Myth of the invisible hand in health care

It is not the invisible hand of the market that drives costs down in Singapore's health-care system. It is the very visible hand of a strong government that does so, as regulator and in deciding what to subsidise and what not to subsidise.

By Jeremy Lim, Published The Straits Times, 14 Jun 2013

SINGAPORE'S health-care system has come under the spotlight again.

A new book ambitiously titled Affordable Excellence: The Singapore Health Care Story by American academic William Haseltine has attracted a flurry of interest including a commentary by Financial Times' assistant editor Gillian Tett reprinted in The Sunday Times under the headline "Thank you, Singapore".

Singapore's system has been held up as a model to emulate for its low spending and impressive population health metrics.

The magic of the 'market'?

DR HASELTINE argues that "managed capitalism" is the secret sauce. Former health minister Khaw Boon Wan has previously exhorted policymakers to "de-politicise" health care and work to make the market work in health care like any other economic activity, by reducing the market failure in health care, for example, by making sure patients get good information about hospital bill sizes.

This means competition, transparency and consumers who are well-informed and incentivised to keep costs down.

Ms Tett writes: "Patients are always forced to co-pay for treatment, alongside insurance groups, to create incentives to scrutinise their bill." She goes on to speculate that if Americans could compare prices as they do in Singapore, and co-payments were more strongly used, the spiralling costs of American health care could be curtailed.

It seems affordable excellence can be brought about by consumers, competition and co-payments.

The limits of markets

HOWEVER, markets have a dark side. While international accolades pour in, 72 per cent of Singaporeans believe "we cannot afford to get sick these days due to high medical costs", according to a Mindshare survey reported in the Business Times last October (Mindshare survey 2012).

Last week Dr Phua Kai Hong, a respected local health economist, disagreed in this newspaper that "high co-payments and individual responsibility" were the solutions for Singapore. He also raised the spectre of Singapore veering towards a "more uncaring and socially unacceptable system", the "market economy" over-extending to become a "market society".

A health-care market may be efficient but is it equitable?

It is unclear whether competition and co-payments per se have even been effective in overall cost containment. Eminent health economist William Hsiao of Harvard University has pointed out repeatedly in articles that despite the introduction of Medisave in 1983, the subsequent dramatic increase in patients' co-payments and the creation of "markets" through corporatisation of government hospitals, Singapore's total health-care spending continued to increase in absolute numbers.

Professor Hsiao emphasises that the real lesson learnt from Singapore is that "price competition is secondary".

Providers compete with each other by recruiting brand-name physicians onto their panels and by having the most sophisticated expensive technology, both of which drive up costs. He added that "market power on the supply side is much greater than the demand side", leading to providers being able to induce demand and push up prices.

More recently, well-publicised cases of egregious charging have further dampened the belief in the power of the market to rein in prices. It seems supply-side measures are equally if not more important.

Government oversight

THE real secret, in my view, to Singapore's successful cost containment is not "markets" per se but "strong government".

There is no "invisible hand" in Singapore's health-care market; the controlling hand is that of the government.

The health-care market works not through consumer influence but through adroit exploitation of the Government's simultaneous roles as regulator, largest provider and largest single buyer of health-care services.

Unlike, say, in eateries or retail where the Government sets and enforces the rules and then sits back to let "creative destruction" work its effects, in health care the Government is more interventionist.

For example, the Government influences prices through subsidies, Medisave and MediShield, influences practices through the government-owned hospitals and regulates tightly the number of hospitals and health-care professionals nationally.

The Government to a large extent controls the public narrative: By deciding what to subsidise, what not to subsidise and how much to subsidise, the Ministry of Health keeps a firm grip on what treatments become mainstream, and shapes the price points.

It is not the market but the multiple roles the Government plays in health care that has enabled success. Former head of the Civil Service Lim Siong Guan once said: "What is absolutely key to understanding Singapore's success in applying market systems to public problems is the centrality of the state in assessing, controlling and regulating the market. The hallmark of Singapore's use of the market has been strong government control and oversight."

This interventionist stance is not surreptitious; the Government unashamedly acknowledges this, declaring in the 1993 White Paper on Affordable Health Care that it must "intervene to prevent health-care costs from consuming a disproportionate share of the nation's or a family's resources".

Two-tiered health care

ONE reality Singapore readily accepts as a consequence of the market is a two-tiered health-care system. Singapore has by design engineered two health-care worlds. The first is a market world where the sky's the limit for those with wealth; the second is one which provides, as the Health Ministry describes, "quality and affordable basic medical services for all".

This is not repugnant and, if politicians are truthful, there is no other way. No country in the world has managed to provide everything to all citizens and none ever will. Rather than pretend to be an egalitarian utopia, Singapore has accepted that in health care, as with almost everything else, the rich will enjoy more and better services. The Government thus intervenes to create the second world for the heartlander or average Singaporean. The official dogma is that the two worlds differ mainly in the frills or amenities but it is increasingly clear this is tenuous at best.

Singapore prides itself on attracting the best and brightest to its shores; the best and brightest demand and can afford world- class health care for everything from cancer to corns and the gulf between the two worlds ever widens. Questions on "how far apart can these worlds be?" and the related "is basic care affordable and good enough?" lie behind the current national angst.

Singapore's health system rightly deserves the international attention it receives, for there is much the country can offer the rest of the world in terms of experiences and insights, both positive and negative.

We have much to learn ourselves from a careful and un-blinkered examination of our history, our philosophy and our aspirations. In the ongoing fundamental review of Singapore's health system, we must pay heed to both adulatory and critical perspectives.

The writer, a former surgeon and hospital administrator, is principal consultant at Insights Health Associates, a health-care consultancy firm.