The market for healthcare
There was an interesting discussion over on politics@aqute where comparisons were made between the costs of US healthcare and those of most European countries. (In case you wonder, you ought to get sick in Western-Europe: same care, only much cheaper...). At that point questions were raised about the efficiencies and inefficiencies of the 'market for healthcare'.
Here I would simply want to raise a theoretical point. Why should you think that a market for healthcare could ever be efficient? Here are some considerations why not:
First, there is no single commodity 'healthcare', but a very mixed bunch of goods and services.
Secondly, because of this, you can expect that the 'market' for certain services, is more like an oligopoly or even a monopoly. Think of certain drugs -- even generic ones -- where only a few companies or just one, manufactures them We all know from econ 101 that monopolies and oligopolies are not efficient.
Third, the demand for many of the goods and services under the heading of healthcare is extremely inelastic, perhaps even lexical. When you are confronted with potentially deadly or debilitating afflictions, you are willing to part with lots and lots of disposable income to get cured. Personally, I would fork over €1000 with equal ease as I would pay €1 for a medicine if it is going to save my life.
Fourth, lots of 'healthcare' is not best described as 'goods and services', but exactly as the name suggests: as care. For example, there are 20-odd regimes and methods to deal with secondary diabetes. Doctors spend lots of time with their patients to figure out what suits them best. My sister, a family physician in the Netherworld, told me the following story. She had a male patient in his mid-50s who was diagnosed with diabetes. After explaining the options available, the man told her that he preferred inoculating insulin himself on a daily basis. This involves among other things, day-to-day monitoring of one's own sugar-levels and recording them. After a week, the patient visited her, as agreed before to report on his experiences. It turned out that he had not monitored his sugar-levels at all. Now, IF diabetes treatment were just some service, the obvious conclusion would be that the man apparently does not want the self-inoculating treatment after all and you would suggest a different approach. But for healthcare professionals, here is where the real work starts. For the thing to do now is to figure out why this patient is not monitoring his sugar levels and fine-tuning the treatment given the results of this investigation. In other words, what is required from the healthcare professional now is an attitude of caring for his patient -- not an attitude of a commercial service provider, like a banker or an accountant. Since the nature of the goods to be provided consist of such a large measure of 'care', which is a "commodity' radically different in kind from other goods and services, it seems to me likely to be expected that the 'market' of care functions is radically different way than that of, say, legal advice or financial consultancy. (Nancy Folbre is an economist at the University of Massachussets who has done some work into this aspect of healthcare if I remember correctly).
Finally, the level of knowledge and expertise required to make informed consumer decisions in healthcare is in some case not realistic. My physician offered to prescribe one of two anti-allergy tablets: loratadine or the other stuff (I forgot the name). Both have advantages and disadvantages. How can I know which one to ask for? Also, my physician will perhaps know of some general known side-effects and the overall effectiveness of both drugs, but she does not know about the cost of these things. Nor does she know what works best for me. How is one to make rational, informed consumer decisions in such a situation? More, precise, in situations of asymmetry of information, an efficient price and allocation are unlikely to occur.
Here I would simply want to raise a theoretical point. Why should you think that a market for healthcare could ever be efficient? Here are some considerations why not:
First, there is no single commodity 'healthcare', but a very mixed bunch of goods and services.
Secondly, because of this, you can expect that the 'market' for certain services, is more like an oligopoly or even a monopoly. Think of certain drugs -- even generic ones -- where only a few companies or just one, manufactures them We all know from econ 101 that monopolies and oligopolies are not efficient.
Third, the demand for many of the goods and services under the heading of healthcare is extremely inelastic, perhaps even lexical. When you are confronted with potentially deadly or debilitating afflictions, you are willing to part with lots and lots of disposable income to get cured. Personally, I would fork over €1000 with equal ease as I would pay €1 for a medicine if it is going to save my life.
Fourth, lots of 'healthcare' is not best described as 'goods and services', but exactly as the name suggests: as care. For example, there are 20-odd regimes and methods to deal with secondary diabetes. Doctors spend lots of time with their patients to figure out what suits them best. My sister, a family physician in the Netherworld, told me the following story. She had a male patient in his mid-50s who was diagnosed with diabetes. After explaining the options available, the man told her that he preferred inoculating insulin himself on a daily basis. This involves among other things, day-to-day monitoring of one's own sugar-levels and recording them. After a week, the patient visited her, as agreed before to report on his experiences. It turned out that he had not monitored his sugar-levels at all. Now, IF diabetes treatment were just some service, the obvious conclusion would be that the man apparently does not want the self-inoculating treatment after all and you would suggest a different approach. But for healthcare professionals, here is where the real work starts. For the thing to do now is to figure out why this patient is not monitoring his sugar levels and fine-tuning the treatment given the results of this investigation. In other words, what is required from the healthcare professional now is an attitude of caring for his patient -- not an attitude of a commercial service provider, like a banker or an accountant. Since the nature of the goods to be provided consist of such a large measure of 'care', which is a "commodity' radically different in kind from other goods and services, it seems to me likely to be expected that the 'market' of care functions is radically different way than that of, say, legal advice or financial consultancy. (Nancy Folbre is an economist at the University of Massachussets who has done some work into this aspect of healthcare if I remember correctly).
Finally, the level of knowledge and expertise required to make informed consumer decisions in healthcare is in some case not realistic. My physician offered to prescribe one of two anti-allergy tablets: loratadine or the other stuff (I forgot the name). Both have advantages and disadvantages. How can I know which one to ask for? Also, my physician will perhaps know of some general known side-effects and the overall effectiveness of both drugs, but she does not know about the cost of these things. Nor does she know what works best for me. How is one to make rational, informed consumer decisions in such a situation? More, precise, in situations of asymmetry of information, an efficient price and allocation are unlikely to occur.
Given all these factors, I doubt that an efficient market in healthcare is even theoretically possible and I am not surprised that neither the private sector, nor the public sector are particularly good at organizing 'healthcare' in efficient ways.
Labels: economics
posted by Bruno at Monday, January 08, 2007
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