Health Economics 101

In a utopian health system recipients of healthcare would enjoy no limitations on the three corners of the health system resource distribution triangle pictured above. Everyone would be able to get everything ---right away.

But of the three corners of this utopian health system, real world economics only allows you to have two of the three. Different systems make different choices:

• In the United States, for example, if you happen to be hyper- compensated corporate CEO, you can get anything you want immediately. But obviously this isn’t available to everyone. In fact the US seems to have consciously and comfortably chosen not to attempt to provide health care for all.

• In another system such as New Zealand, just about everyone can get everything, but it’s definitely not available right now.

• Developing countries like Vietnam offer everyone a modicum of immediate care but there are significant limitations on what is available.

• The final permutation of this health system resource triangle is what’s found in much of the impoverished world where very little is available to anyone ever.

I can actually think of no health system that even attempts to attain all three aspects of this triangle. And when you reflect on it, only the goal of providing care for everyone is without pitfalls.

Take for example, the immediate provision of care. I know of a patient in New Zealand who had deteriorating cardiac function due a heart valve problem. For her to obtain even basic diagnostic studies such as an echocardiogram and consultation with a heart surgeon entailed delay. During this time aggressive medical therapy (medicines) was undertaken and the patient was monitored closely. Over time, she responded well to medication and improved significantly, to the extent that surgical heart valve replacement was no longer necessary. In the US I’m certain that this patient would have undergone open-heart surgery and valve replacement sooner than later. It may still come to that in this patient’s case but it can be done in a measured, deliberate fashion. I am also convinced that had the medical therapy failed, there would have been enough elasticity in the system to move forward urgently with surgery. Sometimes immediately, while quite seductive, is not always the best approach. I frequently tell patients that time is a powerful diagnostic tool but for it to have its full impact there must be open lines of communication, a trusting physician -patient relationship, and easy access for repeated reassessment.

Everything can also have hidden costs. CT scanning, for instance, has become the standard in many emergency departments in the United States for assessing a multitude of problems such as abdominal pain and head trauma. There is now a growing awareness, however, that the significant amount of radiation delivered during CT scanning actually has significant carcinogenic potential. Well studied assessment and risk stratification tools such as the physical examination are often very much underutilized because of the clinician’s perceived lack of time and increasingly, a lack of understanding of or training in basic bedside clinical assessment.

The underlying principle behind the inability of any health system to satisfy all three corners of the resource triangle has to do with the fundamental driver of all economic activity: scarcity. Ultimately, resources are scarce and economic and ethical decisions must be made by any society as to how these resources will be allocated.

Just as important in health arena is the fact that demand for health services is what economists would term inelastic. Elastic demand on the other hand, is something that someone can forgo without significant adverse impact as price increases. An example of this would be dinner at a Michelin three-star restaurant or a Mercedes roadster. Inelastic demand would include such items as food and, of course, healthcare. A person with a burst appendix or the parent of a child with meningitis is simply not in a position to be concerned about price or, for that matter, quality comparisons in the way that the proponents of market-based healthcare seem to think.

The reality is that every society makes choices about their health system and the inevitable compromises that must be made. Relying solely on the false analogy of applying market principles to a perfectly inelastic demand curve with human rights and ethical dimensions simply makes no sense---unless you are a shareholder in a for-profit health insurance corporation. Economically rational solutions such as a single payer health plan have been systematically thwarted in the US and this betrays the extent to which the decision-making and implementation process have been a hijacked by a self-interested elite.

The recently enacted Obama “reforms” seem to have been a political necessity in the face of vicious right-wing attempts to destroy not only the health policy reform efforts but his very presidency. I fervently hope in the four years that will elapse before implementation of much of this legislation, there will be a more thorough, intelligent, dispassionate, and successful national dialogue about real changes that will benefit those who are still being left out of the lower right-hand corner of the triangle. We can do with less (maybe even stay healthier) and we don’t need everything right away, but the ethical and economic imperative to cover everyone will be the cornerstone of any meaningful reform.