SECOND OPINION:Healthcare costs still rising despite deflation in economy
ONE OF the recommendations of the OECD report on the Irish economy published in November 2009 was that the Government should introduce greater competition in the provision of healthcare in Ireland. The lack of competition is shown by the fact that while deflation is occurring in the rest of the economy, rapid inflation in healthcare costs continues. Healthcare inflation has been much greater than general inflation over the past decade.
Economists since the time of Adam Smith have argued that a collective agreement not to compete on price is one of the most effective restraints on competition. The literature on the effects of advertising on professional fees shows that restrictions on advertising increase fees and the more advertising there is, the lower the fees.
Economic theory, verified by extensive research results, shows that self-regulation has the effect of a cartel. The self-regulating professions, by controlling entry to the market and setting an agreed price above the competitive price, earn what economists call economic rents. An economic rent, in the case of labour, is a return above what is necessary to retain a person in that occupation.
GP charges in Ireland have risen sharply in recent years and are now among the highest in Europe. The services provided for these fees are limited in many cases, with patients being referred to consultants and hospitals for diagnosis or treatments that would be undertaken at primary care level in many other European countries.
The very high incomes earned by GPs in Ireland is partly due to the fact that the number of them per 1,000 population in Ireland is only 60 per cent of that in most other European countries. While the demand for GP services is rising due to an increasing population and larger numbers of older people, the supply is not increasing in line with this.
The supply is further constrained by the fact that in order to set up as a GP, a doctor must undertake four years of postgraduate training, but the number of training places is not adequate to meet the demand for them. The first two years of this training is hospital based and must be undertaken even if the doctor has previous hospital experience.
The Competition Authority in its report on GPs, recommends that doctors with appropriate hospital experience be allowed to enter the actual GP clinic phase of training directly. This proposal is being considered by the Irish College of General Practitioners.
The system whereby GPs may obtain a contract to provide service to holders of medical cards under the General Medical System (GMS) was, until last year, very restrictive, resulting in the average payment under the scheme being €220,000 with one GP practice receiving more than €1 million in 2008.
The Minister for Health removed some of these restrictions in 2009 which will make it easier for young doctors to participate in the GMS scheme, but many restrictions remain.
The Special Group on Public Service Number and Expenditure (An Bord Snip Nua) recommends that the current GMS contracts with GPs and pharmacists be scrapped and replaced by competitive tendering, a proposal that is being fiercely resisted by GPs and pharmacists.
Until the Medical Council removed them in 2009, under pressure from the Competition Authority, there were severe restraints on advertising by GPs. Only small newspaper advertisements, stating that a GP had set up practice at a particular address were permitted under the old regulations. No information on fees or services could be provided, which greatly favoured established GPs and greatly limited informed consumer choice.
It is significant that while few complaints by patients about their treatment by GPs were investigated under the old Medical Council Rules, all accusations of advertising were investigated.
While the restrictions on advertising have been lifted, a survey published recently by the National Consumer Agency showed that 70 per cent of dentists and half of doctors do not display their fees.
The high fees which Irish GPs can charge due to lack of competition has led to many people, who are not entitled to free GP services, postponing consulting their GPs or not consulting them at all when they feel ill. Research by the ESRI shows that people who lost their medical cards, due to marginal increases in their incomes, reduced their GP visits by between a third and a half.
Only 30 per cent of the population hold medical cards and the determination of GPs to protect their excessive earnings is shown by the fact that the IMO has demanded that if the proportion of the population with medical cards were to rise to 40 per cent, the GP contract must be renegotiated.
Irish hospital consultants have been even more successful than GPs in restricting competition, which has resulted in many of them earning incomes which are up to four times the average earnings of consultants in other EU countries.
One of the few achievements of the present Government in healthcare provision has been the introduction of a new contract for hospital consultants which will increase the number of consultants who work only in the public health system and will impose a limit, albeit a generous one, on the amount of private practice in which consultants who work in both the public and private sectors can engage. (During the negotiation of the new contracts, a spokesman for the Irish Hospital Consultants Association described a salary of €250,000 as “peanuts”.)
The National Consumer Agency’s recent survey of GP and dentist fees showed that a GP in Dublin 4 charged €70 per visit, twice the fee charged by a GP in Kerry. The charge for a tooth extraction varied from €40 to €150 depending on where the dentist was located.
Spokesmen for the College of General Practitioners and for the Irish Dental Association argued that the variation in prices indicated that there was competition in the provision of GP and dental services.
The variations show precisely the opposite; in the absence of effective competition and information about fees, GPs and dentists can charge the maximum price they think their patients will pay.
Sean Byrne is a lecturer in economics at the Dublin Institute of Technology