HPU
Providing health care is complex: treating it as simple is catastrophic
Author: Eustace DavieDate: 3 July 2009

No single person has a complete understanding of the SA health care system. Anyone who believes they do, suffers from what Nobel Laureate Friedrich Hayek described as a ‘fatal conceit’.

Policy makers world-wide have made the fatal error of basing decisions on information and knowledge they have assumed adequate to plan and implement health care systems; systems they believed would provide outcomes superior to those that result from the independent planning of thousands or even millions of health care providers. Instead, for the patients, these outcomes have generally ranged from poor to catastrophic.

Patients are consumers and in their daily decisions to purchase or refrain from purchasing health care products or services, provide the only reliable guide as to what, how much and at what price health care products and services should be produced or supplied. Statutory or regulatory interference with the price signals emanating from myriad transactions between consumers and suppliers create shortages that deprive consumers of the goods and services that would otherwise be available to them.

A striking example of official tampering that incongruously reduces the availability of medical services is government intervention in the building of hospitals and clinics and in the purchase of advanced medical equipment. The only issue that should be of relevance to government in such matters is the safety of patients. Setting objective building specification standards to achieve patient safety (applied equally to public and private hospitals and clinics) falls within the regular ambit of government responsibilities. Deciding on private investments does not. No government official, as is currently the case, should be charged with the impossible task of deciding where and when private companies, using their own capital and at their own risk, build new hospitals and clinics or purchase new equipment. With the best will in the world, no official has the knowledge or information to restrict entry in this way without causing harm.

We are told that private hospitals are under-utilised.  We are also told that they charge excessive prices for their services. From an economic point of view, these two types of alleged behaviour are contradictory. If the bed-occupancy rates are low, the logical response is to cut prices to fill beds in order to increase profits. It is lower prices that fill beds, not higher prices, unless of course government prevents the natural demand-driven increase in hospital beds and competition, which is obviously what is occurring right now in SA. If demand exceeds supply the economic response in private business is for prices and supply to increase to the point where demand and supply are relatively balanced. 

Studies in the US and SA point to a tendency on the part of politicians and government officials to under-estimate the occupancy levels of hospitals. The reason is that they under-estimate the complexity of the calculation. They usually work on simple average bed-occupancy levels when there is a great deal more to establishing whether a hospital is functioning efficiently.

Hospital managements must make provision for peak days, knowing in advance that there will be days when a large percentage of beds will be empty. Key personnel have to rest some time, and in SA the preferred time to do so is over weekends, so doctors and specialists attempt to arrange admittances so that they and key support staff attend to hospitalised patients on weekdays. A key logistical problem is to ensure that everyone who is scheduled to attend to a specific patient will be available when needed. A decision to fill a hospital bed is therefore infinitely more complex than discovering that there is a vacant bed; once admitted the patient must be attended to expeditiously so the schedule of events and staff availability have to be carefully co-ordinated.

Obstetrics units and ICU’s have to have the capacity to provide an appropriate bed when needed if a hospital is to be considered to be functioning efficiently and providing quality care.

Pity the government officials who are expected to make crucial decisions as to whether or not SA ‘needs’ more hospitals: they have to stumble around in the dark and be aware that wrongly declined licences for the building of new hospitals could result in thousands of avoidable deaths.   

Government officials in the UK and Canada are compelled to take a hard line. There the political objective is to provide so-called ‘free’ taxpayer-paid health care but demand is unlimited and supply constrained by the political ability of politicians to extract money from taxpayers and the inefficiencies inherent in government-dominated supply. Officials know in advance that they cannot provide what has been promised. The resultant response to the unavoidable something-for-nothing excessive demand is quite barbaric; the government health care system makes patients wait. And that wait is sometimes so long that patients do not make it into hospitals but die waiting.

Nadeem Esmail, Fraser Institute director of health system performance studies and co-author of the How Good is Canadian Health Care? 2008 Report points out that, except for Iceland and Switzerland, Canada spends more on health care on an age-adjusted basis than any other industrialised nation with a universal access system, yet Canada ranks near the bottom in terms of access to physicians and new medical technology. ‘Canada is the only OECD country that outlaws privately-funded purchases of core health care services. In addition, nearly 85 per cent of the other OECD countries also charge user fees for access to health care services such as doctor visits and hospital care.’

With regard to age-adjusted access to high-tech machinery, Canada performs dismally by comparison with other OECD countries, the study found. ‘While ranking number two as a health care spender, Canada ranks 14th of 25 in access to MRIs, 19th of 26 in access to CT scanners, eighth of 21 in access to mammographs, and ties with New Zealand at 19th of 21 in access to lithotriptors. Lack of access to machines has also meant longer waiting times for diagnostic assessment, and mirrors the longer waiting times for access to specialists and to treatment found in the comparative studies examined for this study.’

What the Canadian findings illustrate once again is that health care is too complex to be subjected to centralised control. With the best information systems, government controllers cannot acquire sufficient knowledge to allow them to make better decisions, or even comparable decisions, to those made by freely competing private providers.

SA’s government should allow the competitive private health care sector to assist it, voluntarily, to deal with the enormous complexity involved in attempting to provide the best possible care to SA’s population. Voluntary co-operation between government and private health care funders and providers will achieve a great deal more than draconian legislation and regulations.

Author: Eustace Davie is a director of the Free Market Foundation and of its Health Policy Unit. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the Foundation. 

HPU Feature Article / 30 June 2009