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Smart Thinking blog

Insights and expert advice on the key issues facing today’s pharma marketer

Nobody knew healthcare was so complicated

short term and long term solutions

Donald Trump

Actually, we all knew. Well, almost all of us knew. The actual statement should have been: ‘Nobody knows why healthcare is so complicated?’ And with that as a backdrop, let me present the case for my four main reasons that begin to explain the complexity of healthcare.

Firstly, the concept of ‘short run’ and ‘long run’ are important from a health economics point of view. Healthcare in the short run is different from healthcare in the long run. Acute illnesses are different from chronic illnesses. The manner in which we allocate resources varies according to ‘short run’ and ‘long run’ considerations. For both consumers (ie patients) and suppliers (ie doctors) in the healthcare market, this has implications. It is harder to change demand in the short run, but it is easier to change price in the same time frame. And in case you need a reminder, ‘price’ and ‘demand’ are two of the four components of the healthcare square (the others being ‘supply’ and ‘quality’).

Next, let’s look at the ‘rational consumer’. Or, more precisely, the irrational consumer in a healthcare context. The notion that, faced with illness, people are making rational decisions is flawed. People rarely shop around and examine features and benefits related to their healthcare treatments and services. Part of this has to do with the framework within which they are forced to operate by governments and both public and private insurers. And part of this has to do with the notion of information asymmetry. This last concept is, perhaps, the most important aspect of understanding why the rational consumer really does not exist in healthcare. Because consumers cannot predict the timing of their healthcare needs, the precise nature of the need nor the range of treatment options available, it is nearly impossible to specify preferences. And if we can’t specify preferences, then we can’t predict demand. And if we can’t predict demand, then consumers become reliant on an agent - the doctor - to act on their behalf. And when we rely on an agent, then we are, by definition, no longer rational consumers.

The third reason for the incessant complexity of healthcare is that it’s not a ‘public good’. This is not about whether we think healthcare ought to be a birthright for citizens or whether it ought to be left to the private sector to manage or some hybrid model. The foundational definition of a public good is one for which consumption is non-rival and non-excludable. By non-rival, we mean that the consumption by one individual does not reduce someone else’s consumption. And by non-excludable, we mean that a consumer cannot be excluded from consuming the good either by having to pay or by through some other mechanism. On both those fronts, it seems clear that healthcare is not a public good. When a patient ‘consumes’ a hospital bed, a doctor’s time and attention or a medicine, it reduces the consumption of those same elements for another individual. And when a patient does not pay for goods and services related to their healthcare, they certainly can be excluded from ‘consumption’. Why does this add to the overall complexity of healthcare? Because it drives resource allocation and underscores part of the reason for the scarcity of services and overall access to care. We can no longer treat healthcare as a public good and must view it as a private good.

When you see one McDonald’s restaurant, you pretty much have seen them all. When you walk into one Apple store, you pretty much have walked into them all. When you travel on one airline, you pretty much have travelled on them all. But in healthcare, when you see one patient, you have seen exactly one patient. This is the fourth major reason that healthcare is exceedingly complex. Heterogeneity. We tend to brush this off as obvious. ‘Of course, every patient is different,’ we scoff. But what does this really mean in the context of complexity? It means different ages, genders, baseline health status, genetics, cultural norms, diseases, levels of health literacy, socioeconomic status, caregiver/family support, educational attainment and much, much more. Think about these variables. And now think about the permutations and combinations of their interaction with health outcomes. It’s mind-boggling.

So, things that happen in the near-term vs the longer-term matter. And the fact that consumers aren’t rational is crucial. Admitting to ourselves that healthcare is really a private good where my consumption impacts your consumption and where consumers can even be excluded from consuming in the first place is paramount in this conversation. And, of course, the fact that patients are all different in so many ways is a staggering piece in this puzzle. It’s definitely not about whether we knew healthcare was so complicated. It may not even be about why healthcare is complicated. It may very well be about whether we can do anything about it.

8th November 2017

From: Healthcare



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