General Practitioner fundholding has been shown to enjoy a number of advantages over centralised systems of purchasing: it is more consumer sensitive, shakes up providers, shifts resources into primary care, enables expert understanding and skills to inform the purchasing function and ensures that treatment quality will have priority over cost savings. These benefits are offset by the very significant drawbacks of extra resources being needed for administration, limitations on purchaser power and the danger that the internal market principle will be undermined.

This article examines the extent to which these effects are applicable in the specific context of purchasing of community nursing services that took effect from April 1993. It is found that few of the above advantages are applicable in the community setting and that the disadvantages are particularly severe. The solution may be to combine formal centralised contracting with an element of competition at the operational level to produce a more ‘organic’ system than hitherto visualised.