Competition in a publicly funded healthcare system

BMJ 2007; 335 doi: (Published 29 November 2007) Cite this as: BMJ 2007;335:1126

US failures tell us nothing about markets

As an account of the abysmal failures of the US health system,
Woolhandler and Himmelstein's article is a useful contribution; as an
account of why markets don't work in healthcare it is worse than useless.
Worse, even Fiona Godlee fails to see the logical chasm between the
evidence in the article about US failure and the point it was supposed to
be proving about the universal failure of markets in health.

For the article to prove its point that we shouldn't use markets
anywhere in health care, it would have needed to address some of the
following arguments. We know that markets sometimes work to deliver big
universal benefits: so what are the features of health that mean markets
can't work there? What is it that distinguishes sectors where markets are
successful from those where they fail? How does the structure of health in
the USA compare to other countries' proposed or existing systems? How do
regulatory standards influence success or failure in markets?

The article simply doesn’t bother to address these key issues. Anti-
reformers in the UK have a long history of using the comparisons with the
USA as a key rhetorical trick to oppose market-based reforms in England.
Everybody knows how bad the US is and if we use the rhetorical sleight of
hand of equating the US system with "markets" then significant debating
points can be awarded. But it is a rhetorical--not logical--step as
detailed comparison of the structures and regulatory environment in the
USA with anyone else will show few real similarities.

Right at the start the article has fundamental problems as their
definition of what a market must be like is deeply wrong. Markets are not-
-as americans often believe while giving dangerously inappropriate advice
to others about how to run their economies--characterised by inalienable
property rights and private-sector profit-making entities. The real
essentials for markets that work to benefit us all (as John Kay argued in
his book "The Truth about Markets") are variety and discipline
(evolutionary biologists would use different terminology: variation and
selection). But markets rarely deliver benefits without the right legal
and regulatory environment (eg the european mobile phone market is more
competitive and has delivered more consumer benefit than the US market
because of tighter and better designed regulation). It is quite easy to
have american style markets without any corresponding public benefits in
quality improvement and cost reduction; but its also possible to construct
well regulated markets with the right incentives that drive improvement
and deliver equity. Again the article just doesn’t address this and buys
the american model as the only one possible.

Fiona Godlee summarises some of the other supposed characteristics of
markets: they need rational decisions by consumers; they can't deliver
fairness; and they ration by price an consumer income.

The first is blatantly untrue or every consumer's brain would explode
instantly on entry to a supermarket or car showroom. Since people
apparently get by making seemingly highly complex choices every day in the
face of uncertainty and limited information, it is a false objection to
say they won’t be able to in health. They might not always make the same
decision as a doctor, but that is not necessarily a bad thing and is
certainly irrelevant to the question of whether a market can function.

Godlee compounds the second and third errors by stating: "a true
market has no room for equal access for equal need...". Yet the reform
model in England has no element of co-payment or dependence on consumer
income. In fact by design every patient has the same spending power: a
powerful drive for equal access to health. By design, the market gives
patients the power to allocate government money to providers who must
compete for that money. The American failure to serve the poor is
irrelevant as everyone is covered.

What about some of the more specific criticisms of how things work in
the USA? They are no more relevant to any debate about reform in England
or the rest of the world.

Much of the article criticises cherry-picking by insurers: an
egregious flaw in the US system that is a direct result of poorly thought
through structures and regulation which has wisely not been copied
elsewhere. English reform retains universal government funding: there is
simply no option or incentive for anyone to engage in selective enrolment.
The regulatory structure in the US basically incentivises wasteful gaming
by insurers by structurally encouraging insurers to be “not cost
minimisers but profit maximisers”. Even other countries with compulsory
insurance have systems that virtually eliminate that behaviour by strictly
limiting the scope for cherry picking.

The article says a lot less about competition for provision. But even
here it misses important points of comparison and regulatory distortions
characteristic only of the US. Uwe Reinhard pointed out some of this just
two weeks ago in his article "US Health Cares stands Adam Smith on his
head” in this journal (BMJ 17 November 2007 p1020). Hospitals in the US
must provide emergency care even to the uninsured, but government doesn’t
have to pay for this. This legally enforced market distortion prevents
weak-willed politicians facing the real consequences of failure to provide
universal coverage. Oh, and English reform doesn’t envisage much
privatisation, which the article alleges is the driving force behind
reform (putting public money in the hands of “private firms needing new
markets”. Half the independent sector bidders for new treatment centres in
the UK were non-profit. And the most share they are ever likely to achieve
is a lot less than 10%. We don’t need privatisation to drive competition
and get its benefits. A properly regulated market among (mostly) NHS
hospitals offers most of the benefits that come in competitive markets.

So we can’t compare the market for payment to the US, the market for
provision isn’t similar, the entire regulatory structure is different and
the article doesn’t have a realistic definition of what constitutes a
market or why, specifically, markets can’t work in health. OK, so the USA
is a basket case: but we knew that already and almost every other country
has avoided their worst mistakes.

Exactly how an article with so little new to contribute got past peer
review as a serious contribution to the debate is a mystery to me as is
why Fiona Godlee thinks it should giver reformers “serious pause for

Competing interests:
Has been paid advisor to UK government in areas relevant to competition in health provision.

Competing interests: No competing interests

03 December 2007
stephen black
management consultant
london sw1w 9sr