Myth of the invisible hand in Healthcare

The commentary I wrote that was published in the Straits Times today (‘Myth of the invisible hand in health care’- 14 June 2013) received some attention from readers. Why did I write the commentary? No conspiracy theories and no one put me up to it. Quite simply, I had been following the comments in the Straits Times following Dr. Haseltine’s commentary “Learning from Singapore: It pays to make patients pay” (Straits Times May 23, 2013) and Ms. Gillian Tett’s Financial Times piece “Thank you Singapore” and felt that there was an incomplete story being told about what really makes the Singapore health system ‘tick’. And as Singapore engages in a national conversation about the future of our health system, it is important that diverse perspectives are put forward for public debate.

****

Markets are important, even in healthcare where market failures are so apparent, but markets are only as useful as they are designed to be. There are many reasons why Singapore’s health system has contained costs so effectively these last almost 50 years, but markets are only one reason, and even then not because consumers drive improvements and ever-higher standards.

As I discuss in the commentary, one reason under-emphasized is the iron fist of the government encased in the velvet glove of ‘free markets’. While there are many compelling reasons for a retreat of government in Singapore society in many different sectors, healthcare may be different. Markets promote ‘efficiency’ in delivering what consumers want and are willing to pay for, but especially in this age of raging inequality, equity may increasingly be critical for social harmony and nation building. Markets don’t promote equity in healthcare; governments do. Governments intervene to deliberately curb the excesses of the market and divert scarce resources going disproportionately to areas with limited public benefit.

My worries which were left unvoiced in the commentary? A shrinking government role in organizing healthcare or a renunciation of the “centrality of the state” which I fear will be disastrous for coherence of the system as a whole. Look at where Singapore is world-class: We have been crowned the ‘healthiest nation’ in the world by Bloomberg, partly because rates of smoking, alcohol abuse, obesity etc. are significantly lower than peer nations. Our hospitals and doctors are world-class. What do they have in common? The dominance of the government in these areas. A healthy nation has always been a priority for the government and even to this day, the Prime Minister launches the annual National Healthy Lifestyle Campaign personally. Right from the 1980s, the government very wisely sent our doctors to top institutions around the world to learn from the best and bring the insights home.

Where is our system weak? ‘Primary care’ which is 80% private general practitioners. Also ‘intermediate and long term care’ where the government in the 1990s made a deliberate decision to withdraw from and is now belatedly making a comeback.

I believe in strong and active private and people sectors. I believe these sectors have a very legitimate, under-appreciated role in completing the healthcare eco-system. But I believe also that this can only ‘safely’ (from the vantage of lower income Singaporeans for whom the market fails) occur with a strong government across the entire healthcare continuum that knows when to intervene, how to intervene and when to leave things alone. Please do note that when I advocate for ‘strong government’, it is not a blunderbuss approach but precise, considered and measured, almost surgical actions. Government does not need to be provider in all instances, it does not need to be payer all the time, but like a maestro conducting an orchestra of top musicians, the government does need to be on top of things. Let’s have more of the right sort of government in Singapore healthcare.

****

Myth of the invisible hand in health care (Published in the Straits Times, 14 June 2013)

It is not the invisible hand of the market that drives costs down in Singapore’s health-care system. It is the very visible hand of a strong government that does so, as regulator and in deciding what to subsidize and what not to subsidize.

Singapore’s health-care system has come under the spotlight again.

A new book ambitiously titled Affordable Excellence: The Singapore Health Care Story by American academic William Haseltine has attracted a flurry of interest including a commentary by Financial Times’ assistant editor Gillian Tett reprinted in The Sunday Times under the headline “Thank you, Singapore”.

Singapore’s system has been held up as a model to emulate for its low spending and impressive population health metrics.

The magic of the ‘market’?

Dr. Haseltine argues that “managed capitalism” is the secret sauce. Former health minister Khaw Boon Wan has previously exhorted policymakers to “de-politicize” health care and work to make the market work in health care like any other economic activity, by reducing the market failure in health care, for example, by making sure patients get good information about hospital bill sizes.

This means competition, transparency and consumers who are well-informed and incentivized to keep costs down.

Ms. Tett writes: “Patients are always forced to co-pay for treatment, alongside insurance groups, to create incentives to scrutinize their bill.” She goes on to speculate that if Americans could compare prices as they do in Singapore, and co-payments were more strongly used, the spiraling costs of American health care could be curtailed.

It seems affordable excellence can be brought about by consumers, competition and co-payments.

The limits of markets

HOWEVER, markets have a dark side. While international accolades pour in, 72 per cent of Singaporeans believe “we cannot afford to get sick these days due to high medical costs”, according to a Mindshare survey reported in the Business Times last October (Mindshare survey 2012).

Last week Dr. Phua Kai Hong, a respected local health economist, disagreed in this newspaper that “high co-payments and individual responsibility” were the solutions for Singapore. He also raised the specter of Singapore veering towards a “more uncaring and socially unacceptable system”, the “market economy” over-extending to become a “market society”.

A health-care market may be efficient but is it equitable?

It is unclear whether competition and co-payments per se have even been effective in overall cost containment. Eminent health economist William Hsiao of Harvard University has pointed out repeatedly in articles that despite the introduction of Medisave in 1983, the subsequent dramatic increase in patients’ co-payments and the creation of “markets” through corporatization of government hospitals, Singapore’s total health-care spending continued to increase in absolute numbers.

Professor Hsiao emphasizes that the real lesson learnt from Singapore is that “price competition is secondary”.

Providers compete with each other by recruiting brand-name physicians onto their panels and by having the most sophisticated technology, both of which drive up costs. He added that “market power on the supply side is much greater than the demand side”, leading to providers being able to induce demand and push up prices.

More recently, well-publicized cases of egregious charging have further dampened the belief in the power of the market to rein in prices. It seems supply-side measures are equally if not more important.

Government oversight

THE real secret, in my view, to Singapore’s successful cost containment is not “markets” per se but “strong government”.

There is no “invisible hand” in Singapore’s health-care market; the controlling hand is that of the government.

The health-care market works not through consumer influence but through adroit exploitation of the Government’s simultaneous roles as regulator, largest provider and largest single buyer of health- care services.

Unlike, say, in eateries or retail where the Government sets and enforces the rules and then sits back to let “creative destruction” work its effects, in health care the Government is more interventionist.

For example, the Government influences prices through subsidies, Medisave and MediShield, influences practices through the government-owned hospitals and regulates tightly the number of hospitals and health-care professionals nationally.

The Government to a large extent controls the public narrative: By deciding what to subsidize, what not to subsidize and how much to subsidize, the Ministry of Health keeps a firm grip on what treatments become mainstream, and shapes the price points.

It is not the market but the multiple roles the Government plays in health care that has enabled success. Former head of the Civil Service Lim Siong Guan once said: “What is absolutely key to understanding Singapore’s success in applying market systems to public problems is the centrality of the state in assessing, controlling and regulating the market. The hallmark of Singapore’s use of the market has been strong government control and oversight.”

This interventionist stance is not surreptitious; the Government unashamedly acknowledges this, declaring in the 1993 White Paper on Affordable Health Care that it must “intervene to prevent health-care costs from consuming a disproportionate share of the nation’s or a family’s resources”.

Two-tiered health care

ONE reality Singapore readily accepts as a consequence of the market is a two-tiered health-care system. Singapore has by design engineered two health-care worlds. The first is a market world where the sky’s the limit for those with wealth; the second is one which provides, as the Health Ministry describes, “quality and affordable basic medical services for all”.

This is not repugnant and, if politicians are truthful, there is no other way. No country in the world has managed to provide everything to all citizens and none ever will. Rather than pretend to be an egalitarian utopia, Singapore has accepted that in health care, as with almost everything else, the rich will enjoy more and better services. The Government thus intervenes to create the second world for the ‘heartlander’ (local term referring to the 85% of Singaporeans who live in public housing and lead ‘ordinary’ lives) or average Singaporean. The official dogma is that the two worlds differ mainly in the frills or amenities but it is increasingly clear this is tenuous at best.

Singapore prides itself on attracting the best and brightest to its shores; the best and brightest demand and can afford world- class health care for everything from cancer to corns and the gulf between the two worlds ever widens. Questions on “how far apart can these worlds be?” and the related “is basic care affordable and good enough?” lie behind the current national angst.

Singapore’s health system rightly deserves the international attention it receives, for there is much the country can offer the rest of the world in terms of experiences and insights, both positive and negative.

We have much to learn ourselves from a careful and un-blinkered examination of our history, our philosophy and our aspirations. In the ongoing fundamental review of Singapore’s health system, we must pay heed to both adulatory and critical perspectives.

****

A response to the commentary by a reader. My comments in [blue].

Comparing apples and oranges in healthcare

As a longtime resident in the United States, I am constantly amused and at the same time dismayed by the many attempts to compare healthcare and educational systems between Singapore and the US. I strongly agree with Jeremy Lim’s statement that “Singapore’s successful cost containment is not markets per se but strong government”.

Whether or not this was meant as a less-than-flattering assessment of America’s elected leaders, it fails to address the fact that the two are in fact, very different societies. [Apologies to the reader for not being clear, but the commentary was never meant to compare and contrast the Singapore and American systems] On the surface, Singapore and the US may appear and even feel very similar, with a Starbucks at every corner and CNN as a primary source of information. In reality however, the average American has very little to do with their government other than having to be tested for a driver’s license and paying the IRS yearly.

Singaporeans, on the other hand, have to maneuver through a government-imposed fee, deadline or regulation in every aspect of their daily lives from the ERP to parking coupons, COE to HDB fees. Singaporeans have never known a world where one is almost completely free to contribute to society in a positive way or act in an irresponsible and self-destructive manner.

Singapore’s healthcare works because Singapore’s society works. There are certain behaviors such as vagrancy, drug abuse and living on government handouts that would not be socially acceptable in Singapore but are very much a part of life in the US. [This is a critical observation. Likewise, Singapore’s model of state paternalism in healthcare where the government decides what Medisave can and cannot be used for, dictates savings rates etc. will be difficult to implement in the US. Health systems in some ways simply reflect the context of the societal ethos of any particular country.] As such, any comparison of individual components of daily life need to take into account the culture and how tolerant a society is of deviant behaviors.

A final but vital factor differentiating the two has to do with tort law and the American penchant for obtaining something for nothing through the legal process. [Very valid point which I edited out of the final commentary that appeared due to space constraints. The Singapore legal system where contingency based fees and punitive damages are disallowed very likely cools the ardor for litigation and consequently also the penchant for defensive medicine] What America needs is a two-tiered healthcare system but in practice, it would be impossible to administer until they can curb the desires of those who wish to eat prime rib for the price of a hamburger. [This is so true. In some ways, the American ability to print money allows this to perpetuate and allows politicians to kick the can down the road. Singapore has no such luxury and so must practice fiscal prudence. That said, while Singaporeans accept there is a price to pay for ‘prime rib’ and that those who eat ‘prime rib’ should pay for it, I am not sure that ‘hamburger’ is good enough anymore. Maybe expectations have outstripped the ability to provide, or maybe the quality of the ‘hamburger’ has dropped. Maybe there is only so much meat to go around and more ‘prime rib’ means less cow for ‘hamburgers’. Maybe all of the above, but whatever the case, this will be a key issue for health ministers, current and future, to grapple with.] 

Further comments (7.48 pm 15 June 2013)

Interesting piece in the weekend edition of the International Herald Tribune by Robert Frank, an economics professor from Cornell who had just spent time in Sweden on a fellowship. “Swedes’ way a harbinger for health” concludes: Their (congressional critics opposed to Obamacare) core premise- that greater government involvement in healthcare provision spells disaster- lacks support in the wealth of evidence from around the world that bears on it. The truth appear closer to the reverse: Because of pervasive market failures in private healthcare markets, this may be the sector that benefits most from collective action.”

Advertisements

3 comments

  1. Lorena Tan · · Reply

    Why is it that external observers (eg Heseltine and Tett) are impressed with our healthcare system while those who live here are fearful that they can’t afford to get sick? Tett’s experience was ten years ago, perhaps before medical costs started to escalate…We shouldn’t be afraid to deviate from the market mechanism for specific desirable goals. I would’ve thought the market mechanism has limited application to basic health care if we want to provide a better level of care to fellow citizens.

  2. The Singapore system looks good at the macro level and actually is pretty decent, especially for those with insurance or money. And most commentators or foreigners who get published in the international media fall into that category!

  3. […] – Insights Health Associates: Myth of the invisible hand in Healthcare […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: