The Public/Private Balance in Health

In a piece entitled “Paying Patients Test British Health Care System,” Sarah Lyall discusses the tensions between public provision and private markets in the UK. Lyall focused on the case of a breast cancer patient who wanted to use a new chemotherapy drug (Avastin). The National Health Service (NHS) provided most of her care, but would not pay the $120,000 needed for Avastin. The patient was about to sell her house to purchase the medicine, but then the NHS said that her choice to “go private” for the cancer drug would render her ineligible for NHS coverage of the other care she needed: Explaining such a policy, the health secretary, Alan Johnson, said

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs.” Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Note that the NHS is not actually denying her care–it is refusing to pay. Though I wouldn’t endorse the Avastin decision, there are some good reasons for the NHS to manage the interaction of public and private plans–reasons that even the US has recognized in its limits on “balance billing” in the Medicare context.


According to a British doctor,

“People swap from public to private sector all the time, and they’re topping up for virtually everything,” Dr. Paul Charlson said in an interview. For instance, he said, a patient put on a five-month waiting list to see an orthopedic surgeon may pay $250 for a private consultation, and then switch back to the health service for the actual operation from the same doctor. “Or they’ll buy an M.R.I. scan because the wait is so long, and then take the results back to the N.H.S.,” Dr. Charlson said.

Is there a justification for policies like these? Consider the U.S.’s policies toward doctors who tried to bill Medicare patients for whatever the Centers for Medicare and Medicaid Services (CMS) will not pay for. The Medicare statute eventually restricted such “balance billing.” The balance billing rules arose out of congressional concerns about potential barriers to access to care for poor and lower middle class Medicare beneficiaries. Without such rules, physicians could condition services to Medicare patients on the payment of additional charges that would undermine the programs’ efforts to provide reasonably-priced health care to all. Under Medicare balance billing rules, participating physicians’ charges are limited by the fee schedule prescribed by the program. Physicians who accept assigned claims are prohibited “from charging more than the Medicare fee schedule amount.” Physicians who “do not accept assignment are prohibited from charging more than 115% of the fee schedule amount.”

So let’s return to the three British examples the article provides. My intuition is that something like a “balance billing” rule is appropriate for doctors’ services, but may be counterproductive in the cases of drugs and technology.

I. Distinguishing Services and Technology

For example, some of the money paid for Avastin is going to fund pharmaceutical research. Similarly, the extra payment for an MRI scan sends a market-based signal to MRI makers that their services are in demand and they should make more such scanners. Of course, there are many caveats. If Britain somehow has only a fixed supply of Avastin for both public and private patients, the patient could be “jumping the queue.” And perhaps it is the case that the private-paying patient is driving up the cost of the drug, particularly if it is very difficult to make. This may well be the case with Avastin–it’s part of a class of biotechnology that is in general harder to replicate than, say, a simple pill. But even if that is the case, the current investment in the drug may well lead to better technology for its replicability.

When we turn from technology to services (a distinction some don’t appear to make), the picture is different. In the case of doctors, their supply is relatively fixed. Those on the free-market right (Milton Friedman) and suspicious left (Dean Baker) would portray their licensing rules as cartel-like; those in the broad middle might accept the doctors’ lobby’s insistence that only a small group of people are sufficiently smart and dedicated to become doctors. Whatever one’s take on the legitimacy of physician licensing, it limits the number of doctors in a way that is not responsive to price. So when someone pays $250 for a private consultation to “jump the queue,” they are not likely contributing to a process that will lead more doctors to come on line eventually.

II. Complicating the Distinction

Of course, one would have to do some more empirical and sociological research to confirm that–perhaps doctors in Britain are willing to work more to do the private consultations, and won’t effectively substitute out NHS patients for private patients. But I’ve explored many examples of this tiering dynamic in the US, and my general conclusion is that, as levels of inequality rise, doctors find they get both more leisure and more money when they concentrate their efforts toward the comparatively well-off (and away from the publicly insured).

And I should acknowledge that the technology narrative I’ve mentioned above is not clean-cut. For example, Kevin Outterson notes that while the developed world’s research on antibiotics is a great service to the rest of globe, its frequent overuse of antibiotics during their patent terms could render them much less useful than usually supposed (due to antibiotic resistance). As Outterson observes, “Antibiotic resistance may be compared to running on a treadmill. R&D is learning how to run faster; conservation is slowing the treadmill down.” Moreover, critics like Shannon Brownlee and Maggie Mahar have said that the U.S. has way too many diagnostic machines like MRI’s, leading to overtreatment and overspending on medical services.

Nevertheless, I still think that in the main there is good reason to be more concerned about physician-based selective opt-out in public health systems than there is with respect to drugs and technology. Markets can create incentives for innovation and investment in the latter field. Physician licensing rules (and perhaps the “cost-disease” in services generally) make it much harder to do so in the former.

Note: My description of the balance billing rules is drawn from my 2007 article, The Three Faces of Retainer Care.

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