Reading the headlines might remind you of Henny Penny:
Rising costs creating ‘extreme financial constraints’ for funding new drugs in Ontario. (Ottawa Citizen, April 10, 2014)
Luring Medical Tourists for Care is a Trip Down the Slippery Slope. (Globe)
Regardless of Henny Penny’s anxiety, the sky looks awfully close from the tip of the health care spending curve:
Canada spent $211 billion in 2013 on healthcare. Check out the 1975-2013 trend in healthcare spending:
Gammon’s Law
The economist, Milton Friedman, in “Gammon’s Black Holes”, quotes Dr. Gammon saying that in
“a bureaucratic system … increase in expenditure will be matched by fall in production. … Such systems will act rather like ‘black holes,’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of ‘emitted’ production.”
Gammon called it the ‘theory of bureaucratic displacement’ in Health and Security, Report on the Provision for Medical Care in Great Britain (London, St. Michael’s Organization, 1976, out of print).
Later, Friedman mentioned public education in Input and Output in Medical Care:
“I have long been impressed by the operation of Gammon’s law in the U.S. school system: input, however measured, has been going up for decades, and output, whether measured by number of students, number of schools, or even more clearly, quality, has been going down.”
He then turned his attention to healthcare:
“Gammon illustrates his theory from the British National Health Service (NHS). He points out that in the eight years “between 1965 and 1973, the total number of staff employed in NHS hospitals in Great Britain increased” by 28 per cent (and administrative and clerical staff by 51 per cent). On the other hand, “the average number of beds occupied daily” declined by just over 11 per cent. He goes on to note that the long waiting lists for beds throughout the period ensure that the number of beds occupied is a valid measure of output. Input up, output down.”
Input up, output down
Despite this, we still hear experts like professor Stephen Birch blame an over-supply of providers for driving up costs.
Usually, progress and volume decrease cost. Friedman notes elsewhere that only in healthcare do we find improved technology and performance causing an increase in costs.
How do we fix it? For a bureaucratized system:
“The difference is in the bottom line. If a private venture is unsuccessful, its backers must either shut it down or finance its losses out of their own pockets, so it will generally be terminated promptly. If a governmental venture is unsuccessful, its backers have a different bottom line…Little wonder that unsuccessful government ventures are generally expanded rather than terminated.”
Perhaps Friedman was too pessimistic. Maybe Gammon had personal issues with someone in government. Perhaps they were just real life Henny Penny’s. Or, maybe they were right.
(Photocredit: dailymail.co.uk)
