Free to choose?: A comment on Gaynor, Propper, and Seiler (2016)

Free to choose? Reform, choice, and consideration sets in the English National Health Service. M Gaynor, C Propper, and S Seiler. 2016. American Economic Review [RePEcForthcoming

The enhancement of patient choice about healthcare provider is a popular target for reform across many European countries, including the UK. In 2006, the government in the UK mandated that patients had to be given the choice of at least five providers when being referred for treatment. Prior to this time the decision lay principally with the referring clinician. The impact of this reform was previously examined in two papers: Gaynor, Moreno-Serra, and Propper (2012) and Cooper et al. (2011). The latter of these attracted some criticism particularly after it was used in support of the controversial Health and Social Care Act (2012). One key aspect of this criticism revolved around the use of mortality from acute myocardial infarction (AMI) as a quality indicator, despite AMI being an emergency condition over which patients have no choice about their treatment hospital. The former of those two papers expands the analysis to consider other outcomes such as all cause death.

In this new paper, examining the same 2006 reform, the authors this time examine coronary artery bypass graft surgery (CABG). CABG is an elective condition thus permitting patient choice. The analysis considers where patients chose to go and on what basis, the effect of choice on patient mortality, and the effect of competition on hospital market share. The authors develop a novel method to analyse consideration sets to compare choices made prior to and after the reform. One of the key findings is that patients respond to signals of quality – in this case hospital mortality rates. And this improved sorting of patients into hospitals with lower mortality rates. However, here the distinction between a quality signal and actual quality is blurred.

It stands to reason that a patient would prefer a hospital with lower apparent mortality rates. But, mortality rates, whether adjusted or unadjusted, have been shown to be poorly correlated with preventable mortality in the NHS. The mortality rates used in this paper are the estimated (OLS) coefficients from a model of in-hospital death regressed on dummy variables for each hospital, thus estimating the crude mortality rate. To address the potential mismatch between mortality rates and the causal effect of a hospital on patient mortality, Gaynor, Propper, and Seiler also use an instrumental variable (IV) estimator for the hospital dummy with patient distance to each hospital as the instrument. This follows the method of Gowrisankaran and Town (1999). Gaynor, Propper, and Seiler state that a Hausman test does not reject the hypothesis that the OLS and IV coefficients are different and so use the OLS crude mortality rate estimates in the primary analysis. Nevertheless they repeat the analysis and show that patient hospital of choice is also associated with the IV estimated mortality rate. But the question still remains as to whether these estimates can be relied upon to demonstrate that the reforms improved mortality risk in the CABG cohort.

Gowrisankaran and Town showed there was little correlation in their study between GLS and IV estimates of hospital quality (see the Figure). Hogan et al. (2015) showed that the association between standardised hospital mortality ratios (SMR) and the proportion of preventable deaths was very weak. And Girling et al. (2012) estimated that if 6% of hospital deaths are preventable then the predictive value of the SMR can be no greater than 9%. However, they suggest that this could rise to 30% if 15% of deaths were preventable. So it seems perhaps surprising that Gaynor, Propper, and Seiler find no evidence of a difference between their OLS and IV estimators. Now, for CABG, the proportion of preventable deaths may be very high, Guru et al. (2008) estimated it to be as high as 32%. But, they also find there to be no correlation between preventable deaths and mortality rates in hospitals. Taken altogether this might suggest a flaw in the analysis of Gaynor, Propper, and Seiler.

Scatterplot of the GLS and IV estimates of hospital quality from separate years regression.

Scatterplot of the GLS and IV estimates of hospital quality. (c) Elsevier Science B.V.

When choosing between healthcare providers patients are provided with information about quality. This normally comes in the form of SMRs as we have previously discussed. Gaynor, Propper, and Seiler demonstrate that patients respond to this information. But, as we have argued, these signals are poor with respect to actual quality. Thus the consequences of patients sorting into hospitals in terms of actual deaths avoided is difficult to ascertain. A Hausman test suggests that the OLS and IV results are similar in this study and there is an association between patient choice and the IV estimated quality variable. But many arguments may run counter to these findings: the Hausman test could have low power, the IV estimator may be biased by the large number of moment restrictions, the instruments may not be conditionally independent of the hospitals, the common support between hospitals may not include the highest risk patients, and so forth. This paper successfully demonstrates how patients respond to information in making their choice between hospitals, but whether the reforms reduced mortality remains unanswered in my opinion.

Photo credit: Ramdlon (CC0)

Bean counting and the NHS

I was recently questioned about the future of the NHS, during a live debate on the BBC Radio 4 programme Moral Maze, on 9 July 2014. One of the panelists took me to task for being a “bean counter”. I got side-tracked by this somewhat less-than-flattering characterisation of my professional role as a health economist, and so only managed to get across three of the six points I had planned to make. For what they are worth, this blog sets out all six points. And, as an added bonus, it then concludes by explaining why I am proud to be a ‘bean counter’.

This blog sets out personal ethical views on a number of controversial matters of social value judgement. That is what the BBC programme makers asked me to do, and I hope my professional colleagues will not ‘tut tut’ too loudly when they see me doing it. Professional economists are supposed to help decision makers and stakeholders think through the implications of a range of alternative value judgements, rather than to impose their own particular personal or professional value judgements. However, this blog post merely voices my own value judgements – it does not impose them on anyone.

Point number one is that the NHS performs rather well compared with other health systems across the world. It is relatively cheap, relatively good, and very fair. The UK currently spends about 9% of national income on health care, just under the OECD average, compared with 18% in the US. People in the UK are on average healthier than those in the US – even rich people with access to the best available health care in the US. And the UK regularly comes top of Commonwealth Fund surveys of fairness in high income health systems. The UK NHS is widely regarded as the fairest health system in the world, with the possible exception of Cuba.

Point number two is that financial strain on the NHS will get worse in decades to come – potentially much worse. This is due to a fundamental clash between health economics and tax politics. The tax politics is obvious. Voters do not like high taxes, so there is a limit to how far taxes can be raised, even to pay for something as popular as health care. The health economics is less obvious, but surprisingly simple when you think about it. As countries get richer, they spend a higher percentage of national income on health care. There is a simple reason for this. As we get richer, which is more valuable – a third car, yet more electronic gadgets, or an extra year of life? (I am here paraphrasing Hall and Jones, who predicted that health spending in the US will rise to 30% of national income by 2050). In the technical economic jargon, health care is a ‘superior’ or ‘luxury’ good. Do not be misled by this jargon – it does not mean that health care is an unimportant frippery. Quite the opposite. Effective health care that extends life and improves quality of life is much more important than fripperies. That is why rich people want to spend such a large share of their incomes on it.

Point three is that my own preferred solution to this problem – and here you will notice that personal ethical opinions are coming thick and fast – is gradually to ration NHS care more explicitly and extensively, within whatever budget the electorate are willing to vote for. That would enable the preservation of a tax-funded national health service that continues to provide a fairly comprehensive package of cost-effective health services to all citizens, that is nearly free at the point of delivery. (The NHS has never been 100% comprehensive or 100% free at the point of delivery). The rationing should be done through a transparent deliberative process, and based on a range of ethical principles, including cost-effectiveness, need, and compassion. Chief among these principles, however, should be cost-effectiveness – the principle that scarce NHS resources should be used to do as much good as possible in terms of extending people’s lives and improving their quality of life.

Point four is that more extensive rationing is a better and fairer solution to the problem of preserving the NHS than more extensive user charges. User charges should not be imposed on cost-effective forms of health care, such as GP visits. Charges for GP visits deter people – especially poorer people – from seeking preventive and diagnostic care. Without effective prevention and diagnosis, health problems progress to become more harmful to the patient and more costly to the NHS. If health care is cost-effective it should be provided free on the NHS; and otherwise not. People can then pay for non-cost-effective care themselves, either out of pocket or via ‘top up’ private health insurance. The slogan “all necessary care should be free” should be re-interpreted as the slogan “all cost-effective care should be free”.

Point five is that fervent ideological debates about ‘competition’ and ‘choice’ and ‘markets’ and ‘privatisation’ are largely red herrings. What matters is that the NHS provides a fairly comprehensive range of cost-effective care to all citizens, so that everyone receives the care they need at a cost they can afford. Who owns or manages health care provider organisations does not matter directly in and of itself. Ownership and management may matter indirectly, of course – but only insofar as they impact upon the cost, quality and social distribution of health care. The direction and size of such impacts in different contexts is a factual matter, to be settled in the court of evidence and experience, rather than a matter for fervent ideological debate.

Point six is that a more extensively rationed NHS can still preserve the founding principles of the NHS. On the delivery side, it can preserve the principle of ‘equality of access’ to all necessary health care – where ‘necessary’ means ‘cost-effective’. And on the financing side, continued tax funding continues to preserves the principle of ‘solidarity’, that the strong should help the weak – the rich should help the poor, the young should help the old, and the healthy should help the sick. Finally, the NHS also preserves the benefit of financial risk protection. As was stated in the public information leaflet sent to all UK citizens at the founding of the NHS in 1948, one of the main benefits of the NHS is that “it will spare your family from money worries in time of ill health”.

In conclusion, the best way to preserve the NHS is to engage in more explicit and extensive rationing. This in turn will require more of what my Moral Maze inquisitor called “bean counting”. More evidence will be needed to inform a suitably transparent and deliberative rationing process. In particular, more evidence will be needed about the impacts of different NHS services on cost, length and quality of life, patient experience, need, compassion and dignity, and other ethically important outcomes and processes. This form of ‘bean counting’ is not an ignoble exercise. The ‘beans’ in question here are people’s lives. People’s lives matter, and if seeking to improve the length and quality of people’s lives makes me a “bean counter” then I am proud to be one.

Recommended reading for Steven Levitt

Steven Levitt and his trusty Freakonomics sidekick were invited by David Cameron to advise on health policy, as they recount in their latest book. Apparently the PM walked out on them. Levitt has kindly given us some more details on his proposal for British healthcare. It consisted of the following:

  • Every British resident is given £1000 per year
  • People must pay out of pocket up to £2000
  • For annual expenditure between £2000 and £8000, the co-payment is 50%
  • The government pays for everything in excess of £8000 in a year

Various people have already commented, so go to them for some insights. Here I just want to help Steve by offering him some suggestions for weekend reading. He makes a number of claims in his blog post that make him look like a novice; most notably in comparing ill health to a broken TV. Hopefully, by doing the reading that I suggest here, he can avoid having smart people walk out on him in future.

“…it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it”

So Steve’s proposal is framed as a solution to moral hazard. If you think this is a problem for the NHS, you’ll have to show me the evidence. We already have mechanisms in place to deal with it – some people pay for prescriptions, doctors don’t receive fee-for-service – but Steve’s proposal wouldn’t prevent it anyway. Bizarrely he appears to have forgotten about private insurance, under which moral hazard could very much exist. Furthermore, under his system, insurers would only have to pay up to a maximum of £5000. Even if individuals did consume as much healthcare as humanly possible their premiums would not need to go up. There would be no adverse selection. Moral hazard could persist and the government would shoulder the cost.

“Consumers will cut out the low-value healthcare services they are currently using only because the services come for free”

They won’t. Co-payments stop people using care that they actually need because we aren’t able to distinguish between low value and high value healthcare.

“If it turns out that consumers are sensitive to prices (i.e., that the most basic principle of economics holds, and demand curves slope downwards), total spending on health care will decrease”

How did prices come into this!? Steve’s tone suggests he hasn’t considered the possibility that this ‘most basic principle’ doesn’t hold, but never mind. I assume Steve knows about the RAND health insurance experiment and its famous -0.2 figure for the price elasticity of demand. Anyway, his claim simply doesn’t follow. Capping expenditures in this way can cause poor adherence resulting in greater healthcare costs through hospitalisation.

“Competition will likely lead to increased efficiency”

This claim, which it appears is built into his team’s simulations of the likely outcomes of the proposal, is a biggy. Based on the evidence we certainly cannot say it is ‘likely’. It’s clear that Steve hasn’t fully considered the evidence in regard to the NHS, which is far from being clear-cut. Steve is vague, but I assume here that he means competition in the provision of healthcare, and that the NHS would cease supplying care. Or maybe he just didn’t realise how the NHS works. Given his previous comment, it’s clear he means competition on price. Even the most pro-competition academic health economists in the UK don’t support price competition because the evidence suggests it negatively affects quality.

“The majority of Brits will be better off in the scenario I laid out”

Here Steve appears to completely miss the purpose of the NHS. It’s hard to imagine the majority of Brits being ‘better off’ following the dismantling of the NHS – not least because we think it’s great. However, given what we know, Steve’s system will necessarily result in an increase in health inequality because the poorer are sicker. This increase in health inequality would result in welfare losses because the (British) public really value equality in health, even more than doctors.

A reading list

What Steve doesn’t seem to realise – or, probably, he does – is that his system is akin to just making the tax system less progressive and at the same time rationing less expensive healthcare based on ability to pay. It isn’t clear to me how any good can come from this. So here’s some weekend reading for Steve, which might help him refine his ‘model’. I’ve limited the list to just 10 items relating to the points above (to give Steve a chance), so feel free to suggest any others in the comments below.

  1. Adams, AS et al (2001) The case for a Medicare drug coverage benefit: a critical review of the empirical evidence. Annual Review of Public Health 22: 49-61
  2. Aron-Dine, A et al (2013) The RAND Health Insurance Experiment, three decades later. Journal of Economic Perspectives 27(1):197-222
  3. Arrow, K (1963) Uncertainty and the welfare economics of medical care. American Economic Review 53(5): 941-973
  4. Culyer, AJ & Wagstaff, A (1993) Equity and equality in health and health care. Journal of Health Economics 12(4): 431-457
  5. Dolan, P et al (2005) QALY maximisation and people’s preferences: a methodological review of the literature. Health Economics 14(2): 197-208
  6. Lohr, KN et al (1986) Use of medical care in the Rand Health Insurance Experiment. Diagnosis- and service-specific analyses in a randomized controlled trial. Medical Care 24(9): S1-87
  7. Nyman, J (1999). The economics of moral hazard revisited. Journal of Health Economics 18(6): 811-824
  8. Propper, C et al (2008) Competition and quality: evidence from the NHS internal market 1991-9. The Economic Journal 119(525): 138-170
  9. van Doorslaer, E et al (1997) Income-related inequalities in health: some international comparisons. Journal of Health Economics 16(1): 93-112
  10. Zweifel, P & Manning, WG (2000) Moral hazard and consumer incentives in health care. Handbook of health economics 1: 409-459