more potential than the other to allocate resources efficiently?

In focusing on informational issues and their impact on achieving efficient resource allocations, it must be

4 Jeremiah Hurley et al.

acknowledged that the analysis touches on only a small number of the full set of issues that would have to be examined in a complete evaluation of the relative merits of decentralized and centralized institutional structures. Efficiency would not be the only outcome of concern in a complete evaluation, and the ability of an organization to obtain and process information is only one factor influencing efficiency [8]. We focus on informational issues for three reasons. First, within organizational theory informational concerns play a pivotal role in assessing whether decentralized or centralized organizational structures are more likely to be effective and efficient. Second, informational considerations, especially informational asymmetries, underlie a number of the distinctive institutional forms observed in the health sector as well as the aversion to the usual market mechanisms for allocating resources [9, 10, 11]. Third, informational and efficiency issues are central concerns that implicitly or explicitly underlie much of the rhetoric of the reform initiatives.

Some initial points of clarification may be helpful before the analysis. Implicitly we assume governmen- tal responsibility for ensuring that resources devoted to health care are allocated efficiently so as to improve the health of the population, and thereby well-being in society (though a government could make use of private markets to do this). Within this context the analysis pertains to decisions made as part of system-level planning and management with respect to health care services, particularly decisions relating to allocating resources among alternative interventions, programs and delivery organizations. Examples include decisions relating to capital acquisitions; the number, location, size and design of delivery organizations and programs in a region; and the mix of services provided and the terms of their availability. Excluded are resource allocation decisions that arise out of individual-level patient-provider interaction, though such decisions are obviously affected by the higher-level decisions upon which we focus. We distinguish two efficiency concepts. Technical efficiency is attained when a good or service is produced using the lowest-cost combination of inputs. It pertains solely to issues of production. A/locative efficiency is attained when, conditional on society's resou.rces and production technologies, the mix of goods and services produced is the one most highly valued by members of society (i.e. which maximizes well-being). Technical efficiency is a pre-requisite for achieving allocative efficiency, but allocative efficiency further depends upon the values and preferences of members of society. We use the unqualified term 'efficiency' when we are simultaneously concerned with both technical and allocative efficiency.

We also distinguish between information and knowledge. We restrict information to include facts, data, etc., all of which can exist, in a sense, outside human persons and which do not in and of themselves constitute usable knowledge. Knowledge, in contrast,

involves human understanding; human beings convert information into usable knowledge.

Finally, centralized planning structures are characterized by hierarchical authority relationships and a concentration of authority, while decentralized planning structures disperse decision-making authority among smaller organizational units that function with considerable autonomy. Organizations simultaneously have elements of both centralization and decentralization, with decision-making structures for some functions and activities organized centrally and others non-centrally. The choice is not dichotomous, but where to locate on a multi-dimensional continuum. We use the terms to represent structures approaching the two ends of the continuum.

The paper is structured as follows. In the next section we draw on theoretical concepts that relate information, institutional design and institutional performance to identify features of information and of decision making in health care planning that influence the performance, and thereby the efficiency, of alternative decision-making structures. Starting within a static framework, we examine characteristics of the information required by health care planners and characteristics of the decision-making context. We then consider dynamic factors and the impact of alternative decision-making structures on processes of learning and innovation, which have an impact on efficiency as systems develop over time. In the third section we draw on institutional analyses to identify principles of institutional design conducive to well-functioning decentralized organizational structures.

INFORMATION AND SYSTEM-LEVEL PLANNING AND MANAGEMENT IN HEALTH CARE

The most efficient organizational structure in a given situation naturally depends upon a number of factors (e.g. size of an organization), but studies of information in organizations have highlighted two critical factors that must be considered [12-17]. The first critical factor is the nature of the information required by decision makers in the organization. Three aspects of information are notable for their effect on an organization's ability to obtain and process it usefully. The first is its distribution: are the sources of the information diffuse, widely distributed among individuals (within or outside the organization) or geographic areas, or are they concentrated among a small number of individuals or locations? The second is its communicability: can the information be easily summarized and inexpensively transmitted within the organization without distortion or loss of meaning? The third is its degree of technicality: are specialized technical skills required to interpret the information and transform it into usable knowledge for deeision making?

The second critical factor is the decision making context, including the nature of the decisions

Geographically-decentralized planning and management in health care

themselves, the nature of the output produced and l he process by which it is produced. It is often useful, for example, to distinguish between primarily normative decisions, which include significant value dimensic,ns and which therefore often require broad consultation, and primarily technical decisions, which centre on considerations of instrumental effectiveness and which chiefly require that the decision makers (or their support staff) have the requisite knowledge and skills to assess the ability of the alternatives under consideration to achieve the desired ends [18]. Similarly, decision-making structures would differ when production is standardized and routine (e.g. automobile assembly) compared to when it is customized, requiring case-by-case judgement at the point of production (e.g. emergency care in hospit~tl).

Effective and efficient organizations match the decision making structures both to the nature of the information required, thereby minimizing infi~r- mation deficits and informational asymmetries, and to the decision context, thereby ensuring that structures can accommodate the types of decision-making processes required. We now consider each of these in turn.

Nature of information required for health care planning and management

In order to allocate resources efficiently to imprc.ve population health status and well-being in society, health care planners and managers must incorporate three types of information into their decisions:

(1) expert, technical information regarding the effectiveness and technical efficiency of alternative health care interventions and of alternative ways to deliver health care (e.g. results of clinical trials and program evaluations);

(2) information regarding health care needs, values, preferences among the population (e.g. incidence and prevalence of disease, views regarding treatment priorities); and

(3) information regarding circumstances affect- ing the delivery of care in each region (e.g. geographic distribution of the population).

Information regarding health care needs, values and preferences is widely dispersed both geographically and among individuals and organizations in society. Though not exhaustive, it would appear that a wide variety of data pertaining to these factors can be collected, summarized and meaningfully transmitted, enabling it to be used by either centralized or decentralized bodies for a number of planning activities. Such needs-related data have been used, for example, as the basis for allocating resources among geographic regions through RAWP-type approaches [19, 20]. Health care needs correlate highly with a number of socio-economic and demographic factors for which good data are routinely collected and

obtainable for quite small geographic areas (e.g. postal code zones, census tracts) [21-25]. Vital statistics on births and mortality by cause of death also provide insight into both the level and type of needs in a region [26]. These data can be supplemented by periodic health survey data eliciting individual-level measures of self-assessed health status and condition-specific morbidity in the population. Together, these quanti- tative, transmittable data can provide a foundation for constructing profiles of relative need among geographic regions and on the types of health care needs within each region. Information on values and preferences with respect to health care and its delivery is more elusive, making it harder both to collect and to communicate without loss of meaning. Survey and focus group methods, particularly those developed for political and marketing analyses, offer potential for eliciting preference and value information within the population. The recent Oregon experience represents an initial attempt to do this explicitly in health care and the renewed interest in the role of values in policy making and planning [27] suggests that further developing methods to elicit such information from the public will be an area of extensive research.

Much routinely-collected information regarding local circumstances is readily communicable and would therefore be accessible to both centralized or decentralized planners. Data are available regarding population density, transportation networks, local health care facilities and personnel, and numerous other characteristics of a region that would have an impact on the design of efficient programs to meet identified health care needs.

More difficult to measure, summarize and transmit is information (knowledge) that can be gained only by living in the local setting and coming to understand a region and its residents. This includes not only a fuller understanding of values, preferences, and needs than can be gained from data, but also information regarding local politics (both formal and informal) within health care and related sectors, the skills and attitudes of individuals in key positions, and other aspects of a setting that are relevant for planning and managing the delivery of health care services [28]. This type of knowledge can best be categorized as tacit knowledge-personal knowledge that grows out of experience and is valid, but which is difficult to articulate and therefore to communicate [29].

Decentralized decision-making bodies offer some potential advantages in incorporating tacit knowledge into decision making. To the degree that local decision makers gain familiarity with a region through closer contact, this knowledge can be incorporated into their deliberations. Decentralized decision-making structures may also make certain institutional mechanisms for eliciting the values and preferences of the community more feasible, including regular public forums, referendums, community surveys, etc. These same institutional mechanisms may also provide greater scope for 'integrating' diverse values and


preferences to make decisions. Beginning with Arrow [30], social choice theory has repeatedly documented the difficulties of formally aggregating diverse preferences within a community to choose among available alternatives. Political processes, however, can provide a medium for community-level decisions that are respected by all interests. (Although issues of representativeness, including problems of minority rights, must be acknowledged [31].)

Information regarding the effectiveness and technical efficiency of health care interventions and alternative ways of organizing delivery systems is relatively concentrated in scientific publications, though it is becoming more diffuse as such journals and books proliferate. It is generally accessible, however, through communications systems that make locating and retrieving such information relatively easy. The information itself could therefore be accessible to decision makers in either decentralized or centralized systems. Because of the technical nature of much of the information, however, transforming it into usable knowledge for decision making requires individuals with specialized skills to interpret it. These skills are concentrated among a small (though again growing) number of such experts located in ministries of health, universities, research foundations, consult- ing companies and large health care organizations. This concentration of scarce expertise, in the short run at least, might prove a constraint for decentralized structures as a large number of independent units vie for access to the small number of experts. Over time, however, this constraint could be overcome by training more individuals in the relevant disciplines. Centralized bodies would face less of a constraint and therefore might more easily incorporate such information into the decision-making.

In a very real way, however, this depiction of the application of scientific evidence and expert knowledge as a basis for decision making and resource allocation is too mechanistic. Working at the system level trying to improve population health status, scientific evidence regarding effectiveness and technical efficiency is somewhat tentative and must be refined in light in the specific setting to which it is being applied. The tentativeness arises from a potential interaction between effectiveness and technical efficiency on one hand and preferences, values, needs and local circumstances on the other. In the presence of such interactions, judging the effectiveness and technical efficiency of alternative options must incorporate these widely-dispersed types of information for which decentralized structures are better suited. The interactions can be understood as creating problems of generalizability for scientific evidence and, unlike production in most other sectors, can create a link between the preferences and values of consumers and technical efficiency.

Unlike most production contexts, in health care a human being is the entity into which inputs are applied and which actually transforms the inputs into an

output (health). Because preferences and values often extend over the processes of receiving health care, particularly with respect to who delivers care, where, through what institutions and in what context [6,32,33], they can influence effectiveness and technical efficiency through their impact on the willingness of individuals to seek professional care or to comply with treatment regimens. If the preferences of the individuals to which the intervention or program is targeted differ in relevant ways from the subjects from which the scientific evidence was derived, ultimate effectiveness and cost-effectiveness efficiency may diverge from the scientific evidence. The unthinking application of interventions designed in the industrialized west to third world countries offers striking examples of programs that were ultimately not effective or efficient because they did not reflect local customs and values [34]. Similar if less dramatic problems can occur within western society with respect to population subgroups (e.g. women, ethnic groups).

A second problem of generalizability originates in local circumstances. Even if the individuals to which an intervention is targeted are similar (medically and otherwise) to the subjects from which the evidence was derived, ultimate effectiveness and technical efficiency may differ because of non-reproducible institutional features of the study setting. This includes not only particular skills of individuals involved in the study but also organizational aspects. These issues are of particular importance in judging the cost-effectiveness of alternative interventions and programs because such evaluations depend heavily on site-specific factors such as input prices [35]. For example, Hull et al. [36] found that the high charges for venography in the United States relative to Canada would change their conclusions about the most cost-effective way to diagnose deep-vein thrombosis.

A third source of tentativeness derives from differences in the unit of analysis of research evidence, particularly evaluative clinical research evidence, and the unit of analysis of public policy decisions. Much of the evidence generated by clinical research pertains to the expected effectiveness of a procedure or intervention on an individual's health, but planning and management decisions must be based upon the expected effectiveness on populat ion health status. Much evidence has been generated, for example, regarding the effectiveness of a CAT scan in the diagnosis of specific conditions, but integrating this evidence to evaluate the effectiveness of introducing an additional CAT scanner per se on population health (which is what the planner desires to know) is much more difficult. Extrapolating from individual-level effectiveness data to population health effects requires epidemiological data regarding disease patterns as well as information on the mix and configuration of human and physical resources of the setting into which the technology will be placed. These considerations suggest that there is a gap between the types of evidence commonly produced (and often entirely

Geographically-decentralized planning and management in health care 7

appropriate for clinical policy making) and the types same amount of resources to the intervention would of evidence required by system-level planners, differ [38].

Decision-making context

A substantial portion of planning and management decisions directly involve the allocation of resources among alternative health care programs, organizations and services. Such decisions inevitably entail trade-offs among competing ends and/or competing groups in society, making these issues inherer~Ltly value-laden rather than simply technical in nature. The issue arises immediately, for example, when deciding which health care 'needs' among which members of society have priority for resources [37]. Although needs assessment is often portrayed as a technical exercise, it has inherent value dimensions because society will never be able to fund all health care interventions that improve health status. Ability-to- benefit from an intervention is a necessary condition for the existence of a health need, but even if 1:he benefits are positive society may deem the benefits not worth the costs (in the form of benefits forgone had 1:he resources been used elsewhere). Those services falling below the cut-off line in Oregon's Medicaid Plan are examples of these judgements. Processes for making such judgements should reflect their value-laden nature. Health care professionals and other experts play a key role in identifying conditions and associated medical interventions for which marginal health benefit is positive, but once the admissible set of conditions and the associated treatment is defined, determining which among the set will be funded from the public purse requires extensive public input regarding the values to be placed on meeting various types of 'needs'.

A number of the facets of the need to 'customize' the health care system have implicitly been dealt with in the discussion relating to variation in local preferences, values, health care needs, and circu~m- stances. Customization for most services within a region is likely to involve decisions regarding how to produce and deliver the service (where, by whom, and under what terms) and what share of resources is to be committed to each service. The context-specific nature of much of the information required can be illustrated by considering the issue of the optimal size of an intervention program in a region. Consider an intervention (e.g. coronary bypass surgery) for which the prevalence of the condition to which it is targeted is identical in two geographic regions, the quality and prices of inputs a.re the same (so that the cost-effectiveness ratios for the intervention are identical), and the preferences and values are also identical. Even in this context the optimal size of a program to deliver the intervention would differ in the two regions if the distributions of other health care needs differed (e.g. one region had higher perinatal mortality). The reason is that the opportunity cost (i.e. benefits forgone) of devoting the

Dynamic considerations

Thus far the analysis has been static in the sense that information, technology, preferences and the choice alternatives in a given decision situation have all been assumed to be fixed exogenously. The central issue has been whether a decentralized or centralized organizational structure would better facilitate incorporating all relevant information into decisions, thereby enabling a planning body to identify the most efficient alternative. In reality, however, a number of these factors are endogenous; in particular, over time the choice of decision structure may influence the amount of information generated and the set of choice alternatives considered in a given choice context. These types of dynamic considerations, which have a direct impact upon processes of institutional learning, innovation and adaptation, are especially important in a sector such as health care, which is characterized by rapid technological change and significant uncertainty regarding the optimal system design. Technological change alters the contextual environment, causing institutional arrangements that were efficient before the technological change to become mal-adapted to the new situation [7]. Hence, to remain efficient it is imperative that organizational and institutional arrangements be able to adapt over time to such developments. Similarly, given considerable uncertainty regarding the optimal system design, the possibility of learning over time becomes important. An essential element of learning and adaptation to maintain efficient functioning is information.

It is commonly held that decentralized governance structures generate more information than centralized ones [39]. Within decentralized systems variation in program design across jurisdictions creates a series of natural experiments that can be exploited as sources of information regarding the efficiency of alternative approaches to common problems. There is also a sense in which the phenomenon of 'two heads are better than one' may apply--having multiple organizations struggle with a problem produces a wider variety of potential solutions than might be generated even by a centralized body deliberately experimenting with alternative approaches. In general, then, one would expect more experimentation and correspondingly more information generated within decentralized systems. Though subject to a number of qualifications, a simple comparison of the U.S. and Canadian systems is concordant with this claim. Compared to the provincially-based, single-payer system in Canada, in the pluralistic, multi-payer U.S. system, cost pressures have led to considerable experimentation with alternative remuneration methods (particularly for physicians, e.g. capitation, mixed systems with elements of incentive payments), delivery organiz-


ations (e.g. HMOs, SHMOS, PPOs, etc.), and alternative treatment technologies (e.g. greater use of and experimentation with outpatient surgery).

To induce efficiency-improving innovation also requires incentives and mechanisms for planners and managers to apply the new knowledge. Numerous factors, including the institutional arrangements themselves, affect the ability of an institution to evolve and adapt [7], but one critical factor that depends at least in part on information is accountability. Salmon [40], for example, found that if the electorate in one jurisdiction has the information to evaluate its officials based on a comparison with policies in other jurisdictions, the forces for adopting new programs that improve local welfare are strengthened.

Summary

Both the static and dynamic analyses suggest that, based on informational concerns, decentralized planning and management structures have the potential to be more efficient than centralized structures. The potential gain in efficiency associated with decentralized structures arises from two sources:

(1) their greater capability to incorporate all information relevant to such decisions; and

(2) the potential for overall greater system learning and innovation.

In the static context it would appear that much information that is highly concentrated can be easily transmitted and would therefore be accessible to either centralized or decentralized bodies. But decentralized bodies have the additional potential to exploit certain types of highly dispersed, context-specific information that is difficult to transmit and directly relevant for such decisions. In the dynamic context, decentralized structures have the potential to generate more information and learning through natural experimentation. The stipulation that this advantage is only potential must be emphasized, as the realization of any efficiency gains may evaporate in the move to real-world institutions through which decentralized decision making is implemented. In the next section we address some specific institutional issues confronted in designing decentralized decision-making structures.

INSTITUTIONAL FEATURES OF DECENTRALIZED DECISION-MAKING STRUCTURES

The most we can do is outline some general principles that can guide the development of decentralized systems planning and management. In any situation these principles would have to be translated into a concrete form. To avoid confusion, in the discussion we distinguish between institutions and organizations. Institutions have been defined in various ways [7], but central to each is the notion of institutions as rules, procedures, regulations and moral and ethical norms designed to guide and constrain the behaviour of individuals and organiz-

ations. Organizations, in contrast, include only concrete, formal structures (e.g. hospitals, professional associations). Institutional rules are often embodied within formal organizations, but they can also be informal, unwritten rules that guide behaviour and human interaction.

We focus on four inter-related principles necessary for well-functioning decentralized institutions [41, 42]:

(1) nested governance and delivery structures; (2) clearly demarcated boundaries of responsi-

bility; (3) decision-making processes that include those

affected by institutional arrangements in the group that can modify the rules; and

(4) accountability.

Nested governance and delivery imply a telescoping structure in which each of the lower levels folds into (or is nested within) the level above. Within most health care systems, for instance, one finds at least three levels of planning and management. The lowest level comprises individual health care providers and delivery organizations; the middle level comprises local (regional) planning and management authorities (e.g. special purpose authorities or local governments) for defined geographic regions below the central level; and the central level comprises the highest level of government with responsibility for health care. We discuss the other principles in the context of a three-level system.

Distributing responsibilities among the three levels (i.e. defining what aspects of what activities over which each level can act autonomously) is one part of a larger exercise of setting up the 'constitutional' arrangements for governance of the system. This larger exercise entails defining the broad system principles and parameters within which the central, local and organizational authorities operate--in essence, to set the rules of the game.

The constitutional arrangements specify, for example, how local authorities are to be constituted; mechanisms by which local authorities can discharge their responsibilities; mechanisms for resolving conflicts among the three levels; a system sanctions and rewards for local authorities and health organizations to abide by system-wide principles; aspects of the system for which variation across jurisdictions is permitted, the types of variation permitted and, though less precise, acceptable degrees of variation. Because of its cross-jurisdictional position, the central level is likely to play a leading role in this.

In terms of distributing the planning and management responsibilities, a few principles can be noted. First and most obviously, following from the above analysis, a decision-making responsibility should be placed only at a level at which decision makers have access to the appropriate information. Second, grouping functional responsibilities and service responsibilities logically among decision

Geographically-decentralized planning and management in health care

makers can minimize fragmentation of responsib:ility (e.g. by not splitting planning and funding power for an activity among different decision makers). Lastly, economic analysts [39] have emphasized the imp,art- ance of placing decision-making responsibility at levels consistent with internalizing all of the effi~cts associated with a decision, which leads to a natural hierarchy of responsibilities ranging from brc.ad, system-wide issues encompassing multiple localities and health care delivery organizations to narrow intra-organizational concerns.

The central level, for example, may play a pivotal role in limiting the overall amount of resources devoted to health care to facilitate efforts at cost control [43, 44]. It may also be advantageous for central authorities to play a leading role in developing and maintaining information systems to support planning and management activities. Central governments already collect a host of relevant data for he~Llth care planning and management, much of which car~ be disaggregated by region. For local decision maker,; to exploit such data for planning and management, however, requires storing and distributing it in an accessible format. The central authority could also act as a repository and distribution agent for standardL, ed information relating to system activity and performance in each jurisdiction. Decentralized systems may generate more information over time, but isolated, unexamined pieces of information are of little benefit. Regularly gathering such information in a standardized format facilitates learning through system~Ltic cross-jurisdictional analysis [45]. A necessary comp- lement to developing better information systems is investment in training individuals with the requisite skills to process and interpret information. Decentral- ized decision making requires many more such individuals than centralized structures as e~Lch jurisdiction requires staff to support its activities.

Local authorities plan and coordinate the allocation of resources within a region to ensure that reside~ats have access to needed services. This is where the bulk of system-level planning and management occurs-developing operational rules for issues that transcend specific providers and delivery organizations, and which therefore require coordination across different sectors in health care. Areas of responsibility might include needs-assessment for the region, defining the specific mix of services to be available, regulating the mix of providers, technologies and institutions ir~ a region, and ensuring these provider institutions ha ve the resources to deliver needed services.

Finally, at the health care organization level, providers and administrators in health care organizations manage the actual delivery services within their own institutions. In short, they are responsible for the day-to-day operational management that must accompany service delivery.

The third principle regarding the importance of allowing those affected parties to be involved in changing rules is echoed most closely in reform

proposals that call for increased citizen participation in the decision-making process (and, it is hoped, increase allocative efficiency). Unfortunately, our understanding of how to design institutions and organizations to create and sustain such participation is quite limited. One clear conclusion from analyses of citizen participation is that simply placing public representatives on local decision-making bodies in no way assures meaningful participation either of those representatives or the public at large. Even majority representation on a board by community members or their representatives does not ensure that their voices dominate or are even heard [46]. Experts can easily dominate discussion by framing questions technically and only those with vested interests (e.g. providers, narrow advocacy groups) have ongoing and powerful incentive to participate regularly [31, 47].

Based on a review of public participation in Quebec, Canada, Godbout and Leduc [48] found the following necessary for meaningful citizen participation: ade- quate information (to enable citizens to double-check data and conclusions presented by professionals); a majority of citizens on the board; a strong mandate from the community; citizens with strong personali- ties; and mechanisms (formal or informal) for citizen board members to gain easy access to their constituencies (as presented in [49]). Further, because complex administrative and deliberative processes within organizations provide advantage to individuals possessing greater intellectual and economic resources [3], simplifying such processes may reduce the advantages that accrue to professionals and their representatives.

Finally, issues of accountability are critical to improving the technical and allocative efficiency within decentralized decision-making systems. Two critical accountability relations arise. One arises from the delegation of responsibilities for health care from the public to the government: decision makers at all levels are accountable to the public for the decisions made in their interest and which direct the use of public resources. A second arises from the delegation of responsibilities from the central level to lower levels: lower-level decision makers are accountable to higher levels as well as the public. Administrative mechanisms suited to hierarchical settings characterized by formal lines of authority have a clear role in making local authorities accountable to central authorities, and in making delivery organizations accountable to local and central authorities, and within any formal organizations at each level. Political mechanisms (e.g. electoral processes) are clearly suitable for making the central government accountable to the public and, depending on how the local authority is constituted between elected and appointed members, can also play a role in making the local authority accountable to local residents. Market-oriented mechanisms based upon choice have very limited applicability for making central or local authorities accountable to the public, in the short run at least, as choice can be exercised only


by moving. Within a region, however, they may have a role in making providers and institutions more responsive to users or making suppliers accountable to purchasing authorities. Regardless of the specific mechanisms chosen, common to effectively functioning mechanisms is good information upon which to judge performance and clear avenues of redress for those affected by decisions.

CONCLUSION

This analysis suggests that, based on informational considerations, decentralized structures have greater potential than centralized structures for improving technical and allocative efficiency. In a static, classical decision-making context both the nature of the information required by decision makers and the nature of the context in which decisions are made suggest that decentralized structures offer greater potential for incorporating all relevant information. In a dynamic context decentralized structures offer greater potential for generating new information, learning, and adaptation regarding the organization and delivery of health care services. Informational considerations are also critical for achieving meaningful citizen participation and for effective accountability, both of which have an impact on allocative and technical efficiency within a health care system. But realizing such information-based efficiency gains within decentralized systems will depend upon two sets of factors, only one of which is under the control of

[ policy makers. The factors under the control of policy makers

pertain to the design of the decentralized decision- making structures. The link between various informational considerations, institutional design (structure) and ultimate performance is admittedly rather imprecise, but the analysis emphasizes the importance of the following:

(1) information systems to ensure that decision makers have access to relevant information in a form that is usable for decision-making;

(2) strong accountability mechanisms with clear lines of decision-making authority, which ensure that those who evaluate performance have the necessary information, and which include methods of redress when performance is unacceptable;

(3) allocating responsibilities for different types of planning, management and funding decisions among the decision-making levels so that the range of effects generated by decisions coincide with the range of authority of the decision-making body (i.e. internalize effects); and

(4) matching the choice of organizational forms through which decisions are made, resources allocated, and outputs produced to the context in which the activities take place.

The foremost informational factor beyond policy makers' control that affects the realizable efficiency gains is the extent of variation in values, preferences, needs and local circumstances. The gain in allocative efficiency associated with decentralized structures is directly proportional with the degree of heterogeneity of preferences and values in the population; the gain in technical efficiency is directly proportional with the degree of variation in production-relevant local conditions. Hence, the potential efficiency gains of decentralization due to responding to these variations is ultimately an empirical matter that will vary from setting to setting.

Acknowledgements--We would like to thank the members of the Health Polinomics Seminar at McMaster University, Cathy Charles, Jonathan Lomas and David Feeny for helpful comments.

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4. Conceptual arguments supporting geographic decentralization within the public sector can be found in a number of social science traditions, including economics, political science, organizational theory and geography. See respectively, Tiebout C.M. A pure theory of local expenditure. J. Political Ecom 64, 416, 1956; Wolman H. Decentralization: what it is and why we should care. In Decentralization, Local Governments, and Markets (Edited by Bennett R. J.), pp. 29-43. Clarendon Press, Oxford, 1990; March J. and Simon H. Organizations. John Wiley and Sons, New York, 1958; and Massam B. Location and Space in Social Administration. Edward Arnold, London, 1975.

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8. Alternative structures also have significant implications for equity and for the distribution of power among interest groups inside and outside the health sector. Administrative costs, duplication of effort, and ability to exploit economies of scale in planning or delivery would also affect efficiency.

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18. Although it should be acknowledged that the normative/ technical distinction is sometimes blurred because 'technical' information often has normative elements underlying it. This (among other things) is illustrated in the case studies discussed in Overman E.S. and Cahill A. Information, market government, and health policy: a study of health data organizations in the states. J. Policy Analysis Management 13, 435, 1994.

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45. For example, the OECD Databank containing detailed information on the health care systems of member countries has served as a basis for a number of innovative cross-country comparisons. For more cautionary tail regarding centralized collection of standardized data see Ref.[18] above.

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Geographically-decentralized planning and management in health care: Some informational issues and their implications for efficiency