Theories Of Market Failure In Healthcare
Market Failure in Healthcare Part 1: Market Failure in Theory
Market Failure in Theory
All 3 main political parties in England are publicly signed up to a single payer (ie tax funded) system of funding the NHS. There is major evidence to support this model of healthcare funding including the Guillebaud report (1953), the Commons expenditure committee report (1973), and the Wanless review (2001).
In fact, Wanless identified a £267 billion NHS underspend between 1972-1998. One of his conclusions was as follows:
“The surprise may be that the gap in many measured outcomes is not bigger, given the size of the cumulative spending gap".
All 3 political parties also support the idea of a market based system of healthcare delivery …show more content…
Gordon Brown also addressed this issue in a speech to the Social Market Foundation (SMF) in 2003, which summarized the problems of market failure very well. In fact Brown was so concerned that he stated the following:
“Indeed, the case I have made and experience elsewhere leads us to conclude that if we were to go down the road of introducing markets wholesale into British health care we would be paying a very heavy price in efficiency and equity and be unable to deliver a Britain of opportunity and security for all”
"The very same reasoning which leads us to the case for the public funding of health care on efficiency as well as equity grounds also leads us to the case for public provision of healthcare”. Gordon Brown, SMF speech 2003
Despite this statement, his Government was busily incorporating and implementing a market based system into the NHS!
The following non exhaustive list gives the main reasons for market failure in healthcare as outlined by Arrow, Brown and …show more content…
However, in the case of the health care market, information is not equally shared between buyers and sellers. Instead the seller, the doctor, has far more information than the buyer, the patient. Patients are not sovereign in this situation ie patients are not well enough informed to make choices and the doctor (the seller) is actually their main “agent” or advocate. This means we are expecting our doctor to divide him/herself in half - on the one hand to act in our interests as the buyer of health care for us, but on the other to act in her own interests as the seller of health care. In a free market situation where the doctor is primarily motivated by the profit motive, the possibility exists for doctors to exploit patients by advising more treatment to be purchased than is necessary – this is known as supplier induced demand. Hence doctors' behavior has been controlled by a professional code of practice and a system of licensure. As Kenneth Arrow put it "The control that is exercised ordinarily by informed buyers is replaced by internalised values". These “internalized” professional values disrupt the efficient functioning of the
Market Failure in Theory
All 3 main political parties in England are publicly signed up to a single payer (ie tax funded) system of funding the NHS. There is major evidence to support this model of healthcare funding including the Guillebaud report (1953), the Commons expenditure committee report (1973), and the Wanless review (2001).
In fact, Wanless identified a £267 billion NHS underspend between 1972-1998. One of his conclusions was as follows:
“The surprise may be that the gap in many measured outcomes is not bigger, given the size of the cumulative spending gap".
All 3 political parties also support the idea of a market based system of healthcare delivery …show more content…
Gordon Brown also addressed this issue in a speech to the Social Market Foundation (SMF) in 2003, which summarized the problems of market failure very well. In fact Brown was so concerned that he stated the following:
“Indeed, the case I have made and experience elsewhere leads us to conclude that if we were to go down the road of introducing markets wholesale into British health care we would be paying a very heavy price in efficiency and equity and be unable to deliver a Britain of opportunity and security for all”
"The very same reasoning which leads us to the case for the public funding of health care on efficiency as well as equity grounds also leads us to the case for public provision of healthcare”. Gordon Brown, SMF speech 2003
Despite this statement, his Government was busily incorporating and implementing a market based system into the NHS!
The following non exhaustive list gives the main reasons for market failure in healthcare as outlined by Arrow, Brown and …show more content…
However, in the case of the health care market, information is not equally shared between buyers and sellers. Instead the seller, the doctor, has far more information than the buyer, the patient. Patients are not sovereign in this situation ie patients are not well enough informed to make choices and the doctor (the seller) is actually their main “agent” or advocate. This means we are expecting our doctor to divide him/herself in half - on the one hand to act in our interests as the buyer of health care for us, but on the other to act in her own interests as the seller of health care. In a free market situation where the doctor is primarily motivated by the profit motive, the possibility exists for doctors to exploit patients by advising more treatment to be purchased than is necessary – this is known as supplier induced demand. Hence doctors' behavior has been controlled by a professional code of practice and a system of licensure. As Kenneth Arrow put it "The control that is exercised ordinarily by informed buyers is replaced by internalised values". These “internalized” professional values disrupt the efficient functioning of the