What’s the cure for an ailing health service?

Some economists like to talk about the ‘dead hand of bureaucracy’. This is shorthand for large self-sustaining bureaucracies whose core objective is no longer the delivery of their core services, but rather the maintenance of the status quo. In these systems, the staff have a vested interest in protecting their position and privileges, and so the system’s objectives move further and further from the needs of their clients, or in the public sector, the taxpayer.

The Irish health service is a case in point. It has between 100,000 and 140,000 staff (the PPARS debacle showed they couldn’t be precisely sure just how many were on the books); it consumes a quarter of every tax euro; it has received a huge increase in funds in the last decade; and yet it has completely failed to make the kind of significant service improvements that one would expect on such a huge budget. The root of this failure to deliver improvement is entirely down to the dead-handed approach that successive governments have taken to the challenge of health service reform.

Consider the HSE. It was meant to be the silver bullet that would stream-line the management of healthcare provision across the country. The old, clientelist system of local health boards dominated by county councillors was to be replaced with a lean centralised authority capable of delivering a health service equal to our position as a wealthy industrialised nation. Instead it merely added a final suffocating layer of bureaucracy to an already over-managed, under-productive system. In short it was a bureaucratic solution to a bureaucratic problem, and that was never going to work.

So far the HSE’s biggest achievement has been to turn a clientelist system into one with no political oversight or accountability. Ministers can now avoid nasty doses of responsibility by passing the buck over to Professor Drumm and Co. The HSE then refuse to respond on the basis that questions from our politicians are not for their ears, and should be referred back to the Department of Health. The net result is a merry-go-round with no answers. This means a lack of accountability from the single biggest spending area of the state, which has an annual budget of over €11 billion.

So if a bureaucratic solution isn’t going to work, and that is now plainly obvious, what other options are available. Well the reverse of a statist solution is typically privatisation. However, privatised healthcare can often reduce treatment to a means based rather than a needs based system – one need only look to the US for proof of that. While private healthcare can have a contribution in a wider system, doctors and nurses should for the most part remain in the public space, treating all before them without fear or favour. However, the problem with the Irish health service does not lie with the primary care givers and front-line staff. The problem at the root of the system lies with the administration.

In recent years, much of the increased investment in the health service has gone on funding new administrators. The HSE includes some of the least productive employees in the country. Consider the staff whose positions were to be moved to the newly centralised HSE. Many had cast-iron guarantees in their contracts regarding fixity of location and terms, the net result was that in many cases job functions were moved, but the incumbents didn’t follow. This meant that additional staff had to be hired to do the work that had been relocated, while the existing staff were kept on with little or nothing to do. Add to this the fact that many HSE staff consider that their annual holiday entitlement includes uncertified sick leave, and you begin to see that the real challenge lies in reforming the way the system is run.

This is not a challenge unique to Ireland. Britain’s National Health Service is Europe’s biggest employer with 1.5 million staff. BBC reports from June this year show that NHS staff take up to twice as many sick days as the average private sector worker. It is a huge drain on the exchequer and in much need of reform. However, over the past 20 years successive British governments from Margaret Thatcher onwards, have at least attempted to reform the health service by introducing a measure of competition.

The intellectual driving force behind this was Nobel-prize winning economist James Buchanan. Buchanan’s life’s work has been devoted to public choice theory. In terms of the NHS, his theories manifested themselves in what became known as the internal market.

Essentially internal markets introduce competition into previously monolithic bureaucracies by moving their systems of control away from rigid hierarchies and direct management to governance by goals and targets. In such systems, goals are incentivised so that the level of reward is measurably linked to achievement. In Buchanan’s world, the bureaucrat is free to achieve their potential, and so their selfish interest and the needs of their clients can be synchronised by appropriately defining the system of goals and rewards.

However, the initial attempts at this in the NHS produced unexpected results. For example, one of the primary goals was to reduce waiting lists. This should sound familiar to an Irish reader. One hospital did this by contacting patients awaiting procedures to find out when they would be on holidays. They then scheduled their procedures to coincide with their trips. The result was that patients cancelled their procedures rather than miss their holidays, allowing the hospital to remove them from the waiting list and give their appointments to others. The net result was a reduced waiting list, but not in a way that really benefited the patients.

The moral of the story is therefore that internal markets need to be designed in a way that ensures that the ambitions of the staff can be manipulated to maximise the patient benefit. This is not an impossible task but it would require some careful planning.

So how does this relate back to the Irish system? Well if we are to keep the actual provision of healthcare as an intrinsic public good, one that does not discriminate on means, then the challenge becomes one of ensuring that the support structures operate in a cost effective way that allows budgets to be deployed to the frontline with a minimum of overhead.

The internal market has a lot to offer in terms of reforming the administrative side in a way that incentivises increased levels of productivity on the staff side while simultaneously improving services. There are two broad models for the delivery of services under an internal market here in Ireland. Both essentially depend on establishing franchises, with bidders competing to secure franchises, with an opportunity to expand into others based on their performance. These franchisees could be created by breaking up existing HSE structures, or by encouraging the participation of private operators.

The first approach involves a return to a geographical system similar to the old health boards. Under this model, the country would be divided into areas of equal population with similar levels of base funding and bonuses for performance. Each franchise would be on a medium term basis in excess of five years, but not indefinite. The franchise periods would be staggered, and franchisees with demonstrable success could bid for additional franchises when they became available. Franchisees who fail to deliver would not be renewed.

The second option is to establish functional franchises arranged around significant service areas such as cancer screening, pathology, orthopedics, step-down care, etc. Again franchisees who perform well can expand their portfolio.

Ireland might seem a small market for such franchises to be workable, however, we must remember that the public cost of healthcare alone constitutes €11 billion p.a. and that is sure to rise. This is complimented by the private health market which is also growing apace. The key challenge is therefore constructing an appropriate set of rules to govern the market, while ensuring that doctors, nurses and assets remain in the public space.

One could argue that this happening in the current system under the Treatment Purchase Scheme, especially if the state uses it to pay for procedures in private hospitals like the Beacon. However, this does nothing to improve the underlying issues in the HSE and can at best represent a costly stop-gap.

Now as the boom years here are coming to an end, the era of throwing billions at problems without any improvement is over. It’s time to try a new treatment for our ailing health service.