Misconceived market forces

Civitas, 21 May 2009

The NEJM continues its focus on Obama’s health reforms this week by carrying an article on ‘market-orientated’ health policy.  For me, though, it’s as misconceived as the Department of Health’s latest initiative to ‘legislate’ for innovation.

‘Market-orientated’, ‘market-based’, reform – or the corollary, the use of ‘market-forces’ – in health care seems to have adopted a very different meaning than what it would entail in most other industries I know of.  In these there is only one market force: consumer pressure.

It is from consumers demonstrating their preferences for different goods and services by punishing poor service and rewarding good that market forces emerge.  If businesses price their wares too high, or produce a good or service people do not want, they will start to lose custom to others and become unviable.  By contrast, businesses that drive costs (and prices) down, and produce innovative and desirable goods and services, will tend to gain custom.

It is such consumer pressure that, again, drives innovation in other sectors.  Markets support a multitude of competing providers, each of which are in effect conducting small-scale experiments in the hope of gaining custom.  Some will succeed, many more will fail, but it is the opportunity for all to be that success story which is the key.  You name me an innovation that has come about through government ‘demanding it’?

However, in health care, the use of ‘market forces’ seems to – as the NEJM article reflects – have become synonymous with top-down (government-initiated) programmes to control costs/raise quality through the use of what have become known as ‘market-based’ incentives: pay-for-performance, the Quality and Outcomes Framework, Commissioning for Quality and Innovation, payment-by-results (but no price flexibility) etc, etc.

This is not the use of market incentives at all; it is central cajoling, which, perversely, takes systems further and further away from genuine market forces that should focus the service on consumers, on patients, not government.