Sunday, February 17, 2008

Nationalized medicine and the incentives they face.

The role of incentives are too easily ignored by individuals who have the idea that the State is somehow, magically, the solution to whatever problem we face. And government-run health care is supposed to be the solution to the scarcity problem in health care.

Economists argue that incentives matter and that political-provision of services creates distorted and perverse incentives. And here is a perfect example.

The British National Health Service is notoriously slow in treating patients. Some people deny this is the case and point to various numbers released by the NHS itself to show how efficient it is. And one number the NHS takes seriously is that they require patients admitted to the emergency ward to be seen within 4 hours of admission. Doesn’t that sound peachy?

Don’t get too excited. Let me point out how well-intentioned interventions can create unintended incentives. A town in a poor country is faced with too many rats. They offer a bounty for each rat that is killed. Proof of a kill required the bounty hunters to hand in a rat’s tail. Alas, a bevy of tailess rats were soon seen running about town. To solve that problem the city required the entire carcass of the rat be handed in. And they were inundated with dead rats. But it seemed to have no impact on the number of rats running about. Apparently individuals took to breeding rats.

There was a time when the South African government decided that they would offer an award for every AK-47 that was turned into the police. These weapons were frequently used in major crimes and it was a bit embarrassing to the ANC government that they had been the importers of the weapons in question when they were trying to overthrow the previous government. So they offered a nice hefty bounty on each AK-47 that was turned in. The only problem was that AK-47s could be purchased in neighboring countries for a lower price. One could buy it in Zimbabwe and legally sell it to the South African government at a premium. AK-47s were duly imported in record numbers in order to collect the awards the government was handing out. To say the least they merely increased the number of such weapons in the country.

Governments are very good at establishing perverse incentives without realizing it. And so it was with the NHS. The 4-hour rule is simple. A patient must be seen within 4 fours of admission. If too many patients are not seen in that time the health service could lose funding. Of course the ability to see patients that quickly is not increased by the rule. Instead the local hospitals have incentives to act in very strange ways.

If you know you can’t see a patient in emergency care for at least six hours, but you are required to see them within four hours of admission, then the easiest way to solve the problem is to delay admission for an additional two hours. And that is what is happening according to the Left-of-center Guardian. The paper reports, “thousands of seriously ill patients in ambulance ‘holding patters’” were being kept outside in the ambulances “to meet a government pledge that all patients are treated within four hours of admission.”

The story was originally broken by The Observer. The Guardian notes:

Those affected by 'patient stacking' include people with broken limbs or those suffering fits or breathing problems. An Observer investigation has also found that some wait for up to five hours in ambulances because A&E units have refused to admit them until they can guarantee to treat them within the time limit. Apart from the danger posed to patients, the detaining of ambulances means vehicles and trained crew are not available to answer new 999 calls because they are being kept on hospital sites.

Notice the knock-on effect of this incentive. The hospital can’t see the patients within the required 4 hour period. So it refuses to admit the patient until it can see them and meet government edicts. That means the patients is left in the ambulance. That means the ambulance can’t treat other patients.

Under normal conditions the government says that it ought to take 15 minutes from the time an ambulance arrives with a patient until they prepared to depart. Ambulance crews say it is usually 5 to 10 minutes. But reports now show that on 14,700 occasions at 35 hospitals in London alone, in the last year, an ambulance mysteriously took over one hour before they could turn around. And on 332 occasions they took more than two hours. The total for the entire country is probably three times that.

For a moment I want you to think about a fast food restaurant -- say McDonalds. Let us say that the manager notices that they aren’t serving customers as quickly as they should. So he sets a 4 minutes rule. From the time a customer enters the line, he should not wait more than four minutes to be served his meal. Do you really think that the way they would meet this target is to lock the doors so customers can’t get in?

Why is it that clerks at the local grocery store can process your purchase within a few minutes while government departments around the world can keep you waiting for hours at a time? Are clerks at the local Safeway just that much more efficient than those at the DMV? Or do they face entirely different incentives?

Does the DMV fear losing customers? Does Safeway? Does the salary of the checkout clerk at Safeway depend on keeping customers happy? How about the DMV clerks? I don’t think the people differ that much. The problem isn’t the personnel -- as some Republicans tends to think -- the problem is systemic. Government just hasn’t found a way to create the right set of incentives. And people who work for government are responding to the incentives they do face.

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