Nhs Inefficient Essay

In 2002, public expenditure on health represented 7.7% of GDP. At the same time, over one million people were waiting for treatment on the NHS.1 Through a regression analysis with a sample size of over ten thousand, T.Besley et al found that ” if the long term waiting list were to rise by one per thousand, then there would be a 2% increase in the probability that an individual….would buy private insurance.” It has therefore been shown through regression studies that consumers of health perceive quality in the NHS through waiting times.

Given that taxation remains the primary method of funding the NHS, the fact therefore, that waiting lists do exist remains a cause for concern to many people as they question how their resources are being allocated.

In this essay, I will principally discuss why waiting lists exist at all, and consider the related efficiency arguments. According to this aim, I plan to dispel the thought that waiting lists are altogether inefficient.

 When applying economics to any area in an efficient area we usually consider two variables; price and output. In this respect, the NHS can be considered an anomaly with respect to economics as resources must be allocated without the price mechanism. It can thus be seen on a very basic level why waiting lists might exist.

As far as we are concerned, in the NHS, there are no costs of treatment. The NHS will face a demand curve, D1 and its patients will consume up to the point Qnhs. Were there an efficient price mechanism in place, it can be assumed that the optimum quantity would be at OQ*.

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It is thus the case that in the NHS there exists excess demand to the degree Qnhs – OQ*. This excess demand can be simply thought of as the level of waiting lists.

Before we can discuss fully whether waiting lists are efficient we must ask what efficiency is in the NHS. I will asses efficiency in the NHS predominantly around the concept of Pareto efficiency. Pareto defined the economically efficient outcome in society as being a situation where “it is impossible to improve the lot of any person without hurting someone else.” This implies allocative efficiency as there is the correct application of resources to each person. According to a single market, in this instance health, we can infer that this means that marginal benefits equal the marginal cost of consumption. We may also consider productive efficiency. That is that output is produced at minimum possible cost.

Given that there is no price mechanism in the NHS to equate supply with demand, consumers are not deterred from using services as they face zero monetary expense. The main restrictions to access are formed through waiting lists. But why must they exist at all? A good answer to this question is provided by Buchanan. It is shown in the following diagram:-

Figure 2 (Figure taken from Are waiting lists inevitable? A Street, S Duckett.)

The x axis represents the level of private health provision. The individual with budget constraint AB and indifference curve I2 will purchase OQ1 health care. Given the introduction of an NHS, the x axis must now represent the level of social health care provision. Assuming that the individual transfers to public health care, he now has to purchase health care for others (according to the tax system) in contrast to the previous, private system in which he was only concerned with himself and his family. This will alter his indifference curve, I2-I2 , and less health care will be demanded, OQ2.

If this is the case across the market, the consequence of public health care is that there will be a smaller aggregate expenditure on health care as compared to a private health care system. In addition to these problems, there will also be an increase in demand. In the NHS there are no user charges, as explained earlier. The consumer of public health care will therefore consume up until the point where the marginal utility of health care is zero. This will result in the optimum resource demand being OQ3. This restriction in supply and expansion of demand leads Buchanan to suggest that “waiting lists are endemic to the (NHS) system.”

Since most potential patients cannot afford private health provision, they have a simple decision, be treated (and wait) or not be treated. Therefore, assuming that society is rational, the prospective patient will wait until he tops the list to get treated. This implies that the Pareto efficient outcome in a single market does not exist here and that waiting lists do suggest that the NHS is inefficient. The marginal patient is not the patient that equates his marginal cost of waiting with the marginal benefit of treatment, but the patient that perceives any benefit whatsoever from the treatment that he will receive at the future date. This suggests that “as long as the demand curve is unchanged, the potential consumer surplus from inpatient treatment is not dissipated by the wait for treatment.”2

Another reason why long waiting lists are inefficient is that as the waiting time increases, resources are allocated away from treatment towards administrative costs. This implies that as waiting times increase the service displays decreasing returns to scale rendering the quality of service smaller. Ideally, the hospital should aim “to allocate its budget to the point at which it is indifferent between further3 increasing admissions and marginal wait reduction.” A significant reason why this problem persists is that often, hospital managers cite increasing waiting lists when negotiating the hospital’s budget with the government. In such situations in the past, the government has displayed a positive willingness to pay in reaction to increasing waiting lists, and as a result hospitals haven’t given a great enough weight to reducing lists, but rather to increasing admissions.

It might however be unfair to judge the NHS’s level of efficiency on its waiting list levels. Firstly, it might be the case that where there are areas that show a high proportion of people that are privately insured, lobbying for shorter waiting lists would decrease and this could lead to a “positive correlation between private insurance and waiting lists”. But why might this be? One of the greatest problems with the NHS is that of Supplier Induced Demand (SID). In terms of health care this refers “to the extent to which a doctor provides or recommends the provision of medical services that differs from what the patient would have chosen if they had the same information and knowledge available as the doctor.”

Would a patient, for example, have given up an afternoon in the workplace if they had known on referral that the specific treatment for a complicated disease was a plaster to the toe? This idea falls in line with the fact that many remuneration systems are designed so that the doctor receives a greater income when they give a greater amount of services to each patient. This is borne out by a study by Krasnik et al (1990) who found that after GP’s in Copenhagen had their remuneration methods changed to a fee-for-service basis, their activity increased until they attained their target incomes at which stage activity fell, suggesting SID. Might it be the case that waiting lists merely reflect the greed of GP’s and the perverse incentives offered to hospital managers, rather than the actual inefficiency of the NHS?

For certain waiting patients, it is evident that inpatient treatment is needed now, or not at all. A wait of any duration will be of no help at all. In the current NHS, priority is given to these patients. In the UK, waiting lists “tend to build up for delay able cases”5 In respect of this, waiting lists may simply represent a stock of work for doctors, ensuring that their scarce and skilled resources are utilised in the correct instances. It is also argued by Cullis and Jones that “a waiting list allows for a balance of cases of differing nature and complexity, facilitating the teaching function of many hospitals.” Taking these two points into account it may be argued that waiting lists optimally use the scarce resources presented to them, implying that waiting lists might actually facilitate efficiency.

There is no doubt that increasing waiting lists are more than likely to indicate a poor performance in terms of economic efficiency. Between 1997 and 2002, expenditure on public health grew in total by over 50%. At the same time, waiting lists only fell by 15%, suggesting that there is a large misallocation of resources throughout the NHS and an undesirable level of efficiency. That is if we are looking to waiting lists as the key indicator of NHS performance. The weighting given to this area of NHS performance seems unfair and misinformed. It is my opinion that a reasonable waiting list actually gives rise to an efficient allocation of resources in a system that cannot naturally do so through the price mechanism. Undoubtedly lists can become unhelpfully large. In these cases I would argue that reforms such as buyer contracts could be easily be implemented that would prevent lists from becoming too large through the perverse incentives provided by the government to use waiting lists as a bargaining tool.