Decentralisation, Regulation, and Regional Inequality in Health Care Systems

Abstract

This essay examines whether health care decentralisation leads to a “race to the bottom” in health care provision and whether it increases regional health care inequality. It argues that decentralisation does not inevitably produce either outcome, but that it frequently intensifies territorial inequality by redistributing responsibility across regions with unequal fiscal and institutional capacity. Drawing on examples from Italy, Spain, the United States, and the United Kingdom, the essay demonstrates how decentralised systems may generate divergence in access, infrastructure, and service quality despite maintaining formal universal entitlements. It further argues that fragmented procurement and weak coordination within decentralised systems can strengthen incumbent firms and reinforce technological inequality, particularly within digital health markets. While decentralisation may improve responsiveness and encourage policy innovation, its benefits depend heavily on strong national standards, redistributive mechanisms, and regulatory coordination. 

Introduction

Universal health systems are meant to guarantee equal access to care regardless of where people live. Practically, though, decentralised systems often produce large regional differences in waiting times, infrastructure, and quality of treatment. The tension between local autonomy and national equality has become one of the central problems in modern health care governance. 

Yet decentralisation also changes the institutional foundations of health care governance. It redistributes fiscal responsibility and regulatory authority across territories with unequal resources and administrative capacity. In doing so, it may weaken coordination, fragment oversight, and intensify regional disparities in access and quality. The central tension is therefore not simply whether decentralisation improves efficiency, but whether it can preserve solidarity and minimum standards across unequal regions. 

Although decentralisation can improve responsiveness to local needs, it also risks deepening inequality between regions with very different resources and administrative capacity. Decentralization rarely produces an explicit “race to the bottom” through formal removal of entitlements. Instead, downward pressure on standards tends to emerge more gradually through fragmented oversight, delayed investment, workforce shortages, and uneven regulatory enforcement. This essay therefore argues that decentralisation is most likely to weaken equity where strong redistributive mechanisms and national guarantees are absent. 

The essay first outlines the theoretical relationship between decentralisation and regulation before examining how decentralised governance can create fiscal and regulatory pressures that gradually weaken service quality. It then explores evidence from Italy, Spain, the United States, and the United Kingdom to demonstrate how decentralisation frequently produces territorial divergence in access, institutional capacity, and infrastructure.  Finally, it argues that decentralisation may also reinforce regional monopolies and digital fragmentation through procurement structures and interoperability barriers. The essay concludes that decentralisation is best understood as a conditional institutional arrangement whose outcomes depend heavily on the strength of national guarantees and redistributive mechanisms. 

Decentralisation and the Governance of Health Care

Decentralisation is not a single institutional reform. It can involve political decentralisation, where elected regional  governments gain authority over health policy; administrative decentralisation, where managerial responsibilities are delegated to local bodies; or fiscal decentralisation, where regions assume greater responsibility for financing and budget allocation. These forms of decentralisation often overlap, although not always in equal measure. 

Health systems are highly regulated institutional environments in which regulation involves rule-setting, monitoring, and enforcement rather than just legislation (Baldwin, Cave, and Lodge, 2012). In health care, regulation includes licensing professionals, setting waiting-time targets, regulating pharmaceuticals, inspecting hospitals, and maintaining patient safety standards. Once these functions are distributed across multiple territorial levels, accountability may become fragmented and enforcement uneven. 

Decentralisation has increasingly been associated with broader shifts toward territorial governance and citizen-centred welfare systems (Costa-Font, 2020) . Essentially, local authorities may possess greater knowledge of regional needs than distant central ministries. Rural regions, for example, often face different workforce and infrastructure challenges from large urban centres. Decentralisation may therefore improve responsiveness and permit policy experimentation. 

However, decentralisation also exposes pre-existing territorial inequalities. Regions differ significantly in wealth, workforce, supply, tax base, and administrative capacity. The performance of decentralised systems depends heavily on the extent to which redistributive and equalisation mechanisms remain strong (Costa-Font and Greer, 2012). In other words, decentralisation itself is not inherently beneficial or harmful. Its effects depend on the institutional conditions surrounding it. 

This distinction is particularly important in health care because health systems are not purely economic institutions. Health care markets differ from standard competitive markets because of uncertainty and information asymmetry (Arrow, 1963). Health systems therefore rely heavily on collective guarantees and regulation. Decentralisation may improve local flexibility, but excessive fragmentation can weaken those guarantees. From a regulatory perspective, it creates a persistent tension between efficiency, local autonomy and substantive equality across territories. 

The result is a tension between territorial autonomy and regulatory coordination. While advocates of decentralised governance often assume that local flexibility improves efficiency and responsiveness, regulatory theory suggests that fragmentation may also weaken accountability by dispersing authority across multiple institutions. The central issue is not simply whether regions possess autonomy, but whether decentralised systems remain mechanisms capable of preserving substantive equality across territories with unequal administrative capacity. 

Decentralisation, Regulatory Competition, and Territorial Inequality

The ‘race to the bottom” within health care can operate differently from classic models of regulatory competition. Regional governments are rarely competing to attract investment through openly lower welfare standards. Instead, downward pressure emerges more indirectly through fiscal strain, uneven regulatory capacity, and fragmented oversight. Patients may still technically be entitled to treatment, but long waiting lists and staffing shortages can and will make access more difficult. 

Italy illustrates many of these dynamics. Although the Italian National Health Service guarantees universal legal entitlements, regional governments possess significant responsibility over financing and delivery. Research on the Italian health system suggests that regionalisation widened pre-existing north-south inequalities in financing and patient mobility (France, Taroni, and Donatini, 2005). Wealthier northern regions increasingly attracted patients from southern regions for specialist treatment, reflecting differences in institutional capacity and perceived quality. Decentralisation did not create these inequalities, but it embedded them more deeply within the structure of the system. In effect, regional inequality became institutionalised rather than temporary, and this case suggests that decentralisation works far better in wealthier regions than poorer ones. 

Equal expenditure across decentralised regions did not necessarily produce equal satisfaction or perceived access, particularly where governance quality remains uneven (Costa-Font and Turati, 2018). Governance quality and institutional effectiveness remained uneven despite comparable levels of spending. This is particularly important because it demonstrates that decentralisation is not simply a question of funding. Institutional capacity itself becomes unevenly distributed across regions. 

These pressures became more visible after the global financial crisis of 2008. Regions facing fiscal strain frequently delayed infrastructure projects, limited workforce expansion, and restricted service investment. Such measures may appear administratively rational in the short term, yet over time they can contribute to gradual erosion in service quality. The race to the bottom in health care is therefore rarely dramatic or openly ideological. More often, it appears through cumulative deterioration in access and capacity. 

The United States provides another important example of a decentralised divergence. Medicaid is jointly financed by federal and state governments, but states retain considerable discretion over implementation, reimbursement rates, and eligibility criteria. Following the Affordable Care Act (ACA), some states expanded Medicaid coverage while others refused expansion. By 2023, ten states still had not adopted expansion, leaving substantial gaps in coverage for low-income populations (Glied and Weiss, 2023). As a result, low-income populations experienced sharply different levels of access depending on geography. 

This does not represent a classic race to the bottom in every case, since some states pursued more expensive policies than others. Nevertheless, the American system clearly demonstrates how decentralisation permits territorial divergence in access and generosity. In this sense, decentralisation shifts health care access from a universal social guarantee towards a system where the quality of care increasingly depends on geography. States facing political or fiscal pressures may restrict coverage or maintain lower provider payments, which in turn shapes practical access to care. 

Races to the bottom may also emerge through weakened enforcement rather than direct spending reductions. Effective regulation depends not only on formal rules but on monitoring and enforcement capacity (Baldwin, Cave, and Lodge, 2012). National standards lose significance if regional institutions cannot implement them consistently. Abimbola (2020) conceptualises health governance as a triangle of rules, actors, and institutions, highlighting the gap that may emerge between formal policy and institutional reality. National guarantees may remain universal on paper while implementation varies substantially across regions with unequal administrative capacity. 

The Covid-19 pandemic exposed many of these coordination problems. The Covid-19 pandemic exposed problems within fragmented multilevel governance structures, particularly where responsibilities between national and regional authorities were unclear (Angelici et al., 2023). In several decentralised systems, procurement, information-sharing, and crisis management became more difficult because authority was dispersed across multiple levels of government.

Decentralisation, however, can produce genuine benefits. Local authorities may be more responsive to demographic variation, regional disease burden, and patient preferences. Devolved systems can also function as policy laboratories where innovation spreads through imitation. Evidence from the English NHS demonstrates that competition under certain institutional conditions can improve performance. Under some institutional conditions, it has been shown that competition may improve some aspects of public hospital performance in England (Cooper, Gibbons, and Skellern, 2018). This suggests that decentralisation and competition are not inherently damaging. 

These improvements depended heavily on strong national oversight and relatively uniform institutional capacity. The NHS remained centrally financed and nationally regulated despite local variation. Decentralisation therefore appears to function most effectively where strong national guarantees remain intact.

Territorial Inequality and Digital Fragmentation

The evidence that decentralisation increases territorial inequality is stronger and more consistent than the evidence for races to the bottom. Regions differ substantially in wealth, tax capacity, workforce availability, and infrastructure. Once authority is devolved, these differences become more consequential. Wealthier regions are often better positioned to recruit clinicians, finance specialist services, and invest in digital systems. 

Health inequalities are closely tied to broader social determinants such as income, education, and employment (Marmot, 2005). Decentralisation may intensify these inequalities because poorer regions frequently experience both weaker population health and lower institutional capacity simultaneously. Effectively, the territories with the greatest health needs are often least able to sustain high-quality services. 

Italy again provides one of the clearest examples of decentralisation contributing to territorial inequality. Significant north-south differences persist in waiting times, hospital quality, and financial performance despite universal legal entitlements. Patient mobility is especially revealing. Residents of southern regions frequently travel north for specialist treatment, particularly for more complex procedures. While formally compatible with patient choice, this movement reflects unequal confidence in regional systems. 

Geographic inequality also overlaps with class inequality. Wealthier patients are often more able to travel for specialist treatment or seek private alternatives. Poorer patients remain far more dependent on local services.

Spain’s health system is similarly decentralised, with autonomous communities exercising major authority over service delivery and planning. Although Spain retains strong universalist commitments, decentralisation has produced visible differences in waiting times, staffing, and organisational performance across regions. The Covid-19 pandemic highlighted many of these disparities. Regional responses varied considerably, revealing tensions between local autonomy and national coordination. While decentralisation allowed flexibility, it also exposed uneven preparedness and fragmented governance structures. 

Territorial inequality is also evident within the United Kingdom. Differences in local commissioning and devolved governance have contributed to what is frequently described as the “postcode lottery,” where access to certain treatments or services varies by region. Some degree of local variation may reflect democratic choice or regional preference. Once differences affect core services such as mental health provision, specialist drugs, or fertility treatment, territorial variation becomes politically contentious. Universal systems are generally expected to provide a minimum standard of care regardless of geography. 

One of the less discussed consequences of decentralisation concerns digital infrastructure and procurement power. Decentralised systems are often justified on the grounds that local procurement encourages competition and innovation. Fragmented purchasing structures may weaken bargaining power and strengthen incumbent firms. Rather than producing genuinely competitive markets, decentralisation can allow dominant vendors to consolidate territorial control incrementally across separate regional systems. 

Electronic health record systems (EHR) provide a useful example. Once a hospital network adopts a dominant platform, switching becomes financially and operationally difficult. As a result, interoperability itself increasingly becomes a regulatory issue rather than simply a technical one. Decentralised procurement allows vendors to establish strong regional positions incrementally, often creating forms of territorial lock-in. 

In effect, procurement processes are frequently shaped less by open competition than by compatibility with incumbent systems already embedded within regional hospital networks. Interoperability concerns and switching costs can narrow the field of competitors before formal procurement begins. Smaller firms may therefore struggle to enter markets that are formally decentralised but practically dominated by established vendors. 

This dynamic has broader implications for inequality. Wealthier systems are often better able to finance technological transitions or negotiate favourable contracts, while poorer regions remain dependent on outdated infrastructure. Decentralisation may therefore contribute not only to service divergence but also to technological fragmentation. Layered governance structures can diffuse accountability across multiple institutions and weaken coordinated oversight (Van de Bovenkamp, Stoopendaal, and Bal, 2017). In fragmented systems, no single authority may possess sufficient leverage to impose interoperability standards or discipline dominant firms effectively. Rather than producing genuinely competitive markets, decentralisation may therefore encourage territorially segmented monopolies alongside uneven digital capacity. 

Conclusion

Overall, the evidence suggests that decentralisation usually increases regional inequality unless strong national safeguards remain in place. The problem is less about decentralisation itself and more about whether poorer regions still receive enough support to maintain comparable standards of care. 

The race to the bottom in health care is rarely explicit. More commonly, it emerges through slower investment, staffing shortages, weaker enforcement, and growing waiting times. Regional inequality, meanwhile, is more visible and more consistently documented. Wealthier or administratively stronger regions tend to provide better infrastructure, stronger digital systems, and faster access to care than weaker territories. 

It has been shown that decentralisation can produce genuine benefits where strong national safeguards remain intact. Local responsiveness and experimentation may improve service delivery under conditions of effective coordination and fiscal equalisation. The problem is therefore not decentralisation alone, but decentralisation without solidarity. The real challenge is deciding how much regional freedom health systems can allow before equal access to care starts breaking down.

Health care systems depend not only on efficiency but on collective guarantees of access and quality. Systems that decentralise authority while maintaining strong national standards and redistributive mechanisms appear to be best positioned to balance flexibility with equity. Without those safeguards, decentralisation risks allowing geography to shape both the quality and accessibility of care. 

Works Cited

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Costa-Font, J. (2020) The Political Economy of Health and Healthcare. Cambridge: Cambridge University Press.

Costa-Font, J. and Greer, S.L. (2012) Federalism and Decentralization in European Health and Social Care. 

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Glied, S.A. and Weiss, M.A. (2023) ‘Impact of the Medicaid Coverage Gap: Comparing States That Have and Have Not Expanded Eligibility’. 

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