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Darrin Baines, PhD, is a part-time
senior researcher in pharmacy practice at King’s College London
Catherine
Hale, LLB, is lecturer in medical ethics and law, University
of Birmingham
Correspondence to Darrin Baines (e-mail info@medm.co.uk)
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Pharmacy systems worldwide exhibit striking similarities and differences
in their structure, operation and outcomes. For pharmacy practice academics
and government policy-makers with responsibility for observing and reforming
such systems, understanding their mechanics and their function is crucial.
To be scientifically valid, conclusions drawn in this area should be
based upon the empirical testing of alternative theories, which attempt
to explain how these systems operate.
With this end in mind, previous authors have noted that theories from
sociology, psychology, anthropology, pedagogy and health economics had
all been used to help explain observed pharmacy practice.1 According
to these commentators, specific theories can serve different purposes,
with most ultimately contributing to dynamism and diversity in research.
Given these possible benefits, we propose a new theoretical framework
for analysing pharmacy practice that uses concepts from an emerging branch
of the social sciences known as “new institutional economics”.
The basic framework outlined here will be introductory, as its full application
requires an in-depth knowledge of the principles being applied. However,
by using examples from recent developments in UK pharmacy policy, we
hope to demonstrate how this theoretical approach could help shape the
analysis and the evaluation of pharmacy practice systems worldwide.
New institutional economics
Traditionally, economists have been concerned with studying whether
the markets we use to buy and to sell different goods and services are
efficient. To this end, the profession developed a range of theories
and models that explain how buyers and sellers interact.2
At its core, the market model assumes that the world is static, that
buyers and sellers are rational and that all markets eventually reach
an equilibrium. Although this approach has dominated the profession’s
thoughts, during the past 30 years new thinking has evolved that challenges
the theoretical orthodoxy.
In recent decades, economists have begun working on a new set of theories
commonly called new institutional economics (NIE). NIE builds upon the
fundamental assumptions of classical economics by incorporating a theory
of institutions into the economist’s toolkit.
According to Douglas North, a leading thinker in this new field, “institutions” are
the “rules of the game in a society or, more formally, are the
humanly devised constraints that shape human interactions”.3 Consequently,
the behaviour of economic agents should not be seen as completely free,
but as institutionally constrained. Given the emphasis on rules, we argue
that pharmacy is an ideal subject for study using NIE, since the profession
must adhere to several layers of professional, health service and pharmaceutical
related constraints.
For instance, UK pharmacists must work within the institutions created
by the 1968 Medicines Act, NHS regulations and their professional code
of ethics. As part of these arrangements, failures to act legally or
morally can be punished by the courts or by removal from the pharmacy
register. With such penalties in place, our argument that the structure,
operation and outcome of pharmacy systems are shaped by institutions
may be uncontroversial to many within the profession. Institutions of the NHS
From the perspective of NIE, pharmacists work within a range of institutions,
notably those related to the funding and operation of the NHS.
Norms
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Local policy
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National policy
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NHS regulations
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UK common law
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Figure 1: The NHS hierarchy of rules
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As
Figure 1 shows, UK common law underpins the whole operation of the
health service. For instance, all practitioners have a duty of
care to
patients. Next, NHS provision is governed by laws and regulations
designed to control the ways health bodies act in described situations.
For
instance, the Government recently passed new legislation for pharmacists
who wish
to work within an alternative terms of service and remuneration structure
under the auspices of the Local Pharmaceutical Services scheme.4
At
a higher level, national NHS policy sets constraints on the actions
that pharmacists and other health professionals may take, which are
reinforced by policy decisions taken locally by primary care trusts.5
Finally, within this hierarchy pharmacists may find that norms (that
is, unwritten but usual ways of practising) will affect how they
work. For instance, doctors in a local practice may follow a convention
of
prescribing a particular drug for a particular condition that may
not normally be followed so systematically elsewhere.6 Consequently,
the
dispensing pharmacist has to obey a convention or norm when working
as a professional within a hierarchy of other health service rules.
Therefore, as the list of NHS constraints suggests, if we wish to
understand how pharmacy systems really function, investigating the
institutions
limiting the behaviour of pharmacists should be worthwhile. Property rights
As discussed above, institutions tend to operate at a society-level
in the sense that their rules or constraints affect all members of a
given
group. Given that society’s rules impact upon the individual,
economists use the term “property rights” to denote “the
rules which specify what individuals are allowed to do with resources
and the outputs of those resources”.7
For instance, UK community pharmacists currently work within a national “control
of entry” framework that gives individual proprietors specified
rights to operate named pharmacies and to derive profits from doing so.
Within NIE, property rights are an important issue because the ways in
which resources are controlled by individuals — along with current
technology — determine levels of efficiency in the economy.
According to economic theory, if individuals personally benefit from
property rights that lead to inefficient outcomes for society as a whole,
they will be unwilling to see them changed. For instance, the UK’s
competition regulator, the Office of Fair Trading, recently claimed that
control of entry benefits pharmacists currently holding a contract at
a cost to taxpayers and patients in terms of spending and choice.
As Douglas North states, in many situations inefficiencies exist because “rulers
would not antagonise powerful constituents by enacting efficient rules
that were opposed to their interests.”3 For instance, the Government
has recently compromised and not fully followed the OFT recommendation
of abolishing control of entry regulations because of the strength of
the UK’s pharmacy lobby.8
Therefore, evidence suggests that property rights are an important issue
for study, which determine how pharmacy systems are structured and function. Transaction costs
From the perspective of NIE, one of the key limitations of traditional
economic theory was its failure to take into account costs to buyers
and to sellers not included in prices for goods and services.9 For instance,
if you wish to buy a used car, after weeks of searching you may find
that a private seller living 300km away is offering the model you want
at a price lower than your local car dealer. Although the price is cheaper,
you may find that the overall costs of completing the transaction are
higher because you had to search longer and travel further to buy the
chosen model.
Applied in the current context, transaction cost economics implies that
the organisation of community pharmacy services will impose non-price
costs on government, pharmacists and patients. Therefore, changes in
the structure and the organisation of existing supply arrangements could
alter the transaction costs faced by each party. For instance, the new
contract for UK community pharmacists will increase the costs of being
a pharmacist because of the introduction of new clinical governance standards.10
In his seminal article on this subject, Coase suggested that transaction
costs — not prices — determine the efficient size of a “firm”.11 In this context, Coase’s argument suggests that the costs of supplying
pharmacy services will determine the types of firms that develop in this
sector of the economy.
As pharmacists respond to their new contract, we may observe vertical
(pharmacist and wholesaler) or horizontal (pharmacist and pharmacist)
integration as a means of minimising overall transaction costs. Consequently,
the relationship between institutions, transaction costs and organisational
forms should be an important area of study for those evaluating pharmacy
practice reforms. History matters
At its core, NIE differs from mainstream economics because it assumes
that the world is dynamic not static. In order to stress the evolutionary
nature of their research, many economists working in this new area
claim that “history matters”.12
In other words, the institutions, property rights and transaction costs
we face today, to some degree, were determined in the past.
The concern with historical development links NIE directly with ideas
from evolutionary biology, in which natural selection and other evolutionary
mechanisms shape our economies. From this perspective, community pharmacy
could be seen as a “species” of health care providers with
a common “routine”, which determines their ability to survive.
According to Nelson and Winter, firms are not profit maximisers, as assumed
in traditional economics.13 Instead, producers follow regular behaviour
patterns called “routines” for producing things, hiring staff,
ordering, commissioning research and development, etc.
With predictable behaviour, no company survives by acting randomly, in
the same way that no species of animal survives by randomly eating different
food. Therefore, just as bees need pollen, NIE suggests that UK community
pharmacists stay in business because they are specially organised to
regularly collect dispensing fees. Path dependency
Although NIE has borrowed many concepts from evolutionary biology,
in 1985 the American economist, Paul David, made a unique contribution
to the literature by suggesting the concept of “path dependency”.14 In short, the theory of path dependency implies that current economic
situations are often (either by chance or design) the result of a “lock-in” of
a set of economic arrangements established in the past.
For example, David reported that the
QWERTY keyboard — now used on most computers — was first
introduced to slow typists down so they did not jam the key bars on their
mechanical typewriters. Therefore, computer users (who do not have machines
with key bars) are now stuck in an inefficient situation because, in
the past, a slower keyboard was chosen as the industry standard.
In the current context, the theory of path dependency suggests that the
economic situation currently facing community pharmacists may not be
the best available but is constrained by (foreseen and unforeseen) events
from the past. According to Sidney Holloway, the author of the official
history of the Royal Pharmaceutical Society, pharmacists were originally
members of the medical profession.15 However, the Pharmacy Act of 1852
began an unexpected process, which artificially split pharmacists from
other medical practitioners by defining registered “pharmaceutical
chemists” and “pharmaceutists” as practitioners not
examined in medicine, surgery or midwifery.
Next, the 1858 Medical Act created a legal boundary between physicians,
surgeons and apothecaries on one side, and chemists and druggists on
the other. As a result, an artificial barrier was erected between pharmacists
and the rest of the medical profession. According to Holloway, the artificial
division of doctors and pharmacists created during the mid-1800s “does
not represent a natural process of specialisation of function”.
Indeed, “there is nothing inevitable about the present division
between the practice of medicine and that of pharmacy”.
In other words, an unexpected path dependency exists in the structure
of the pharmacy profession that limits the ways members can operate and
the incomes they can make. Evaluation
Although this approach may be new to many pharmacists and policy-makers,
NIE offers an alternative framework for evaluating the structure,
the operation and the outcomes of pharmacy systems.
With an emphasis on institutions, property rights, transaction costs
and path dependencies, this set of evolutionary theories may be more
suitable to the analysis of modern pharmacy than traditional economics.
For instance, the concept of transaction costs highlights reforms proposed
under the new contract for UK pharmacists that other economic theories
may miss.16
Similarly, searching backwards through history leads us to discover
that, in 1913, Lloyd George gave UK community pharmacists the task
of dispensing
to stop family doctors profiteering from the provision of drugs.17 As a result, the structure of community pharmacy for the past 90 years
has
been determined by the inability of a distant government to monitor
the behaviour of prescribing doctors properly.
Even though the approach can produce its own fascinating insights,
NIE is inclusive rather than exclusive in the sense that its proponents
combine
thinking from different fields when formulating their ideas. For instance,
history and sociology are both vital to theory construction in this
area.
Given its emphasis on inclusion, NIE may be useful to pharmacy practice
academics who have fully embraced sociological analysis in the past.
Similarly, the well-established tradition within pharmacy for recording
its history may make NIE an easy tool to use.
Therefore, we conclude that NIE should be seen as a viable addition
to the plethora of theoretical approaches currently contributing to
dynamism
and diversity of pharmacy practice research.
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The
Pharmaceutical Journal