The Economics of Health ReformPresentation to The North West Hospital’s Group Conference

Knockranny House Hotel

October 9th 2014

By Marc Coleman

1. A longer-term perspective on EconomyDemographyPolitics

2. Health care in Ireland versus Dutch & German models

3. Health spending Overdosing & misdirection

4. “Doctor, cure thyself” Healthcare reform and political sclerosis

1. Some long-term perspectives

Economy

0.00.51.01.52.02.53.03.54.04.5

Average growth: 1997 to 2014Ireland: Euro area OECD

Source: OECD Economic Outlook, June 2013

Demography

18

41

20

060

10

20

30

40

50

IRELAND AND ENGLAND: POPULATION'S COMPARED

Ireland England

Mill

ion

s o

f p

eo

ple

Ire

lan

d 2

00

6

Ire

lan

d 1

84

1

Au

str

ia

Fra

nc

e

Po

lan

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De

nm

ark

Sw

itz.

Ge

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ny0.0

5.0

10.0

15.0

20.0

25.0

What if Ireland was as densely populated as…?Republic Island

Mill

ion

s o

f p

eo

ple

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014100

102

104

106

108

110

112

114

116

EU & Irish population growth 2004-2014 (2004=100)

Ireland EU

Source: CSO Population estimates, August 2014

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

1969 1973 1977 1981 1982 1982 1987 1989 1992 1997 200260

65

70

75

80

85

90

Combined vote of 2 main political parties

Pe

rce

nta

ge

of

vo

te

1969 1973 1977 1981 1982 1982 1987 1989 1992 1997 2002

60

62

64

66

68

70

72

74

76

78

Voter turnout

Year of Election

Pe

rce

nta

ge

of

eli

gib

le v

ote

rs c

as

tin

g a

ba

l-lo

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Political bargaining

% change98-08

Pub Sector(excluding health) 70.9Computing, ResearchDevelopment 55.0Business Services 58.4Consumer Price Index (Dec 2001=100) 44.8

2004-2009 Public spending rose by one half

2009-2014 Public spending fell by one tenth

“Austerity” = preserving wasteful spending & raising taxes

“Growthsterity” = cut wasteful spending and use proceeds forgrowth 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

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

2000 2001 2002election

2003 2004 2005 2006 2007election

Has huge implications for public spending

Organised groups get bigger pay increases

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

2. Health Care in Ireland: versus Dutch

and German models

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

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?

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

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’

3. Health Spending: Overdose and

Misdirection

http://www.youtube.com/watch?v=x-5zEb1oS9A

Between 2004 and 2014

2004 20140

2

4

6

8

10

12

14

16

Health vote spending (€ billions)

% change between 2004 and 2014

Health vote +68%

Consumer Prices +18%

Population +16%

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

Why Ireland should spend less on healthcare than EU average

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

Key age metrics relevant to health care spending

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.

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

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Leinster Munster Connaught Ulster

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1841 2006

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

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?

Carry on Reforming the Health service: 2 BIG ideas….

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

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

Carry on Reforming the Health service: 2 BIG ideas….