Friday, June 4, 2010

Capping doctors' fees is not the answer

Allow private institutions to train more doctors in SA, but beware social inequity...

Here's a quote from a free-market article at Moneyweb by Jason Urbach:

It is laudable that the Minister is concerned about the nation's health and that he is taking the issue seriously, but the cure that he is proposing will be more harmful than the problem he is trying to address. There is an obvious way to decrease prices in the private sector. Increase competition. But this would require the Minister to put an end to the "old boys club" that dominates the medical fraternity by dissolving the government created monopoly responsible for training doctors in SA. The Health Professions Council of South Africa (HPCSA) determines the number of places available for trainee doctors and has limited them to approximately 1,400 positions each year. A number that has remained relatively unchanged since the 1970's despite the fact that the demand for these positions increases every year. In 2006, it was estimated that 15,794 prospective students applied for these coveted positions.

I'm not so convinced by Urbach's argument that: "Because of the time and expense involved in obtaining a Certificate of Need for medical personnel and facilities, and other long, complicated bureaucratic procedures that delay the introduction of new medical technologies and stifle competition, the cost of healthcare is driven up." Private provision of healthcare services is expensive in SA. A common free-market explanation is that government red tape increases the costs of provision, forcing providers to increase fees. There is certainly some truth to this argument, but in this case regulatory costs seem insufficient explanation for high tariffs and an argument for some kind of market failure is more compelling.

However, Urbach makes some excellent points, including a recommendation to allow private institutions to train doctors:

A long-term strategy to alleviate the chronic staff shortages requires the government to relax the controls on tertiary education facilities, make entrance to these facilities less restrictive, and allow the private sector to provide a large percentage of tertiary medical education for doctors. Private education facilities could operate on either a for-profit or non-profit basis and would relieve a significant part of the burden currently faced by the public sector.

Such an allowance would amount to ending the government-controlled monopoly on doctor training. Such a proposition is quite controversial because the costs of studying at an fully private tertiary medical school would be enormous, and such education would thus be to the exclusion of the majority of South Africans.

1 comment:

  1. I dunno, I think red tape has a major effect on fees and the amount of medical services provided...especially when you consider that the discretionary power of the bureaucracy adds substantial uncertainty. A hospital group could go through all that effort and then have the application refused at the final hurdle. They know this at the outset, so they won't even bother with marginally viable projects.

    What kind of market failure did you have in mind? I bet it's created by some government law or which case it's not really a market failure anymore. The usual causes of market failure don't appear to be present in the healthcare market. Frankly, there is very little reason for the government to be involved in healthcare.

    The conclusion of your final paragraph is based on lots of assumptions that don't sit well with me:

    Firstly, government shouldn't be subsidising tertiary education of any kind, especially because it's a regressive form of spending (i.e. the wealthier you are, the more likely you will be subsidised). Funding of medical education is the job of student loans, bursaries, scholarships etc.

    Secondly, as long as they aren't hamstrung by government, private medical schools would almost invariably provide better education at lower cost than government schools. With economies of scale and healthy competition, the costs of private medical schools would not be enormous...they need to attract customers after all!

    Finally, even if privatized medical education resulted in blacks being under-represented in the medical profession, blacks in general (and especially the poor) would benefit from better-quality, lower-cost medical care.