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Cost EffectivenessHealth System ReformRationing

Rationing health care services: not if but how

By February 3, 2015 No Comments

From hospital buildings to the doctors and nurses who work in them, to the equipment used to test and treat patients, health care resources are combined to provide services that improve patients’ health. There are only so many of these health resources that can be mobilised at any one time and when there exists more possible uses for these resources than can possibly be fulfilled, choices need to be made about what services are provided and to whom. Rationing is the process of making such choices.

The need to ration health care services is growing ever stronger. Technological progress is bringing with it more and more potentially health-improving services, see here for just a few innovations that emerged last year. However, such advancements in what we can do are outpacing what we can afford to do. The reality is, therefore, that in modern health systems our choice is not whether health care is rationed or not, but rather between the different ways of doing it.

This problem of human wants exceeding our ability to fulfil them is by no means unique to health care. In most other cases, however, prices provide the rationing device we need to decide who gets what. By using prices those who are more willing to pay for the good or service are the ones who receive it. This process leads to good economic outcomes in many parts of the economy because resources are used for the things people want and value. However, this price signal often sinks without a trace in the quagmire of healthcare. Health care services are a complicated commodity and those receiving care typically have poor information about what they need, how much they should be paying and whether the quality of what they receive is good. Producers can take advantage and make money at the expense of poorly informed consumers

Such market failures aside, there are also ethical reasons for why prices are unlikely to be a desirable method for rationing health care. With an individuals’ willingness-to-pay for a good or service unavoidably linked to their ability to pay, the provision of care will similarly be linked to what individuals can afford. This can lead to a health system where health care of little medical value is provided to the rich while the poor do not even receive basic care. Surely few would argue that such an outcome is desirable.

If price signals are not the best way to ration health care then some other criteria for rationing care is needed. Typically it falls on governments to step in and set the criteria and regulate how health care resources are organised. This involves governments owning hospitals, employing doctors and nurses, and buying equipment. They then have to decide what services to produce, how to produce them and who gets them. One obvious criterion is to provide services at the lowest cost for those individuals who would benefit most. Such an approach will maximise population health outcomes given a health budget and so can be considered an efficient solution. However, whether it is also the equitable solution to our problem depends on our notion of fairness. For example, do we consider all health gains equal? Do we believe that an extra year of life for an 80 year old is equivalent to an extra year of life for an 18 year old? Is an extra year for a 65 year old that has an illness caused by their earlier risky behaviour, such as smoking, equivalent to an extra year for a 65 year old that has an illness caused because of some genetic condition? If not, then these other considerations also need to be taken into account when rationing care.

Rationing care is unavoidable and it is likely to fall on governments to do it. There are essentially two ways that governments can go about it. First, they can ration explicitly by recognising the choices they face and choosing those uses of the resources that would best achieve their objectives (which we hope reflect the objective of the society who they represent). Alternatively, they can pretend that rationing is not a part of the health system. The result will be that rationing will still occur but it will be hidden from view, and often done to serve the objectives of powerful vested interest groups. Such an approach will end up with rationing that serves the best interests of these vested interests rather than the public. Unfortunately, government rationing of health care typically looks a lot more like the latter of these approaches than the former. In many ways this is unsurprising with rationing an unpopular message. However, with the costs of badly managed rationing ever increasing, the benefits from rationing explicitly, consistently and in line with social objectives will only grow stronger.

Edward Burn

AusHSI Health Economist