Confidence Goods 4

Singapore's healthcare system is once again in the limelight.

The Minister gives his views on the healthcare market in this speech, parts of which I have reproduced below (emphasis mine):


"In my view, the main problem behind healthcare woes is that we have unnecessarily mystified healthcare and some economists have further endorsed the myth by concluding that the market fails in healthcare. While the observation is not wrong, it has unfortunately given healthcare providers many excuses that their activities are unique and they are different from other economic sectors. This perception has given politicians and many interest groups justification to intervene, often for their own interests, and along the way, to further distort the healthcare market. It becomes a self-fulfilling prophesy. While the healthcare market can never become a fully perfect market (few economic sectors are perfect markets, by the way), the current level of market imperfection is not the natural order of things. The healthcare market fails because we collectively, unwittingly allow it to fail.

First, if patients do not know the choices available to them and the prices and quality of these services, how can we expect them to make informed choices and reward the efficient providers?

Second, if the bills are paid by a third-party with very little direct payment by the patients, why should patients bother to search for lower-cost solutions?

Third, if the providers themselves do not know or bother to know what their true costs are, and that of their competitors, how can we expect them to improve on their performance, to deliver better services at lower cost?

Fourth, if both providers and consumers do not regularly measure the clinical outcomes of their services, how can we know whether the services provided are optimal and desirable?

Finally, if prices are distorted by subsidies, how can we expect to achieve an optimal distribution of supply and demand, with minimum wastages and maximum productivity?"

"The world is searching for better answers to many of these systemic problems. As I see it, the more we can make the healthcare market behave like a normal market, the closer the world will be to having more efficient and effective healthcare systems."


angry doc wonders if he (and his blog) had done more to mystify healthcare in Singapore or to demystify it. Do let him know, gentle readers.

angry doc is however pretty convinced that healthcare is a unique 'activity' (and try as he might, he cannot think of another activity that is totally like healthcare - education comes close).

Reading between the lines, the Minister's idea of making the healthcare market more 'perfect' seems to be:

1. Make the providers make their prices and performances more 'transparent' so consumers can make educated decisions on whom to patronise, which will in turn effect competition between the providers.

2. Remove third-party payers and subsidy from the equation.

angry doc will not look at point 2, but with regards to point 1, he can already see a couple of reasons why it may not work in practice.

Medicine is a confidence good and while patients can (and should) know the prices of the services and goods, they will not always know the quality of the care they are receiving. To many hypertension patients, paying for and taking their daily medication must be like buying a lawn display that will keep tigers away from their house.

Because of that, providers and consumers do not always have the same desired outcomes in mind. To try to measure outcomes before we even agree on what outcomes we want is putting the cart before the horse.

But underlying the first four points the Minister has raised is perhaps the belief that there are answers in healthcare, and that we know those answers.

We believe we know what quality is, we believe we know what the cost-effective solutions are, and we believe we know what clinical outcomes are optimal and desirable; good old-fashioned medical paternalism which angry doc is proudly guilty of.

But importantly, we also know that what we think is best for our patients may not always be viewed as such by them, and vice versa.

Unless we are willing to agree with the patients (or consumers) that what they want is what is best for them, then making the market more 'normal' or 'perfect' probably isn't going to change the way things are.

As long as providers think they know best, they will continue to distort the market consumption to what they think is right.

Our task then, at least within the context of subsidised healthcare, is perhaps not so much how to make the healthcare market more 'perfect', but how to make the consumers align their expectations with ours, or how to incentivise them to do so.

Your task, however, is to answer yourself this question: do you want a doctor who gives you what you want, or a doctor who gives you what he thinks is best for you?