Economic survey, chapter 5, page 154.
"Need for system design in healthcare
5.11 Given these market failures, a free market where individual consumers purchase services from providers on their own while paying at the point of service leads to severely sub-optimal outcomes including demand that can be influenced and induced by suppliers, over-seeking of hospitalization and under-seeking of primary care/public health when compared to economically optimal levels, and catastrophic out-of-pocket spending in part due to the low preference for health insurance. Therefore,most well-functioning health systems are structured as oligopolies purchasing from oligopsonys instead of individual consumers purchasing from individual providers. The structure of the market has substantial implications for long term trajectory of the health system. Countries with more fragmented health systems tend to have lower performance as reflected in higher costs, lower efficiency, and poor quality. Therefore, in addition to providing healthcare services and financing healthcare, a key role for the government is to actively shape the structure of the healthcare market."
Doubts-
Thanks in advance!
- Can someone please explain the underlines phrase?
- What does it mean by health systems structured as oligopolies purchasing from oligopsonies?
- Is there any such system existing anywhere in any country?
- Would not an oligopoly be determinantal to the interests of the free market by preventing new players to enter?
- Would this system not kill innovation?
The problem it is highlighting is that individual customers buying from individual providers has led to a lot of fragmentation in the system and system goals aren't being met.
For eg.
We want to improve PHC and reduce secondary and tertiary healthcare costs , but instead some private hospitals force u to get admitted (secondary hc) even if u can be treated in the Out Patient Dept (PHC) where u don't need hospitalisation
On the other hand ,
Some hospitals sometimes don't have beds (probably due to above tactics) and especially for the poor , so they are not admitted and forced to rely only on periodic visit , even though they actually need hospitalisation
What does this indicate ? The fact that the customer is at the mercy of the supplier and there doesn't seem to be a system in place. U can use ur imagination at all levels of current healhtcare system to understand the fragmented approach discussed above.
Now coming to oligopoly and oligopsony, it says there should be only a few healthcare providers(oligopoly) (let's assume ambani, fortis and Birla) hospitals as the only 3 chains across India , and now it also says there shud be only few healthcare customers (oligopsony)
So this implies both of them have only a few options to choose from and hence can't do much of manipulation amongst the customers, so they will have to adapt to standard practices as each customer will be having a huge part of demand pie.
These customers that we need are the insurance providers.
If there are let's say just 3 health insurance providers in India , then they will be paying everyones hospitalisation cost and everything else on the basis of the premiums they get.
So at this time there will be less discrimination amongst individual customers and more uniform procedure of healhtcare distribution
Also since the providers are also few , there will be uniformity in procedure and screening too.
Currently insurance penetration is very very low in india , which is why it is a good way to start off and creat an ecosystem where Out of Pocket expenditure is Not As High as it is today due to its fragmented nature.
For ur last qtn,
Currently there is no or very low Innovation in the country because of unreliable demand and case based profit mongering by institutions. If some institutions are sure of their market profitability (in an oliogopoly) there's a higher chance they will invest in rigorous R&D for innovation in healthcare.
U can see how ONGC, Reliance all are heavily investing in Biofuels,
Adani , Tata heavily investing in renewable power
Why and how can they do so, because of their consistent profit from other sectors like petroleum and power generation, which is more or less an oligopoly.
Hope this helps!
