One of Howard Glennerster's most significant areas of work has concerned the use of quasi-markets in the public provision of healthcare and education. His many contributions include his analyses of the British Conservative government's quasi-market in education (Glennerster, 1991) and of the same government's internal market in healthcare (Glennerster and Matsaganis, 1994a; Glennerster, 1995), work on the development of quasi-markets in public services (Glennerster and Le Grand, 1995) and, perhaps most important, his influential study of general practitioner (GP) fundholding (Glennerster et al, 1994; Glennerster, 1996).

The Labour government that took power after 1997 initially rejected many of the quasi-market principles that underlay the Conservative reforms, especially in healthcare. This was partly for ideological reasons, but partly also because in some areas they were perceived as not to have worked – or at least not to have delivered the dramatic changes in behaviour and performance that their advocates had expected (or indeed that their critics had feared). However, that government's experiments with alternative ways of running the National Health Service (NHS), including an attempt to assert command and control over the system, convinced many key actors that some elements of quasi-markets should be retried – at least within the English NHS (Stevens, 2004).

More specifically, the government has introduced reforms that (a) extend patient choice of hospital for elective surgery, (b) enable the money to follow the choice (through so-called payment-by-results) thus encouraging competition between providers and (c) give hospitals and other NHS organisations greater independence, through the institution of foundation trusts. The government has also effectively reintroduced GP fundholding, under the name of practice-based commissioning. Indeed, in some respects it has gone further than its predecessor, contracting with private sector firms to provide specialised treatment centres for elective surgery and diagnostics, and by trying to expand the range of possible providers of primary care beyond the traditional GP practice.

It therefore seems appropriate, and in the spirit of Howard Glennerster's commitment to making social policy work, to ask how these reforms will operate in practice and whether they can be designed in such a way as to avoid the mistakes made in the previous quasi-market experiment. And that is the principal aim of this chapter. It begins with a brief review of the theory behind the use of quasimarkets as a mechanism for delivering healthcare.