HEALTH ECONOMICS, VOL.
1: 1-3 (1992)
EDITORIAL
HEALTH CARE REFORM: THE SEARCH FOR THE HOLY GRAIL The purpose of this new journal is to publish articles about all aspects of health economics: theoretical contributions, empirical studies, economic evaluations and analyses of health policy from an economic perspective. Nowhere is such work needed more than to inform health care reform. Policy makers in many countries recognise that resource allocation in health care is inefficient and that perverse incentives fuel cost inflation. These concerns are complemented, particularly in countries with fragmented health care structures like the USA, by a recognition of distributional inequalities in health and health care. After the failure of demand side policies, such as copayments, t o control costs, let alone improve resource allocation, 2*3 the focus of the policy debate has switched to the supply side and competition between providers. A significant driving force behind the advocacy of competition as a remedy for the problems of health care systems has been Professor Alain Enthoven. 4 * 5 Enthoven’s arguments have stimulated policy debate6 and affected institutional changes not only in North America, but also in Australasia and Europe, where the designs of the UK and Dutch reforms in particular owe much to the messages emanating from Stanford University. The analysis of the effects of competition in health care, as a means of improving resource allocation, equity and cost control, is incomplete. The ‘natural’ propensity of competition in health care markets to emerge in terms of quality (measured by process rather than health outcomes) instead of price, creates the threat of duplication in service capacity and cost inflation. The little evaluation of competitive mechanisms, such as Health Maintenance Organisations, that is available suggests that price competition is difficult to create and sustain’.’ and that the effects of managed care are, as yet u n p r ~ v e n . ~ However the impressive characteristic of the
0 1992 by John Wiley & Sons, Ltd.
literature on price and quality competition is its scarcity. All too little is known about how to create and sustain competition, let alone how, once it is operating, it may improve resource allocation and facilitate the achievement of other policy goals. The introduction of market mechanisms requires heavy investment in data collection and utilisation, and the associated human capital. In doing this, and introducing adversarial relationships into health care, what was previously considered ‘usual, customary and reasonable’ is challenged and replaced by attempts to produce accountability in relation to agreed, and often poorly articulated and segmented, policy targets. Many inside and outside economics, regard adversarial relationships as the characteristic of the economists’ approach. Adam Smith, for many libertarians l o epitomised this approach: ‘It is not from the benevolence of the butcher, the brewer and the baker that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but to their advantages. ’
Adam Smith (1776)”
However careful reading of Smith’s works reveals that he was not an enthusiast of the simplistic economic model where behaviour is dictated by greed, self interest and ‘self love. ‘Those general rules of conduct when they have been fixed in our mind of habitual reflection, are of great use in correcting the misrepresentations of self-love concerning what is fit and proper to be done in our particular situation.. . The regard of those general rules of conduct, what is properly called a sense of duty, is a principle of greatest consequence in human life, and the only principle by which the bulk of mankind are capable of directing their actions.’ Adam Smith (1790)12
2
EDITORIAL
The ‘sense of duty’ of the medical profession is a powerful determinant of the distribution and allocation of health care resources. As Sen has argued, ‘the simple pursuit of self-interest is not the great redeemer’. l 3 How market mechanisms are designed to complement the ‘sense of duty’ of decision makers such as doctors is an issue usually ignored in the economics literature but central to the conduct of health care, particularly doctorpatient interactions. l4 Morishima has pointed out that countries such as Japan, which emphasise social norms rather than individual self-interest, have been more successful economically. Is The achievement of primacy in quality by the Japanese was informed by the work of an American statistician. 16,’’ His arguments have been applied to health care by many’* and endorsed as central to the process of creating competition. However the role of ‘continuous quality improvement’ (CQI) relative to financial incentives and the mechanism of the market is developed incompletely. To what extent will CQI produce efficiency gains in the absence of financial incentives? Are incentives and CQI complements or substitutes? Health care reform in all countries has been a search for the Holy Grail, often poorly informed by evidence and driven by sustained advocacy. The British novelist G . K. Chesterton is alleged to have argued that the problem with Christianity was not that it had failed, but that it had never been tried! The advocacy of competition as a solution to the problems of health care systems is akin to this: some would argue that it has not failed, but that it has not been tried! Is faith in the effects of competition a sufficient basis for health care reform? The test of competition in health care is evidence that it improves efficiency and equity, and facilitates cost control. Knowledge of its effectiveness will be built up gradually through carefully designed studies, detailed analysis of results and thorough dissemination of findings to professional and lay audiences. The purpose of Health Economics is to be in the forefront, stimulating debate and disseminating important ideas and empirical results. The majority of papers published will be subjected to the customary rigorous academic reviewing process. However, in the Opinion section, invited contributions by leading opinion formers in the health field (not necessarily economists), whose views are of direct interest to health economists,
will be published. The Debate section will include shorter pieces on developments in theory and methodology, and responses in the form of notes or letters to the Editors will be published in subsequent issues. The Editors will take a pro-active role in this process by encouraging the organisation of meetings and conferences likely to produce important papers for publication in the journal. In this issue we begin publication of a series of papers focusing on the reform of the United States health care system, drawing particular comparisons with its North American neighbour Canada. These papers have emerged from a symposium organised at Lehigh University by Professors King, Hyclak and Aronson who provide an introduction to the whole series. The two opening papers address important ethical and empirical questions. Tony Culyer analyses the relationships between ethics and efficiency which must be recognised in the design of health care systems, demonstrating that inefficiency may itself be unethical. David Naylor compares the US and Canadian health care systems and shows that the lower cost of the Canadian system is associated with its lower expenditures on management, administration and labour. However, the Canadian system remains the most expensive public health care system in the world. Whatever system of health care delivery and finance is adopted, purchasers (be they in the NHS, Medicare or Blue Cross and Blue Shield) need improved information about the costs and effects of competing procedures. Costeffectiveness studies will therefore be a regular feature of the journal. In this issue Sculpher and his colleagues address the cost effectiveness of screening for diabetic retinopathy whilst Whynes and his co-authors seek to identify the cost savings from treatment of benign lesions found during screening for colorectal cancer. During the 1980s policy makers have focused on improving the management of health care. In the UK Sir Roy Griffiths produced proposals in 1983 which had profound effects on the nature and quality of NHS management. The Opinion section reproduces his 1991 Audit Commission lecture in which he reflects on the implementation of his ideas. A central issue in any cost-effectiveness analysis is how to deal with the issue of time preference. The conventional economic advice is to discount costs and benefits. This approach is rejected by Parsonage and Neuburger in their contributions
3
EDITORIAL
to the Debate section. Whilst they admit the need to discount costs to produce present value estimates, they reject the case for discounting benefits, arguing that an additional year of good quality life is the Same now or in the future. Cairns counters these arguments in a critique of the Parsonage-Neuburger approach, and readers are encouraged to take U P the debate on the many unresolved questions raised by these papers. Although the reform of health care systems will remain at the forefront of the policy debate for some time to come, and Health Economics will publish important contributions by health economists to that debate, it would be wrong for the sub-discipline to become completely submerged in that issue. An important role for the journal be to encourage the and dissemination of the new economic knowledge which will inform the formation and execution of all aspects of health and health care policy in the future. ALAN MAYNARD
and JOHN HUTTON
REFERENCES 1. van Doorslaer, E., Wagstaff, A. and Rutten, F.
Equity in the Finance and Delivery of Health Care: an international perspective. Oxford and London, Oxford University Press, 1992 (forthcoming). 2. Creese, A. User Charges for Health Care: a review of recent experiences. Geneva, World Health Oraanisation. 1991. 3. Richardson, j . User Charges f o r Health Care: a review of recent experiences. Geneva, World Health Organisation, 1991. 4. Enthoven, A. C . Health Plan: the only practical solution to the soaring cost of medical care. Reading, Massachusetts, Addison-Wesley, 1980.
5 . Enthoven, A. C. Reflection on the Management of
the National Health Service. Nuffield Provincial Hospitals Trust, Occasional Paper 5 , London, 1985. 6. Robinson, J. and Luft, H. Competition, regulation and hospitals costs, 1982-1986. Journal of the American Medical Association. 1988; 251: 3241-45. 7. Robinson, J. HMO market penetration and hos-
pital cost inflation in California. Journal of the American Medical Association. 1991; 266: 19, 27 19-23.
8. Enthoven, A. C. Market forces and health care costs. Journal of the American Medical Association. 1991; 266: 19, 2751-2. 9. Miller, R. H. and Luft, H. Perspective, diversity and transition in health insurance plans. Health Afairs, 1991, Vol 1, No 4, 37-44. 10. Maynard, A. and Williams, A. Privatisation and Health Care, in J. Le Grand and R. Robinson (eds), Privatisation and the Welfare State, London, Allen and Unwin, 1985. 11. Smith, Adam. (1776). An Enquiry into the Nature and Causes of the Wealth of Nations. Oxford, Oxford University Press, 1976. 12. Smith, Adam. (1790). Theory of Moral Sentiments. Oxford, Oxford University Press, 1976. 13. Sen, A. K. On Ethics and Economics. OYford, Basil Blackwell, 1987. 14. Fuchs, V. The counter-revolution in health care financing. New England Journal of Medicine. 316: 18, 1154-6. 15. Morishima, M. Why Has Japan Succeeded? Cam-
bridge, Cambridge University Press, England, 1982. 16. Deming, W. E. Quality, Productivity and Com-
petitive Position. Center for Advanced Engineering Studv. Cambridge. Massachusetts, Massachusetts Instilute of Tec
1: 1-3 (1992)
EDITORIAL
HEALTH CARE REFORM: THE SEARCH FOR THE HOLY GRAIL The purpose of this new journal is to publish articles about all aspects of health economics: theoretical contributions, empirical studies, economic evaluations and analyses of health policy from an economic perspective. Nowhere is such work needed more than to inform health care reform. Policy makers in many countries recognise that resource allocation in health care is inefficient and that perverse incentives fuel cost inflation. These concerns are complemented, particularly in countries with fragmented health care structures like the USA, by a recognition of distributional inequalities in health and health care. After the failure of demand side policies, such as copayments, t o control costs, let alone improve resource allocation, 2*3 the focus of the policy debate has switched to the supply side and competition between providers. A significant driving force behind the advocacy of competition as a remedy for the problems of health care systems has been Professor Alain Enthoven. 4 * 5 Enthoven’s arguments have stimulated policy debate6 and affected institutional changes not only in North America, but also in Australasia and Europe, where the designs of the UK and Dutch reforms in particular owe much to the messages emanating from Stanford University. The analysis of the effects of competition in health care, as a means of improving resource allocation, equity and cost control, is incomplete. The ‘natural’ propensity of competition in health care markets to emerge in terms of quality (measured by process rather than health outcomes) instead of price, creates the threat of duplication in service capacity and cost inflation. The little evaluation of competitive mechanisms, such as Health Maintenance Organisations, that is available suggests that price competition is difficult to create and sustain’.’ and that the effects of managed care are, as yet u n p r ~ v e n . ~ However the impressive characteristic of the
0 1992 by John Wiley & Sons, Ltd.
literature on price and quality competition is its scarcity. All too little is known about how to create and sustain competition, let alone how, once it is operating, it may improve resource allocation and facilitate the achievement of other policy goals. The introduction of market mechanisms requires heavy investment in data collection and utilisation, and the associated human capital. In doing this, and introducing adversarial relationships into health care, what was previously considered ‘usual, customary and reasonable’ is challenged and replaced by attempts to produce accountability in relation to agreed, and often poorly articulated and segmented, policy targets. Many inside and outside economics, regard adversarial relationships as the characteristic of the economists’ approach. Adam Smith, for many libertarians l o epitomised this approach: ‘It is not from the benevolence of the butcher, the brewer and the baker that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but to their advantages. ’
Adam Smith (1776)”
However careful reading of Smith’s works reveals that he was not an enthusiast of the simplistic economic model where behaviour is dictated by greed, self interest and ‘self love. ‘Those general rules of conduct when they have been fixed in our mind of habitual reflection, are of great use in correcting the misrepresentations of self-love concerning what is fit and proper to be done in our particular situation.. . The regard of those general rules of conduct, what is properly called a sense of duty, is a principle of greatest consequence in human life, and the only principle by which the bulk of mankind are capable of directing their actions.’ Adam Smith (1790)12
2
EDITORIAL
The ‘sense of duty’ of the medical profession is a powerful determinant of the distribution and allocation of health care resources. As Sen has argued, ‘the simple pursuit of self-interest is not the great redeemer’. l 3 How market mechanisms are designed to complement the ‘sense of duty’ of decision makers such as doctors is an issue usually ignored in the economics literature but central to the conduct of health care, particularly doctorpatient interactions. l4 Morishima has pointed out that countries such as Japan, which emphasise social norms rather than individual self-interest, have been more successful economically. Is The achievement of primacy in quality by the Japanese was informed by the work of an American statistician. 16,’’ His arguments have been applied to health care by many’* and endorsed as central to the process of creating competition. However the role of ‘continuous quality improvement’ (CQI) relative to financial incentives and the mechanism of the market is developed incompletely. To what extent will CQI produce efficiency gains in the absence of financial incentives? Are incentives and CQI complements or substitutes? Health care reform in all countries has been a search for the Holy Grail, often poorly informed by evidence and driven by sustained advocacy. The British novelist G . K. Chesterton is alleged to have argued that the problem with Christianity was not that it had failed, but that it had never been tried! The advocacy of competition as a solution to the problems of health care systems is akin to this: some would argue that it has not failed, but that it has not been tried! Is faith in the effects of competition a sufficient basis for health care reform? The test of competition in health care is evidence that it improves efficiency and equity, and facilitates cost control. Knowledge of its effectiveness will be built up gradually through carefully designed studies, detailed analysis of results and thorough dissemination of findings to professional and lay audiences. The purpose of Health Economics is to be in the forefront, stimulating debate and disseminating important ideas and empirical results. The majority of papers published will be subjected to the customary rigorous academic reviewing process. However, in the Opinion section, invited contributions by leading opinion formers in the health field (not necessarily economists), whose views are of direct interest to health economists,
will be published. The Debate section will include shorter pieces on developments in theory and methodology, and responses in the form of notes or letters to the Editors will be published in subsequent issues. The Editors will take a pro-active role in this process by encouraging the organisation of meetings and conferences likely to produce important papers for publication in the journal. In this issue we begin publication of a series of papers focusing on the reform of the United States health care system, drawing particular comparisons with its North American neighbour Canada. These papers have emerged from a symposium organised at Lehigh University by Professors King, Hyclak and Aronson who provide an introduction to the whole series. The two opening papers address important ethical and empirical questions. Tony Culyer analyses the relationships between ethics and efficiency which must be recognised in the design of health care systems, demonstrating that inefficiency may itself be unethical. David Naylor compares the US and Canadian health care systems and shows that the lower cost of the Canadian system is associated with its lower expenditures on management, administration and labour. However, the Canadian system remains the most expensive public health care system in the world. Whatever system of health care delivery and finance is adopted, purchasers (be they in the NHS, Medicare or Blue Cross and Blue Shield) need improved information about the costs and effects of competing procedures. Costeffectiveness studies will therefore be a regular feature of the journal. In this issue Sculpher and his colleagues address the cost effectiveness of screening for diabetic retinopathy whilst Whynes and his co-authors seek to identify the cost savings from treatment of benign lesions found during screening for colorectal cancer. During the 1980s policy makers have focused on improving the management of health care. In the UK Sir Roy Griffiths produced proposals in 1983 which had profound effects on the nature and quality of NHS management. The Opinion section reproduces his 1991 Audit Commission lecture in which he reflects on the implementation of his ideas. A central issue in any cost-effectiveness analysis is how to deal with the issue of time preference. The conventional economic advice is to discount costs and benefits. This approach is rejected by Parsonage and Neuburger in their contributions
3
EDITORIAL
to the Debate section. Whilst they admit the need to discount costs to produce present value estimates, they reject the case for discounting benefits, arguing that an additional year of good quality life is the Same now or in the future. Cairns counters these arguments in a critique of the Parsonage-Neuburger approach, and readers are encouraged to take U P the debate on the many unresolved questions raised by these papers. Although the reform of health care systems will remain at the forefront of the policy debate for some time to come, and Health Economics will publish important contributions by health economists to that debate, it would be wrong for the sub-discipline to become completely submerged in that issue. An important role for the journal be to encourage the and dissemination of the new economic knowledge which will inform the formation and execution of all aspects of health and health care policy in the future. ALAN MAYNARD
and JOHN HUTTON
REFERENCES 1. van Doorslaer, E., Wagstaff, A. and Rutten, F.
Equity in the Finance and Delivery of Health Care: an international perspective. Oxford and London, Oxford University Press, 1992 (forthcoming). 2. Creese, A. User Charges for Health Care: a review of recent experiences. Geneva, World Health Oraanisation. 1991. 3. Richardson, j . User Charges f o r Health Care: a review of recent experiences. Geneva, World Health Organisation, 1991. 4. Enthoven, A. C . Health Plan: the only practical solution to the soaring cost of medical care. Reading, Massachusetts, Addison-Wesley, 1980.
5 . Enthoven, A. C. Reflection on the Management of
the National Health Service. Nuffield Provincial Hospitals Trust, Occasional Paper 5 , London, 1985. 6. Robinson, J. and Luft, H. Competition, regulation and hospitals costs, 1982-1986. Journal of the American Medical Association. 1988; 251: 3241-45. 7. Robinson, J. HMO market penetration and hos-
pital cost inflation in California. Journal of the American Medical Association. 1991; 266: 19, 27 19-23.
8. Enthoven, A. C. Market forces and health care costs. Journal of the American Medical Association. 1991; 266: 19, 2751-2. 9. Miller, R. H. and Luft, H. Perspective, diversity and transition in health insurance plans. Health Afairs, 1991, Vol 1, No 4, 37-44. 10. Maynard, A. and Williams, A. Privatisation and Health Care, in J. Le Grand and R. Robinson (eds), Privatisation and the Welfare State, London, Allen and Unwin, 1985. 11. Smith, Adam. (1776). An Enquiry into the Nature and Causes of the Wealth of Nations. Oxford, Oxford University Press, 1976. 12. Smith, Adam. (1790). Theory of Moral Sentiments. Oxford, Oxford University Press, 1976. 13. Sen, A. K. On Ethics and Economics. OYford, Basil Blackwell, 1987. 14. Fuchs, V. The counter-revolution in health care financing. New England Journal of Medicine. 316: 18, 1154-6. 15. Morishima, M. Why Has Japan Succeeded? Cam-
bridge, Cambridge University Press, England, 1982. 16. Deming, W. E. Quality, Productivity and Com-
petitive Position. Center for Advanced Engineering Studv. Cambridge. Massachusetts, Massachusetts Instilute of Tec
