The Economics of Health Reform

1. The
Economics
of Health
Reform
Presentation to The North
West Hospital’s Group
Conference
Knockranny House Hotel
October 9th 2014
By Marc Coleman

2. 1. A longer-term perspective on
Economy
Demography
Politics
2. Health care in Ireland versus Dutch & German models
3. Health spending Overdosing & misdirection
4. “Doctor, cure thyself” Healthcare reform and political sclerosis

3. 1. Some long-term perspectives

4. Economy
5.0
4.0
3.0
2.0
1.0
0.0
Average growth: 1997 to 2014
Ireland: Euro area OECD
Source: OECD Economic Outlook, June 2013

5. Demography
50
40
30
20
10
0
1841
2006
Millions of people
IRELAND AND ENGLAND: POPULATION'S COMPARED
Ireland England

6. 25.0
20.0
15.0
10.0
5.0
0.0
Ireland 2006
Ireland 1841
Austria
France
Poland
Denmark
Switz.
Germany
Millions of people
What if Ireland was as densely populated as…?
Republic Island
116
114
112
110
108
106
104
102
100
EU & Irish population growth 2004-2014
(2004=100)
Ireland EU
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: CSO Population estimates, August 2014

7. Politics
1980s & 1990s:
Stability of support for two main
parties deteriorates steadily and
strongly
Voter turnout deteriorates
steadily and strongly
Result: Political parties have to bargain
much harder for re-election
78
76
74
72
70
68
66
64
62
90
85
80
75
70
65
60
Voter turnout
1969 1973 1977 1981 1982 1982 1987 1989 1992 1997 2002
Percentage of vote
Combined vote of 2 main political parties
60
1969 1973 1977 1981 1982 1982 1987 1989 1992 1997 2002
Percentage of eligible voters casting a ballot
Year of Election

8. Political bargaining
%
change
98-08
Pub Sector
(excluding health) 70.9
Computing, Research
Development 55.0
Business Services 58.4
Consumer Price Index
2004-2009 Public spending rose by one half (Dec 2001=100) 44.8
2009-2014 Public spending fell by one tenth
“Austerity” = preserving wasteful
spending & raising taxes
“Growthsterity” = cut wasteful spending
and use proceeds for
growth enhancing tax cuts
Budget 2014 followed “growthsterity” approach
Result: Q2 2014 growth = 7.7 % GDP / 9.0% GNP
Wage growth in different sectors of the economy
(Growth in average weekly earnings)
Source: CSO Statistical Databank
Rate of increase in governemnt spending
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2000 2001 2002
election
2003 2004 2005 2006 2007
election
Has huge implications for public spending
Organised groups get bigger pay increases

9. Key Take Aways I
- Ireland a growing economy and
population still
- 2009-2011 interrupted what should be a
longer term process
- Growth will resume
- Key problem is that we haven’t

10. 2. Health Care in Ireland:
versus Dutch and
German models

11. Ireland’s model
- Excellent staff
- But centralized pay bargaining due to state provision
- Huge expense
- Nearly impossible to reform
- Fewer doctors, hospital beds than OECD average
- Significantly more nurses per head than France & OECD average
- Limited entry into consultant’s market creates bottlenecks for whole system

12. The Dutch model
- Like their soccer players, highly
individualistic
- Private hospitals, private insurers
- State subvention to ensure risk
equalisation
- Regulation strong
- But are there enough players in
insurance market?

13. Weltmeister model
- Oldest and arguably most stable and successful model in the world
- Dates from 1883, created by great statesman Otto Von Bismarck
- Mandatory insurance so young don’t subsidise old
- Similar proportion of public/private spending to Ireland (85/15 to
80/20 here)
- But no centralized setting of pay … more modest and meritocratic
system of public pay determination
- German public consultants earn half Irish public consultants pay
- No HSE
- Health funding negotiated at a regional ‘Laender’ basis so more
decentralized and flexible
- Not dictated to by centralized bargaining or big national
‘stakeholder power blocs’
- It is a public system that works in the public interest and not the
vested interest

14. Lessons for Ireland
• Either weaken power of ‘stakeholders’ to preserve highest pay and pensions in
EU and go for German model
• Or abandon state provision entirely and go for Dutch model of private provision
and insurance with state subvention for less off
• Both models have risks
• Given Ireland’s history of ‘social partnership’ risks of state dominance are higher
than risks from private involvement
• Ireland also closer culturally to Netherlands than Germany
• So ‘Go Dutch’

15. 3. Health Spending:
Overdose and Misdirection
http://www.youtube.com/watch?v=x-
5zEb1oS9A

16. Between 2004 and 2014
16
14
12
10
8
6
4
2
0
Health vote spending (€ billions)
2004 2014
% change between
2004 and 2014
Health vote +68%
Consumer Prices +18%
Population +16%

17. Health spending in Ireland as % GNP
• Why GNI and not GDP?
• GDP counts low tax FDI activity
• Overstates ability to generate tax
• Fine for long-term debt servicing
capacity (capital measurement)
• Wrong for short-term/current
spending capacity measurment
• EU Commission May 2014
• EU average 7.1% GNI
• Ireland 8.7% GNI

18. Why Ireland should spend less on healthcare than EU average
Key age metrics relevant to health care spending
Country Median age Old age
dependency
Population
over 80
EU28 41.9 27.5 5.1
Ireland 35.3 18.6 2.9
Germany 45.3 31.3 5.4
Italy 44.4 32.7 6.3
Source: Eurostat, 2013 data

19. Why Ireland spends more
- Bargaining power of professional bodies and
unions
- Asymmetric information I Medical staff
have more information on patient’s condition
than patient. Information is power to
- Overcharge
- Keep you waiting
- Control how service is delivered
- Asymmetric information II Managers and
staff have more information on how system
works than politicians and civil servants.
Information is power to
- Communicate effectively to media
- Defeat consumer/customer interest
- “We must have latest equipment”
- Consumer reliance on product
- urgently needed
- life or death
So consumer is “over a barrel”. Cannot “shop
around”````````
Replace idea of “customers” with idea of
“citizens” ?
Ideally yes: State control could overcome
bargaining power
In reality, customer mindset and increased
competition are only effective ways of tackling
problems of bargaining power, asymmetric
information and instrinsic customer weakness
vis-à-vis the service provider.
In November 2011 Michael D Higgins availed of
Galway clinic.
If competitively provided private healthcare is
good enough for the first citizen…..
…it’s good enough for all citizens.

20. Misdirection of Health
spending
A hospital in every town?
Population Hospitals
Britain 60 million 300
Netherlands 17 million 80
Ireland 4.6 million 50
Britain 1 hospital for every 200,000 people
Netherlands 1 hospital for every 212,500 people
Ireland 1 hospital for every 92,000 people
The Leinsterisation of Ireland
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Leinster Munster Connaught Ulster
Percentage of total population
1841 2006

21. 4. Carry on
Reforming the
Health service
Arguably given huge task of stabilizing economy, reforming health a
big ask
Need a national conversation
Taxpayers and customers must receive central attention.
Stakeholders are important. To be listened to.
But Customer is King must be new dictum
November 2011: Michael D Higgins uses Galway Clinic for knee
injury
If private healthcare can be used by a socialist President, then it
can also be a model for a reformed system of healthcare provision

22. Carry on
Reforming the Health service: 3 small
ideas….
1. Address bottlenecks in supply of senior doctors:
- Are public contracts really unattractive relative to private contracts?
- Or is restricted entry to market distorting costs of senior medical staff?
- And is dysfunctional management systems / overwork another cause of senior
doctors leaving the system
2. Less inequality in medical pay
- Ireland: Gap between top & bottom pay = 7.7 (IPA research)
- Sweden: Gap between top & bottom pay = 3.5 (IPA research)
3. What do we want management structures to do in our health service?
- Reward time serving, qualifications and hierarchical position?
- Or reward attentiveness to patient care, flexibility and productivity?

23. Carry on
Reforming the Health service: 2
BIGideas….
IDEA 1: We have too much gov’t
• State / HSE is taking up role of father/mother/dietician/comforter
• We are doing at massive expense to taxpayers what families and communities
used to do at little or no expense
• We are destroying “Social Capital” – family/community/values – and replacing
it with ineffective bureaucracies that don’t work & cost a fortune
• We have got to get back to natural way of doing things.
• Families & communities & values work. Bureaucracies don’t work

24. Carry on
Reforming the Health service: 2 BIG
ideas….
IDEA 2: Reforming state health provision? Do we have the time for this anymore?
• Private sector clearly more efficient. No argument here at all
• Not in public interest to have state involved in providing healthcare
• It is in public interest to have state ensure provision
• FOCUS STATE ON TAX CREDITS, TAX RELIEF AND FINANCIAL INCENTIVES AND
SUPPORTS FOR LOW INCOME FAMILIES
• NOT ON PROVIDING EXPENSIVE ‘BIG SYSTEMS’
• Ireland 2014 = Britain 1974 If not careful ‘1979’ is coming