Markets cannot deliver healthcare, education

Good healthcare needs other social institutions and structures such as public trust, enforceable professional ethical codes, public delivery systems and tight regulations

 In the early 1990s, I joined a small team charged with developing a business, of providing loans to hospitals, clinics and doctors for the purchase of medical equipment. Within six months, it was apparent that the economics of the hospitals and clinics was fragile.

The cost structure of the sector was such that even the most efficient hospital or clinic required a high volume of patients to even break-even. And most patients had neither health insurance nor the personal capacity to pay for healthcare services. The entire system worked on the elemental human principle that when your father or daughter gets ill, you do what the doctor says. You figure out how to pay and if that means you have to beg or borrow, then that’s what you do.

Eight years in this business gave me a unique view into the private healthcare sector. Most of the owners of the hospitals and clinics, who were often doctors themselves, wanted loans. To convince me that there was no risk in lending to them, they would share their real financials with me, including the details of their revenue stream. Of course, none of this could be found in their statutory filings and financial statements. Revenue stream details meant patient numbers and their certainty.

One cold winter afternoon, in a small town in Punjab, over delicious kebab, a doctor was explaining to me how he would have no trouble repaying the large loan for an MRI system. Since I seemed unconvinced, he called up his hospital and, in his colourful Punjabi, instructed the staff: “From now till 6pm, anyone who comes with a headache and no cold, or a backache, should be referred for an MRI scan to Jalandhar, till you hit eight, because brother here says that eight per day is break-even for the loan repayment.”

The modus operandi could be less or more crude than this, but across the country it was about the same. Testing had little to do with the actual need of the patient. It was instead directly related to the commercial desires of the hospital or clinic. There were other large-scale malpractices too. For example, hospitals and scan centres would give “referral fees” to outside doctors who would refer a patient for a procedure. This was basically a bribe to prescribe a test procedure irrespective of the clinical condition. In those eight years I did come across honest doctors and hospitals, but the list was short.

The great Kenneth Arrow, who died in February, seemed to speak directly to my personal experience through his seminal paper Uncertainty And The Welfare Economics Of Medical Care. Arrow’s paper gave a widely accepted framework, which also explained my experience. Some of the matters from this framework, which I witnessed every day and you can see today, are: When healthcare services will be required is uncertain; that is, you don’t know when and what illness will strike. It is unclear that a given therapy will lead to a sustained positive outcome, or a cure. You can’t shop around and switch doctors like soap. And the doctor has enormously more knowledge than the patient, creating a relationship in which there is a grossly uneven distribution of power.

The implication of all this is quite direct: Markets, driven by the profit motive, cannot deliver good healthcare services. Good healthcare needs other social institutions and structures such as public trust, enforceable professional ethical codes, public delivery systems and tight regulations. Unfortunately for our country, none of this seems to be working. Greed and commercialization have subverted and trumped all ethical codes, regulations, and even basic humaneness.

The past 15 years of my work in education have given me an inside view into a similarly sordid scenario. It is now clear in India and elsewhere that private schools on an average do not deliver better learning outcomes than public schools. Despite this, private school enrolments have grown, and many believe in the false notion that more private schools will help improve education in India.

Education is even more complicated than healthcare. For example, the relationship between actions and outcomes is even more unpredictable. The actual outcomes and gains are visible only after many years. Educational goals are far more complex than therapeutic goals. The education of an individual also has public aims, children can’t keep switching schools, and schools have much greater power than children and parents. Clearly, education is not a service that can be delivered through a profit-motivated market.

But over time, we have allowed education, like healthcare, to be overrun by the commercial motive. Unscrupulous elements polarize the social composition of schools even more, and exploit their power to coerce people into paying for poor education. Superficial markers like uniforms, the promise of “English medium”, frequent testing and rote-based focus on examinations are used to attract fee-paying students.

The weakness of the public school systems compounds the problem. Fund-starved governments, by not increasing the allocation to education, are worsening the situation. The real need is to strengthen public education and also encourage truly philanthropic initiatives. This requires a substantial reform of policy and regulatory frameworks, and implementation with integrity. India’s much vaunted demographic dividend will otherwise turn into a severe social and economic shock.