PUBLIC POLICY MANAGEMENT

1. PUBLIC POLICY MANAGEMENT UNIT-3:HEALTH POLICY

2. SCENARIO Rising expenditure on health care both by 1. Government , and 2. Households / Individuals. Issues: 1. Is the provision for health care/medical services equitable? 2. Hospital costs are rising fast. 3. Is availability of health insurance universal?(No).

3. Opinions: 1.Marginal benefit of medical Services is less than its marginal cost. 2.Government should regulate cost of medical care.

4. Medical Services & Market Failure VIEWS: 1.Certain diseases create externalities: TB, Viral fever, polio,….& several communicable diseases. This requires government intervention for regulation for quarantine, compulsory vaccination,etc. 2. Defense veterans’ medical care beyond their service years. (medical insurance may be provided by Govt. “service related medical needs”.) 3.Medical expenditure is like “unjust tax” imposed on individual by fate. 4. Just as right to vote should not be subjected to market place (individuals not allowed to buy &sell their votes), access to medical service should not be controlled by the market. “This view is known as specific equalitarianism”

5. Should Medical Services be Treated Differently than other Services? Three different views: 1.Do not treat medical services differently than other commodities. (Reason: weak relationship between medical services and life (death)– why? Other factors as smoking, drinking, food, education, etc. affect individual’s life span and other health indicators. Therefore, allow people to spend on medical care as they like). 2. Provide compulsory medical care to everybody(welfare state- argument). (Post 2nd world war phenomenon in Britain--Research findings show that the differences in infant mortality, maternal mortality and overall life expectancy could not be bridged for different class of people– should medical care be not provided to everybody? The issue needs to be debated.

6. 3.Provide at least certain minimum level of medical care to everybody. (this argument recognizes the issue of efficiency of alternative methods of ensuring access to medical care). The divergent views indicates that some kind of public intervention is required. What are the consequences of different kind of interventions? In order to analyze it, one should know why markets for medical services differ from the tradional competitive markets.

7. How is market for medical services different from standard well- behaved competitive markets? Conditions of Standard competitive markets Conditions of Medical Markets 1. Many Sellers. 2. Profit maximizing firms. 3. Homogeneous Commodities. 4. Well-informed buyers. Source: Joseph E. Stiglitz,(1986):---- 1.Only limited no. of hospitals. (Outside major cities.) 2.Not-for-profit. 3.Heterogeneous Commodities. 4.ILL -informed buyers. Economics of the Public Sector, WW Norton & Co., Newyork; Table 11.2 , p.246.

8. Implications: • Conditions 1&2 Medical Market: Inefficient producers may survive. Price may exceed cost of production. (e.g. Monopoly price: MR=MC, since MR< price; monopolists charge>MC). • Conditions 3&4 • It is difficult to say whether lower price indicates a better buy or a lower quality. • When consumers are not well informed about price, firms tend to increase price above the competitive level ---loss to consumers. • Medical Services: It is the knowledge of the doctor, not patient’s that matters.

9. ASYMMETRIC INFORMATION • “A situation in which information is unequally distributed between the individuals in a transaction. The person with more information will have an unfair advantage in determining the terms of any agreement.” • There is imbalance of information between patient and provider – asymmetric information. • This leads to two important market defects: • (i) Patients are not able to judge price and quality differences among providers. • Similar groups of patients paying widely different prices – • For common surgery cases – costs may vary widely • Where alternatives for surgery for a given disease are available, costs may vary significantly (e.g. coronary artery bypass grafts, disc surgery, etc.). • (ii) Agency problem: Physicians serve as agents of the patients – patients delegate authority of decision making to physician. Why? Patients think that their best interest will be taken care of by the doctor. But the doctor has a dual role: provider of service as well as incharge of information. Doctors can recommend medical care with little marginal value to the patient.

10. Patient has to rely on the advice of the doctor about what medicine is required, whether surgery is required or not,etc. It is much more difficult to appraise the doctors than to appraise TV sets or Cars. Hence, need for regulation of medical services: 1. Licensing of doctors. 2. Regulation of drugs. • Health care should be considered a so-called merit good to which people are entitled. • The market forces should not be allocating the resources for health care in the way society allocates such a good. (kraft and Furlong p.220). • How to increase competition? • -Should Government permit advertising professional services • in medical care? • Yes, in a limited way.(Example: Advertisement allowed in case • of Optometry.

11. MEDICAL CARE AS MERIT GOOD • Consumer behavior, as studied in economics, assumes that individuals know what they prefer and they can rank their preferences. However, this is not always true. Some times, people avoid what is good for them (nutritious food) and choose to consume items that are bad for them (cigarettes, fast food, etc.). • Musgrave (1959) classified certain goods as MERIT GOODS that ought to be provided even if private demand is lacking/low. Their consumption needs to be encouraged through collective action. • People lack ability to fully appreciate the benefit of primary and preventive health care. They tend to under consume this valuable commodity. Does encouragement to consumer (or provision for) primary and preventive health care mean that the preferences are being imposed on society? • The arguments for government intervention based on market failure (delivery and finance, asymmetric information, third party financing, etc.) are compelling. However, when government intervention is advocated based on ‘merit good’; one needs to be cautious – make sure that our own strong preferences are not imposed on personal preferences or medical care to which individuals are entitled.

12. Managed Care Organization (USA) Old system of health care--- free-for-service (patient or the insurance company pays for the medical services rendered). Result: Rising health care costs. US health care shifted from free-for-service to managed care. Typically, costs borne by third-party payment. Main features of Managed care organization: 1. To provide health care by forming networks of doctors, other health care providers and hospitals associated with a given plan; 2. To monitor their treatment activities. 3. To limit access to specialists and costly providers.

16. Pharmaceutical Industry Regulation: National and Global • Should Government regulate pharmaceutical industry? • --Certain bacteria becoming immune to drugs due to misuse of antibiotics. ----Combating superbugs and antimicrobial resistance is a technical • challenge—health administration alone cannot address it. • ---It needs alert drug administration and some regulatory mechanism for • pharmaceutical industry. • ---Efficacy of life saving and precious resource of antibiotics need to be • preserved. It cannot be left to few experts. Needs global efforts; • otherwise, there is risk of returning to pre-antibiotic era. If not tackled • now, it would be disastrous.* • ---Developing world would be badly hit.(example, the first line drug to treat • tuberculosis are reasonably inexpensive. But the drugs needed to treat • multidrug-resistant tuberculosis(MDR-TB) are more than 100 times • more expensive than the first-line drugs for treating TB.* • * Source- (Economic Times—7.4.2011;pg-17)

18. Public Utility Problem : Water Supply Delhi tap water (Ramesh Nagar to south of Red Fort –12 km- area) Contains super bug– (NDM-1 gene)—This bacteria is highly resistant to all known drugs –Cholera, dysentery, -(especially among children) Findings published in LANCET *source-(Times of India, 7.4.2011; pl findings of Dr. Mark Toleman,Cardiff University, UK)

19. SHOULD MEDICAL RESEARCH BE TREATED AS MERIT GOOD? • Pure medical research: • If yes, then it supports the argument that medical research be funded by Govt. • ---It is published primarily in medical journals. • ---It has no easily captured commercial value. • If it is patented, medical devices can be included in procedures. Those who made • discovery can capture the benefits of their research.(for example, use of laser • in ophthalmological surgery). • There are arguments for and against treating medical research as public good. • For…. Once medical research is treated as public good, it can come in pubic • domain. Society can benefit from it. • Against…. Researchers use basic research to advance their carrier. Those • who keep their findings out of public domain may earn royalties, etc. • If the Government/Society has priority for some basic research (e.g. vaccine for malaria, TB, common flu, etc.) Government should support/fund such research. Then the findings can be put in public domain. Alternatively, there can be an arrangement of awarding some benefits to the scientists (by allowing patenting research findings in scientist’s name and giving them a part of royalty) and also putting it in public domain.