Institutional entrepreneurs - it's the information that matters

Blog post

Published: 02/10/2012

There are three requirements for entrepreneurship to flourish: the capacity to invest and innovate; the autonomy to make decisions over resources; and the confidence that the fruits of success can be retained, either by the individual or the enterprise. Of course, these conditions are usually in place in properly functioning conventional markets, allowing entrepreneurs to invest, innovate and reap the rewards of success.

In a recent Nuffield Trust seminar however, Carolyn Tuohy introduces the intriguing concept of an ‘institutional entrepreneur’, the activities of which span the public and private sectors.

She offers interesting examples in health care such as the English foundation hospital trusts, NHS clinical commissioning GPs and the Dutch market of competitive social health insurers. Certainly such institutions appear to enjoy a freedom to experiment and innovate that is often inhibited in conventional public services. However, two questions arise from scrutinising them.

First, are they in any formal sense a distinctly new type of undertaking? And second, do they offer significant opportunities for improving the health system?

Looking at more conventional institutional arrangements used to deliver publicly financed health services it’s clear that the pure public sector provider receives public funding, and is ultimately accountable to local or national politicians for the use made of those funds.

Traditionally, politicians have often sought to secure accountability by limiting the autonomy of such institutions, particularly in relation to the activities they might undertake outside of their statutory role.

There is limited scope for retaining or reinvesting financial surpluses, and the institution is usually protected from failure by various forms of rescue. The limitations on freedom and risks are sometimes justified on the grounds that the service must be provided, and there is limited information with which to hold the institution to account more definitively.

In contrast, the purely private provider (of public services) receives funding through explicit contracts with public funders, usually by means of competitive processes. Such providers might be free to innovate, but business is at risk if a provider offers poor performance or fails to adhere to contract terms. The private provider is ultimately accountable to its owners, and sinks or swims according to its financial performance.

The ‘institutional entrepreneurs’ identified by Carolyn Tuohy control public funds, and must therefore offer public accountability for use of those funds. But they also account for their performance to a distinct owner. And the accountability mechanisms are therefore less clear than the more traditional models.

In fact, British general practice has always operated in a fuzzy world of business models funded largely by public funds. Although clinical commissioning entrusts stewardship of very large amounts of public funds to GPs, the ultimate use of budgetary surpluses or deficits is left to the discretion of accountable public institutions (clinical commissioning groups), in much the say way as health authorities accounted for GP fundholding activity in the 1990s.

The principal accountability mechanism for Dutch health insurers is through market mechanisms, as citizens can change insurers if they are dissatisfied with the level of service provided. But the insurers have enjoyed a degree of financial protection not found in conventional markets.

Both cases involve enormous volumes of public funds, and political intervention has circumscribed the extent to which the institutions are able to accrue real financial gains (or losses). Indeed, it would be very difficult for politicians to allow that to happen.

There is nevertheless a development that should allow public funders to relax somewhat those traditional models of accountability. The dramatically increased availability of performance information on the outcomes of public services can in principle transform traditional models of oversight.

Such information allows the focus of accountability to shift away from the actions of public services towards the results they secure. At best, improved information on outcomes should allow more autonomy, including more freedom to experiment and innovate, whilst retaining safeguards on quality and access to services.

Whilst the concept of an institutional entrepreneur is very interesting, and political analysis of these ‘mixed’ institutions absolutely essential, my provisional view is that they do not represent a distinctly new creation. Rather, they represent a hybrid of existing institutional forms that may become increasingly attractive in health care as relevant performance data become available.

Even if improved performance information is forthcoming, great attention should still be paid both to the form of accountability created by the new arrangements, and to the vigour and quality of the associated governance. And of course, like all policy innovations, proper evaluation is key!

Suggested citation

Smith P (2012) ‘Institutional entrepreneurs - it's the information that matters’. Nuffield Trust comment, 2 October 2012.