Yes Polly, this is the point

The NHS was always rationed. What matters is whether it is done rationally or haphazardly, nationally or by postcode, in public or secretly. Entering its greatest ever cash crisis, it matters more than ever how its shrinking funds are spent.

Indeed, something free at the point of use and also highly desirable will need some form of rationing. Which is why we want to have markets in the health care industry.

For there\’s something we learned in the short 20 th century, that period betweem 1917 and 1991.

Market based systems improve total factor productivity better than centrally planned systems.

Agreed, the socialist insistence at the start of that period was that planning would do better than that wasteful nonsense of competition, repetition, reinventing the wheel and profits. It didn\’t quite turn out that way and the socialists are reduced to arguing that economic growth, \”hunh!, who wants it anyway?\” as an argument for the very same socialist planning. Indeed, there are those who insist that as we cannot afford to have growth then we must have socialism.

Leave aside all of the technical arguments for a moment: that change in the justification for the very same policies is all we need to see that the 20th century did indeed teach us something about productivity growth.

And rationing is a product of the constraints imposed by that productivity we\’re discussing. If we can improve tfp by, just as an example, 2%, then that means that we can have 2% more health treatment for the same resources we expend on providing health treatment. If 10% then 10% and so on.

Which is why we want markets in that health care stuff. Because it means that, over time, we can improve tfp and thus we need to less rationing. Because we\’re able, through that increased tfp that markets work towards, to provide more health care for the same ingoing resources.

QED.

19 comments on “Yes Polly, this is the point

  1. And yet private-sector healthcare inflation has been very high. Where is the evidence that competition works its magic on tfp in the healthcare sector?

  2. I guess the evidence is that it works in all other sectors so what is unique about healthcare that for it alone, competition will not work?

  3. PaulB,

    Where is the evidence that competition works its magic on tfp in the healthcare sector?

    The deregulation of the spectacles market in the 1980s.

    Look, the NHS claims that £575m is lost every year because people miss appointments, yet I don’t get an SMS reminder of an appointment, despite the fact sending an SMS from a computer costs about 10p and that sending SMS the day before has a considerable effect on people remembering appointments. My dental surgery with half a dozen people manages it.

    And that’s just the tip of the iceberg. A friend of mine did some consultancy over visiting nurses and they didn’t even have GPS devices, something that everyone else with a road-based job has because it improves efficiency and reduces fuel costs.

  4. The first criterion for competition to work is that consumers have to be paying with their own money (insurance doesn’t count). It would take a fairly extreme libertarian approach to achieve that in healthcare.

    I don’t claim that the NHS is perfectly efficient. But I’d be reasonably confident that NHS doctors see more patients per clinic hour than comparable private-sector doctors do, even if some of the patients don’t turn up – typically NHS clinics book more patients than can reasonably be seen in the time notionally available; the effect of no-shows is that the clinic may run on time.

    Tim adds: “The first criterion for competition to work is that consumers have to be paying with their own money ”

    Nonsense. No company purchasing manager is paying for anything with his own money. Yet competition among suppliers to corporations seems to work prettyy well.

  5. Paul,

    that consumers have to be paying with their own money (insurance doesn’t count).

    So, if I crash my car and the insurance company say I can spend no more than £5000 on a “new” one, that prevents competition? Now, there is an incentive shift – I have little incentive to spend less than £5000 but if the best car for me is £4500 then the insurance company will save money (fraud between buyer and seller excepted.)

    But the fundamental competition is “which is the best car for me within my purchasing constraints and the market supply.”

    Healthcare is harder because of the lack of information – there is no Parkers for surgeons. But there doesn’t appear to be a category difference.

  6. @Paul B “I don’t claim that the NHS is perfectly efficient. But I’d be reasonably confident that NHS doctors see more patients per clinic hour than comparable private-sector doctors do…”

    I wouldn’t.

    I worked first in, then closely with this ComEcon State collective for 25 years.

    Efficiency can only be compared against competition. Where there is no price and/or quality competition, there is absolutely no motive to be efficient.

    That is why when markets get liberalised and opened to competition, others enter it and are able to provide goods/service for more people at lower prices and still make a tidy profit.

    The problem with the NHS debate is it is ingrained in people’s minds that it is static, monolith confined by politically driven budgets.

    The numbers of GPs and hospitals is predetermined centrally according to Government spending/budgeting allowances.

    So a hospital will get £X million with which it is supposed to treat Y number of people. More than Y must go on waiting lists until next budget is agreed.

    This induces some to believe that if it “goes private” the same will apply except nasty shareholders will be creaming off part of the budget to make themselves fat, rich and happy, and so less than Y can be treated.

    In a proper free market, the hospital would get ZERO.

    It would however be able to charge an agreed fee per patient treatment. Thus more treatments, more money.

    Patients on waiting lists will not earn the hospital money, so the motivation will be to increase productivity and expand the service to meet the demand, or for another hospital to open up nearby – just as happens with supermarkets for example.

    A hospital will have to satisfy patients and make a profit within the fee. If it fails to satisfy patients, or cannot make a profit, it will go bust.

    If there are long GP waiting lists in an area, that means there are not enough GPs.

    In a free market that provides an opportunity for other GPs to open practices, rather than the number being determined by central command and Government spending.

    As for price competition.

    It is true that this is not truly possible if the patient does not actually pay, but the competition arises from having to make sure the patient goes through your doors rather than somebody else’s.

    One solution is to have a system like the French one where the State pays only 70% (100% for povs) and the patient must provide the balance or take out top-up insurance for this purpose.

    It also permits health care providers to charge more than the agreed fees so that although the patient will still get the 70% of the agreed fee, they must pay the enhanced charges themselves or have it covered by their insurer who offers policies to cover charges outside the State agreed fee scale.

    It all provides patient choice and drives up quality.

    Additionally. Have you ever added up the asset value of the NHS – land, buildings, equipment? Then add to that “good will” and consider how much the State could get from selling the NHS.

    It certainly would but a dent in the debt and it would reduce the budget deficit because it would remove the NHS payroll expense .

    Meanwhile investment in healthcare would be funded by private investors, not taxpayers. That means more, if needed, collected from taxpayers on health spending could go on treatment not be fossilised in buildings, maintenance, equipment, etc.

    And it would be more efficient.

  7. Paul B,

    The first criterion for competition to work is that consumers have to be paying with their own money (insurance doesn’t count). It would take a fairly extreme libertarian approach to achieve that in healthcare.

    Nope. If my children need glasses, I don’t pay a penny. We take the prescription in, they show us the frames available and don’t pay a penny. If a shop only gave us the choice of the horrible “NHS glasses” of the 70s, we’d be taking our prescription elsewhere.

  8. There’s a lot of proof by assertion here: “it would be more efficient”. Where’s the evidence? The largest competitive healthcare market is in the USA, and it’s eye-waveringly expensive.

    Or have a look at inflation in private insurance costs. It’s several points above general inflation everywhere in the developed world.

    Tim W: in your example the purchaser is the company. It needs to make sure that its purchasing manager is appropriately incentivized to act efficiently.

    Tim A: yes, competition will provide better-looking spectacles, better carpets in the waiting rooms, and suchlike. Is that the problem we’re trying to solve?

  9. “If a shop only gave us the choice of the horrible “NHS glasses” of the 70s, we’d be taking our prescription elsewhere.”

    To somewhere willing to sell you glasses that look broadly the same, but have ‘Gucci’ written on the arm, and cost £250? That being the fashion, like.

    (That’s not meant to be a point against competiton, I should add, just something that makes me chuckle these days.. and I write as someone who now pays good money for glasses similar to those I was forced to wear as a child).

    Anyway, the big problem for competition in healthcare is, of course, that the consumer often doesn’t have the option of simply procuring something other than healthcare.. or perhaps going online and ordering from abroad. It’s not necessarily a fair bargain when one of the being making it does so under threat of death. Curiously, these alternative options are often open to those seeking healthcare-like things such as cosmetic surgery.. would I be right in thinking that the cost of a boob job (potentially leathal or otherwise) has fallen considerably in recent years due to competition?

    One might argue that increasing costs of private healthcare mean that there is not enough of it to service the growing number of people who want it.. and so we need more of it. Mind you, that sounds a bit too much like ‘those x messes up y so x should be given more z with which to do his y’ arguments we regularly see snorted at around these parts.

  10. Paul B,

    Tim A: yes, competition will provide better-looking spectacles, better carpets in the waiting rooms, and suchlike. Is that the problem we’re trying to solve?

    Not exactly, but what we’re talking about here, in general is value. The only reason I can’t apply it to fixing a broken legs and can apply it to spectacles is that we liberated that market and it worked. We got cheaper specs as a result of more technology moving in (yes, we also got Gucci specs, but from personal experience, Specsavers basic frames were a lot cheaper than the opthalmists).

    We could also look at the effect of Open Skies opening up competition on airlines. We have far cheaper international travel as a result of that.

    What I want to know is why these work, yet apparently, fixing broken legs doesn’t. What’s so different about fixing broken legs that means that spectacles and airlines improve with more competition, but broken leg fixing doesn’t?

  11. Ten years or so ago in Hong Kong I broke my ankle. I was taken to hospital with my foot pointing the wrong way: the hospital correctly diagnosed a trimalleolar fracture requiring open reduction and fixation. I called a colleague who advised me not to let that hospital operate on me and kindly took me to an orthopaedic surgeon he recommended. The surgeon operated on me within a few hours of the injury.

    So my choice consisted of asking one layman which surgeon to use. I had no idea what the surgeon would charge (the answer was many thousands of US dollars, which my insurers paid with some reluctance).

    Where in that process would competition act to improve efficiency?

  12. “Where in that process would competition act to improve efficiency?”

    Maybe here?

    ” I called a colleague who advised me not to let that hospital operate on me and kindly took me to an orthopaedic surgeon he recommended.”

  13. But I’d be reasonably confident that NHS doctors see more patients per clinic hour than comparable private-sector doctors do

    In my experience they do, for sure. They manage this by half-listening to what you are telling them for 30 seconds before they shoo you out the door with a prescription in your hand. When I first went to a private clinic, I was pleasantly surprised to find the doctor listened, asked me questions, examined me, and appeared to give a shit.

  14. PaulB – “The first criterion for competition to work is that consumers have to be paying with their own money (insurance doesn’t count). It would take a fairly extreme libertarian approach to achieve that in healthcare.”

    Well as others have commented on the first part, let me comment on the second. Why would it take a fairly extreme libertarian approach to achieve that? We could just copy Singapore. The government of Singapore will pay for any large scale unforeseeable medical problem. You get cancer, they pay for it. Such cases make up a trivial proportion of all health care spending anyway. For routine and entirely foreseeable expenses, you have a medical savings account. You pay in up to a certain amount every year. You use that to pay for all other medical costs. If you’re too poor, the government will pay in for you.

    Singapore spends about half what we do on health care as a percentage of GDP and have a vastly better system.

    We could move to this system over night. We could give everyone a lump sum of money that varies according to age – admittedly now is not a good time to be pushing up the government’s debt – and add a tax break for additions to it. And then leave people to get on with it.

  15. Tim Newman – “In my experience they do, for sure. They manage this by half-listening to what you are telling them for 30 seconds before they shoo you out the door with a prescription in your hand.”

    Mine is a nice young girl with lots of curls who does not even hide the fact that she turns to Google and googles the right treatment. This is a little dispiriting. Given I could do that. What are they teaching young doctors these days?

    “When I first went to a private clinic, I was pleasantly surprised to find the doctor listened, asked me questions, examined me, and appeared to give a shit.”

    Which is why I always like being treated in Asia. It is usually so cheap, depending on where I am, I don’t even charge my insurance company. And their approach tends to be a lot more customer focused. In that they ask me what I want them to do for me. Of course this is bad in a general, global sense. You know, antibiotic resistance and all that. But I still prefer it.

  16. SMFS: re. Singapore. I agree with you that the healthcare system there is good value for money. But I disagree that we could move to that system overnight. I strongly suspect that there are special circumstances that have made this system work in one city-state and nowhere else in the world. My guess is that it relies on pooling across extended family networks – a sort of mutual insurance system – and a strong social tradition of caring for the elderly. Very low unemployment helps. So does very extensive government regulation of healthcare pricing, which is very much not where this discussion started.

  17. Pingback: Timmy in ‘believing two contradictory things’ shocker « Decline of the Logos

  18. SMFS,

    Mine is a nice young girl with lots of curls who does not even hide the fact that she turns to Google and googles the right treatment. This is a little dispiriting. Given I could do that. What are they teaching young doctors these days?

    Thing is, if my 2 GPs and a locum had used Google, they might have diagnosed a problem that I had (which I diagnosed using Google).

    GPs really should have more (and better) IT in diagnosis because it would stop this sort of “give this a go” diagnosis. You need a system that prompts doctors with questions to ask a patient that then gives likelihoods of different diagnoses and which is constantly refined by a team of specialists based on current medical research. I’ve had 2nd visits because a GP didn’t take part of my symptoms into account. If they’d have asked 1 question, they could have given me the right medicine first time, saving all of us time and money.

    This is normally one of the benefits of large organisations, that despite being more bureaucratic, you can use a few experts and spread their knowledge widely. Apple don’t hire experts to build iPhones – they get a team of experts that work out a process for cheap people in China to do it.

  19. PaulB – “I agree with you that the healthcare system there is good value for money. But I disagree that we could move to that system overnight.”

    Why? What would be the practical difficulty?

    “I strongly suspect that there are special circumstances that have made this system work in one city-state and nowhere else in the world.”

    To me this looks a little like a theological statement than a reasoned one. It is easy to say something you do not want to work cannot work.

    “My guess is that it relies on pooling across extended family networks – a sort of mutual insurance system – and a strong social tradition of caring for the elderly. Very low unemployment helps.”

    I am not sure Singapore does extended family networks any more. You can use your money for your parents or your children. You can will it when you die I believe. But why can’t we do any of that? Singaporeans probably do think they ought to care for their old more than British people do, but probably not as much as you think. Singapore is a very modern place.

    “So does very extensive government regulation of healthcare pricing, which is very much not where this discussion started.”

    This looks like something someone on a leftist website would claim. The wages earned by Singaporean doctors are about twenty times the average – the same as in the United States.

    18 Tim Almond – “GPs really should have more (and better) IT in diagnosis because it would stop this sort of “give this a go” diagnosis. You need a system that prompts doctors with questions to ask a patient that then gives likelihoods of different diagnoses and which is constantly refined by a team of specialists based on current medical research.”

    This is ideal for an computer expert system and I believe they are available – it is just that the Doctors’ Unions don’t like them and won’t let people use them. At least I managed to study some of them about thirty years ago so you would think they were common now.

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>