04 April 2009

Rape of the NHS or crafty seduction?

There is a certain sort of person who thinks that the problems of the health service can be put right by putting it all on a private footing. Dr Grumble can easily follow the logic. This sort of thinking is very seductive. Essentially you use the supermarket argument. If you don't like Asda then try Tesco. It works, it seems, for supermarkets so why not for healthcare? For this to work you need at least two supermarkets. If one turns out to be no good (as was the case in Grumbletown) it will wither on the vine. After a few visits Mrs Grumble refused ever to go to her local Safeway store because of the way she was treated. Perhaps others were treated badly because the store closed, was taken over by Waitrose and is now thriving. Market forces in action. It is, as Dr Grumble has said, very seductive.

What is the disadvantage to such a system? In Grumbletown we have at least three supermarkets. Perhaps it is more. It depends how you count them. Do we need three? Wouldn't it be more efficient to have just once enormous supermarket run by the Grumbletown council? Of course it would. The council could decide what people need and what the supermarket should stock and it should all be so cheap because of the economies of scale. And if the council was to run it they would choose a standard soap powder and a standard shampoo so that there would be no waste stocking whole ranges of items. Amazingly, some people used to think that way. Nobody does any more. Such thinking has become utterly discredited. The arguments for markets seem so clear that Dr Grumble could easily, as an exercise, write something for the Telegraph making the key points. Telegraph readers would eat out of the Grumble hands.

Seduction, though, is dangerous. There is a great risk of your being persuaded into doing something that you just might not do if you considered things a little more carefully.

For some time Dr Grumble has had major doubts about markets in healthcare though nobody was ever going to listen to him. Whys should healthcare be different from the supermarket or the shopping mall? Markets seem to work wherever you try them. And they seem to just run themselves. No effort is required. You just free things up or deregulate and human nature takes over.

For many long years there were no really good examples out there to demonstrate that markets are not necessarily a panacea for all ills. Books on the market were often (wrongly in the Grumble view) critical of healthcare in particular for not embracing the market. But that was before the banking crisis.

Memories are short but Dr Grumble remembers so well those so-called experts in finance who were on Radio 4 each morning patronisingly trying to educated the populace. They spoke about the need to compete globally. Competition and globalism were their watchwords. They repeatedly said that if we didn't deregulated others would and that we had to compete with the likes of Iceland. Even Dr Grumble's cosy building society manager came on to say that he needed to pay Dr Grumble for his share of the building society so that he could go out and borrow on the markets like a bank. And it would be win win. Dr Grumble would get a few grand and the manager would get a few hundred grand - maybe even millions. Money that seemingly came from nowhere - because it did come from nowhere. Dr Grumble was not seduced by these daily blandishments but his voice didn't count. Everybody else involved went for the quick buck. You can understand why. The consequences are now well known.

Money markets are not much like supermarkets but then neither is the NHS - though this doesn't stop similar arguments about globalism, competition and deregulation. The only point Grumble wishes to make here is that it is very easy to be seduced by arguments about markets that do not necessarily apply to the NHS any more than than they should have to banking. To those in the process of being seduced it is salutary to take some time out to think and escape the passion of the moment.

Unfortunately, when it comes to the seduction of the NHS by the envoys of Big Business it seems that all the clothes have been hurriedly flung off, the bed covers have been rolled back and the tantalising consummation has become exquisitely irresistible. Or is it rape? Perhaps it doesn't matter because either way it is looking unstoppable.


Julie said...

The thing that nobody stops to consider is that proper healthcare is expensive, and can only be afforded if we pool our resources on a national level. Markets work on moral hazard; they accept your custom on the understanding that they will not have to pay out, and so people that do have health problems will be turned away, while those without health problems will be welcomed with open arms. It's like car insurance but much more expensive.

Nutty said...

The problem is that the notion of markets in healthcare is based on a faulty premise.

People look at NHS care and they look at private care and they conclude that private care is better.

So they assume that if their NI was paid to private care providers, they would get that apparently better care.

The missing factor is price. Private health care at present is (a) expensive and (b) limited as to what conditions it covers (it doesn't cover most emergency treatment).

If the government buys private healthcare instead of NHS healthcare, it won't buy the expensive healthcare that people see at present and envy. It will buy cheaper private healthcare to compete with NHS prices, and that won't be so much to envy by the time the profit element has been deducted.

Cockroach Catcher said...

The thing is Health Care should be a community thing: not all of us get ill so there is not even a point of giving us coupons in case we do. For those unfortunate enough to become ill we all chip in to have doctors, nurses and hospitals and all others helping to get you better. Now in the new Market Way: a few CEOs will earn more than the PM and the rest gets a bad service! Why? Because money matters and bonus matters and we have already seen the way many hospitals are cutting corners. It is the same CEOs going round the different Trusts and some if they do the job really badly move on to become the chief.
It has now happened to Local Councils: pay them the market rate to get the best people. Look at Wakefield with Child Care scandals and Kent with Iceland. They are still somewhere in the Local Council circuit. These are the same people that destroyed our banks. Now we want the Heath Service run like this.

Then there are Poly Clinics: how do you monitor the geeks that could invent patient episodes and what if PCTs are charged for each episode. It is worrying. In the US some hospitals are paying for homeless to go to ERs so that the hospitals claim from the government by a multiple of a few thousand.

Just look at the expenses claim of MPs and I agree with you Dr Grumble, we do not stand a chance. How about moving to Zimbabwe.
The Cockroach Catcher

Andy Cowper said...

Q: How many economists does it take to change a lightbulb?
A: None. The market will sort it out.

There are a lot of reasons why markets and healthcare do not mix tremendously well. This is because markets are not identical for every sector of an economy.

In the abstract, markets are good at allocating things between providers who want to sell and consumers who want to buy: however, in the words of Adam Smith, "people of the same trade seldom meet together ... but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices".

So markets require effective and appropriate regulation. This is more difficult than it seems: as we have seen recently in both healthcare and banking (and in the media since … well, pick your own date), in reality, regulation often fails to protect the consumer - and indeed the provider, from their own folly. Competition and monopoly issues are significant ones.

Markets are also places where the bad, the unpopular, the un-business-savvy or those simply ahead of their time can fail. This is acceptable if a) adequate warning of a failure can reasonably be gained by a consumer, b) there are other providers and suppliers to whom customers can turn, and c) that failure will not cause disproportionate material loss or loss of amenity to customers and trading partners - ‘too big to fail’.

In healthcare, it is dubious that a consumer could be clearly aware of the likelihood of their NHS provider going out of business – which is, technically, now allowed. Given ‘commercial in confidence’ rules, and what has been seen in banks’ statements about their own financial health (not to mention the marvellous work of their independent auditors), we can be sure that private sector providers would not be warning of failure.

Healthcare is expensive, requires expertise, and is potentially dangerous if done badly. As a science (mostly), it is an area where profound asymmetries of information will probably always tend to exist between providers and consumers.

Classical economic theory suggests that competitive markets require ‘perfect information’ and rational agents. Classical economic theory also suggests that there is such a thing as an ‘efficient market hypothesis’.

Classical economic theory quite clearly needs to get out a bit more.

Markets are, allegedly, fantastic at pricing risk. Although there is very little evidence that this is true, and lots of evidence that they seek to avoid risk whenever possible. Insurance companies, whose business is the pooling and assessment of risk, often do their damnedest to avoid paying out on policies, and the list of caveats and exclusions to insurance policies appears to grow year on year (yes, I read the small print).

The private finance initiative (PFI) has been a masterpiece of technical obfuscation with the public sector comparator described by Jeremy Colman, ex-assistant auditor-general to Nick Timmins of the FT back in 2002 thus: “If the answer comes out wrong you don’t get your project. So the answer doesn’t come out wrong very often … (some public sector comparators used are) utter rubbish … utterly irrelevant” (thanks to George Monbiot for that one.) Moreover, there is very little or no evidence of real risk having been transferred.

Another useful learning point from market jargon is ‘externalities’ to a transaction. Externalities arise when prices do not reflect the full costs or benefits in production or consumption of a product or service (a positive impact is an ‘external benefit’, and a negative impact is an ‘external cost’).

The implications in healthcare are surely obvious. In the insurance-based US system (one of the most marketised on the planet), as well as the 15-20% uninsured and the large proportion of the population regarded as underinsured, they have the highest costs and cost inflation in the world. This is not what we are told markets should do. Yet it happens in the US.

Moreover, pro-market figures would surely want to be concerned about ‘job lock’ – the well-acknowledged problem affecting workforce mobility which arises when an employee is unwilling to change job because they do not believe a prospective new employer’s healthcare plan is as good as the one they would be leaving to change job.

The idea that the private sector is uniformly evil and untrustworthy in healthcare seems improbable. General practice remains (in the vast majority) the private sector, and it is vital to the NHS.

However, the private sector’s primary motivation is different from that of the NHS. The NHS is not – Dr G may interject ‘yet’ – tasked to make a profit. The private sector must do so – whether by doing things ‘better, cheaper, faster’ or by manipulating the market – or it will go bust.

Politically and economically, we are now living in a different world to the one we lived in twelve months ago. The chickens of credit have come home to roost, and they’ve got bird flu. In such circumstances, market fetishists have already started to switch their attack towards public sector pay. Although not all market mechanisms are necessarily bad ones, their introduction into healthcare requires particular care and attention.