Of Bismarck and Beveridge

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Given the backdrop of controversy about the coalition government’s plans for the NHS, the Euro-Canada Health Consumer Index 2010 – which assesses health systems from the consumer’s perspective, looking at patient rights, waiting times, outcomes, range of services, and availability of medicines – makes interesting reading. As in previous years, one of their key findings is as follows:

Our analysis of the performance of the 34 countries in this index shows that performance tends to be higher in countries that are organized around the “Bismarck” model than in those that are organized around the “Beveridge” model. This means that healthcare systems that allow competition between insurance providers, and in which insurers are organizationally independent of healthcare providers, tend to be the top performers. The Beveridge model, of which Canada is an example, uses a single organizational system that includes financing bodies and providers and does not offer choice between insurers. This model generally tends to create inefficiency, unwieldy bureaucracy and a general unresponsiveness to consumer needs.

Indeed, if you look at how they rank the various health systems in Western Europe, the supremacy of competing insurance over single-payer systems is pretty clear: (1) Netherlands; (2) Germany; (3) Iceland; (4) France; (5) Switzerland; (6) Austria; (7) Denmark; (8) Luxembourg; (9) Sweden; (10) Belgium; (11) Norway; (12) Finland; (13) Ireland; (14) Italy; (15) United Kingdom; (16) Greece; (17) Spain; (18) Portugal. In case you were wondering, the ‘Bismarck’ countries are in bold.

For me, that list has a handful of implications. Firstly, competing insurance ‘Bismarck’ systems are generally better for patients than single-payer ‘Beveridge’ systems. Secondly, Beveridge systems work better in small countries than in large ones (indeed, the health system in Sweden is significantly decentralized as well). Thirdly, if Britain is going to reform its health system, it should stop tinkering with the NHS (i.e. trying to make socialism work) and ditch ‘Beveridge’ altogether.

The top-ranked Dutch system provides a good model. To simplify somewhat, everyone is required to purchase a minimum package of health insurance from a number of licensed, private insurers. These insurers compete with one another on price and service, but are prohibited from discriminating between patients – they have to offer everyone the same benefits at the same price, and cannot turn applicants away. Individuals pay insurers directly, but receive subsidies if they cannot afford the premium. The government regulates and helps with funding, but beyond that, it does not get involved. To quote from the report:

The Health Consumer Powerhouse states that politicians and bureaucrats seem to be further removed from operative healthcare decisions in the Netherlands than any other country in the index, and argues that this is an important reason for the Netherlands’ outstanding performance.

In other words, the Dutch system combines private competition, consumer choice and minimal bureaucracy with universality and ‘equity’. No system is perfect (I’d like to see more direct patient-doctor payment), but it does seem like a good place to start.

National Health Socialism in action

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Yesterday’s report from the NHS Ombudsman, which found that hospitals were failing to meet even basic standards of care for the over-65s, made for grim reading. Without getting into the gruesome details of individual cases (see here for more), the Ombudsman’s comments more or less sum it up:

The findings of my investigations reveal an attitude – both personal and institutional – which fails to recognise the humanity and individuality of the people concerned and to respond to them with sensitivity, compassion and professionalism.

The reasonable expectation that an older person or their family may have of dignified, pain-free end of life care in clean surroundings in hospital is not being fulfilled. Instead, these accounts present a picture of NHS provision that is failing to meet even the most basic standards of care.

Crucially, the Ombudsman, Ann Abraham, said that this was not a question of resources, but rather a problem with the “culture” of the National Health Service. But where does this culture, which fails to treat patients as individuals, come from? Could it stem from the fact that the health service is, essentially, a socialist institution?

Just look at the way the NHS works. The government collects money in taxes and decides how much it can devote to healthcare, and then the Department of Health distributes money around the country and sets the rules on how it can be used. Under the supervision of Strategic Health Authorities, Primary Care Trusts decide how to spend that money in accordance with the government’s wishes, and healthcare providers are commissioned to provide services in accordance with its rules. This is the very epitome of a top-down system, and the very antithesis of a personalized service.

Ultimately, when healthcare is rationed by the state, and all meaningful decisions about its allocation are made by bureaucrats, it is inevitable that patients will be treated as a burden, as a cost, and not – as they should be – as customers who have purchased a service with their taxes. That’s the root of this “culture” of neglect in the NHS, which says, “Shut up, and be grateful for what you’re given”.

And unless you have enough money to go private, there’s nothing you can do about it. There’s no exit option, no choice, as exists in any real market. Your only input comes once every four or five years, when you vote in a general election. But even then, you are voting on competing bundles of policies, covering a wide range of issues. It’s a pretty meaningless exercise.

Frankly, I’ve never understood the affection that so many Britons have for the NHS. To me, it is a disgrace that in an affluent, advanced society, so few people will ever receive the kind of healthcare that they would freely choose for themselves, if only they were given the opportunity. And as long as we persist with a top-down, single-payer, command-and-control system, that isn’t going to change.

Think piece: What a free market in healthcare would look like

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There are pluses and minuses to the health reforms proposed by the government. On the plus side, the reforms will give patients greater choice and practitioners greater freedom. Both those things should drive up quality. Meanwhile, introducing (some) competition on price should help keep spiraling costs under control (a bit). On the downside, the reforms will trigger an enormous, and probably very costly upheaval, and the resulting system will still be highly bureaucratic.

Will the pluses outweigh the minuses? That very much depends on how much freedom, choice and competition the reforms are able to inject into the system. As yet, I’m not convinced they do enough to deliver major benefits to the patient – though I am open to persuasion on this, and much will depend on the final legislation and its implementation.

Still, whatever you think of the government’s planned reforms, it is important to realize that there is a huge gulf between what they would create – a government-funded system of heavily regulated, managed competition – and a genuine free market in healthcare. Indeed, if I were being harsh, I’d say the government’s proposals are merely another attempt to make socialism work, rather than a shift to a more liberal system.

Let’s imagine a free market health system... [Continue reading]

Competition in health care provision

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Well, yes, this is going to be a fairly obvious point from someone at the ASI. Competition improves production.

As and when there are a number of competing producers of something then they will be competing to produce something better, or lower priced, or faster, or whatever is is that the buyer desires. Pretty simple stuff, but the great failure of British politics is that there are those whio insist that this isn't true of vast areas of the British economy.

You know, that thing where having large numbers of private sector landlords is bad, while having the State, and the State alone, as the provider of housing for the working classes will drive standards up. Where State schooling would get better if only there wern't private schools to show them up? Quite, where the near ludicrous idea that a zero competition monopoly will have better standards, better service, than someone or something that has to compete for customers?

Aye, the argument that the State provision of non-competetive, of non-competing, health services is wondrous, the very envy of the world:

We find strong evidence that hospitals that perceive to be facing more rivals are much better managed than those that consider fewer potential alternatives for patients to choose...

That the Government runs an insurance scheme, tax paid, that scrapes me up off the road when I'm hit by a car, I'm happy enough about. Delighted in fact.

But I do want it to be the best system possible, which means competition among hospitals, a market, in essence, the end of the NHS as currently organised.

We don't want competition in the NHS to make profits for companies, we want it so as to make the NHS better.

On smoking bans and lies about smoking bans

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The thing about these smoking bans is that whether they are justifiable (no, this is different from justified) or not is that they depend upon the effects of smoking upon non-smokers.

If I wish to pollute my lungs and, on a statistical basis at least, shorten my life that's just, well, that's just up to me. It isn't just that I should be allowed to do so, it's that I have a right, as the owner of my own body, to do as I wish with it.

So we've had the "anti-smokers" telling us that my smoking has a huge effect, an externality, upon others who do not smoke. This justifies restrictions upon what I do to my lungs.

Now if that were true, this would at least be an arguable reason for smoking restrictions. But is it actually true?

As an example, did deaths by heart attacks fall when the inside a room smoking ban was introduced? Umnm, no, actually, such deaths increased. Yes, those telling us different really are lying to us.

OK, let us really go further. Perhaps this ban on smoking in company will reduce primary smoking and there will be health benefits from that?

Umm, no. The various controls and bans on smoking in Ireland have actually increased smoking. And there is anecdotal evidence that everyone piling out of the pub for a puff has led to an increase in sexually transmitted diseases as those who would formerly not have met do in fact meet and hook up.

The classical liberal position is that it is my (or your) body to pollute as I (or you) wish. The more modern position is that there is more to think about than that.

Yes, and when we consider more than that it appears that smoking bans don't work, doesn't it?

Half-baked privatisations?

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The government has announced that Circle, an operator of private hospitals, has won the 10-year franchise to run the 359-bed Hinchingbrooke Hospital, an outside candidate to secure foundation status due to its stretched finances. Whilst any sensible privatisation within the NHS should be welcomed, this deal is far from the purest form of privatisation. The NHS will still own the assets, whilst employees will operate under NHS terms. Circle seeks to pay off Hinchingbrooke’s current c£40 million debt over the next decade – a real challenge given its lack of managerial elbow-room. It will also seek to make a financial return on its investment.

Perhaps Hinchingbrooke will provide a much-needed model for under-performing hospitals. If so, the private sector will become more interested – encouragingly, FTSE-100 company, Serco, was the under-bidder for Hinchingbrooke. Nevertheless, the private heath sector remains profoundly unhappy at the very modest level of PCT ‘provider arms’ services being offered for tender by the NHS. The vast majority – worth almost £10 billion – are frustratingly being retained in-house. Why?

Half-baked privatisation is also being suggested for Britain’s schools. It is still unclear whether any investor in new schools – a totem policy for the current Government - can expect a decent return. Without it, few believe that – apart from a handful of philanthropists and the odd wild card – there will be the necessary investment. One of the enduring lessons of privatisation is either do it – or don’t. Of course, in some cases, small-scale trials are prudent.

Importantly, privatisation has really prospered when the financial incentives are sound. If so, investors appear and the sector benefits. Think the water sector – the recipient of £85 billion of investment since 1989. Furthermore, the telecoms, gas and electricity industries – despite the nuclear new-build problem – have all benefited from a market-orientated approach. The half-baked approach to NHS and schools privatisation might be fundamentally flawed, and fail to deliver the promise of privatization.

Mapping the future of British healthcare

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As part of its push for transparency in public services, the government has released a “UK health atlas”. Its aim is to show the variations in health spending and outcomes in primary care trusts around the country. The findings show huge disparities in provision. The idea behind this release of information was to encourage patients to put pressure on the lowest performing primary care trusts. It has, however once again highlighted that the NHS suffers from serious disparities in the quality of care provided. This suggests that the system of healthcare provision in this country has to be radically overhauled.

There are huge discrepancies in spending between primary care authorities – for example, there is a fourteen-fold difference between the highest and lowest expenditures on hip replacement surgeries in different authorities. Some health authorities spent two and half times as much on mental health care compared to others. These variations clearly indicate that the postcode lottery of healthcare is still a major problem. The atlas was standardised to take account of various social and patient factors, so variations in spending cannot fully be explained by these elements.

The lack of a price system means that it is impossible to know which trusts are at fault – are some spending too much, or are others spending too little? What is the optimum amount of money to allocate to hip replacements? Giving power over health spending to a bureaucrat means that spending decisions will be made without the necessary information that a price system would convey.

The most important step to improve the NHS is to break its monopoly on the healthcare market. There should be a move towards the state becoming the regulator rather than the manager of these hospitals, and the provider of funds to support patients rather than of services. Because there is no price mechanism, there is currently an enormous amount of bureaucracy in the system, which all too often results in bad performance of services. The lack of competition means that hospitals can underperform without any incentive to improve. Breaking up the NHS would be a big task, but by doing so the government and the charities would see better care for patients.

Yes, they are lying to us

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There's a not very fine line between being a vociferous advocate for one's pet project and simply grasping at absolutely any straw that might be used to browbeat people into doing as you tell them. Take, for example, the anti-smoking campaigns. There's no doubt at all that smoking can be harmful to those who smoke: it's also true that the smell of smoke is something that many non-smokers don't particularly like.

The anti-smoking campaigners did rather go overboard with their claims of the effects of second hand smoke though: it simply isn't true that thousands die from the effects each year. There is now, because there seems to still be this recalcitrant 20% or so of the population who just won't do as they're told, a move to ever more blood curdling descriptions of the effects of third hand smoke:

Parents who do not smoke in the presence of their children, including even those who smoke only outdoors, nevertheless put their children at serious risk of "massive damage" to both skin and nerve cells, since a neurotoxin in thirdhand tobacco smoke penetrates the child's skin, according to recent research in Germany.

That is the American version of ASH, not the UK, but then things that happen over there tend to turn up here 6 months later, as we all know. The only problem here is that this "research in Germany" is not in fact research in the form that you or I would use the word. It is in fact:

A press release, without any accompanying study, by researchers at a textile institution which aims to market, and profit from, the sale of protective clothing sold to parents who they are able to scare about the potential toxic effects to children of touching a smoker's clothing.

And, mops to clean up that third hand smoke, that's the other thing they want to sell.

Now of course here we come to matters of opinion. Perhaps this is just overzealousness, something just in the pursuit of a righteous and noble goal. Perhaps it's simply the blindness to reality which is the mark of the zealot. Myself, purely as a statement of opinion of course, would say that it's outright lying by those who really cannot stand the fact that quite a lot of people still insist on charting their own path from the cradle to the grave.

One of those matters where it really is incumbent upon you to make up your own mind: just as it ought to be about whether you wish to smoke or associate in public with those who do of course.

Have a heart – let people pay for organ donations

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Three people a day die because of a shortage of vital organs for transplant, according to the Organ Donation and Transplantation division of NHS Blood and Transplant. The BMA has called for introduction of presumed consent to donation, but this is politically unfeasible and, in any case, unnecessary. Instead, the government should remove the ban on paid organ and tissue donations. This would very quickly end the shortage of vital organs and save hundreds of lives every year.

There are two kinds of organ donation: living donations and posthumous ones. Living donations occur when someone donates a surplus organ or tissue – the most common example is a kidney, but tissue donations of blood, bone marrow and skin are also in short supply. Posthumous donations can include the heart, kidneys, pancreas, lungs and liver. Both would rise rapidly if sales of organs were allowed.

In the case of posthumous organ and living tissue donations, the case is clear. A major reason for the shortage of organs is that most people lack the time necessary to go through the hoops needed to donate. Others have problems with the ‘yuk factor’ associated with thinking about their own mortality, a fear of needles (in the case of blood) or reluctance to go through with a painful operation (in the case of bone marrow).

Many of these marginal problems would be overcome if money could be paid for donations (or for signing onto the donor register for posthumous donations). People would have the incentive to spend the time finding out about how they can donate, and many people's squeamishness would diminish if they could make some money out of donations. Some might be balk at the thought of a generous act being turned into a financial transaction, but this sentimentality costs hundreds of lives every year.

Worries that living people would feel forced into donating a kidney are real and must be given serious consideration before the law is changed. But the debate over this element of paid donations should not be allowed to overcome the much broader case for paid donations – posthumous organ and living tissue donations – that would not endanger the life of any donor, but would save the lives of many people in need of a transplant. Legalizing these donations would be an immediate way to save lives at zero cost.

A promise worth breaking

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 As cuts are announced today in nearly all government departments, the promise to ring-fence the NHS is being shown to be a nakedly political move made for electoral gain that will hurt the country. (I’ve written about the other ring-fenced department, International Development, here, and called for the department to be scrapped altogether.)

This chart from The Guardian’s excellent DataBlog shows the amounts of government spending by department in 2009/10. The government spends £100bn annually on the NHS – more than £1,600 for every person in the country. Massive amounts of this are wasted on bureaucracy and potentially huge savings could be made, even with modest reforms. For example, a privately-run NHS clinic in Nottingham that has experimented with delegating managerial powers to health staff has made efficiency savings of 20%.

Clearly, significant savings can be made across the board, even through modest and politically viable reforms like the expansion of internal markets within the NHS. But the government’s promise to ring-fence NHS spending means that, whatever the savings made through reforms, there will be no wider budgetary gain – the money will simply be ploughed back into the NHS. 

There is no objective reason that the NHS should be given special treatment when it takes up such a massive portion of the government’s budget already and is so clearly ripe for efficiency savings. At a time with a budget deficit of £154bn per year, it is irresponsible not to allow savings in the NHS to have an impact on the overall fiscal imbalance. The government's logic suggests that, at a time when it has had to make sharp and necessary cutbacks in benefits and education, the health service is in need of even more money.

The Conservative Party’s promise to ring-fence the NHS’s budget was nakedly political and irresponsible. The Liberal Democrats have had to eat their words on many of their own silly policy pledges – to oppose any rise in university tuition fees, for example. It is time that the Conservatives do the same – not to do so would be to put party political interests ahead of those of the country.