Economics 101: GCC has choice on what health system to emulate
In 2014, the Commonwealth Fund, a health think tank, compared the healthcare systems of 11 wealthy countries. Its findings offer insights for the Arabian Gulf countries, which are seeking to reform their own health care in response to rapidly growing and ageing populations.
The report contains some startling data from the World Bank: in 2011, US healthcare spending was US$8,500 per capita, compared with $5,500 for second-placed Norway – and 18 per cent of US GDP, compared with 12 per cent for the second highest (Netherlands). Despite this, the US ranked last in efficiency, equity, and its population’s health; and a mediocre performance elsewhere could not save America from getting the overall wooden spoon.
The GCC countries should note, therefore, that ineffective systems can cost billions of dollars and still deliver unsatisfactory health care. As it happens, the GCC states are moderate consumers: in 2014, per capita healthcare spending was $1,200 in Bahrain, $1,400 in Kuwait, $680 in Oman, $2,100 in Qatar, $1,200 in Saudi Arabia and $1,600 in the UAE – compared with $9,400 in the US, and a world average of $1,100. When it comes to spending that money, which country should the GCC emulate? The highest score in the Commonwealth Fund report went to the UK’s National Health Service (NHS). One common feature among the better-performing systems, including the NHS, is the existence of a public provider of health care that dominates the market, delivering every link in the health service chain, including visits to the family doctor, emergency medical attention, treatments for chronic illnesses, specialist consultation and so on.
Economists usually advise against monopolistic market structures for any service. In the case of a private provider, they fear abuse of market power; while in the case of a public monopolist, they worry about poor service quality, as the civil servants managing the organisation cannot use profits as an incentive for innovation and responsiveness for consumer needs. That is why many governments, including the GCC ones, prefer privatising certain state-owned enterprises and regulating them or exposing them to competition, such as is the case in telecommunications.
Yet the Commonwealth Fund’s findings suggest health services may constitute a special case. What might make governments willingly shun the forces of competition and profits in health care? Several factors play a role.
First, integrating health care across all the elements of the service chain – vertical integration – can help give physicians better incentives to deliver the correct treatment.
In the US, for example, the organisation paying for the treatment (typically the private insurer) is distinct from the one delivering the treatment (the hospital), and from the person receiving the treatment (the patient). This motivates the doctor to prescribe unnecessary treatments: the doctor will earn more money and medical ignorance leads the patient to accept treatment; and the insurer can only imperfectly monitor a doctor’s diagnosis and prognosis – there is a significant administrative cost associated with monitoring physicians.
Fragmented systems also encourage clinicians to prioritise short-term factors over long-term ones, as they know that they are unlikely to be responsible for delivering the long-term care. So, for example, doctors under decentralised healthcare systems are potentially less likely to emphasise the role of good lifestyle choices – and more likely to focus on medications – as treatments for immediate sources of discomfort, as the latter earns the doctor more. This costs the economy a lot because a healthy lifestyle improves long-run health outcomes in many different dimensions.
Monolithic public providers address these problems by integrating payer and deliverer, and the deliverer today with the deliverer five years from now. This motivates physicians to provide treatments based on a holistic assessment of the patient’s needs, and on a prudent assessment of the system’s financial capabilities. Doctors who make poor treatment choices are cheating their organisation and their other patients, rather than a faceless external insurer.
Second, integration also offers economies of scale, most notably the ability to easily share medical records across treatment units. Under fragmented systems, privacy concerns make it difficult for a clinician in one organisation to access the patient’s medical record housed in a different organisation, leading to many duplicated diagnostic tests, as well as lower-quality diagnoses due to the dependence on incomplete medical histories.
Private insurers in the US such as Kaiser Permanente realise this and have tried to create their own medical mini-leviathans that feature in-house doctors, nurses, hospitals, and so on. However, they can only cover a limited percentage of the market and a patient’s needs, leaving many gains from integration unrealised.
The GCC countries operate public monoliths inspired by the NHS rather than by the dysfunctional US system, but their economic visions indicate a desire to consider privatisation and the introduction of competition in many domains, potentially including health.
While few would contest the desirability of competition and decentralisation in the provision of bread or haircuts, the experience of many advanced economies suggests that health might be a special case. Ultimately, the healthcare riddle is one that nobody has managed to solve, reminding us to heed the words of GK Chesterton as summarised by John F Kennedy: “Don’t ever take a fence down until you know the reason why it was put up.”
Omar Al Ubaydli is the programme director for international and geopolitical studies at the Bahrain Center for Strategic, International and Energy Studies, and an affiliated associate professor of economics at George Mason University. He welcomes economics questions from readers via email (firstname.lastname@example.org) or tweet (@omareconomics).
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Updated: April 22, 2017 04:00 AM