Wednesday, September 08, 2010

Healthcare Competition 4: Solving Info Assymetry

(Note: the original title of this paper was "Info asymmetry in healthcare")

After posting Healthcare competition 5: UK below, an economist friend commented,

I do agree that the "free" health care system is not a bed of roses. However, so does unregulated private sector provision. I think a more relevant policy is that patients should know their options. They should know how providers fare in quality of care measures. Whether they be public or private providers.

Good points there. I believe in the power of market segmentation -- different services for different people/consumers with different needs and different budget. Consider the food sector: there is no government carinderia or govt. restaurant or govt. supermarket, and people are eating. The rich may eat at P2,000/meal, the middle class may eat at P200/...meal, the poor may eat at P20/meal. But it doesnt mean that the P20/meal, only 1% the cost of what the rich may eat, is poisonous or non-nutrious. It can be a complete meal already (carbo, protein, vitamins, etc.) depending on how the household would prepare and cook the food. There is govt. presence in food, like the National Food Authority (NFA), and all it does is accummulate debt year after year, that we taxpayers have to shell out year after year too.

Compare that in healthcare: there are thousands of govt. rural health clinics, thousands of govt. "botika ng barangay", dozens of govt. hospitals, there is a govt. health insurance corp, a govt. drug price control policy, etc. and health problems are expanding.

When you deregulate markets, like food, clothing, footwear, etc., there is a market for everyone, rich and poor, young and old.

My friend replied back:

Clothing, food, and footwear are pure private goods. I am for private sector involvement but more importantly, I would rather have people informed of the quality of service they are about to take. One important ingredient for free markets or deregulation to work is absence of, or minimal information asymmetry, people are informed. More tuned to competition, minimization of information asymmetry.

Information asymmetry is a problem or a situation where one party (say the healthcare provider like the physicians, hospitals, drugstores, etc.) is more knowledgeable than the other (say the patients), and this results in inefficiency of resource allocation in society. Like the less-informed party will pay more than what he/she is supposed to pay if he/she has more informatino.

One solution to this problem is to encourage branding. Makati Medical Center (MMC) brand. St. Luke's Medical Center brand. Medical City brand, Maxicare brand, Intellicare brand, etc. People will associate the "St Luke's brand" as expensive, great healthcare, etc. versus another hospital's brand or image, and another HMO's brand.

Like in food sector, again. When it's Jollibee or Mcdo or Chowking, people don't care whether the branch is in Davao or Cubao or Tuguegarao. They assume and know that the food quality, food price, service, etc. is the same for all branches. People are buying the brand and all products and services that go with that brand. Information asymmetry is drasticaly reduced if not removed.

See also:
Healthcare competition 1: Switzerland, August 28, 2010
Healthcare competition 2: Singapore, August 29, 2010
Healthcare competition 3: Hong Kong, September 02, 2010

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