It's not a surprise that medical practices might try to avoid sick patients

The New Zealand Herald reported yesterday:

Some GP clinics which are nearly at capacity say they are selecting which patients they enrol, raising concerns they could be discriminating against some groups or excluding difficult patients.

A survey of 220 general practice staff in New Zealand found four out of five had stopped or limited their enrolments over the previous three years.

Some staff reported they had selectively enrolled patients by refusing those with high health needs - a practice known as “cream-skimming”.

Associate Professor Mona Jeffreys, an epidemiologist at Victoria University, said previous studies had focused narrowly on how many practices were open or closed, without considering how many had limited their enrolment and how...

“Some are only taking family members, some are taking people who are new to the area. But some are making decisions based on health, which means that people who have … poorer health are less likely to be enrolled because practices know there is a greater burden.”

The research that this article was based on, published in the New Zealand Medical Journal, is here (gated). Now, medical practices making a decision to exclude patients with poorer health might seem a bit surprising. However, it is quite rational behaviour on the part of those practices. That's because, as this Bay of Plenty Times story from yesterday notes:

[Pāpāmoa Pines Medical Centre’s co-owner and partner Pamela] Sheahan said government funding for GPs through the capitation model was “not fit for purpose” and needed to be “significantly overhauled”.

Capitation-based payments are based on the numbers of people enrolled with individual general practices who belong to a primary health organisation population, the Te Whatu Ora website says.

“We’re paid for four visits per year per patient. If you get children and older people, they come to the GP far more than four times … sometimes up to 20 times a year,” Sheahan said.

“We just don’t get paid for any of those visits so we have to claw that back by charging patients over the counter the additional fees.”

Sheahan said the only way the business made money – apart from government funding – was charging patients.

A rational (and profit-maximising, or at least loss-minimising) medical practice will take on a patient as long as the benefits (to the practice) of that patient exceed the costs. The benefit the practice receives is the government capitation funding plus any patient fees. The capitation funding covers the cost of the first four visits for any patient. The practice will break even if every patient visited exactly four times per year (and the practice charged no fees). The practice will make a profit from patients that visit fewer than four times per year (typically the most healthy patients), and from patient fees charged to those that visit four or fewer times per year.

However, patients that visit more than four times per year pose a problem. Patient fees might be enough to ensure that the practice breaks even on patients visiting maybe six times per year (as an example). Patients that visit more times than those (typically the patients in the poorest health) will be a net loss to the practice. For those patients, the cost of providing care exceeds the benefits that the practice receives (in terms of capitation funding plus patient fees).

A rational and profit-maximising medical practice would therefore make an assessment of each potential patient, and take on only those patients that are likely to visit four or fewer times per year (or maybe six or fewer times). They would reject any patients that would be likely to visit more often than that. This is the 'cream-skimming' that the first article mentions.

Fortunately, medical practices are not quite that cold-hearted. There will certainly be some cross-subsidisation, with the profits that the practice receives from some patients covering the shortfall on the care provided to other patients. However, there are limits to the amount of cross-subsidisation that can occur. Eventually, the profits from the healthy patients are overwhelmed and at that point the medical practice has few options left. They can raise the patient fees, they can limit their exposure to patients in poor health (as noted above), or they can shut down.

It would be easy to blame the medical practices here, but it really isn't their fault. The health system, and in particular the funding model and funding level for general practice, are the real problem (see here and here, for example). If the government continues the chronic underfunding of general practice, then we will simply continue to see more of this rational behaviour from medical practices.

[Update: More evidence of cream skimming from the New Zealand Herald]

Healthcare isn't the only example of a two-tier system

Merit goods are defined as goods that are deemed to be socially desirable. Socially desirable things can often be provided by the market. However, merit goods are deemed to be somewhat problematic because either: (1) the market doesn't provide enough of the good, compared with the socially efficient (economic-welfare-maximising) quantity; or (2) the good is important, and if it was distributed by the market, some people would miss out on the minimum quantity of the good that is deemed to be necessary. Who decides what is socially desirable or what the minimum quantity of the good is? Those are political decisions. In other words, what constitutes a merit good is mostly a political decision, not an economic decision.

If merit goods are not provided in sufficient quantities, or are provided in sufficient quantities but not to everyone who we think needs them, then that suggests a role for government. That means that the government either subsidises merit goods or provides the merit goods itself. I was tempted to provide some examples that fit into each of those two categories, but it turns out that, for every example I considered (health, education, public transport, the arts) the government tends to do a mixture of both subsidising and public provision.

However, let's focus on public provision of merit goods. There is no free lunch. When the government spends on health or education, that means less spending on other things. There are trade-offs, and that makes it difficult for government to provide gold-plated goods and services to everyone. Sometimes, people just want more than the government is able to provide. That's why in New Zealand, alongside the public healthcare system, there is a growing private healthcare system, accessed mainly by those with private health insurance. This unavoidably creates a disparity in people's access to healthcare. Some people can only afford to access the public healthcare system, while others can choose to access public healthcare, or to pay extra (either directly or through health insurance) to access private healthcare.

Many people take issue with the disparity in access, arguing that it creates a two-tiered system and is therefore unfair. Take this article from The Conversation yesterday, by Elizabeth Fenton and Robin Gauld (both University of Otago):

Many seem to accept the argument that a two-tier public-private health system is not morally problematic, given most essential health services remain free to all. Some might go further and argue justice demands a two-tier system because health is only one public good the state is obliged to provide. Limiting non-essential healthcare services ensures it can meet those obligations.

The second private tier protects the liberty of those who want and can afford to purchase those services, while the first public tier focuses on meeting everyone’s needs to a sufficient level.

But the justice argument supports this conclusion only if the services and benefits provided in the first tier meet that threshold of sufficiency. Where exactly this threshold lies has been the subject of perennial debate.

Fenton and Gauld are clearly in favour of a more generous public healthcare system, which in turn would limit the necessity for the private healthcare system. Their argument is valid. It's simply a question of prioritisation of government spending (but keeping the trade-offs in mind). However, I do want to take issue with this bit from their article (aside from them saying in the quote above that health is a public good, when it isn't [*]):

When the worse-off are required to accept services below reasonable expectations of routine care (and the demonstrable harms that result), individuals are no longer in the same boat. The better-off live in a world of social goods and privileges inaccessible to the worse-off.

Why we accept this in health and not other sectors is an important question. It is hard to imagine school teachers only taking bookings months out to see parents seeking help for their troubled children, or denying entry to public schools due to limited capacity.

It is also doubtful we would accept teachers setting up private classes and consultation times to provide a timely service to those who can pay.

Fenton and Gauld need to reconsider their example of education. Education is a two-tier system as well. There are both public schools (nominally free) and private schools (with high fees). Parents can (and do) pay for private tuition for their children as well. Some of that private tuition is conducted by people who are teachers in their regular day job (a consequence of the education system paying teachers poorly). And that isn't even considering post-secondary education, where there are both public and private providers as well. 

Healthcare isn't the only example of a two-tier system. Consider transport (public transport vs. taxis or Uber), justice (legal aid vs. private lawyers), or security (police vs. private security firms). Unless there is some law that prevents the private sector from operating, any time the government is publicly providing a good or service, we'll end up with a two-tiered system, with one tier accessible to everyone, and a separate tier accessible to those who are willing and able to pay more.

*****

[*] Public goods are goods that are non-rival (meaning that one person's use of the good doesn't diminish the amount that is available for everyone else) and non-excludable (meaning that no one can be prevented from accessing the good). Healthcare doesn't meet either of those conditions (for some further explanation with other examples, see here and here). Healthcare is a private good - it is both rival and excludable. It may be a publicly-provided good (in many countries like New Zealand that have a public healthcare system), but that doesn't make it a public good.

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.

Doctors and the health care of their parents

In my ECONS102 class, we talk about how health care is an unusual good, because it simultaneously has four characteristics: (1) derived demand (we demand health care but what we really want is better health); (2) positive externalities (consuming health care makes others better off as well as yourself); (3) information asymmetries (health professionals know much more about health care than patients do); and (4) uncertainty (it is uncertain whether particular health care treatments or procedures will work, or how well they will work, or what would have happened in the absence of the health care).

In relation to information asymmetry, medical knowledge is what we refer to as private information - it is known to the medical practitioner, but not to the patient. That creates a range of problems, including that patients may not always get the care that they need. For example, patients may not know when to seek care, as they may underestimate the seriousness of symptoms.

Could having better access to medical information reduce information asymmetries and improve the quality of health care? That is essentially the question that this recent article by Elisabeth Artmann (Institute for Employment Research, Netherlands), Hessel Oosterbeek (University of Amsterdam), and Bas van der Klaauw (VU University Amsterdam), published in the American Economic Journal: Applied Economics (ungated earlier version here), addresses. They use population registry data from the Netherlands, along with the results of the medical school admissions lotteries over the period from 1988 to 1999, and look at the effect on parents' health care of having a child who becomes a doctor. The idea here is that, if your child becomes a doctor, then that would reduce any information asymmetry in health care, because your child would be able to provide advice that eliminates the asymmetry.

The lottery aspect of the research is important, because it provides an exogenous source of variation in who becomes a doctor - essentially, there is a random component to becoming a doctor, because the lottery determines who is allowed into medical school. In other words, Artmann et al. use winning the first lottery (because students could apply each year afterwards) as an instrument for becoming a doctor. That means that their results can be interpreted as evidence of the causal effects of having a child who is a doctor on parents' health care. Note that this is exactly the same approach as was used in an earlier paper on doctors' prescription drug use (which I discussed here).

The instrumental variables approach is important because simply comparing parents with children who are doctors with parents who do not have children who are doctors is subject to a lot of selection bias. For instance, better-educated parents are more likely to have children who are doctors, and also more likely to have better health outcomes. So, a positive correlation would be observed between having doctor children and health outcomes, even if doctors had no effect on parents' health. Indeed, Artmann et al. demonstrate just such a correlation, finding that:

When we consider the full population independent of children’s level of education, we find strong associations between children having a medical degree and parents’ mortality and health care use. Fathers and mothers of doctors live longer, have lower health care costs, and are less likely to visit a GP, to be hospitalized, or to take any prescription medication. They are, however, slightly more likely to be treated by a specialist. These associations are weaker but still hold when we restrict the sample to parents of children with a college degree.

However, in their instrumental variables analysis, which avoids the problems of selection bias, they find:

...causal effects on mortality that are close to zero and not significantly different from zero. For health care use and costs, most estimates are not significantly different from zero, although for some outcome variables estimates are too imprecise to rule out substantial effects. Taken together, the results indicate that having access to medical expertise and services through a child who is a doctor is not an important cause of differences in parents’ health care use and mortality.

In other words, almost all of the better health outcomes for parents of children who are doctors arises from selection bias. Having a child who is a doctor doesn't improve health outcomes in the Netherlands.

In the Waikato Economics Discussion Group this week, we had an interesting conversation about this paper. The results are clear for the Netherlands, but it is likely that the particular health system matters. In the Netherlands, Artmann et al. write that:

Since the implementation of the Health Insurance Act in January 2006, all Dutch residents are legally obliged to purchase a basic health insurance package from private insurers...

The central government defines the content of the basic package. This covers medical care, including care provided by GPs, hospitals, specialists and midwives, and prescription drugs... Every insured person over age 18 pays an annual deductible of €385 (in 2019) for health care costs... including costs for hospital admission, medical transportation, and prescription drugs but excluding costs for GP consultations, maternity care, home nursing care, and care for children under the age of 18.. Voluntary supplemental health insurance is available for services not included in the basic health insurance package.

The comprehensive and universal nature of available health care in the Netherlands probably matters for whether doctor children can affect the health care (and health outcomes) of their parents. The need for a doctor to intervene on behalf of their parents in the health system is likely to be much lower in the Netherlands than it would be in, say, a typical developing country. We'd expect to see very different results when the health system is not universal. That opens an important question, though: would we see an effect for a country like New Zealand, which has a public health system, where access is rationed through waiting lists, and where a parallel private health system exists. Would having a child who is a doctor mean that parents are added to the waiting list sooner, or are more likely to be re-routed into the private system (at their own cost)? Either of those would suggest better health outcomes for parents of doctor children. It would be interesting to follow this up with other research for New Zealand.

Coming back to the Artmann et al. paper, it would be attractive to draw some conclusions in relation to inequality in access to health care. However, Artmann et al. caution against this, noting that:

...our results apply to parents of individuals who applied for medical school, so these parents have relatively high-educated children. Therefore, our results are not conclusive about equality of health care access in the Netherlands in general.

However, the results do suggest that the quality of health care in the Netherlands is such that, having a child who is a doctor cannot improve the health care that you receive. 

Coronavirus, excess demand, and the NHS waiting list

iNews reported last month:

NHS England’s waiting list could rise to 14 million by autumn next year and continue increasing due to the backlog caused by the Covid pandemic, a report has warned.

Millions of patients were not able to receive care during the crisis, and if they returned to the NHS, the number of those joining the waiting list could overtake those being treated, the Institute for Fiscal Studies (IFS) said.

How did the NHS end up in this situation, with tens of millions of patients waiting for care? Like New Zealand, the NHS is a public health system. Under a public health system, health care is funded by the government (out of general taxation), and provided to patients at no cost (or costs might be shared with patients paying a low co-payment for some types of care).

However, a public health system doesn't overcome the fundamental scarcity of health care resources. In a private health system, the price of health care determines who does, and who does not, receive health care (those who are willing and able to pay the market price, often with the assistance of private health insurance, will receive the scarce health care). In a public health system, the price of health care is low (or zero), and so price does not ration the scarce health care resources. Instead, health care must be rationed some other way. In England (and New Zealand), the health care is rationed using a waiting list. If you want health care, you have to wait for your turn.

To illustrate this, consider the market for health care, as shown in the diagram below. If this was a private health system, the equilibrium price (P0) would prevail, and Q0 health care services would be delivered. However, in a public health system, the market price is zero. At the zero price, the quantity of health care services demanded is QD0, while the quantity of health care services supplied is QS0. There is not enough health care services to satisfy the demand, and this excess demand (or shortage) of health care services (which is equal to [QD0-QS0] is managed by a waiting list.

Now, consider how the coronavirus pandemic changed things in England. This is illustrated in the diagram below. Due to people getting COVID-19, the demand for health care increased from D0 to D1. At the same time, the supply of health care decreased from S0 to S1 (that's what happens when health care providers get sick as well!). With the price of health care stuck at zero, the quantity of health care demanded increased to QD1. The supply of health care decreased to QS1. So, the excess demand for health care increased from [QD0-QS0] to [QD1-QS1]. The waiting list increased.

How can the NHS avoid this situation? The iNews article says:

Estimating the number of returning patients and the capacity of the NHS, the IFS said the most optimistic scenario would see 80 per cent of ‘missing’ patients return to the NHS.

This would increase waiting times to nine million next year, which would not drop back to pre-pandemic levels until 2025.

To achieve this, the NHS will have to increase its capacity by five per cent over the next two years, compared to 2019, and then by 10 per cent from 2023.

Increasing the supply of health care services (by increasing the capacity of the health system) would shift the supply of health care back to the right. However, notice that the waiting list would not be eliminated, only reduced. Health care resources remain scarce. Alternatively (and not noted in the article), vaccinations reducing the demand for health care would also reduce the waiting list. The key point here is that, if changes in the demand for (and supply of) health care can't affect the price (as is the case in a public health system), then they will be reflected in the length of the waiting list.

[HT: Marginal Revolution]