Government spending is a drag on healthcare system

'Insanity is doing same thing over and over and expecting different result' - Albert Einstein

I am sure none would disagree from above quote. But still, apparently we tend to do the same in case of government spending. When we couldn't achieve what we should have, we only tend to go in same direction but with bigger and better. What if the direction we are heading is wrong?

I am from India, its been around 70years Indians are independent and still we have major healthcare issues. Most notable are unavailability of healthcare in rural areas and in-affordability of healthcare in urban areas. Also where affordable(essentially free) government healthcare is available, it just simply inefficient and substandard.

Why after so many years and huge healthcare spending (averaging about 1% of GDP), we still haven't solved any of the problems? Because, these are the problems created by government itself.

Its not just India, any country which has government funded or government insured medical system tend to face these very problems. Take example of USA, regarded as best healthcare in terms of quality but their medical services are highly inflationary, in fact its 10x more expensive than western Europe and 40-50x of what Indian private sector would deliver at comparable quality. 

It maybe off the topic but my aim is to make you think why, why only sectors with government interventions have lots of problems and unsatisfactory consumer as a must. Think of 5 basic rights we have, FOOD, CLOTHING, SHELTER, EDUCATION and HEALTHCARE. Out of these 5 except clothing, everything else has large government footprint. Shelter, Education and Healthcare, all three are highly inflationary and inefficient. I am sure you never want your kids to be in government schools and would always prefer private hospitals for your loved ones. And food, pain is inflicted in form of unreasonably low farmer income and supply chain wastage.

Lets get back to healthcare, here's how government itself creates the problems we are trying to solve through more and more government spending.

INFLATION IN HEALTHCARE

In short government crowds out private sector, suck up necessary resources in price-insensitive manner and makes it harder for private sector to thrive. Also government is functionally a competitor to private sector with unlimited tolerance to loss and no need to generate any profit.

let me explain, government sector essentially creates shortage of doctors and workers for private sector. Government can afford to pay high salaries to even unproductive staff, to compete for that private sector also needs to raise wages so as to attract eligible staff and consumer end up paying the price. Same is true for medical supplies, requirements and equipments. Although these kind of goods are nowadays being recruited through online tender based systems, yet practically government always ends up paying more for lesser quality which ends up distorting free market prices and exerts upward pressure on rates.

Because there is demand of quality healthcare in urban areas and people can somehow afford it, private sector is present but it needs to be understand that 

Private healthcare price = Actual free market price + price distortions

so, this means, cost of government funded healthcare is not only just what government spends but also what you spends extra at private sector to make government system exist.

healthcare budget = x % of total taxes + (difference of free market and inflated healthcare prices)

So its clear that consumers are losers here, private healthcare consumers end up paying way more than what should be paid and also pay taxes. Government healthcare consumers, although get free healthcare but its far inferior quality what they are entitled for.

Private healthcare equity holders are also losers, because of artificially high prices demand gets suppressed or margins are compressed.

Winners here are healthcare workers, they get artificially high wages.

UNAVAILABILITY OF HEALTHCARE IN RURAL INDIA

In short, where majority of addressable market is highly price sensitive and there is low cost competitor, it becomes unfeasible for higher cost provider to make investment inspite of much higher level of quality.

Again let me explain, in villages, government hospitals are essentially free of cost healthcare providers but lack in both vertical (quality) and horizontal (no. of procedures) expanse of healthcare. System is just enough functioning to make private investment in villages unfeasible but not enough to cover all needs of society. Rural population, unlike urban population, don't have an option of getting better services at higher prices because simply investment is curtailed artificially due to government spending.

It would be unprofitable for private healthcare to only treat complicated cases loose easy cases of cold, fever, malaria and pediatric vaccinations to government sector. Even if someone would try to do this, then again prices will be so high that it would be cheaper for consumer to travel to nearby city get treated and come back. So, its just IMPOSSIBLE to provide tertiary level care in rural India by private sector.

INEFFICIENT AND SUBSTANDARD QUALITY AT GOVERNMENT SECTOR HEALTHCARE

Unlike previous two issues, its simple and more accepted fact, at government sector there is no incentive for customer satisfaction which on contrary, is supreme priority of private healthcare.

There is no accountability, also because consumer is not directly the financier, its very obvious the system is essentially designed in a way which strips consumer of any power (other than a vote once in 5 years) which is again complete opposite where consumer is most powerful in private sector.

FINAL WORDS AND POTENTIAL SOLUTION

IMO, before finding solutions few things we need to acknowledge, accept, realize and learn. Also equally important is to unlearn the principles we are following since so many decades without having any kind of positive results. 

We need to realize that there should be nothing like 'rights', world doesn't owe us anything, everything is a privilege that our ancestors created through hard work, innovation and investments. You just need to look up and realize everything that considered as a privilege is far abundant and equally distributed than whats considered as 'rights'. More people have access to a mobile phone than toilets. Vacations and restaurants have better consumer satisfaction than healthcare. Fine dining 5 star buffets are cheaper than pharmacy bills in-spite of thinner profit margins.

I really refrain from labeling something right or wrong because it depends on perspective. But, I can confidently say that privatization and capitalism is best system for any sector let alone healthcare. What makes me so confident? The god. God has given humans greed, and maybe everyone told you that its bad, but truth is everything we have is because someone greedy enough to develop and create it in order to be rich in terms of money or importance or both. Capitalism is yet only system known to man which harnesses our ability of being greedy most efficiently and give us an efficient and productive world. Socialism is at least not the answer to prosperous healthy India I can tell you that and still most our healthcare policies are socialistic.

Lastly, I also strongly believe damage is fundamental and cannot be solved painlessly as most people are trying. we may need to endure short term pain in order to get long term gains.

Solution? I don't know I m just a student.

Akhil Garg

MBBS student, ESIC Medical College Faridabad

akhilgargdps@gmail.com

Twitter : @gargcapital