New Zealand hospital care from the perspective of an economist

Health care resources are scarce. Simply put, that means that there aren't enough health care resources for everyone to have unlimited care for every injury and ailment. Choices must be made about how to allocate those resources. They have to be rationed in some way. In a purely private health care system, resources are rationed by price - only those who are willing and able to pay the market price for health care are able to receive the care that they want (or need). In a purely public health care system, every person is entitled to care at no cost, but that doesn't mean that scarcity doesn't exist. It simply means that the health care system has to find some form of non-price rationing to deal with it. Enter the waiting list.

On the new(ish) Asymmetric Information blog a couple of months ago, Dave Heatley share some of his experiences of care for appendicitis at a provincial hospital. This was particularly timely, given that my ECONS102 class covered health economics this week. There are several economics aspects covered in Heatley's post (as you would expect from an economist), but in relation to scarcity, Heatley wrote:

Emergency hospital care is zero-priced in New Zealand. Don’t get me wrong, I think that’s a good thing. Hospitals should not be turning away people with appendicitis because they cannot, or are unwilling to, pay the cost of care. But zero-pricing almost always has consequences. When demand exceeds supply — as it inevitably does in hospital emergency departments — non-price rationing takes over.

Economics tells us that, other than price, there aren’t that many choices for rationing mechanisms. The ED appears to use two mechanisms in combination...

• Queuing allocates resources to people in the order they arrive. It replaces the willingness-to-pay criterion of price allocation with a willingness-to-wait criterion.

• In rules-based allocation, a human (or computer) applies pre-specified rules (and sometimes professional judgement) to decide who goes next.

The gatekeeper to ED was a “triage” nurse. ED ration via a process called triage, which uses rules to allocate incomers into three queues. Those in higher priority queues always receive treatment before those in lower priority queues.

From what I observed, the three queues were:

1. Likely to die in the waiting room.
2. Won’t die in the waiting room, but is in dire need of treatment they will only get at this hospital.
3. Could get treatment elsewhere or cope without it.

Those in queue 1 went straight through. Queues 2 and 3 stayed in the waiting room until called. For me — presumably allocated to queue 2 — a 2.5 hour wait was unpleasant, but without clinical consequences. The even longer waiting times for queue 3 acted to discourage those who could afford alternative treatment...

As Heatley notes, free hospital care is a good thing. However, even free hospital care isn't free. If you have to wait to receive care, you are paying a cost in terms of the time and inconvenience you face (not to mention any discomfort you may be experiencing while you wait for care). And so, even if you think public healthcare gives you unlimited free access, it is clear that that is a convenient fiction.