Adam Smith Institute

Healthcare is going to feature prominently in upcoming debates in the exhaustive race for the US Presidency. Despite their war of words, Senator Obama and Senator Clinton differ only in rhetoric in their disastrous plans to provide government-run healthcare. However, between Democrat and Republican the difference between the two candidate's healthcare plans will be stark. Either Democrat would likely create an inefficient and improvident behemoth, while McCain suggests innovative market based solutions, putting individual choice at the centre of healthcare.

In Fortune, Shawn Tully extrapolates the essence of what it is that makes the McCain’s healthcare plan so good. McCain's system will ultimately separate employment and healthcare by taxing the previously exempt corporate benefits. This extra tax will be covered by a federal tax rebate of $2,500 for individuals and $5,000 per family. With employers no longer paying for healthcare, the benefits will be passed on to the employees in higher wages. Individuals would then be free to invest in Health Savings Accounts (HSAs), allowing bespoke insurance plans that suit their stage in life. As Tully remarks: "In essence, McCain wants to create a kind of national insurance market that shoves more decision-making power into the hands of consumers."

Reading McCain's speech inspires confidence in the Arizona Senator. He rightly believes that the "key to real reform is to restore control over our health-care system to the patients themselves." The whole plan is modelled upon opening up competition: Millions of Americans would be making their own health-care choices. Politicians in the UK are also talking of patient choice, freedom and competition. However, such talk is disingenuous given the near unanimous defence of the NHS. Is it too much to ask for a bit of joined up thinking over here too?

In our Omega Project report back in 1984, we argued that GPs - Britain's family doctors - shpuld expand their practices to include diagnostics (like x-rays), outpatient services, even small operations. Well, at last the politicians have got the idea. Suddenly, up are springing 'polyclinics'.

The belief is that groupings of maybe 20-30 GPs mean patients can enjoy longer opening hours, a wider range of expertise, and a more comprehensive service. Buildings and equipment can be worked more efficiently, and back-office costs spread more thinly across the larger number of doctors.

Many advanced countries have had similar arrangements for decades. It hasn't happened in the UK because our health system is so politicized and ruled by vested interests. Nobody can ever agree on change, so it doesn't happen.

It's happening now - though some of the new polyclinics are simply replicating the facilities of nearby hospitals, rather than replacing or rationalizing things. With any luck, though, the extension of private-sector money and management, creeping up the system from primary care into activities that have traditionally been done in state hospitals, will revolutionize things. At a Cambridge Health Network meeting on this the other day, it was amazing how many NHS stalwats used the word 'market' - and as something they should be following, not resisting. I'm not sure thay quite understand what the 'market' is yet, or how quickly the chill wind of competition can sweep away an existing order. But, just maybe, the wind is getting up.

96. "Private sector health and education cream off the very best in resources and personnel from the state sector."

When people pay for private health and education, they save the state money because it no longer has to provide facilities for them. Furthermore, the money they spend for themselves means that the total expenditure on health and education is increased. And because the private sector has to be responsive to what consumers seek, it gives the public sector some idea of what it is that people want. It is not true that it drains away state service personnel; only a tiny fraction of those going to work in private healthcare come from the state sector.

Private health and education do not take resources away from the public sector; they give it more to spend per head. They may, by providing more flexible conditions, attract some of the most talented personnel. But they also improve conditions in the state sector by taking away some of its workload; and there may always be those who prefer to work in the state sector. Machines bought for use in private medicine increase the total supply of health equipment and the supply of equipment per head for the population. Their use enables waiting times for NHS equipment to be cut.

The private sector often acts as pacemaker for the public sector, making advances in services and techniques which the public sector can follow. Some of the innovative treatments are available first in the private sector, and spread over into the state sector once their value and efficacy have been established. In both health and education it is not so much the financial rewards which draw people to the private sector; it is the attitudes and conditions they find there. The weight of bureaucratic compliance and the endless form-filling are absent, and personnel have more time to interact with those they are serving. The parallel private services do not undermine the state services; they bring about their improvement.
 

I'm suffering from an overdose of headlines again.

This time, the scare is vitamin tablets. A Copenhagen University among 230,000 people, we're told, says that taking vitamin pills might not do you any good and might actually do you positive harm. Really?

Well, I'm no biochemist, and not even in the pay of any pill producers. But the headline sounded pretty daft to me. And I've never really trusted Danish science after the way they beat up Bjorn Lomborg so mercilessly instead of getting to grips with his arguments. Yet the story was so well-spun by its promoters that I had to read quite a long way down the coverage before I could get a balanced picture.

It took a lot of reading to discover that even the spinners of this story aren't saying that a daily multivitamin pill will do you any harm. They're talking about people taking really big doses of a single supplement - Vitamin A, E, C, Beta-Carotene and Selenium. I discovered that the researchers had started by reviewing 815 (some reports say just 467) clinical trials. But a lot of these were studies on very sick people, whose experience is probably not very relevant to the rest of us. Then, it seems, the reviewers eliminated all but 68 because they showed no deaths. Yes, well that would skew things a bit, wouldn't it? By the time they had eliminated the Selenium studies (which showed a reduction in deaths), they were down to less than half a dozen studies, on which the scary headlines are based.

Well, scary headlines sell newspapers and a balanced appraisal of complicated science doesn't. Ask Bjorn Lomborg.

Here's an idea. Give patients in Britain's state-run National Health Service (NHS) their own healthcare budgets. Then they would be able to buy in the treatment they want, from whatever source they choose, rather than having to put up with the decisions of some distant central bureaucracy. Most patients, especially those with long-term conditions, know what kinds of treatment work best for them, so aren't they best placed to decide their own treatment regime anyway?

You might think this idea is just another rant from the swivel-eyed market zealots of the Adam Smith Institute. But no, it comes straight from Britain's government – a Labour government. Health adviser and clinician Lord Darzi (pictured) wants tens of thousands of patients with diabetes, multiple sclerosis and motor neurone disease to get their own budgets.

I welcome this move. We've long believed that patients, or at least their family doctors, should be in charge of the money that is spent on patients – and that politicians, the Department of Health, and local officials should not be. Then perhaps care might be delivered to serve the needs of patients, rather than for the convenience of bureaucrats. That was where the NHS was heading before it went up a lengthy statist siding under Health Secretary Frank Dobson MP in 1997. So awful was that experience that Labour reformers have been trying to get it back on track ever since. But of course, nobody can admit that Mrs Thatcher's GP-budgets policy was in fact on the right lines.

So, direction-changing as it is, the new initiative is as typically cautious and – well, bureaucratic – as you would expect from a highly centralist administration. It's limited to folk with these very long-term conditions. And they won't get cash to spend, nor anything like it – a new voucher scheme is imagined. (And I can well imagine all the bureaucracy that will go along with that.) I really do wish that our leaders could simply admit that their former Health Secretary made a mistake, apologize for the billions of wasted taxpayers' money that has been thrown at trying to correct it, and agree that patient- or GP-centred budgeting is indeed the best direction of travel for UK healthcare. Don't you?

67. "Some things, such as health, should not be provided for gain."

Why not? If gain will motivate people to supply necessary goods and services, then it can be a useful way of ensuring supply. All goods and services cost something, and the prospect of gain is a good way of encouraging people to produce them. Price, as an indicator, tells them where to direct their activities. Where prices are high, people produce because profits can be made; and in producing, they alleviate the shortage which caused those high prices.

A genuine market in such things as health would put resources where they were needed. Enough people would go into health care to meet the demand for it. It would settle at a level that people were freely prepared to pay for. For decades Britain has spent less per head through its NHS than have its partners with larger private health sectors. People spend more themselves than they will do through taxation.

This is not because the British NHS gives better value. On the contrary, it achieves poorer results overall. Britain has less scanners per 1,000 of population, less renal dialysis units, less kidney transplants, and less of almost every objective measure. It also has higher early death rates on many major illnesses.

Food might be thought even more important, but imagine what the food situation might be if most people were dependent on government supplied food, financed out of taxation, run by the bureaucracy, and available only from approved supply outlets. Even though food is important, the private market is much more capable of guaranteeing us the appropriate supply than would a state-planned system.

If we want a society in which even poor people have adequate healthcare, there is a better way than mass state provision. It is to ensure that quality healthcare is widely available, and that resources are provided to give poorer people access to it.

This week I attended the launch of Saving the Health of the Nation, an excellent short film from the Stockholm Network which looks at the failings of the National Health Service and introduces the idea of Health Savings Accounts as the most promising route for reform. The film features contributions from Stephen Pollard, president of the CNE, James Bartholomew, author of The Welfare State We're In and an ASI welfare fellow, as well as Dr Eamonn Butler, our own director.  

You can see the film online by going to the Stockholm Network video player, then selecting documentaries and clicking on 'Saving the Health of the Nation'.  

All Hail Central Planning! We seem to have another quite wonderful disaster from the bowels of the NHS.

Despite restructuring and a hiring freeze, documents presented to the board of NHS Direct show that so far this year the "total cost per call answered" has been £16.54.

The British Medical Association estimates that it costs the NHS between £20 and £25 every time a patient sees a GP...

More than a third of patients treated by the organisation's nurse advisers are referred to their GP or hospital accident and emergency unit.

All Hail Central Planning! 

Did no one think this through? GPs are independent businessmen, if a nurse on the phone was indeed a great saving, wouldn't at least some practices have done this themselves? And if they were, then why the central system? And if they weren't, then why did anyone think it would be a great saving?

This story about Debbie Hirst and her cancer treatment has even hit the NY Times. To recap, the NHS does not pay (upon the grounds of cost effectiveness) for the use of Avastin, a breast cancer treatment. Ms. Hirst decided to pay for it herself and then was told that if she did so she would also have to pay for all of the other treatment from the NHS, something that of course she had already paid for once through the taxation system. Alan Johnson said:

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

“That way lies the end of the founding principles of the N.H.S.,” Mr. Johnson said.

Should a parent who hires an after-school tutor for his child be barred from sending the child to the public [i.e. State] schools?

Some people like to think of health care and education of basic human rights. Maybe they are. But they are also normal goods. That is, the income elasticity of demand is positive. It is hard to escape the conclusion that the right cost-benefit calculation for providing the good depends on the income of the consumer. Achieving both efficiency and equality in the provision of these goods is impossible.

Two ambitious state projects for universal healthcare, Massachusetts and California, are about to fall apart because of huge funding problems. Barak Obama has taken notice. He keeps repeating that Hilary Clinton’s state mandate – wrongly labelled as ‘individual’ mandate - to purchase private insurance can’t work. Too many people, he says, simply can’t afford it. He has a point, since overregulated private insurance in many states comes with prohibitive premiums.

More important here is the case of existing inequality and unfairness – which both Democratic presidential candidates are silent about. We are talking about the present tax exemption for employers who provide healthcare to their employees. This is a dismal paternalistic ruling, going back to the cold war. It benefits mostly immobile and heavily unionised worker communities. The Wall Street Journal, which is free for everyone to read online since Richard Murdoch took over, raises the question of equity in healthcare. The subsidy is not just iniquitous because individuals can't get it, but also because it favours employees with higher incomes:

Estimates show that the subsidy is worth more than $3,000 for upper-income families (with higher marginal tax rates), and less than $1,000 for those on the lower rungs.

Alan Johnson, the Health Secretary, has written to every GP surgery in England urging them to open in the evenings and at weekends. He wants surgeries to be open for an extra three hours a week. The British Medical Association (BMA) is only prepared to offer two extra hours. They say opening for longer would compromise patient care, unless they were given extra resources. The government's proposal would, apparently, only cover a single GP working late at the surgery, without a nurse.

The whole argument is ludicrous. Why do GPs have central contracts with the government at all? Why on earth is the secretary of state sending letters to GP surgeries? This sovietized system is so backward, so obviously inadequate, that it’s a wonder it has lasted so long. In such a system the fight is always between producers and governments, with patients hardly entering the equation.

This could all change very simply. Make GP surgeries independent and self-governing. Then have them agree NHS treatment tariffs with their primary care trusts (the local bodies that commission healthcare services). Let them advertise for patients, or group together into chains of GP surgeries to reduce administrative costs. The revenue these surgeries, or chains of surgeries, brought in would depend on how many patients they treated, and on whether those patients were satisfied with the service and became repeat customers.

In such a system you would quickly find that where there was a demand for such services, GP surgeries would stay open later in the evening or at weekends. All their incentives would be aligned towards providing the best possible service. Of course, the left will scream "privatization" and say this amounts to the abolition of the NHS. Yet services would still be free at the point of use and paid for out of taxation.

It's high time British healthcare put patients ahead of political ideology.

Although it is now widely accepted that markets and their underlying institutions are the best way to organise economic relations between people, certain fields of human activity have remained stubbornly resistant to such thinking.

The provision of healthcare, for example, is hindered throughout the world by the belief that governments should take the driving seat. As a result, the patients in developing countries have to endure decrepit state-run healthcare systems, while the UN and its agencies promote all kinds of failing centrally-planned initiatives to combat diseases such as HIV/AIDS and malaria. All this is lavishly funded by taxpayers in richer countries, whose money often doesn’t make it past the personal bank accounts of corrupt officials in ministries of health.

In order to help shift the global health consensus towards something more practical, the Campaign for Fighting Diseases have started a blog – www.fighitngdiseases.org/blog. It promises to be well worth reading.

The temptation of politicians to twist public policies for short-term gains in order to win votes is well known. Policy on cholesterol (pictured) is one such example. It turns out, according to accumulating evidence, to be a rather simplistic public scare. Reducing 'bad cholesterol' has been the mantra for decades and statins, which are just doing that, have earned $27.8 billion in sales in 2006. Little wonder since 13 million Americans and 12 more millions worldwide are using them to prevent heart attacks.

Because it attracts large numbers of voters, politicians keep shifting health resources to disease prevention – and thus draining away vital resources from the chronically ill, who are always a small minority. Yet new research shows that only one in 100 people, or according to some research even one in 250, who take statins over five years have any benefit whatsoever.

One reason is that healthy people have a different metabolism than chronically ill patients. Another is that bad cholesterol levels may no longer a reliable risk indicator for heart disease. For instance, Australian Aborigines have low cholesterol but high rates of heart disease. Spaniards have as much bad cholesterol as Americans but only half as much heart disease and the Swiss have even higher cholesterol but lower rates of heart disease. And now a different enzyme, called Rho-kinase, has been found that predicts heart disease much better.

This is just one example that exposes how government healthcare policies lag hopelessly behind science and are prone to blunder public health issues. And it will probably take much longer for government health programs to change course than the market would need to correct obviously biased research.

For ideological reasons, political reform of the NHS behemoth often seems impossible. Politicians across the spectrum, fearful to disturb the foundations upon which the NHS rests, hide behind platitudes, while MRSA haunts the hospital wards. However, cracks are increasingly showing in the system that no amount of political veneration can cover. The seeds of change are showing through, encouraged not from Westminster, but forced through by those that the NHS is supposed to be looking after: the people.

Earlier this week The Times' Daniel Finkelstein, reported the disgraceful case of Colette Mills and Debbie Hirst, two cancer patients who have both been refused the use of the cancer drug Avastin alongside their NHS chemotherapy, even though they are willing to pay for it out of their own pocket. Avastin has been shown to help cancer sufferers, but has not been approved by NICE because it is not considered cost-effective enough to be available on the NHS.

So why have Colette Mills and Debbie Hirst not been permitted to use Avastin alongside their NHS treatment? It has nothing to do with the drug's efficacy… In fact, the reason has nothing to with the drug… Actually, it has nothing to with health. According the the health secretary, Alan Johnson, they were refused because: "That way lies the end of the founding principles of the NHS". But when 'principles' stop the sick from getting life-improving drugs, are they really principles worth defending?

It has been obvious for some time that Johnson’s 'principles' are outdated. Following last year’s report entitled Free at the point of delivery: reality or political mirage, it is was generally accepted that a secret top-up system already exists. Politicians have duly responded by sticking their collective heads in the sand, preferring this to facing up to modern realities. Colette Mills and Debbie Hirst, like others before them, are seeking justice through the courts. They are unlikely to be the last. It's time the NHS's unworkable 'principles' were replaced with a more flexible and customer focused system of health care, one truly fit for the 21st century.

10. "We have to keep universal services in health and education, so that the middle classes will demand their improvement."

This is the "theory of imprisoned misery." The supposition behind it is that the middle classes will support nothing unless they stand to gain from it. Its corollary is that as many people as possible should be imprisoned in shoddy and inadequate services in order that the pressure of their protest will improve things.

It underestimates, in the first place, the ability of the middle class to get what they want out of the system. In any universal service, it is not the articulate and self-confident who suffer deprivation; they are quite able to command the scarce resources. The inarticulate and poor lose out in competition with the middle classes. They get worse health and worse education within the state system.

Critics point to their fear of a two-tier system, with an adequate service for the middle classes and a rotten one for the poor. They fail to see that universal state services themselves create a two-tier system.

They also underestimate the readiness of the middle classes to support causes from which they derive no personal benefit. They are the backbone of most charities and the mainstay of most church organizations. The middle classes have campaigned in the past to improve the lot of the poor, and are no different now. They don't need to be imprisoned in a poor service to work for its improvement. On the contrary, if they are imprisoned within it, they might devote their energies to securing an adequate service for themselves first. If people are free to seek alternatives, new standards might be pioneered which others can benefit from.

The real reason for keeping the middle classes in a universal service might be to promote an egalitarian society by preventing them from choosing alternatives. But lack of competition militates against improvement in the services concerned.