Dr Ben Crom: ‘Healthcare costs will always continue to rise, regardless of free market processes’

The costs of healthcare have risen explosively since the introduction of free market processes in 2007. This opinion was vented by the Boston Consultancy Group last month. Explosive or not, one thing is certain according to Ben Crom, lecturer at the Faculty of Economics and Business: ‘Healthcare costs will always continue to rise. And the free market system is making things unnecessarily worse.’

The cost of healthcare has been rising for years, according to Crom. ‘There are two causes,’ he continues. ‘First: healthcare technology is getting better and we all want to stay healthy and grow old. We are therefore turning to healthcare more readily while still young and during middle-age. And secondly: once we reach old-age, we start to consume even more healthcare. Certain diseases tend to impact on each other. You need more specialists to stay healthy.’ So all in all, society is facing a larger healthcare bill. ‘These effects are a sign of welfare and have nothing to do with free market processes.’

The incentive

However, Crom thinks that the free market system is probably also affecting healthcare costs. Doctors can now charge for certain treatment, which generates extra fees or increases in departmental budgets. As a result, doctors are keener to carry out profitable procedures. ‘It’s a financial incentive. But let’s be clear about this: it is nothing new in the healthcare system. It has become more important over the last ten years, but this process started before the introduction of the free market system. However, market forces have definitely boosted the effect of the financial incentive. Doctors are now more aware of the costs and the financial gains. But surely this is what the government intended? Government policy is full of efficiency, ‘healthcare products’, raising financial awareness and other business economic jargon. So why are we surprised that doctors have started acting like entrepreneurs?’ One of the advantages is that waiting lists for profitable procedures will become shorter. On the other hand, the knock-on effect will be that waiting lists for financially less advantageous treatment will grow. And there will probably be an increase in the number of less urgent, but more profitable procedures performed. ‘The implications are massive. I have even heard of a doctor contacting nursing homes to sell hearing operations.’

The brake

At present, there are few brakes to control the financial incentive. According to Crom, healthcare insurers could apply these brakes. ‘They could confront doctors and policy-holders about procedures they suspect are not urgent or even unnecessary. Insurers are currently reluctant to do this, mainly because they are afraid of losing customers. After all, many people are insured collectively via their employer and a conflict with a policy-holder means a conflict with an employer.’ They run the risk of losing a large customer base. And yet the insurers are not totally defenceless against the move towards procedures that mainly benefit physicians or healthcare organizations, according to Crom. For example, they have already taken measures to prevent pharmacies from selling expensive drugs. ‘Cheaper drugs are just as effective as the expensive brands. Insurers have pointed this out, and it has had a positive influence on drug prices.’

Responsibility

But Crom has a degree of sympathy for the insurers. Responsibility is their biggest issue. ‘Which insurer can say whether a patient needs certain treatment or not?’ comments Crom. ‘That is a medical decision. Insurers will only be in a position to judge if they employ more doctors themselves.’ But this is not an avenue Crom would recommend: ‘Healthcare insurers would do better to compare the overall level of care provided by healthcare organizations. For example: two hospitals have a similar care provision profile and deliver the same production, but one of them declares more costs than the other. Room for improvement. The insurer could say to the less efficient hospital ‘we are giving you x amount of time to reach a comparable level‘. If they don’t, you gradually reduce their budget and force them to work more efficiently.’ Benchmarking and information exchange about best practices should be encouraged.

Jungle

On a personal level, Crom would prefer not to see free market processes operating in the healthcare system. ‘I get the feeling that the government does not want to acknowledge the fact that costs are rising naturally as a result of an ageing population and advances in healthcare technology. Instead, it is blaming hospitals for their lack of efficiency.’ A curious conclusion, according to Crom. ‘In my experience, hospitals and the doctors that work there are more efficient than many commercial companies. But the free market system is now operating and this process cannot be reversed. Higher financial incentives in the healthcare system are here to stay. And the free market is a ruthless jungle, where everything revolves around competitive prices. Rising healthcare costs resulting from improved welfare are being driven up even further, and this is eroding the solidarity within the system. I wonder whether this is sensible. What kind of society do we want to become?”

Curriculum Vitae

Dr. Ben Crom (1962) lectures at the University of Groningen in the Accounting Section of the Faculty of Economics and Business. In 2005, he defended a thesis on budgeting in hospitals.