Change and markets in health care

  • If there were a free market for health, the NHS would not exist. Even countries with less state control than the UK, such as the USA, have more non-market mechanisms than market ones. Almost all regulation is aimed at imperfections of the market.
  • The burgeoning literature in experimental economics emphasises the enormous roles that trust, cooperation and fairness play in economic matters. All three of these characteristics are non-market concepts, and often hostile towards market solutions.

o   Trust in a practitioner, as in all human relationships, is not generally improved by competition.

o   Cooperation is necessary in integrated care and has good theoretical and experimental backing (see for examples the games of “chicken”  and “prisoners dilemma” in game theory). Cooperation is the antithesis of competition.

o    Humans regularly and eagerly put fairness before efficiency.

All three characteristics are ubiquitous in health care.

Is this car a lemon?
Is this car a lemon?
  •  “The market for lemons” which led to a Nobel prize for George Akerlof (backed by good experimental data as well as a solid theoretical base) is perhaps the most important of the arguments in respect of privatisation or marketisation. Here is its pertinent conclusion: in a competitive market where quality is exceedingly hard to measure, the introduction of competition will lower costs by causing quality to fall to a minimum.  While the new Act requires competition to be on quality, it will be virtually impossible to specify in contracts all the salient aspects of quality, let alone measure or police them. In practice, the cut-corners winners of many if not most of the bidders for contracts are likely to cause falls in the quality of care across the board in the NHS. It will take time to show up in the UK, but the persistence of market-only solutions has led the USA now to have among the lowest life expectancy of all the OECD countries, and it is still going backwards.

It is not only Adam Smith who would turn in his grave at the predicted outcomes of the new Act. A large and respected body of economics would back the concern. We must view marketisation of the NHS with great alarm and a feeling of trepidation.

Alastair Fischer PhD