- Email: [email protected]
Equity and efficiency in health care
Sot. Sci. Med. Vol. 35, No. 4, pp. 465469, Printed in Great Britain
1992
0277-9536/92
SECTION EQUITY
AND
$5.00 + 0.00
Pergamon Press Ltd
EFFICIENCY
H IN HEALTH
CARE
DONALD W. LIGHT University of Medicine and Dentistry of New Jersey, Camden, NJ 08103, U.S.A. Abstract-Adam
Smith’s belief that markets will make society more equitable and efficient is examined in the case of reforms to make health care more competitive. Eight ways in which health care does not often satisfy the requirements for competitive markets, and nine ways in which providers can manipulate markets are identified. The concept of ‘embedded inefficiencies’ is introduced to explain why competition may not increase efficiency. Key words-equity,
efficiency, health care, markets, competition, medicine, doctors
In the swirl of political rhetoric and economic concerns, the relations between equity and efficiency are often miscast. Depending on the issue and the context, they can be intertwined or quite separate. The issue since the mid-1980s has been market reforms in several European countries to make services more efficient through competition, with the accompanying fear that this will lead to inequities between people of different social classes, between those with serious health problems and those without, or by the profitability of procedure. Behind this issue lies a thicket of assumptions, beliefs, and theories about the just distribution of goods stretching back past Karl Marx to Adam Smith, who believed that markets were the best means for abolishing the class inequality and privilege that governments perpetuated. [l]. In addition, markets would undo protectionism and monopolies, resulting in maximum efficiency. Indeed, perfect markets by definition result in equity and efficiency. The question which too few policy leaders and economists examine is whether imperfect markets (including nearly all health care markets) are close approximations of perfection, or whether they are very much less efficient and perhaps inequitable as well. The other starting point besides Adam Smith’s view of equity and efficiency via markets was the impact of industrialization and capitalism on the lives and labors of workers, so that they became ‘cornmodified’ and entirely dependent on the market. Friendly societies, corporations, and finally governments provided services and supports as substitutes for the village and family supports that helped prepare people for work and sustain those unable to work. Such services and supports ranged from minimal help when markets fail or people drop out of markets, to a universal baseline that sustained people independent of markets. From this point of view, 465
health care should be universally available and equitable, both to help those who fall out due to health problems and to enable the most efficient use of manpower. Market reforms within a health care system do not contradict this viewpoint of the health care system as a precondition and a welfare service, but the fear is that they will compromise it. There is one important way, however, in which the current drive for efficiency need not compromise equity. A concern for value as health budgets increase, and the large amount of unexplained variation in practice decisions amongst providers, are fueling a major effort to measure the comparative effectiveness of different procedures. Somehow, efficiency drives are discussed and conceived separately from outcomes work; yet Archie Cochrane [2] made clear 20 years ago that the greatest efficiency gains come from eliminating ineffective or questionable procedures. The campaign for effectiveness should also pose no problem for maximizing equity. The Cochrane Test for measuring the efficiency of any health care system consists of 6 rules for maximizing the effectiveness of the services rendered [3]. DISTRUSTING DOCTORS AND AUTHORITY The current reforms seem to pose regulation, with its equitable but inefficient tendencies, against competition, with its potentially efficient but inequitable tendencies. However, behind the drive for costeffectiveness is a different facet of the issue, the distrust of doctors. In this era of accountability, where hundreds of measures record what providers do, at what cost, and with what benefits, the model of professionalism has fallen. It is professionalism, not regulation, that represents the basic alternative to markets and the economic paradigm. The argument goes like this: since markets will not work in medicine because of uncertainties, the contingent nature of decisions, and the asymmetry of information, pro-
DONALD W. LIGHT
466
fessional judgment is the key to equitable and efficient service. Professionalism embodies expert assessment of the problems and their possible treatment, impartial treatment of clients, and informed use of resources to maximize effectiveness. All this is done even more efficiency and quickly than a market can: no comparative pricing or monitoring or quality asessment or bidding is necessary. The trouble, however, is that professionals decide ‘expertly, equitably and efficiently’ to treat similar cases differently, at very different costs, without clear evidence of effectivenss. “Trust me; I’m a board-certified physician” has lost such credibility that researchers now even talk about ‘choice of doctor’ as an independent variable affecting the chances that one will be admitted to a hospital or have surgery. The professionals’ equitable treatment of clients or patients is also under challenge, with charges of arrogance, favoring patients with medically interesting disorders while making the others wait, sexual
prejudice and harassment, racial prejudice and prejudice against those who are older or have intractable chronic problems. In today’s rhetoric of reform, these charges get translated into ‘consumer choice’ as part of market reforms. Consumerism, in turn, is part of a larger focus on decentralizing decisions to increase responsiveness and efficiency at the local level. The results, both in the U.K. and elsewhere, are likely to be much more mixed than the promises. Greater consumer response, for example, can quickly lead to greater inequities, depending on one’s values and goals. Responding to consumers presumably means responding to demand, and within a limited budget, that means that those in need who are not so able or skilled at demanding will be made to wait instead. Is that more equitable? In addition, social class correlates strongly with the skilful use of social services. A focus on responsiveness to consumers will accentuate middle-class bias. Moreover, consumer responsiveness is more ‘inefficient’ simply because of the sheer time it takes to
“Managerialism” Power without Responsibility - It’s the clinicians who have to carry out what managers How, then, should power be structured ?
decide.
Bossing instead of Facilitating - Be sure managing does not detract from clinical services and bog down clinicians Overstaffing - Watch out for managerial proliferation - A bottom line is percent of total time and budget that goes to direct services Constructina -
a Market and Datamania
Keep it simple and minimal. This is not the US, with a loose, open structure and surpluses of everything in every city.
A focus on Procedures, -
Units of Service
Focus on outcomes wherever possible -where not, put the question to the providers Get the patients’ experience Focus on functioning Consider alternate modes of treatment, including self care and family care Mobilize and involve employers
The Drag Costs of “Losers” -
Measure them. Plan against them
An Ethos of Commercialism
-
Favorable selection Passing the buck and budget gaming Service dilution Fig. 1. New inefficiencies of medical markets.
Equity and efficiency in health care interact and be responsive. In terms of services per day or week, nothing is so efficient as unilateral expertise. Thus, there are tradeoffs of equities and inequities whether one puts needs firmly ahead of demands, or demands firmly ahead of needs. It depends on one’s point of view and values. The only way to avoid tradeoffs is to craft policies carefully to limit consumer-oriented reforms to universal behaviors, such as consulting all patients about the pros and cons of treatment choices and treating all patients with respect. Of course, this takes time and therefore is less ‘efficient’. Similar problems are posed by decentralizing decisions. Local responsiveness, in this case, is bound to increase variation just as an international movement sets out to reduce clinical variation through outcomes research and audit. Somehow the irony of this contradition never gets discussed. Decentralization, the complexities of which are nicely laid out by Anne Mills [4], aims to overcome the heavy hand, stupid inefficiencies, and false uniformity of central control. But of course, decentralized systems have long been known for their heavy political hands, their own kinds of stupid inefficiencies, and their lack of professional sophistication when it comes to complex matters such as running a health care system. Both can generate inequities, though of different natures. THE HAZARDS
OF MARKET REFORMS
The uncritical zeal for market reforms suggests that one ideology is being replaced by another. In the process, well-known problems of what economists call ‘market failure’ are being overlooked. Markets are supposed to work as they do in computers: many buyers, many sellers, fierce competition, relatively easy entry of new firms and exit of failing firms every year, excellent standardized information for comparative shopping, high responsiveness to pricing and to consumers, constant innovation, and rapidly increasing value for money. Health care is another story. 1. Often the ‘product’ to be bought and sold is difficult to define because it is emergent and contingent on what happens as the patient is being treated. Medicine involves a good deal of uncertainty and guessing with partial information at the moment of clinical decision-making. 2. Defining price, quality and price/quality tradeoffs is very difficult. 3. The seller/providers control much of the information and most of the moments of decision about what is bought or done. The seller is the buyer’s agent, and the buyer wants it that way! 4. Shopping is very complex and costly. Information on products, quality, service and price are very costly. These high transaction costs imply that hierarchy is more sensible than markets [5], but the reforms aim at replacing hierarchy with markets.
461
5. For most people, medical services are something they do not want to purchase. It is a derived demand, based on how well it will alleviate pain, injury, illness, or dysfunctions. 6. The basic principles of expected utility theory are rarely satisfied [6]. Effective markets assume that the buyer is able to order all combinations of goods according to his preferences and will select the first choice. This ordering will include price and all other costs, which will be fully borne by the buyer with no subsidies or insurance. Benefits of the choices will be fully known and measured, and the buyer will recieve them fully. The probabilities of all risks involved are known. 7. Many markets outside large cities offer little choice to buyers or consumers. This does not mean there is ‘no market’, as many aver, but rather that there are monopoly markets, where the sellers have control if they want to exercise it. 8. Markets often do not ‘clear’. Losing providers and institutions continue to work at half capacity, more inefficient than ever and probably at lower quality, providing a long-term costly drag on the system. Closing them down is politically very difficult. The dangers of provider manipulation
Policies using competition to make health care providers more efficient and responsive always come from institutional buyers, usually governments. Ironically, they overlook the strength of physicians if reforms cast them into the role of selling their services. Strategies which provider/sellers can and do use include: 1. Collusion. Providers work together to protect their prices or practices from meddling buyers. 2. Cost shifting via biased selection, whereby providers avoid costly cases. 3. Cost shifting via ‘appropriate referral’, whereby providers refer costly cases to a hospital or specialist whose costs are outside their budget. 4. Market segmentation via specialization in order to carve out a market niche where competition is minimal. 5. Market expansion via new techniques or diagnosis of more problems to be treated in the population. 6. Product differentiation. The classic argument used effectively by every good doctor, that no one does it as well or quite the same as s/he does. 7. Hiding or distorting information. This is a major effect of imperfect competition, which is the opposite of what textbooks say is supposed to happen. Providers become skilled at filling out forms to maximize income and at withholding information to minimize accountability. 8. Service manipulation. As the patient’s agent, doctors can induce them to have more services if paid by fee, and fewer services if paid by capitation.
468
DONALD
9. Product substitution or service dilution. Providers can do less or use cheaper means when doing the ‘same’ procedure or providing the ‘same’ service. All of these dangers can be minimized with careful design, but the task is not easy. As ‘dangers’, however, they indicate that economic competition is a powerful tool that will be used by all parties to maximize their utilities. Of particular note for policy makers and theoreticians is the withholding or manipulation of information and various forms of cheating. These happen all the time in non-medical markets, but advocates of competition do not talk frankly about them. Oral reports on the market reforms in Poland, for example, describe rampant forms of corruption that are almost crippling. Yet each ‘corruption’, like taking suitcases of money in and out of banks to earn interest on it over and over again because banks cannot track these manipulations, is a rational action by a player in a market. On the other hand, destroying a major corporation by selling off its pieces for large profits, as happens frequently in the United States, is not corrupt or even improper but rather ‘clever’ and ‘ingenious’. The inequities wrought on the thousands of employees laid off so that the owners can make a few hundred million are excused as “a tough break in market competition”. Only rules, regulations, and monitoring systems external to pure competition deem some of these actions to be ‘corruption’ and others not. Embedded
inejiciencies
Using competition to increase efficiency overlooks the fact that most inefficiencies in health care are embedded in customs, rules, the organization of work, professional values, and institutional structures which carry with them various kinds of inequities as well [7]. Competitive contracts per se are not very effective in reaching them. What is needed is a sociological/organizational analysis of their embeddedness and a focused program to restructure affairs so that practices can be more efficient. For example, many health care systems divide services roughly between hospital-based specialists and community-based generalists. This is becoming quite inefficient, because so many specialty services can be done on an outpatient basis, and because subtle coordination between family physicians and specialists over persistent problems increasingly makes technological sense. Competitive contracts alone will, if anything, reinforce the inefficient division, because hospitals and community doctors will each lock in their segment of practice as they write contracts to protect their business. With or without competition, the embedded division of work needs to be broken up. This, in turn, calls for a thoughtful program of institutional transition involving new arrangements, differently structured
W.
LIGHT
budgets, interspecialty retraining, and a new form of record-keeping. Another major form of embedded inefficiency is professional balkanization through licensing and certification. Much of the work done by doctors can be done by properly trained nurses or physicianassistants, and research by doctors have often found no significant differences in quality [8]. Competitive contracting will not touch the laws and regulations that embed this inefficiency, and it may not even affect the organization of work that stems from them. In fact, each vested interest may lock in its market niche, even though inefficient from the system’s point of view. A different but interesting form of embedded inefficiency comes from underfunding. Of course by definition spending less is cheaper; but it is not often more efficient. When facilities or service teams work below capacity, they are less efficient, and the health care system is paying more than it has to per service rendered. Such sub-optimal funding is usually embedded in politics. Also, insufficient capital to buy or build something that is more efficient can be very inefficient, such as replacing an old hospital furnace with a modern one that will pay for itself in 34 years. Such inefficiencies are again embedded in political rules, guidelines and values about how budgets should be structured. A third kind of inefficient underfunding is embedded in the budgetary focus on acute, medical problems. One of the most striking examples, ignored by nearly every health care system, is the small budget and service structure provided for childhood psychiatric problems, even though extensive research shows that untreated disturbed children have a high probability of performing poorly in school and later in work, going on welfare, becoming heavy users of alcohol and/or drugs, requiring more medical services, committing crimes, and producing similar children for the next generation [9-l I]. Treatment of such children (about 17-22% of each cohort [12]) is much more efficient than most of adult medicine or surgery; yet its neglect is embedded in the prejudice that child psychiatric teams run glorified nursery schools. Finally, competition itself can produce new inefficiencies, as noted above. The costs of defining products, pricing them, and monitoring them; the costs of designing, installing and running very complex information systems; the costs of very elaborate rules regulations and their enforcement; and the costs of much more expensive management are all ‘inefficiencies’ in that they add expense without adding service. They also create new inequities, principally between clinicians and managers. But then reliance on autonomous professionals embodies the observe inequity.
REFERENCES 1.
Esping-Andersen G. The three political economies of the welfare state. The Three Worlds of Welfare
Equity
2.
3.
4.
5.
6.
and efficiency
Capitalism, Chap. 1. Princeton University Press, Princeton, 1990. Cochrane A. Effectiveness and Eficiency: Random ReJections on Health Services. Nuffield Provincial Hospitals Trust, London, 1972. Light D. W. Effectiveness and efficiency under competition: the Cochrane test. Br. Med. J. 303, 1253-1254, 1991. Mills A. Decentralization concepts and issues: a review. In Health System Decentralization: Concepts, Issues and Country Experience (Edited by Mills A., Vaughan J. P., Smith D. L. and Tabibzadeh I.), pp. 1 l-42. World Health Organization, Geneva, 1990. Williamson 0. E. Markets and Hierarchies. Free Press, New York, 1975; Light D. W. Effectiveness and efficiency under competition: the Cochrane test. Br. Med. J. 303, 1253-1254, 1991. McGuire A., Henderson J. and Mooney G. The
in health
7. 8. 9.
10. 11.
12.
care
469
Economics of Health Care. Routledge & Kegan Paul, London, 1988. Light D. W. Embedded inefficiencies in health care. The Lancet 338, 102-104, 1991. Light D. W. Is competition bad? N. Engl. J. Med. 309, 1315-1319, 1983. Robins I. N. Arrests and delinquency in two generations: A study of black urban families and their children. J. Child Psychol. Psychiat. 16, 125-140, 1975. Rutter M. Pathways from childhood to adult life. J. Child Psycho/. Psychiat. 30, 23-51, 1989. Velez C. N., Johnson J. and Cohen P. A longitudinal analysis of selected risk factors for childhood psychopathology. J. Am. Acad. Child Adolesc. Psychiat. 28, 861-864, 1989. Costello E. J. Developments in child psychiatric epidemiology. J. Am. Acad. Child. Adolesc. Psychiat. 28, 836-841, 1989.
1992
0277-9536/92
SECTION EQUITY
AND
$5.00 + 0.00
Pergamon Press Ltd
EFFICIENCY
H IN HEALTH
CARE
DONALD W. LIGHT University of Medicine and Dentistry of New Jersey, Camden, NJ 08103, U.S.A. Abstract-Adam
Smith’s belief that markets will make society more equitable and efficient is examined in the case of reforms to make health care more competitive. Eight ways in which health care does not often satisfy the requirements for competitive markets, and nine ways in which providers can manipulate markets are identified. The concept of ‘embedded inefficiencies’ is introduced to explain why competition may not increase efficiency. Key words-equity,
efficiency, health care, markets, competition, medicine, doctors
In the swirl of political rhetoric and economic concerns, the relations between equity and efficiency are often miscast. Depending on the issue and the context, they can be intertwined or quite separate. The issue since the mid-1980s has been market reforms in several European countries to make services more efficient through competition, with the accompanying fear that this will lead to inequities between people of different social classes, between those with serious health problems and those without, or by the profitability of procedure. Behind this issue lies a thicket of assumptions, beliefs, and theories about the just distribution of goods stretching back past Karl Marx to Adam Smith, who believed that markets were the best means for abolishing the class inequality and privilege that governments perpetuated. [l]. In addition, markets would undo protectionism and monopolies, resulting in maximum efficiency. Indeed, perfect markets by definition result in equity and efficiency. The question which too few policy leaders and economists examine is whether imperfect markets (including nearly all health care markets) are close approximations of perfection, or whether they are very much less efficient and perhaps inequitable as well. The other starting point besides Adam Smith’s view of equity and efficiency via markets was the impact of industrialization and capitalism on the lives and labors of workers, so that they became ‘cornmodified’ and entirely dependent on the market. Friendly societies, corporations, and finally governments provided services and supports as substitutes for the village and family supports that helped prepare people for work and sustain those unable to work. Such services and supports ranged from minimal help when markets fail or people drop out of markets, to a universal baseline that sustained people independent of markets. From this point of view, 465
health care should be universally available and equitable, both to help those who fall out due to health problems and to enable the most efficient use of manpower. Market reforms within a health care system do not contradict this viewpoint of the health care system as a precondition and a welfare service, but the fear is that they will compromise it. There is one important way, however, in which the current drive for efficiency need not compromise equity. A concern for value as health budgets increase, and the large amount of unexplained variation in practice decisions amongst providers, are fueling a major effort to measure the comparative effectiveness of different procedures. Somehow, efficiency drives are discussed and conceived separately from outcomes work; yet Archie Cochrane [2] made clear 20 years ago that the greatest efficiency gains come from eliminating ineffective or questionable procedures. The campaign for effectiveness should also pose no problem for maximizing equity. The Cochrane Test for measuring the efficiency of any health care system consists of 6 rules for maximizing the effectiveness of the services rendered [3]. DISTRUSTING DOCTORS AND AUTHORITY The current reforms seem to pose regulation, with its equitable but inefficient tendencies, against competition, with its potentially efficient but inequitable tendencies. However, behind the drive for costeffectiveness is a different facet of the issue, the distrust of doctors. In this era of accountability, where hundreds of measures record what providers do, at what cost, and with what benefits, the model of professionalism has fallen. It is professionalism, not regulation, that represents the basic alternative to markets and the economic paradigm. The argument goes like this: since markets will not work in medicine because of uncertainties, the contingent nature of decisions, and the asymmetry of information, pro-
DONALD W. LIGHT
466
fessional judgment is the key to equitable and efficient service. Professionalism embodies expert assessment of the problems and their possible treatment, impartial treatment of clients, and informed use of resources to maximize effectiveness. All this is done even more efficiency and quickly than a market can: no comparative pricing or monitoring or quality asessment or bidding is necessary. The trouble, however, is that professionals decide ‘expertly, equitably and efficiently’ to treat similar cases differently, at very different costs, without clear evidence of effectivenss. “Trust me; I’m a board-certified physician” has lost such credibility that researchers now even talk about ‘choice of doctor’ as an independent variable affecting the chances that one will be admitted to a hospital or have surgery. The professionals’ equitable treatment of clients or patients is also under challenge, with charges of arrogance, favoring patients with medically interesting disorders while making the others wait, sexual
prejudice and harassment, racial prejudice and prejudice against those who are older or have intractable chronic problems. In today’s rhetoric of reform, these charges get translated into ‘consumer choice’ as part of market reforms. Consumerism, in turn, is part of a larger focus on decentralizing decisions to increase responsiveness and efficiency at the local level. The results, both in the U.K. and elsewhere, are likely to be much more mixed than the promises. Greater consumer response, for example, can quickly lead to greater inequities, depending on one’s values and goals. Responding to consumers presumably means responding to demand, and within a limited budget, that means that those in need who are not so able or skilled at demanding will be made to wait instead. Is that more equitable? In addition, social class correlates strongly with the skilful use of social services. A focus on responsiveness to consumers will accentuate middle-class bias. Moreover, consumer responsiveness is more ‘inefficient’ simply because of the sheer time it takes to
“Managerialism” Power without Responsibility - It’s the clinicians who have to carry out what managers How, then, should power be structured ?
decide.
Bossing instead of Facilitating - Be sure managing does not detract from clinical services and bog down clinicians Overstaffing - Watch out for managerial proliferation - A bottom line is percent of total time and budget that goes to direct services Constructina -
a Market and Datamania
Keep it simple and minimal. This is not the US, with a loose, open structure and surpluses of everything in every city.
A focus on Procedures, -
Units of Service
Focus on outcomes wherever possible -where not, put the question to the providers Get the patients’ experience Focus on functioning Consider alternate modes of treatment, including self care and family care Mobilize and involve employers
The Drag Costs of “Losers” -
Measure them. Plan against them
An Ethos of Commercialism
-
Favorable selection Passing the buck and budget gaming Service dilution Fig. 1. New inefficiencies of medical markets.
Equity and efficiency in health care interact and be responsive. In terms of services per day or week, nothing is so efficient as unilateral expertise. Thus, there are tradeoffs of equities and inequities whether one puts needs firmly ahead of demands, or demands firmly ahead of needs. It depends on one’s point of view and values. The only way to avoid tradeoffs is to craft policies carefully to limit consumer-oriented reforms to universal behaviors, such as consulting all patients about the pros and cons of treatment choices and treating all patients with respect. Of course, this takes time and therefore is less ‘efficient’. Similar problems are posed by decentralizing decisions. Local responsiveness, in this case, is bound to increase variation just as an international movement sets out to reduce clinical variation through outcomes research and audit. Somehow the irony of this contradition never gets discussed. Decentralization, the complexities of which are nicely laid out by Anne Mills [4], aims to overcome the heavy hand, stupid inefficiencies, and false uniformity of central control. But of course, decentralized systems have long been known for their heavy political hands, their own kinds of stupid inefficiencies, and their lack of professional sophistication when it comes to complex matters such as running a health care system. Both can generate inequities, though of different natures. THE HAZARDS
OF MARKET REFORMS
The uncritical zeal for market reforms suggests that one ideology is being replaced by another. In the process, well-known problems of what economists call ‘market failure’ are being overlooked. Markets are supposed to work as they do in computers: many buyers, many sellers, fierce competition, relatively easy entry of new firms and exit of failing firms every year, excellent standardized information for comparative shopping, high responsiveness to pricing and to consumers, constant innovation, and rapidly increasing value for money. Health care is another story. 1. Often the ‘product’ to be bought and sold is difficult to define because it is emergent and contingent on what happens as the patient is being treated. Medicine involves a good deal of uncertainty and guessing with partial information at the moment of clinical decision-making. 2. Defining price, quality and price/quality tradeoffs is very difficult. 3. The seller/providers control much of the information and most of the moments of decision about what is bought or done. The seller is the buyer’s agent, and the buyer wants it that way! 4. Shopping is very complex and costly. Information on products, quality, service and price are very costly. These high transaction costs imply that hierarchy is more sensible than markets [5], but the reforms aim at replacing hierarchy with markets.
461
5. For most people, medical services are something they do not want to purchase. It is a derived demand, based on how well it will alleviate pain, injury, illness, or dysfunctions. 6. The basic principles of expected utility theory are rarely satisfied [6]. Effective markets assume that the buyer is able to order all combinations of goods according to his preferences and will select the first choice. This ordering will include price and all other costs, which will be fully borne by the buyer with no subsidies or insurance. Benefits of the choices will be fully known and measured, and the buyer will recieve them fully. The probabilities of all risks involved are known. 7. Many markets outside large cities offer little choice to buyers or consumers. This does not mean there is ‘no market’, as many aver, but rather that there are monopoly markets, where the sellers have control if they want to exercise it. 8. Markets often do not ‘clear’. Losing providers and institutions continue to work at half capacity, more inefficient than ever and probably at lower quality, providing a long-term costly drag on the system. Closing them down is politically very difficult. The dangers of provider manipulation
Policies using competition to make health care providers more efficient and responsive always come from institutional buyers, usually governments. Ironically, they overlook the strength of physicians if reforms cast them into the role of selling their services. Strategies which provider/sellers can and do use include: 1. Collusion. Providers work together to protect their prices or practices from meddling buyers. 2. Cost shifting via biased selection, whereby providers avoid costly cases. 3. Cost shifting via ‘appropriate referral’, whereby providers refer costly cases to a hospital or specialist whose costs are outside their budget. 4. Market segmentation via specialization in order to carve out a market niche where competition is minimal. 5. Market expansion via new techniques or diagnosis of more problems to be treated in the population. 6. Product differentiation. The classic argument used effectively by every good doctor, that no one does it as well or quite the same as s/he does. 7. Hiding or distorting information. This is a major effect of imperfect competition, which is the opposite of what textbooks say is supposed to happen. Providers become skilled at filling out forms to maximize income and at withholding information to minimize accountability. 8. Service manipulation. As the patient’s agent, doctors can induce them to have more services if paid by fee, and fewer services if paid by capitation.
468
DONALD
9. Product substitution or service dilution. Providers can do less or use cheaper means when doing the ‘same’ procedure or providing the ‘same’ service. All of these dangers can be minimized with careful design, but the task is not easy. As ‘dangers’, however, they indicate that economic competition is a powerful tool that will be used by all parties to maximize their utilities. Of particular note for policy makers and theoreticians is the withholding or manipulation of information and various forms of cheating. These happen all the time in non-medical markets, but advocates of competition do not talk frankly about them. Oral reports on the market reforms in Poland, for example, describe rampant forms of corruption that are almost crippling. Yet each ‘corruption’, like taking suitcases of money in and out of banks to earn interest on it over and over again because banks cannot track these manipulations, is a rational action by a player in a market. On the other hand, destroying a major corporation by selling off its pieces for large profits, as happens frequently in the United States, is not corrupt or even improper but rather ‘clever’ and ‘ingenious’. The inequities wrought on the thousands of employees laid off so that the owners can make a few hundred million are excused as “a tough break in market competition”. Only rules, regulations, and monitoring systems external to pure competition deem some of these actions to be ‘corruption’ and others not. Embedded
inejiciencies
Using competition to increase efficiency overlooks the fact that most inefficiencies in health care are embedded in customs, rules, the organization of work, professional values, and institutional structures which carry with them various kinds of inequities as well [7]. Competitive contracts per se are not very effective in reaching them. What is needed is a sociological/organizational analysis of their embeddedness and a focused program to restructure affairs so that practices can be more efficient. For example, many health care systems divide services roughly between hospital-based specialists and community-based generalists. This is becoming quite inefficient, because so many specialty services can be done on an outpatient basis, and because subtle coordination between family physicians and specialists over persistent problems increasingly makes technological sense. Competitive contracts alone will, if anything, reinforce the inefficient division, because hospitals and community doctors will each lock in their segment of practice as they write contracts to protect their business. With or without competition, the embedded division of work needs to be broken up. This, in turn, calls for a thoughtful program of institutional transition involving new arrangements, differently structured
W.
LIGHT
budgets, interspecialty retraining, and a new form of record-keeping. Another major form of embedded inefficiency is professional balkanization through licensing and certification. Much of the work done by doctors can be done by properly trained nurses or physicianassistants, and research by doctors have often found no significant differences in quality [8]. Competitive contracting will not touch the laws and regulations that embed this inefficiency, and it may not even affect the organization of work that stems from them. In fact, each vested interest may lock in its market niche, even though inefficient from the system’s point of view. A different but interesting form of embedded inefficiency comes from underfunding. Of course by definition spending less is cheaper; but it is not often more efficient. When facilities or service teams work below capacity, they are less efficient, and the health care system is paying more than it has to per service rendered. Such sub-optimal funding is usually embedded in politics. Also, insufficient capital to buy or build something that is more efficient can be very inefficient, such as replacing an old hospital furnace with a modern one that will pay for itself in 34 years. Such inefficiencies are again embedded in political rules, guidelines and values about how budgets should be structured. A third kind of inefficient underfunding is embedded in the budgetary focus on acute, medical problems. One of the most striking examples, ignored by nearly every health care system, is the small budget and service structure provided for childhood psychiatric problems, even though extensive research shows that untreated disturbed children have a high probability of performing poorly in school and later in work, going on welfare, becoming heavy users of alcohol and/or drugs, requiring more medical services, committing crimes, and producing similar children for the next generation [9-l I]. Treatment of such children (about 17-22% of each cohort [12]) is much more efficient than most of adult medicine or surgery; yet its neglect is embedded in the prejudice that child psychiatric teams run glorified nursery schools. Finally, competition itself can produce new inefficiencies, as noted above. The costs of defining products, pricing them, and monitoring them; the costs of designing, installing and running very complex information systems; the costs of very elaborate rules regulations and their enforcement; and the costs of much more expensive management are all ‘inefficiencies’ in that they add expense without adding service. They also create new inequities, principally between clinicians and managers. But then reliance on autonomous professionals embodies the observe inequity.
REFERENCES 1.
Esping-Andersen G. The three political economies of the welfare state. The Three Worlds of Welfare
Equity
2.
3.
4.
5.
6.
and efficiency
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