22 March 2019

Perverse incentives in healthcare

The perverse incentives in healthcare are pervasive, worrying and unsustainable. Joseph Jarvis speaks eloquently about those that afflict the American healthcare system here. One example: he points out that investment in urgently needed new antibiotics is too low because the pharmaceutical industry prefers to develop drugs that will be taken for a lifetime, rather than a couple of weeks.

What the US and many countries have is a market not for health, but for treatment. It's nothing like a free, competitive market, being subject to the usual distortions and inefficiencies that ensue when big business manipulates the government and regulators. It's called a market, because much of it's run, nominally, by the private sector. But we are seeing worldwide a convergence of the interests of the public sector and big business, which often takes the form of policies that conflict with the goals of ordinary people. 

The 'market' is often evoked rhetorically, and that unfortunately discredits the whole notion of the market as the most efficient way we have of allocating society's scarce resources. There is a market in the US for healthcare, in the sense that the industry reacts rationally to the incentives on offer. But the incentives have little to do with the well-being of citizens, and a lot more to do with the short-term, narrowly measured, goals of doctors, insurance companies, hospitals and pharmaceutical companies. The perversity is that the healthier the citizenry, the more parlous the state of the medical industry.

Where does the Social Policy Bond idea come in? My starting point would be to define and reward the achievement of society's health goal, so that the structures and activities of the sectors that support that goal would be entirely subordinated to that goal rather than, as now, the other way round.

On a national level, physical health could be defined as a range of targets, all of which would have to be reached and sustained before we can say we have achieved our goal, at which point Social Policy Bonds targeting health could be redeemed. My suggestion is that our goal would include such targets as: longevity, Quality Adjusted Life Years, and infant mortality. There would be others, to be decided by experts in consultation with ordinary citizens.
Where does this get us? It puts in place a system whereby people are rewarded for bringing about actual improvements in health. Not for screening, or curing or treating disease, nor for selling drugs or health insurance. Those are indirect means to an end, rather than ends in themselves and the results are lamentable: pills that are no better than placebo (see here and here). Or incentives to over-diagnose and over-treat. Or to falsify or otherwise manipulate the results of drug trials.

Health Bonds would change all that. All the activity they stimulate and reward would be entirely subordinate to society's health goal. There would be a market - for the bonds - but it would be society's servant, not its master. The Social Policy Bond principle uses the market as a means to society's goals. It doesn't view the market as an end in itself. Under a Health Bond regime, the the end that the market serves under a bond regime will be society's health, as defined and targeted by society itself. The goals of those working in any field impinging on society's health would be exactly congruent with those of ordinary citizens: to improve society's health as quickly and efficiently as possible.

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