Why has the economics of health-care policy gone wrong?
First, it is important to question who makes decisions about health-care policy both within and outside the system, and expose the influence of various actors, including the medical profession, the pharmaceutical industry, private health care and private health insurers. These are issues that come under the broad umbrella of the political economy of health care. They are too seldom discussed.
While there are many different definitions of political economy, that offered by Munro (2004: 146–7) is useful to our purposes here:
a study of society and social processes. It focuses on ‘material production’ in two senses: (i) how the creation, distribution, exchange and consumption of goods, services, income and wealth occurs, and (ii) how the organisation and imperatives of material production influence almost all of society’s other institutions, be they political, civil or cultural.
What I would add – just to be quite explicit – is that political economy is about power, specifically political power over resource allocation. Here the concern is about the political economy of health care; the next chapter is about the political economy of health; and the book as a whole is about the political economy of health and health care.
In health care, who decides – about what?
The question of ‘Who decides?’ in health care has to be followed by ‘About what?’ There are clinical issues with respect to patient care which are addressed by clinicians. There might at first sight seem little debate about the correctness of that. Yet such clinical decision making does not take place in a vacuum. There are budget limits; there may be restrictions placed on prescribing; the treatment of one patient may be affected by how many and what sorts of other patients the doctor or nurse is faced with, now or shortly. We know doctors are influenced by how they are paid. We thus need to be wary of thinking that ‘clinical freedom’ means unconstrained freedom to do whatever the clinical decision maker thinks is best for that patient, and accept also that doctors quite reasonably are influenced by what is good for themselves. In reality it turns out that there is substantial debate and disagreement about ‘boundaries’ to decision making here.
Where things get yet more interesting is at the planning and health-care policy level. Here there are multiple players: governments and politicians; managers, both lay and medical; the pharmaceutical industry; the private insurance sector; medical associations; nursing and other health-care professional associations; patients’ associations; trade unions – the list can get very long. Some of these groups act within the system; others, even if seemingly operating from within, are outside influences.
One of the difficulties in discussing these issues lies in the notion that health, and as a result health care, quickly becomes ‘everyone’s business’. While one can defend that with respect to health, for health care it becomes more difficult. What is useful and potentially helpful is to look at the incentives or motivations for these different groups to be involved.
What emerges is that very few have an interest in health – population or individual – for its own sake. In saying that, I have no intent to deny the fact that many health-care professionals are most concerned with and about their patients’ health, and in some cases I have no doubt this dominates (or even defines) their thinking. What is also striking is that few health-care professionals (except those in public health) have a concern for population health. Their focus when it is on health is on the individual patient’s health, and rightly so. But can we expect that such a focus will maximise population health or lead to fairness in health or health-care resource allocation? That seems most unlikely.
For several of these listed groups, the prime interest is economic or more accurately financial, either through employment or profit. As is exemplified in Chapter 10, the pharmaceutical industry is very clearly interested in profit maximisation and not in health maximisation. For some actors status matters. Managers and bureaucrats bring their own values to bear and press for more and better, for example, palliative care – forgetting they are there to serve the interests of the public in accordance with the values of the public.
There are so many ‘vested interests’ in and around health care. It is of note that in defining ‘vested interests’, the Collins dictionary, suggesting that it means ‘you have a very strong reason for acting in a particular way’, uses the examples of acting ‘to protect your money, power, or reputation’ – which is pretty close to the notion of status. All three of these interests are relevant for most of the groups listed above, but they are especially characteristic of medical associations.
Frighteningly, the question of who is to decide and about what in health care is too seldom asked, perhaps because those who currently hold power do not want the existing power structure challenged. The voice that is missing, that of the public, is unheard for two reasons. First, it is not wanted. Second, the public are too often confused between clinical decision making and other health-service decision making. Placing the medical profession on a pedestal for the first is fair enough; but in regard to the second such an attitude reveals a misunderstanding on the part of the public about the processes in question. It is also the case that the medical profession too often plays on the public’s confusion, muddies the waters, and ends up with more power than is justified in health-service decision making.
Current political economy of health care
The discussion above is concerned with what might well be seen as the existing political economy of health care. How is this interpreted? Who better, surely, to inform the public on this than conventional health economists? So much of what passes for health economics today has been and remains dominated by the messages of Kenneth Arrow’s classic 1963 piece on the nature of health care as a commodity (Arrow 1963). Health economists saw market failure in health care but really didn’t know what to do about it. Indeed, this sub-discipline was slow to move far at all,concentrating on keeping as much of Arrow’s paradigm as possible while embracing what essentially has become the medical model of the doctor–patient relationship: that is, a revised version of the principal–agent relationship, derived from conventional microeconomics. Bob Evans, the Canadian health economist, was one of the few who saw through this – first in his analysis of supplier-induced demand, but also, and more importantly, in his assessment of what lies behind medical practice variations (Evans 1990). He disputed the medical interpretation of what drives these variations – the Arrow-derived interpretation that focuses on uncertainty. Individual doctors don’t know what good they are doing, so they all end up doing different things – hence variations. Evans argued that instead the problem arose because of certainty: each doctor was certain that what she or he was doing was the right thing! That is not only a fundamentally different interpretation; it leads to very different policy options – the former to better information on effectiveness to reduce doctors’ uncertainty; and the latter to a big stick to get doctors to do what has been shown to be most efficient.
The attention that health economists have given to the Evans certainty hypothesis is all too limited, and Arrow’s uncertainty altar remains virtually unopposed as the place for the true believers to worship. Thus Arrow has continued to set the tone for the political economy of health care.
The other major strand here, again taken from the medical model, is the idea that the demand for health care is a derived demand – that is, it is demanded not for its own sake but because there is a demand for health. That is fair enough, but historically the discussions then moved to an assumption (by health economists!) that the demand derived exclusively from health, thus not allowing that access per se to health care might be valued, along with, for example, being treated with dignity. That monopoly of health on the source of demand set the political economy of health care very firmly in the medical model. Since medicine is about health and really only health – at least if we look at what is measured in most clinical trials, most evidence-based medicine and clinical epidemiology – this served to confirm the place of the medical profession in the health-care power seat. Most conventional health economists abandoned cost–benefit analysis (which inter alia encompasses all benefits), to replace it with cost–utility analysis (which considers only health on the benefit side). That had two impacts on the power structure in health care. First, as indicated, it put the focus firmly on a single output which was very largely under the control of the medical profession; and, second, it pushed health economists into an exclusive focus on – perhaps an obsession with – health status measurement. We health economists believed we would have power and influence if only we could solve the riddle of measuring health – hence the obsession with ‘Quality Adjusted Life Years’ (QALYs) and QALY league tables. (QALYs are a measure of health status devised and used by health economists to bring together on one metric the two main health outputs of health-care systems – quantity of life and quality of life.)
There is nothing wrong with this as such. But what it has meant in practice is that health economists have neglected other areas. What about the decision-making processes? QALYs are strictly only valid (even in their own terms) if we are concerned to maximise QALYs using a form of marginal analysis where decisions on resource allocation are made on the basis of the ratio of marginal benefits (here measured in QALYs) to marginal costs across different clinical areas or programmes being equated. (That means, in practice, looking to see whether moving $x from heart disease to cancer treatment results in a ‘better buy’ in terms of whatever benefits we seek to produce.) The extent to which the health economist fraternity concerned itself with this issue (essentially priority setting) was, however, very limited, beyond a short period of fascination with QALY league tables, and a few who looked at programme budgeting and marginal analysis.
In other words, the setting for evaluation was sadly neglected, and that setting is in effect the political economy of health care. It was never seriously examined whether the political economy of health care needed to be challenged. As a result, two things happened: the power and influence of the medical profession remained much as before, and the power and influence of health economists remained much as before. (I am not arguing for the advancement of health economists as decision makers, but, used well, I think our techniques and ways of thinking can improve decision making around resource allocation.)
While there was a belief that health economists could measure health and in turn the Holy Grail of efficiency would be within our reach, that belief did not extend readily to resolving equity issues. This was reflected in an editorial in Health Economics in 1993 in which the late UK health economist Alan Williams (1993) urged economists to get to grips with equity given our relative failure do so until then. Looking back over the last 40 or 50 years of health economics, despite a number of excellent analyses of equity, the actual impact on resource allocation in health care to boost those regions which are deprived, or to discriminate positively in favour of the poor, has been all too limited. And why? We can speculate, but if the power base of health-care decision making does not shift, how can we expect any major movement of resources away from the haves to the have-nots? And if we do not recognise the nature of the political economy of health care and seek to change it, why should we be surprised if little changes on the ground?
Health care has been commodified and seen almost solely in the context of the treatment for an individual. The second level, where the concern is with the health-care system as a social institution, is largely ignored. In this sense, the framework of the market has been retained and there has been little or no recognition of wider considerations and value systems which might accommodate the idea of health care as a social institution – where not only outcomes are valued, but processes might also count.
There seems to be little in the health economics literature about a political economy of health care, which might include some of these broader considerations. Mackintosh and Koivusalo (2005: 6), however, in their political economy of health services, argue that ‘health services must aim for universality of access according to need, and solidarity in provision and financing, and … health systems should be judged against these objectives. Solidarity here is about robust redistribution and cross-subsidy to sustain access on the basis of need.’ They add: ‘This implies that health system performance should not be exclusively defined in terms of health outcomes.’ Such thinking is most unusual, but also most welcome.
More observations on current health-care economics
There needs to be much more analysis of the power structures within health care, which is what much of this book is about. This is not to say that currently there is no political economy of health care. It is simply not possible to have a health-care system which operates in some sort of vacuum. What is needed is more detailed analysis of the existing political economy, an assessment of its merits against some socially determined criteria, a judgement about what changes are needed, and an examination of what routes to follow that will allow the changes to occur.
Many countries have public health services which appear to provide universal and equitable access, and there is a sense in which these attributes are present in practice. The issue beyond that, however, is just what we mean by these words – universal and equitable access. Take Australia, where there is a social insurance system called Medicare, which claims to provide universal access. Its website states:
Welcome to Medicare – Australia’s universal health-care system. Medicare ensures that all Australians have access to free or low-cost medical, optometrical and hospital care while being free to choose private health services and in special circumstances allied health services (www.medicareaustralia.gov.au/public/register/index.jsp).
The concept of universality gives the idea of a social service available to all, but not in the sense that television sets or bottles of beer are available to all. It also implies some notion of ease of access and in some, perhaps most instances, equality or equity of access. Often it seems to be argued that providing services at reduced fees or free (zero-priced) at the point of consumption will provide ease of access or even equality of access. Yet there are clearly other potential barriers which can be present and which can vary across different groups in the community: distance, culture and socio-economic status of the potential users. Distance is an obvious barrier and cultural barriers, for example for indigenous people, can be problematical. Socio-economic status can still be an influence even if fees are zero, as poor people are more likely to feel alienated by what are often middle-class staff in these services.
It follows from the above that the climate or socio-economic environment can be crucial. What that boils down to in many respects is the power structure or property rights over resource distribution: in other words, the political economy of health care. Particularly pertinent here is that branch of political economy known as ‘institutional economics’.
What is meant by institutions in this context is rather different from or more extensive than the normal meaning. The view from Kasper and Streit (1998: 2) is helpful: ‘Human interactions, including those in economic life, depend on some sort of trust which is based on an order that is facilitated by rules banning unpredictable and opportunistic behaviour. We call these rules “institutions”. ’
What is clear is that health economics has been obsessed with the micro, and often the very micro, and lost sight of institutional and macro issues. As Hodgson (2008: 251) argues: ‘The predominant [health economics] mainstream focus in the literature has been on issues of measurement and quantification, to the relative neglect of the big questions.’
Hodgson draws attention to the oddity of health economists’ views on neoclassical (essentially free-market) economics. He quotes Culyer (1991: ix), a leading UK health economist: ‘In practice, the overwhelming majority of health economists use the familiar tools of neoclassical economics, though by no means all (possibly not even a majority) are committed to the welfarist (specifically the Paretian) approach usually adopted by mainstream neoclassicists when addressing normative issues.’
Hodgson responds: ‘One is left wondering why neoclassical propositions are retained, when the standard normative apparatus of neoclassical theory is often abandoned. The adoption of some but not other elements in the standard neoclassical package is a bit odd’ (Hodgson 2008: 237).
Hodgson is, I think, being deliberately polite and he himself goes on by implication to answer his own wondering. The problem here is that while we have, as health economists, seized on the fact that the market fails, we haven’t quite persuaded ourselves to jettison all that rather wonderful (and also neat and tidy) neoclassical baggage with which so many of us grew up. We do not quite know where to go or where to turn. Certainly there is nothing around that is so beguilingly elegant nor so potentially measurable, and we have become such a quantified, seemingly ‘rigorous’ discipline that we cannot let go. At the same time as health economists have been beguiled, they have also neglected to build a new paradigm for their discipline, with the result that they have left the existing political economy of health care largely uncontested.
Another feature of this is at least as disturbing. This has played into the hands of the medical profession, who, with few exceptions, would want to encourage not necessarily private health care (although that would be true of many of their members) but certainly an unadulterated version of the doctor–patient relationship as being the cornerstone not only of clinical care but of health-care planning. The sanctity of that individualism is not only a crucial piece in the ethical base of medicine (fair enough) but it also protects the power base of the individual doctor and the profession. Challenging that power base, then, means also seeming to attack the individualistically based ethics of medicine – the ethics of virtue and the ethics of duty. Separating the criticism of the power base from the criticism of these individualistic ethics is crucial to the good planning of health care.
Good planning is vital but it is also based on another form of ethics – the ethics of the common good. That social ethic will inevitably clash with the medical ethics of virtue and duty. Thus while the concept of opportunity cost – the benefit forgone in the best alternative use of the resources – applies at all levels, for the clinician it is or should be restricted to the benefit forgone in the use of his or her resources on his or her patients. It should have no relevance to the dermatologist treating my skin problems what benefits are being forgone in delaying the treatment by Dr Jones of Jeannie Smith’s hip replacement.
What this chapter identifies is that the economics of health care has suffered from treating health care all too much as a commodity and being seen by health economists and health policy makers as being very much the province of clinical medicine. This is in no way to deny the importance of clinical decision making and makers. It is, however, to argue that clinical decision makers need to be restricted to clinical decision making.
These are issues that are best seen through the very neglected lens of political economy. They are also ethical issues, however, involving the clash of the individualistic ethics of medicine and the social ethics of health-care policy making and of what ought to be the ethics of health economics.
Some may be surprised at the lack of attention paid in this chapter to the power of the pharmaceutical industry. Some issues that might have arisen here are covered in Chapter 10. It is also the case that, while I have no desire to excuse the way in which that industry uses its very considerable power, a great deal of its bite is delivered through the medical profession. Take that route of influence away and Big Pharma would not be toothless – but it would certainly be bereft of its main incisors.