Competitive hospitals as a virtue of the Singapore health care system

by on November 11, 2013 at 7:11 am in Economics, Medicine, Uncategorized | Permalink

I won’t recap my earlier discussion, but rather here I will point out another feature of the system which makes it work and which keeps costs down: competition among hospitals.

Singapore has nine general hospitals, eight community hospitals, and twelve specialist hospitals, many of which are owned by the government.  (The public hospitals are usually bigger than the private hospitals, so the public hospitals serve about 80% of the market.)  To put that in proper perspective, Singapore is about the size of a U.S. county.  That’s 274.1 square miles, noting that most people do not live on the fringes of the territory.

The publicness of the public hospitals is not their most important feature.  Their most important feature is that they compete.  They do not merge, for instance.

Not every Singaporean public hospital is a contender to treat every kind of ailment.  And not every hospital is within convenient reach in a country where many people do not have cars.  Still, that’s a lot of competition by American standards.

To put matters in perspective, Fairfax plus Arlington counties have two hospital chains of significance, Virginia Hospital Center and Inova FFX hospital, and that is in a reasonably densely populated (by American standards) elite region.  Yes DC and Maryland may beckon (Sibley, Suburban, Children’s Hospital — what else is good?), but still ask yourself how many Americans can choose from a comparable number of hospitals as one can in Singapore?

One lesson is that urbanization is good for your health care system.  That is another reason to deregulate urban density.

A second lesson is that congestion prices for your roads make it easier for hospitals to compete.  Driving north on the Beltway to a Maryland hospital, from Fairfax, isn’t so great, especially if you are really sick.

A third lesson concerns the Hayek-Lange debate on managed competition as a potential solution to the socialist calculation debate.  The government-owned hospitals in Singapore would appear to be implementing one version of Lange’s proposal, namely that they are told to compete and they do.  Very successfully, so successfully that they are often cited as an example by market-oriented economists.  No, this could not work for an entire economy, and yes, in most other places public choice considerations would be a bigger problem than they are in Singapore.  Still, Lange’s proposal, viewed in light of the Singapore hospital system, looks a bit better than it used to.

Addendum: Here is Reihan on the monopoly power of U.S. hospitals.

Steve Sailer November 11, 2013 at 7:41 am

Anti-trust used to be fashionable. Now, it’s considered boring and sort of discredited, even if nobody can remember who exactly proved it wasn’t necessary.

Rahul November 11, 2013 at 8:21 am

Yeah but that’d mean more government regulation and that’s anathema to the hardcore libertarian dogma.

Jamie_NYC November 11, 2013 at 10:31 am

No, actually, my understanding is that to open a new hospital in the US, you need to show “community need”. So the lack of competition is the direct consequence of regulation.

Zach November 11, 2013 at 3:44 pm

Depends on the locale. Not everywhere is a certificate of need required.

Oakchair November 11, 2013 at 5:14 pm

Locales that require that you show a “community need” in order to expand have lower health care costs yet showing similar or better health outcomes. Maryland is one of those locales.

JB Abbott November 11, 2013 at 5:43 pm

You are right on point Jamie. Look up anti-trust regulation yourself in an encyclopedia, and you will find regulation was imposed only where adequate competition does not exist.

Steve Sailer November 11, 2013 at 11:55 pm

Tony Rezko had to buy up much of the Illinois Democratic political class to get a certification of “public need” for the hospital he wanted to get funded.

Doug November 11, 2013 at 12:10 pm

You act as if the change in economic thinking on monopoly happened without any reason whatsoever. We know 1970s views on monopolies were incredibly misguided. This was proven by airline deregulation (as well as trucking deregulation and other industries). If 1970 era views on monopolies were correct airline deregulation should have been followed by massive price hikes. Instead airfares fell dramatically.

The libertarian view of monopolies constrained by potential competition has proven in practice to be undisputedly correct. Old school anti-trust views that justified airline deregulation were just flat out wrong.

Oakchair November 11, 2013 at 5:12 pm

After Airline deregulation costs (minus oil) decreased at similar or slower rates that they did before deregulation; all this despite after deregulation airlines cut workers compensation and cut services.
All the evidence and studies of airline deregulation at best conclude that it was a neutral act.
And all that evidence doesn’t include the increased transportation/motel costs imposed on consumers who had to travel from hubs to smaller cities. All in all if airline deregulation is your example of dereuglatory success then deregulation is a bad thing for the economy.

Ricardo November 11, 2013 at 9:23 pm

Huh? Airline deregulation meant that government was not directly setting fares or allowed routes for each airline. It did not repeal laws against price-fixing, cartel arrangements or Department of Justice oversight on M&A and a quick Google search on “airline price fixing U.S.” will reveal that these laws continue to be enforced against airlines in the United States today.

GiT November 11, 2013 at 7:52 am

“how many Americans can choose from a comparable number of hospitals as one can in Singapore?”

New Yorkers?

http://en.wikipedia.org/wiki/List_of_hospitals_in_New_York_City

Bostonians? (75 hospitals in the metro area according to US News and World Reports)

Surely other places as well – those are just the first two I checked.

Rahul November 11, 2013 at 8:19 am

Singapore has a population of ~5.5 Million. Fairfax plus Arlington counties together are barely 1.5 Million people.

In this light the hospital ratio differential doesn’t seem so bad.

AC November 11, 2013 at 10:19 am

Both New York and Boston are dominated by big chains (Presby, Harvard, the Tufts system, as some examples).

I suspect this is in part because of the economies of scale in paperwork. Having a billing and coding guy for a solo practice is a huge overhead to cover, but centralizing paperwork and fighting-insurance-companies-over-payment duties over a chain of hospitals is a potent competitive advantage. And I suspect there are economies of scale in “gaming quality metrics” as well, and that tying payments to quality metrics will only accelerate consolidation.

Ted Craig November 11, 2013 at 7:55 am

Hospitals in the U.S. compete, but in weird ways. They advertise on service – we have the best doctors, the latest procedures, etc. But most people go to the hospital for fairly routine procedures. So why don’t they advertise on price? Tyler himself says, “What else is good?” What does that even mean? Duke University Hospital is ranked as one of the best in the nation and yet doctors there once transplanted the wrong organs.

Alex K. November 11, 2013 at 8:03 am

In the context of the US healthcare, it is somewhat meaningless to speak of consumers choosing hospitals, since you hit a bureaucratic jungle even with something as simple as trying to find the price of a procedure. Not to mention that consumers do not have an incentive to take price into consideration.

It’s a bit lazy on Tyrone’s part to talk about public hospitals competing just because they are told to compete: they compete in a market environment with free-enough entry and exit. That’s a completely different animal than competing in an environment without capital markets.

Jan November 11, 2013 at 8:13 am

This is an example where more regulation makes sense. People have talked about the decline of community hospitals in the US for years. Look at Partners in Boston, they’ve bought out a huge share of hospitals and outpatient facilities in the area. Insurers basically have no choice but to pay what they demand.

Oakchair November 11, 2013 at 5:17 pm

In a single-payer system hospitals suddenly have no choice but to take what the single-payer insurances offeres and as evidence in other single payer systems this results in lower costs despite them having higher health outcomes.

BFB November 11, 2013 at 8:31 am

“This is an example where more regulation makes sense…Look at Partners in Boston, they’ve bought out a huge share of hospitals and outpatient facilities in the area.”

You’re assuming that the regulatory environment in which Partners’ operates didn’t play a rule on allowing them to do so. Markets can be rigged, especially ones that involve health care (the ACA’s coverage mandates combined with individual mandate, serve as a relative price floor, eg). If they are, deregulation may level the playing field.

Alex K. November 11, 2013 at 8:44 am

“This is an example where more regulation makes sense.”

The problem is that people talk about “more regulation” as if they were talking about more sacks of potatoes. There is a suffocating amount of regulation already — it’s just not very smart regulation.

If the goal of the regulation is to have more competition then that would be worthwhile regulation. With competition as the goal there are plenty of institutional changes that would make sense. But that’s not the way regulation in US healthcare currently works. Today regulation is more like a whack-a-mole game: you regulate A, you have unintended consequence B, to which you answer with “more regulation” C, which has unintended consequence D, etc.

So convince governmental decision makers to have competition as a consistent goal and I will be on board with smart regulation which achieves that effect. But mere talk of “more regulation” is unconvincing.

Jan November 11, 2013 at 9:10 am

Yes, regulation to increase competition–or at least to prevent competition from being stifled.

Alex K. November 11, 2013 at 9:37 am

I’m saying that just pilling this type of regulation on top of a horrendously inefficient system will not do much good.

The institutional structure of having big insurance companies negotiating with big hospitals on everything from the price of aspirin to the price of a hospital bed at one time is not conducive to competitive prices. We know that this sort of pricing is done by using the governmental central committee directed prices as a baseline and then negotiating a bit here and there. The results are just what we would expect, an inefficient mess.

Put your type of regulation in the context of a more comprehensive effort to have competition in the healthcare market, with healthcare providers competing for costumers, and I agree with you.

Alex K. November 11, 2013 at 9:41 am

Competing for customers, of course. Although they could compete for costumers too, if the hospital is located in the fashion district.

AlanInAZ November 11, 2013 at 8:45 am

Generally we do not choose a hospital, we choose a doctor who chooses the hospital. I am scheduled for hip replacement in one week and during my due diligence price was never a factor – all the local doctors cost about the same since insurance (Medicare) is paying most of it. The insurance system is key to competition, or lack of it.

Z November 11, 2013 at 9:21 am

We have a highly competitive health care system operating all around us. It is called veterinary medicine. Our pets get better health care than 90% of humans on earth. It is cheap, innovative and diverse.

Rahul November 11, 2013 at 9:29 am

Even our humans get better health care than 90% humans on earth……

Z November 11, 2013 at 11:00 am

That’s the thing no one wants to discuss. Despite the defects in the payment system, the American health care system remains the best in the world. At least in the conversation. I doubt that remains so, but it has weathered the reform efforts surprisingly well for the last fifty years.

TommyVee November 11, 2013 at 2:43 pm

“Despite the defects in the payment system, the American health care system remains the best in the world.”
Conservatives always make this fact-free assertion, when 20 seconds with google prove it is incorrect.
Such an extraordinary claim would demand some verifiable source.

Even the conservative AEI does not pretend that the US excels in any health care metric, except for per capita money spent, although they do make a valiant effort to find excuses for the poor US health metrics they acknowledge
http://www.aei.org/outlook/health/global-health/us-health-care-a-reality-check-on-cross-country-comparisons/
“… the Organisation for Economic Co-operation and Development (OECD) published a report on health system performance, finding that the US system does not perform better than systems in countries that spend less. On many measures, US health status is inferior to those of other countries….”

Ak Mike November 11, 2013 at 5:30 pm

TommyVee- why did you cite that AEI report? It points out that the OECD report is cooked with grossly deficient cross-country comparisons. The report undercuts the point you are trying to make. If you cited it just to deride it (“find excuses for the poor US health metrics”) that does not seem wise, since anyone who follows your link will see that its critiques are cogent.

As to whether the U.S. has the best health care, that is too vague a question to have a definitive answer, but a good discussion from the American College of Surgeons is here: http://www.facs.org/fellows_info/bulletin/2009/wenger0709.pdf

prior_approval November 11, 2013 at 9:27 am

‘That is another reason to deregulate urban density.’

Because slums are good for a health care system?

david November 11, 2013 at 10:16 am

Do dense neighbourhoods have to be slums? Can they not be merely very tall buildings?

AC November 11, 2013 at 10:52 am

Well, stop and frisk seems to have fallen into disfavor even in a city rich enough to afford hypocrisy.

There is in theory no reason why cheap urban housing has to become slums – people could very well just accept smaller living quarters and cheaper physical plant. But in practice we seem incapable of producing affordable housing in very dense settings; the choice is between exhorbitant rent and being physically unsafe.

prior_approval November 11, 2013 at 11:39 am

No, extremely dense urban areas do not need to be slums. Though those dense areas that aren’t slums seem to be very highly regulated – Singapore is a very obvious example, as is Japan. Hong Kong also comes to mind.

However, slums do seem to require dense urban conditions without effective regulation.

Dangerman November 11, 2013 at 11:31 am

Yup, right now the U.S. has the complete opposite: “certificate of need” laws on both the state and federal levels.

http://en.wikipedia.org/wiki/Certificate_of_need

V November 11, 2013 at 4:41 pm

The ACA unfortunately makes this problem of provider monopolies worse in two ways:

1. Ban on physician-owned hospitals (POH): Hospitals no longer have to fear that physician-owned centers will compete on price and quality (see Oklahoma surgical center) and so can go back to being inefficient local monopolies.
–The ACA designers somehow think that criticisms of how POH’s will steal volume from established trauma centers are legitimate rather than just self-serving crushing of competition.
–Also, somehow hospitals giving physicians incentives to refer patients to their own hospitals (e.g. “medical directorships”) is ok but physicians investing in state-of-the-art facilities they can design and own is not.

2. ACOs to be given anti-trust exemptions: Allowing hospitals to employ and control physician groups is discouraged in many states because it massively increases the power of providers to coordinate prices in a cartel-like form. ACOs will allow this same coordination of care to occur in exchange for a small cut going to the government due to increased efficiencies.

Both of the above reforms that the ACA proposes makes sense if you think the chief problem of the US health care system is utilization. However, if you think it is price (as I do) where we are an outlier (given that most developed nations actually use a similar amount of services that we do and also have fee for service systems in many cases), then the above two steps are insane.

Oakchair November 11, 2013 at 5:22 pm

The evidence so far for ACO’s is that they lower costs while improving patient health outcomes[1]

[1]http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/29/obamacares-cost-control-programs-may-be-contagious/

Rich Berger November 11, 2013 at 7:12 pm

I read this post and the earlier one that you referenced. I still do not know how the Singapore hospitals “compete”.

Singaporean November 11, 2013 at 10:28 pm

Published prices lists, that’s how. My apartment is a 15 minutes walk away from a hospital (National University Hospital), but i took a 19 subway-station train ride to another hospital (Changi General Hospital) to save 50 bucks for my root canal treatment, changing the bloody gauze on my way back many times, and earning disgusted looks from my fellow commuters.

Also, immigration. My dentist was from Bangladesh, my Nurse from China, and the Patient Service Manager (Bill Payment) from the Philippines. Go to a polyclinic – government-run physician’s clinic – and you’ll see the doctors comes from everywhere; with many from the Indian subcontinent and Burma. You’ll never walk out paying more than 20 bucks out of pocket as well.

Singaporean November 11, 2013 at 10:32 pm

http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/Dental_Fee_Info/Root_Canal_Treatment_Molar_Tooth.html

Well, it appears that a root canal in CGH costs 200 bucks less than an equivalent one from NUH now.

Rich Berger November 12, 2013 at 6:48 am

Well that is a start, but there is a lot more to competition than just published prices. The key is – does the hospital/doctor/etc. make a profit? In other words, does income exceed expenses? If there is no discipline of profit, what happens to an entity that consistently has expenses > income? Who makes up the shortfall? Without some penalty (such as bankruptcy/closure), this is faux competition. Real competition has real mortality (no pun intended originally).

singaporean November 12, 2013 at 1:39 pm

It’s a whole ecosystem that would be hard to replicate anywhere, but at the heart of it is price transparency, and patient choice in deciding their healthcare needs.

“Public Hospitals” is a misnomer, because while the hospitals all belong to a parent company owned by the Ministry of Health, they are corporatised and split into different clusters – Singhealth, National Healthcare Group, Alexandra Health, Eastern Health Alliance – that has their own board of directors and are required to keep costs in check, or be shown the door pretty quickly. Textbook economic theory aside, there is immense competition without the need for bankrupt hospitals because things have never been so screwed up to warrant one, not yet anyway. The ministry would have stepped in well before that, and the penalty is that you lose your job. Private clinics and hospitals, however, do fail and go out of business, just like any other business in the world.

Do these public hospitals make a profit? No, but that was never the original intention, and at 1.3 % of GDP they do a darn good job at keeping Singaporeans healthy.
Singaapore has a whole ecosystem that would be hard to replicate anywhere else, especially in the US, because of the competing interest groups with skin in the game – AMA, insurance companies, nurses’ unions, lawyers, etc. A couple of key features off the top of my head:

– Tuition for medical school costs around 50,000 Singapore dollars, or 38,000 USD, for the full five years you spend in college. In return, you are contracted to serve in public hospitals for a period of 5 years. http://medicine.nus.edu.sg/postgrad/living_costs.html

– Foreign healthcare professionals (doctors, nurses) serve in public hospitals before they are given full accredition. This creates a pool of low-cost labour who are trained on someone else’s dime before we sweep them up.

– At $20 per visit to polyclinics, family physicians can’t afford to charge that much more before either.

– Your contributions to payroll taxes is transferred to an individual health savings account, which can also be used in overseas places with lower costs like KL, Penang, and Malacca.

– National Service. All able-bodied Singaporean males are conscripted into the military for 2 years, and they are required to go back for re-training for a few weeks a year thereafter till they’re 40. There’s an annual physical fitness component, failing it would mean 20 remedial training (RT) sessions of four hours. Getting a gold would be an extra $200 in the bank.

– An individual mandate for catastrophic insurance.

– Your average doctor doubles-up as the pharmacist as well, and he derives some of his income there.

– a less litigious environment to operate in, you don’t really see million-dollar awards like those in America.

I could go on, but it’s getting late (2am here). My point was in illustrating the ecosystem hospitals in Singapore work in.

Rich Berger November 12, 2013 at 8:22 pm

Thanks for the details, but I still do not see how this is competition without knowing the consequences of expenses > income. BTW, from what I can find out the Singaporean system costs about 4.5% of GDP (source World Bank). In order to compare that to the US (estimated to be 17% of GDP), I think you would have to break down the components of cost to see where Singapore is cheaper vs the US. Is S more efficient than the US, or does it do less?

singaporean November 13, 2013 at 5:31 am

no worries. I don’t really understand what you are trying to saying here, about expenses > income. In Singapore, almost all enterprises (utilities, telecommunications, transport, healthcare) are run by the government. Imagine AT & T, Verizon, and Sprint as private companies, but with the controlling shareholder being a parent company set up and run by the Treasury Department. When expenses > than income, they are responsible to their shareholders just like any other company. I guess the difference is that in an autocratic society, the government is pretty immune to political pressure for bailouts, and that’s why it works here. Apologies if I have misunderstood what you have said.

Expenses > income is but one facet of competition, and I was trying to highlight the ecosystem in which Singapore operates under, and how it delivers low-cost care to her citizens. It’s hard to do a side-by-side comparison without understanding the context in which both systems operates under. For examples, wards in Singapore are means-tested, and the patients are usually hosted 4-6 to a room, with chest level partitions separating one section from another. The influx of foreign healthcare professionals depresses the wages of local healthcare workers, be they doctors and nurses. And the fact that we can go to Malaysia for treatment using our HSAs further acts as downward pressure against increasing costs, especially since the Sing dollar is 2.5 times the rate of the Malaysian ringgit.

Healthcare spending is 4-4.5% of GDP, you are right. 1.3% is one-third of the amount shouldered by the state, with the other 2.7% the amount paid out-of-pocket. I’m sorry if that wasn’t clear. “This has helped to contain healthcare costs in Singapore: the government spends a little over 1 per cent of GDP on healthcare, ” – http://lkyspp.nus.edu.sg/wp-content/uploads/2013/07/csu_healthcare-financing-final_2207.pdf

Rich Berger November 13, 2013 at 8:56 am

Thanks for your illuminating comments, especially the last one regarding the portions paid by the state versus out-of-pocket. In Singapore, the amount paid out of pocket is much higher than in the US. According to the World Bank, in the US it is about 21% in 2011. I suspect that this difference between Singapore and the US is very significant.

Regarding my comments on expenses > income, I just wanted to make the point that this is a measure of efficiency, in a voluntary market. If you can collect payments from customers that exceed your costs to provide the services, your enterprise can stay in business indefinitely. Of course, the situation is more complex when you include a return on capital, but I think the principle is the same. I do not know if the facilities in Singapore are bailed out if E > I, or the prices are adjusted so that all facilities have E > I.

Clearly, evaluating whether one healthcare system is superior to another is complicated, far more complicated than comparing costs versus mortality, as is often done.

Thanks for your comments.

david November 13, 2013 at 11:02 pm

Facilities are not bailed out. Rather, successful individual managers climb the civil-service ladder. Unsuccessful ones languish. Each institution has a great deal of internal discretion, but the incestuous nature of Singaporean statutory bodies is that it’s quite hard for any given organization to hide what it is doing from other organizations anyway.

David Khoo November 11, 2013 at 10:15 pm

You forgot an important aspect of healthcare competition in Singapore — price transparency. The Singapore Ministry of Health requires actual historical hospital bill sizes to be reported and publishes statistics for them on a handy website:

http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/HospitalBillSize.html

It reports 50th and 90th percentile bill sizes and average length of hospital stay by ailment (additionally separating by high or low complications) and room type (number of patients per room and general service level). Along with a healthy number of competitors, this kind of information is vital for real competition to exist. Most US patients have no idea how one hospital compares to another in cost. Most don’t care to begin with, since insurance covers it regardless.

Tyler Fan November 11, 2013 at 10:19 pm

I’m not saying Tyler is guilty of this, but I love how whenever liberals point to one of the Scandinavian countries as an example, the conservative retort is, “Too small and homogenous to work here,” and whenever the conservatives point to a health care system that is the paragon of conservative virtue, they point to a city-state of 5 million people.

observer November 11, 2013 at 11:56 pm

I grew up in the inter-mountain West some years ago. I recall clearly that in the “city” I lived in there was “the hospital.” The same was and still is true for the nearby town (40 miles) where my grandparents lived. (City population then about 20K; town population about 10K.)

Not much competition.

Density makes a big difference!

Observer

ChrisA November 12, 2013 at 1:45 am

Just to note that Singapore is actually a regional medical center for a lot more than just Singapore. Basically richer people from Malaysia, Indonesia and other countries use Singapore as their medical specialists are regarded as the best in the region. I think this is another reason why Singapore can support so many hospitals. The other reason is that unskilled labor is cheap due to allowing immigration from other places such as Philippines.

There is another model in the region which is perhaps less affected by these confounding factors. This is Hong Kong. Basically they have adapted the UK approach, free health care for all, but of lowish quality and with queuing for less urgent medical needs, with a private system on top for those who have the money or want to have better service. Life expectancy is great at 83.4, Healthcare cost (% GDP per capita): 3.8% and expenditure is (per capita): $1,409. As a good libertarian I would prefer people to make their own medical arrangements privately (in fact many developing countries effectively do this, allowing people to put their money where they think it is best suited, often not into marginally useful medical care). But if we are going to have state funded medical system then maybe the NHS approach is just the simplest and least distorting. Ration public health care to the minimum acceptable to the marginal voter (no boob jobs for instance, but vaccinations) and then let the private system supply the rest according to each individuals judgement. All these health care accounts approaches all sound very complicated to me, which should be avoided when Governments are involved.

aaron November 14, 2013 at 9:02 am

I remeber reading, not too long ago, about a hospital in Colorado insituting menu pricing which drove down prices in the city.

A major problem with our heathcare is the complexity of our billing and insurance system. The complexity and disparaty of healthcare plans make it almost impossible for people to know how much procedures cost or how much they will pay until months after treatment. People don’t bother to find out.

Comments on this entry are closed.

Previous post:

Next post: