Competition can help cure ills of Irish healthcare system

 

The State's dominance in healthcare provision, with waiting lists andescalating costs, should be challenged by more competition, argues JohnFingleton

We spend a lot on healthcare, paying bills to doctors, dentists, pharmacists, hospitals, insurance companies and others. In addition to what we spend directly, the Government spends some of our tax receipts on health.

When we add what we spend ourselves to what the Government spends on our behalf, it exceeds €2,500 per year for every woman, man and child. Healthcare spending is one tenth of all economic activity, and rising.

As a society, this increasing spend does not mean that we are becoming sicker. Worldwide experience shows, as we get wealthier, we spend more on healthcare, both as individuals and societies. Additional factors like technological advances in medical procedures and an older population may also drive demand growth.

At an individual level, improvements in health enable people to prolong their active lives, which has considerable benefits for them and their families and ensures that their full contribution to society can be realised. As the old saying goes, he who is healthy is rich without even knowing it.

An important question for us as a society is whether the supply of healthcare can match this growth. Will the variety of services that we demand be provided? And will they be provided at the best possible prices, whether we pay directly ourselves, or the Government pays on our behalf?

Normally, the market responds to growing demand by increasing the supply. Existing suppliers may expand their output and move into new areas or totally new suppliers establish themselves. Innovative and more varied products and services may emerge. Witness the growth in the number and variety of restaurants in Ireland during the last decade.

However, sometimes supply may not be able to grow to meet demand. For example, regulation may prevent new suppliers from setting up. Everybody is painfully aware of the situation with bus transport in Dublin, and the sharp contrast with the taxi market, where an entry restriction was lifted.

Restricting supply in this way leads to higher prices and queues for services. Existing suppliers have a constant surplus of customers queuing up, and understandably become hostile to change. Because existing suppliers do not have to strive to win customers' business on the merits, quality of service is often poor.

For these reasons, competition policy advocates that Government only interfere to restrict the competitive market process of entry and rivalry where there is a clear public interest for doing so. Even then, any intervention should be implemented in a manner that least restricts competition.

Restrictions on competition can arise if the Government supplies the service, or if it is the main buyer of the service, or if it regulates the service (or allows the industry to self-regulate). All three of these issues arise in healthcare, where the State purchases over 78 per cent of all healthcare services and dominates in the supply of hospital and consultant services.

On the regulatory side, examples include health insurance, where there are just two suppliers, and pharmacy, where the Competition Authority has constantly argued for increased supply. In other instances, there is self-regulation, as with the Medical Council, which regulates doctors' entry requirements, patient-doctor relationships and how doctors can behave in relation to one another on the marketplace.

In each of these roles as buyer, seller and regulator, the State has the potential to restrict competition. Indeed, the unusual combination of being both the buyer and seller may even eliminate markets altogether.

Symptoms of failure abound in the health sector. Growing queues for healthcare are combined with medical inflation that far outstrips general inflation and has the potential to destabilise the private health insurance market.

At the individual level, we all have anecdotes like my colleague whose spouse privately visited a consultant for an MRI scan in France. Compared to Ireland, he paid half the cost of the scan, one quarter the cost of the consultant fee, and waited one eighth of the time.

It is a common problem that highly regulated systems are not good at adapting to changing circumstances. A system of healthcare provision that may have been suitable in Ireland 30 years ago may not be capable of delivering the range, level and quality of service now demanded.

The basic question to ask is why the State is so involved in healthcare.

Probably the main reason is to provide a minimum level of healthcare, especially to those that cannot afford it. Clearly this is a worthy goal.

However, it is possible that the manner in which the State has gone about achieving this objective has (a) imposed unnecessarily high costs and restrictions on all users of the system while (b) it failed to deliver on the objective of providing the universal service.

Competition is not the panacea to all these ills, but has an important role to play. I think of it a bit like good diet and exercise: they do not guarantee health and long life, but they sure help. And, without them, it may be an uphill struggle.

We are increasingly recognising the benefits of competition in other markets. Other countries are increasingly using competition to deliver better performance in healthcare markets. The recent establishment of the Government's National Treatment Purchase Fund illustrates the trend: it will send up to 600 patients a month abroad for treatment, thereby using the market to buy extra supply.

The Competition Authority intends to become more proactive in the healthcare area. As part of our process of building capacity and understanding in this area, we will host a conference in Dublin next Monday. The focus will be on learning about international experiences of bringing greater competition into healthcare.

Whether you can join us, or whether you want to be kept informed of our ongoing work in this area, you can consult our website at www.tca.ie.

John Fingleton is chairman of the Competition Authority