The Henry Fords of Healthcare
28 July 2020
SUGGESTED
Coronavirus
No 1: The Information Commissioner's Office
15 July 2020
Regulation
Economic Theory
25 June 2024
https://iea.org.uk/wp-content/uploads/2020/07/Henry-Fords-Interactive_.pdf
Summary
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- Health systems in Western countries are plagued by inefficiency and low productivity growth. Without reform, their funding is likely to require a substantial increase in the tax burden as populations age. Patients may also face a gradual decrease in the quality and scope of services.
- The organisational changes needed to drive costs down and at the same time increase quality and safety – such as economies of scale and high levels of specialisation – have not been implemented to a significant degree under welfare state models. Overly strict regulations and government diktats restrict the ability to adopt radical change. The focus is on controlling healthcare costs over the short term rather than increasing quality and fostering innovation.
- While some of these systems have gradually opened up to private actors, most of the benefits of free markets have not been transferred to healthcare provision. The private sector has little freedom to change systems of health delivery. It is not allowed to use its greatest strength – innovative, disruptive entrepreneurship – to improve the way health services are offered.
- By contrast, developing countries are not stuck in the Western model. The greater openness of health markets in countries such as China and India has paved the way for the ‘Henry Fords of healthcare’. These entrepreneurs show that radical innovation is possible in the sector and they are achieving substantial cost savings and productivity gains.
- The most successful firms are delivering high-quality mass healthcare at affordable prices – something that eludes Western countries. The situation is very much like when Henry Ford and other successful entrepreneurs were revolutionising the process of car manufacturing.
- A common feature of the successful models is their use of an assembly-line approach to healthcare provision, enabling them to capture economies of scale, achieve a high degree of specialisation, and therefore provide a high volume of good quality treatment at low cost. The patient typically comes into contact with one stop shop providers and quickly goes through the entire process of care, with minimal bureaucracy and waiting time between treatments.
- Without major reform, it would be difficult to introduce a similar approach in Western healthcare systems. The funding and organisation of healthcare often gives each local hospital the task of treating a very broad range of conditions, making high levels of specialisation harder to achieve. Moreover, healthcare systems are frequently organised such that patients receive portions of care from a variety of health providers, which may limit economies of scale.
- Even though Western welfare states have so far been relatively closed to entrepreneurship, this might change if policymakers realise that it offers an opportunity to cut costs, increase quality and reduce waiting times. Allowing more room for a lightly regulated private sector would encourage the kind of process innovations seen in developing countries. Successful for-profit businesses also have the benefit of being scalable, which means that best practices can spread.
- Growth in health tourism will enable more Westerners to benefit from entrepreneurship and innovation in healthcare, even if regulatory barriers are retained in their own countries. Large numbers of patients are already travelling to destinations such as Thailand, Mexico and India in order to avoid long waiting lists or to save money, and this trend is likely to increase as the problems with welfare-state systems intensify.
- Health officials in the West could encourage trade in healthcare as a means of cutting costs and reducing waiting times, for example by incentivising at least some patients to seek treatment abroad. However, the current welfare-state contract between the individual and the public sector hinders such initiatives.
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