It is well understood by now that free markets with atomistic consumers and suppliers do not produce efficient (zero waste) outcomes in healthcare. Delayed care seeking on the part of consumers and an improper supply-side response from providers, often in response to pressure from poorly informed consumers, or from poorly designed payment incentives, are some of the key reasons why an enormous amount of waste seeps into the free-market system. That delay—as demonstrated by very low use of preventive and promotive services—results in much more severe problems later. Average caesarean sections rates in excess of 50% in several districts, both by government and private sector providers, with no concomitant reduction in mortality, are some of the examples of these inefficiencies whose resolution would both reduce costs and improve outcomes.

Health systems designers have struggled with this issue for decades and sadly, neither price-based nor elegant non-price-based market solutions such as those proposed by economists and joint Nobel Laureates Lloyd Shapely and Alvin Roth for school admissions or for assignment of resident doctors, have emerged to address it. Those that have emerged would be perceived in this day and age as crude, draconian, and atavistic. However, despite this perception, it turns out that health systems that have adopted them have shown good results, and those that have shunned them have gradually started to underperform.

Each health system has experimented with multiple non-market-oriented approaches, but some ideas have now started to acquire the status of almost a standard. One of them is the idea of gatekeeping. This involves requiring every individual to choose one primary care physician, and then allowing that physician an absolute say not only on the primary care she will receive, but also on whether and when she may be permitted to see a higher-level specialist or go to a hospital.

This is perhaps the most irksome of all restrictions, but it turns out also to be the most effective.

Health systems such as those in the United Kingdom, France, Turkey, Costa Rica, and Thailand which impose these restrictions considerably outperform other systems such as those in Japan, Taiwan, Brazil, Germany, and the United States, which do not. In fact, a comparison between France and Germany is very revealing. These are otherwise almost identical countries which, at close to $5,000 per capita, also spend almost an equal amount of money on health.

The notion of gatekeeping attempts to address the issue, using a crude approach, that we as customers are not the best guardians of our own health and cannot be trusted to make choices that are in our best interests and that left to ourselves, we will delay care-seeking and, when sick, will make a beeline for specialists and hospitals and CT Scans. Sadly, howsoever unpalatable it may seem, this conclusion is entirely borne out by data, in country after country, including India, with almost no exceptions.

Medical staff does check-ups of attendees at a pop-up hospital in Prayagraj, Uttar Pradesh, on  Jan. 16 2019. (Prashanth Vishwanathan/Bloomberg)

Medical staff does check-ups of attendees at a pop-up hospital in Prayagraj, Uttar Pradesh, on Jan. 16 2019. (Prashanth Vishwanathan/Bloomberg)

Driven by similar considerations, mandatory insurance, the notion of being compelled to buy health insurance is another one that has become almost universally accepted as being a pre-requisite. There is a concern that otherwise we as consumers will not make good choices and only those that know that they are already sick will want to purchase insurance, and others who think they are healthy will wait until they fall sick to do so, at which point no insurer will cover them.

Without such a mandate, it will become also impossible to operate a sustainable and fairly priced insurance business and offer insurance to even to those that wish to buy one before they fall sick. And, in the absence of such an insurance market, foregone tertiary care will become an important aspect of the lives of many low- and middle-income families, and the tertiary care hospital sector will remain small because of the small base of customers that can afford to pay their fees. All of these outcomes are, sadly, very visible in India.

One more such idea is that of comprehensive price control, ideally combined with detailed process control, on all aspects of healthcare. Thailand, Turkey, and the U.K. have full divisions that are responsible for evaluating every procedure for both health efficacy and cost-effectiveness and, using an upper limit for the price of one additional year of life, making decisions on which procedures will be permitted to be offered and which ones not.

Others, such as Germany, Switzerland, and Japan rely much more on a negotiation process to set the uniform price of the base insurance premium that will be collected and the prices that will be paid to providers with insurance companies acting as de-facto regulators through the payment mechanism. In Japan for example there is a fee-schedule book that has a detailed list including the price a doctor may charge for dressing a small wound versus a large one, anywhere in Japan. Some health systems, such as Thailand and Kaiser Permanente, a U.S.-based private health system, have successfully implemented a model in which the health system receives a fixed price per year per enrolled patient and has to manage all healthcare costs associated with that pool of patients within that, instead of having to justify the price of every individual procedure – this is often referred to as the managed care model with capitated payments.

Visitors at the billing counter  inside a hospital  in Chennai, on July 4, 2019. (Photographer: Dhiraj Singh/Bloomberg)

Visitors at the billing counter inside a hospital in Chennai, on July 4, 2019. (Photographer: Dhiraj Singh/Bloomberg)

In many parts of the world, including in large parts of the U.S. where there are no price controls on insurance premia and controls on procedures and prices paid for them are left to individual insurance companies to figure out with each hospital, there is a stringent licensing process for building new hospitals, and applicants have to produce a Certification of Need showing that there are gaps before they can be given permission to set up a new facility. This is explicitly designed to avoid oversupply in already well-served areas and to incentivise hospitals to instead be set up in underserved geographies.

However, it is possible that despite its discomfort, a return to that era for healthcare may well be warranted if we are to have any hope of getting to our end goal of universal healthcare.

And, while these approaches may at first appear to be unfriendly towards providers, they end up keeping healthcare costs and associated insurance premia low and thus enable a much larger section of consumers to access high-quality formal care instead of frittering away their resources in irrational and low-quality care from a multiplicity of providers. Through this mechanism it becomes possible for formal providers, both public and private, to serve a much-much larger base of consumers, and thus grow in size and impact.

Nachiket Mor is Visiting Scientist, The Banyan Academy of Leadership in Mental Health, Tamil Nadu. Views are entirely personal.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.



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