Transfer prices and innovation in public healthcare: Costing and clinical choices in the NHS

• Author: Will Seal,Pinar Guven‐Uslu
• DOI: http://doi.org/10.1111/faam.12197
• Published date: 01 August 2019
• Date: 01 August 2019

Received: 11 January 2016 Revised: 21 June 2018 Accepted: 25 June 2018

DOI: 10.1111/faam.12197

ORIGINAL ARTICLE

Transfer prices and innovation in public

healthcare: Costing and clinical choices in the NHS

Pinar Guven-Uslu1Will Seal2

1Norwich Business School, University of East

Anglia, Norwich, UK

2School of Business and Economics, University of

Loughborough,Loughborough, UK

Correspondence

NorwichBusiness School, University of East

Anglia,Norwich NR4 7TJ,UK.

Email:p.guven@uea.ac.uk

Abstract

The establishment of an internal marketfor clinical services in a pub-

lically funded National Health Service (NHS) requires a process for

setting transfer prices. Given the values and logics of actors in a

public healthcare system, attempts to determine an “optimal” price

for specific treatments as prescribed by well-known transfer pricing

texts, are likely to be inappropriate. Rejecting a reductionist model

of Economic Man, the study adopted a richer perspective on actor

reality through a pragmatic constructivist (PC) methodology.The PC

methodology was used to interpret data drawnfrom a case study of a

specialist healthcare centre of English NHS. The case study revealed

differentrealities constructed by clinical and managerial actors. Clin-

ical actors in the study were willing to spread a technological innova-

tion but were not being supported by managers whose reality was

influenced by centrally set tariff prices which favoured traditional

high cost procedures rather than less costly technical innovations.

Characterisingthe different realities as the “pragmatic truth” of man-

agers and the “proactive truth” of clinicians, the challenge was to

bring these together for a fully integrated and coherent solution.

This challenge required avoiding a top-down “command and con-

trol” model of governance and greater flexibility for transfer pricing

and incentives. More generally,the study supports alternative insti-

tutional mechanisms that can routinely promote the spread of new

technological innovations which are not only clinically superior but,

as this case illustrates, are sometimes cheaper than the current pro-

cedures.

KEYWORDS

healthcare, innovation, NHS, performance management, transfer

pricing

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2019 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/faam FinancialAcc & Man. 2019;35:258–274.

GUVEN-USLU ANDSEAL 259

1INTRODUCTION

Innovation in healthcare depends on reconfigurations in work relations distributed across a multilevelset of practices,

including clinical and managerial decisions (Maniatopoulos, Procter,Llewellyn, Harvey, & Boyd, 2015; May, 2013). For

innovations to become embedded in practice, actors are required to work together both individually and collectively

as medical innovations involve not only technological artefacts but also supportive social and organisational aspects.

These supportive organisational aspects might be impeded if the adoption of innovation results in budgetary penalties

for the healthcare provider(Maniatopoulos et al., 2015). In contrast to previous studies in the control of public services

(Arnaboldi, Lapsley, & Steccolini, 2015; Cuganesan, Guthrie, & Vranic,2014) and healthcare organisations (Jackson,

Patterson, Pong, & Scarparo, 2014; Pettersen & Solstad, 2014), thispaper focuses on the influence of centrally deter-

minedtransfer prices for performance control purposes. In particular, it explores the challenges faced by organisational

actors seeking to nurture rather than stymie technical improvements in public healthcare.

Drawing on an interpretive case study of a specialist health centre in the UK National Health Service (NHS), the

paper addresses a puzzle. Although key clinical actors were keen to spread a technological innovation,they were not

being supported by the financial and managerial goals and performance management systems in the organisation. We

submit that our focus on the cost and management issues compliments other research on medical innovation where it

is has been argued convincingly that “the specific focus of an innovation (a new drug, computer system, clinical inter-

vention, professional role and so forth) is never isolated from its social technical, and spatial contexts” (May,2013,

p. 26)

Given the context of internal markets, a potentially fruitful theoretical approach is suggested by transfer pricing

practices as proposed in modern textbooks. These practicesand prescriptions are often derived from an old academic

discourse informed by neoclassical economics (Eccles, 1985; Hirshleifer,1956). In contrast, we submit that policy pre-

scriptions derived from a simple and reductionist view of Economic Man (Polanyi, 1957) are likelyto be an inappropri-

ate way of modelling the values and logics of actors in a public healthcare system (Martinelli & Smelser,1990). Given

that actors such as managers and clinicians play different occupational roles and have different types of training, it

is likely that their thinking and behaviour will be informed by differing values, possibilities, communications and rela-

tionships with the world. In order to conceptualise these different outlooks or realities, we deploy a relatively recent

development in research methodology known as pragmaticconstructivism (PC). This methodology focuses on the way

that human actors construct their specific realities and explicitly rejects assumed models of actors such as Economic

Man (Nørreklit, Nørreklit, & Israelsen, 2006; Polanyi,1957). PC methodology provides a way of comparing the reason-

ing of managerial and clinical actors in relation to the dilemma of whether or not to adopt an innovation in the con-

text of an internal market. More specifically,it analyses how actors respond to new facts associated with new clinical

practices and potential cost-reducing opportunities. Closely related to the PC methodology,the paradigm offers pol-

icy prescriptions, which favour an actor-based approach to organisational relations. Actor-based management (ABM)

rejects mechanical, top-down modes of governance in favour of management models based on dialogue and negotia-

tion. (Nielsen, Falconer,& Nørreklit, 2015; Nørreklit, 2011; Seal & Mattimoe, 2014).

The PC frameworkis based on a pragmaticphilosophy; reality is defined in terms of what works. It is a metatheory or

methodological approach that helps to narrow the theory-practice gap (Nørreklit et al., 2006). In the transfer-pricing

literature, this gap was noted by Eccles (1985) and still seems evident in an economics literaturein which only one or

two dimensions of reality are drawnon (Göx & Schiller, 2007). As the paper shows, we do not reject all insights from the

mainstream transfer pricing literature but rather seek to develop a theory which addresses the specific issues of the

NHS costing and fund transfer system. PC and its related prescriptiveview of ABM are critical of mechanical models of

governance which fail to engage with the values and beliefs of keyplayers (Nørreklit, 2011, 2017). In our specific case

study,a centrally determined average transfer price may be viewed as a top-down and mechanical model of pricing that

fails to recognise the values of clinicians who are trying to introduce medical innovations that not only improvepatient

outcomes but which can save public money.As a result, a more creative perspective is called for.

In sum, the paper makes a number of contributions. First, based on a socially constructed and nuanced view of

actors’ reality, the paper’s PC ontology offers a general methodological stance which could be productively applied