Monopolies are Bad, Especially in Health Care
Published in the Ottawa Citizen, September 4, 2004
If progress on a national pharmacare program or a reduction in waiting times is to be realised, Canada’s first ministers should stop thinking about giving or getting more money and start thinking about how to change the health care system. According to recently published papers from Vancouver’s Fraser Institute and Montreal’s Institute for Research and Public Policy (IRPP) – monopolies by Canada’s generic drug manufacturers and health care providers are the main factors in Canada’s expensive and sclerotic health care system.
“Generic Drugopoly”, written by the Fraser Institute’s Manager of Pharmaceutical and Health Policy Research Brett J. Skinner, suggests one explanation why a national pharmacare program should not proceed, at least not immediately. This year alone, says Skinner, Canadian generic drugs are costing Canadians $810 million more than they would at international median prices. The reason : Canadian pharmaceutical policies – which have allowed two nationally based corporate giants to dominate 60% of the market - are distorting prices for generic drugs, creating monopoly-style control over the market.
The IRPP paper “Why Competition Matters in the Delivery of Publicly Funded Health Care System” looks at a different set of monopolies but sees the same costly results. Its authors, Senators Michael J.Kirby and Dr.Wilbert Keon, say injecting more money into the healthcare system merely allows governments to avoid confronting its most important structural weakness, namely its lack of incentive to increase productivity. “In other fields, competition among service providers has been shown to be the best way – indeed, perhaps the only way – to drive improvements in productivity. Thus, the introduction of competition in health care delivery is not an end in itself. It is the means of encouraging improvements in productivity that will lead to a much more efficient and cost-effective delivery system.”
The Senators have no reservations about Canada’s single-payer, government funding of the system. It yields more administrative efficiencies than any multi-funder system and ensures everyone has health care.
However the current system precludes competition among providers of services. This results in a monopoly at two levels. “Professionals have a monopoly because they are the sole providers in their respective areas of expertise. Hospitals hold monopoly power because they do not compete for patients on the basis of either price or quality of service.”
The monopoly by professionals creates an imbalance of bargaining power between government funders and provider groups. This gives the providers pay increases without requiring increases in productivity or allowing for variations in the quality of services provided.
Similarly, the monopoly by hospitals - which are block funded according to formulas that have little do with actual volume, type or cost of procedures performed – has produced inefficiencies and little incentive to improve quality or decrease costs.
The fault, according to the Senators, lies not with health care providers or hospitals but with a top-down, command-and-control strategy that “doesn’t encourage individuals and institutions, acting in their own self interest, to make the changes required.” The answer, they say, is to encourage competition by changing hospital funding from the block system to one in which hospital facilities are paid on a fee for service basis and allowed to keep their savings. This would lead to more specialization, more flexible job descriptions and more choice for patients. Gains in quality and timeliness of service with commensurate reductions in waiting lists and costs would follow.
Along with detailing these much needed reforms, the Senators also expose the pernicious error that equates public funding with public delivery. From privatised doctors to hospitals to laboratories, diagnostic, laundry and meal preparation services, “… it simply is not true that the delivery system is public,” they say. “Nor is it true that the Canada Health Act requires publicly insured services to be provided by public sector institutions or employees.”
The magnitude of change envisaged by Senators Kirby and Keon and Brett Skinner cannot happen overnight. But they have opened a very large door through which many - politicians, patients, providers, taxpayers and the media – can enter to expedite that change. As for the prime minister, a new vocabulary (sans the tyranny of two-tierism which has so effectively hobbled discussion thus far) and a new deal (tying a pharmacare proposal to the implementation of competition by the provinces), creates a win-win for everyone. First though, he’ll have to get his legislative house in order on generic drugs.
Margret Kopala’s column on western perspectives appears weekly.