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Would knowing your genetic risk for dementia change the way you behave with the NHS?
Background
Various funding mechanisms for long-term care for dementia have come under scrutiny, including private insurance, drawing on the experience of various jurisdictions (e.g. Hayashi, 2013).
An insurance contract is a contract whereby, for specified consideration, one party undertakes to compensate the other for a loss relating to a particular subject as a result of the occurrence of designated hazards.
The normal activities of daily life carry the risk of enormous financial loss. Many persons are willing to pay a small amount for protection against certain risks because that protection provides valuable peace of mind.
The term insurance describes any measure taken for protection against risks.
In an insurance contract, one party, the insured, pays a specified amount of money, called a premium, to another party, the insurer. The insurer, in turn, agrees to compensate the insured for specific future losses. The losses covered are listed in the contract, and the contract is called a policy.
You can often have more information than the person with whom you enter into a transaction – or vice versa. This is a potent phenomenon called “information asymmetry”.
Following the seminal work by Arrow (1963), the notion of information asymmetry have by now been recognised as a cornerstone of modern insurance theory.
George Akerlof was the the author of a landmark study on the role of asymmetric information in the market for “lemon” used cars.
His research broke with established economic theory in illustrating how markets malfunction when buyers and sellers — as seen in used car markets — operate under different information.
This seminal work has had far-reaching applications in such diverse areas as health insurance, financial markets and employment contracts. It could now impact on the way the National Health Service acts in the future in implementation of “needs based commissioning“.
Health economists, not least Prof Julian LeGrand of the LSE, in the frenzy of New Labour and subsequent English administrations have been hell bent on introducing a ‘market’ into the NHS. And this introduction of the market or ‘quasi-market’ has had a profound impact on resources and planning, as well as large charities.
According to numerous news reports, a global study involving more than one million people to look at the influence of genetics and lifestyle in Azheimer’s disease will be led by scientists from Cardiff University.
The £6m project will combine the power of multiple studies from around the world to explore the roles of genes and lifestyle choices to produce the most comprehensive understanding of the disease’s risk to-date.
Information gathered by researchers from across the globe will provide scientists with the best evidence yet for creating a fuller picture of why the disease develops and the degrees of risk it poses to different individuals.
This study clearly has implications for the future.
Sir David Nicholson spotted these implications at once.
@legalaware this coupled with data coming from genetics means that whole pop risk pools supported by tax funded systems is the future
— David Nicholson (@DavidNichols0n) April 3, 2014
And in fairness David‘s starting point is fundamentally one of universality.
CCGs, or clinical commissioning groups, do not particularly need to be manned by clinicians, though that it is how the concept has continued to be marketed to the public and GPs. They are simply state-run populations pooling risk, and there has never been any precise guidance on their exact size (in terms of number of people in each catchment).
Aim
With such recent upheavals in health policy in England, with discussion of an insidious ‘privatisation agenda’, this online survey was undertaken with a view to working out whether members of a general public exhibited views with the functioning of private insurance markets.
Methods
I completed a study. Respondents were invited from my Twitter account @legalaware with close to 12000 followers.
I used ‘SurveyMonkey’ to carry out this survey. With ‘SurveyMonkey’, you cannot complete the survey more than once.
There were 125 respondents in total.
The sample is possibly biased, in that I have a predominantly left-wing follower list consisting of about 11000 followers of mainly well-informed people.
Exclusions
None.
Results
However, in fairness, it is worth noting that certain key policy planks have cross-party support, including free-at-the-point-of-need and personal budgets.
A rebuttable assumption of universality
In answer to “Do you think a NHS in future should be comprehensive, universal and free-at-the-point of need for all persons and patients?”, 99% answered yes (n = 123). The problem with this is that opinions about the extent to which the NHS offers a comprehensive service is qualified by some degree of ‘rationing‘ already.
However, I did ask “Do you think the NHS of the future should be wholly funded out of general taxation?”. I used the word ‘wholly’ meaning completely. Despite this high threshold, 79% said ‘yes’ (n = 126).
The NHS provides the majority of healthcare in England, including primary care, in-patient care, and long-term conditions. The National Health Service Act 1946 came into effect on 5 July 1948. Private health care has continued parallel to the NHS, paid for largely by private insurance, but it is used by less than 8% of the population, and generally as a top-up to NHS services.
Attitudes in my survey are interesting in light of extensive media coverage for Lord Warner’s plan for a £10 top-up fee to be paid through council tax. This is further interesting as it shows a desire to avoid a private insurance-based system in the future. But others have argued including Caroline Molloy and Bob Hudson that it’s a “zombie policy”.
A number of various solutions to the NHS “funding gap” continue to be produced – see for example Wilby (2004) here in the Guardian:
Data sharing of genetic risk within the NHS
I also asked, “If you had had a full genetic screen completed, would you voluntarily consent for the results to be made available in the entire NHS anonymously?” This produced a very mixed response: yes – 52%, no – 33%, don’t know – 16% (n = 124).
This is interesting in light of the ‘case finding’ approach in England, where a possible diagnosis of dementia might be chased up even if not initiated by the person directly involved, exacerbated perhaps in the drive from politicians and the Alzheimer’s Society for improved diagnosis rates.
Such a policy clearly is problematic in terms of valid consent ethically. Notwithstanding the general issue comes up as to whether an individual should disclose the possible diagnosis of a dementia beyond even the confidential jurisdiction of his or her Doctor, and to share the information with the State. But this is the same problem which led Care Data to run into difficulties.
It could be that the recent furore over care data, through the subject being badly managed by NHS England with the general public, may have impacted on this general lack of willingness of a member of a general public to share details of a genetic screen with the NHS at large.
Single unified budgets
A consistent policy strand of late has been the desire to introduce personal budgets for dementia (and this is across all main political parties).
The concept of a single unified budget has now come up consistently in various arenas: namely, the Fabian Society document on whole person care, the IPPR review of whole person care, and the Barker Commission of the King’s Fund last week.
I asked, “Do you think single unified budgets are a ‘good idea’ for dementia care, integrating NHS and social care?”, and it is noteworthy that the majority (61%) said yes, with only 15% saying no. The proportion saying they don’t know (23%) constitutes, though, a sizeable minority (n = 124).
Taken with the above finding with the general popularity of universality, one might infer that people generally don’t want to see single unified budgets as a backdoor mechanism of introducing care for which you have to pay extra.
The uncertainty for this is indeed interesting.
The recent interim report from the King’s Fund “Barker Commission” (2014) on the future of health and social care made the following observation:
“If they become widely adopted, it is difficult to see how anyone could be prevented from topping them up – that is, buying additional health care privately that goes beyond the agreed package.”
Nonetheless the notion of a ‘shared budget’ continues to gain traction. McNeil and Hunter (2014) in their recent IPPR report comment:
“More third-party organisations, such as community groups, faith organisations, mutual support groups and micro-enterprises should be invited to take on responsibility for developing packages of care and support for individuals in this way if they meet certain core criteria.”
And so – therein lies the crunch. The devil lies in the detail?
Information asymmetry and markets
Profiling someone’s risk is exactly how private insurance markets work.
They process your dividend according to your risk. There are concerns that the NHS is heading towards a private insurance system, if only to be integrated fully with one.
Moral hazard
The question “If you had paid a premium to an insurance company, knowing your risks disclosed to this company of later developing dementia, would you adopt ‘riskier’ behaviour such as eating the wrong foods?” produced a very interesting observation.
This is “moral hazard”.
In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place.
7% said yes, but 76% said no (17% said don’t know) (n = 122).
This for me demonstrates that the general population in this scenario does not behave like a typical insurance market for goods, and this could be something to do with a person will not wish to take risks with their personal health irrespective of the scientific evidence.
And in fairness, a genetic risk for dementia might not be nearly as important as environmental factors for someone developing a dementia, and people are reluctant to take risks with that.
Adverse selection
I asked, “If the outcome of a genetic screen was that you had an extremely low risk for dementia, would you seek to purchase private health insurance where your premiums might be very low?” Amazingly, despite 21% of respondents saying yes, 56% said no and 23% said they didn’t know (n = 123).
This is “adverse selection”.
The term adverse selection was originally used in insurance. It describes a situation wherein an individual’s demand for insurance (the propensity to buy insurance and the quantity purchased) is positively correlated with the individual’s risk of loss (higher risks buy more insurance), and the insurer is unable to allow for this correlation in the price of insurance.
Limitations
All respondents were in the UK.
There might have been political bias in the sample, though it is useful to note perhaps that personal health budgets and a comprehensive universal NHS, free at the point of need, have currently cross-party support.
Conclusion
Clearly a much larger sample is going to have to ascertain what these trends are.
There is no doubt that the furore over care data sharing and the policy to improve diagnosis of dementia rates will have a legacy on future dementia policy, and possibly a very negative one.
And finally, evidence from moral hazard and adverse election demonstrate that individuals assessing their risk for dementia may not behave like traditional insurance markets.
Reasons for this might include the facts that adults in fact prioritise their own health and do not wish knowingly to put it to risk, they appreciate the rôle of factors in the environment which could throw havoc for insurers’ calculations, and that they have a deep-felt genuine ‘brand loyalty’ and affection for ‘that national religion’, the NHS.
This is reflected in the following graphic tweeted recently.
The negative publicity surrounding the Health and Social Care Act (2012) as regards privatisation may have played an important rôle here.
This is all very problematic if the ultimate goal for increasing awareness of dementia was to boost the private insurance industry and Big Pharma. It looks as if the NHS might have the last laugh after all.
References
Arrow, Kenneth J. (1963) “Uncertainty and the Welfare Economics of Medical Care”, American Economic Review 53 (5), pp. 941–973
Hayashi, Mayumi (2013) The lessons Japan has for the UK on dementia, The Guardian (link)
McNeil, Clare, Hunter, Jack [for IPPR] (2014) “The generation strain: collective solutions to care in an ageing society”, link here.
Wilby, Peter (2014) The NHS needs a life-saving idea – how about a health tax? The Guardian (link)
Lessons need to be learnt for the NHS from failure of competition in imperfect markets
There are two ways of trying to understand the human body in medicine. One is to understand its anatomy and physiology in normal health, which gives you a definition of its structure and functions. Another approach is to understand what goes wrong in pathology and why. Both approaches give valid complementary information. The problem with singing the praises of the market is that it assumes that there is ‘perfect competition’, and that the relationship between supply and demand can be predicted accurately. There are very many reasons why markets do not obey this perfect competition. In fact, perfect competition is virtually unheard of. Many of us believe that the NHS does not meet the definition of a market anyway, but my article here is to try to explain to health policy works, many of whom are quasi-economists, how the failures of competition are patently clear in the current investigation of this market by the Competition Commission.
There are two highly influential ideas which have been applied in the NHS. One is from Professor Michael Porter and his “five forces of competition”, which provides a useful construct about how competitive factors interact in the market to determine a company’s competitive advantage. (Porter also has another strong theme called ‘strategy and society’, which is more to do with corporate social responsibility, which many believe to be the substrate of Ed Miliband’s ‘responsible capitalism’ theme). The second idea is that of “disruptive innovation”, also from Harvard Business School, first advanced by Professor Clayton Christensen.
The “Five Forces” model of competition assumes that there are five important forces that determine competitive power in a business situation.
Porter’s 5 Forces
These are:
- Supplier power: How easy it is for suppliers to drive up prices? This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers’ help, the more powerful your suppliers are.
- Buyer power: How easy it is for buyers to drive prices down? Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
- Competitive rivalry: The number and capability of your competitors are important here. If you have many competitors, and they offer equally attractive products and services, then buyers will go elsewhere if they don’t get a good deal from the supplier. On the other hand, if a supplier produces an offering no-one else can do, that supplier will have considerable ‘competitive power’.
- Threat of substitution: This is affected by the ability of your competitors to find a different way of doing what you do – hence the growing importance of innovation in English health care policy. If substitution is easy and substitution is viable, then this weakens your power.
- Threat of new entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. Monitor has of course been very keen to lower the barriers-to-entry so that ‘any qualified provider’ can compete with the NHS for contracts.
The Competition Commission ‘Issues Statement’ from February 2013 adopts the structural analysis of Porter, without saying so. The privately-funded healthcare sector is a relatively small part of the wider UK healthcare sector, most of which is funded via each nation’s respective public health- care systems. Certain treatments, including elective cosmetic surgery and standard maternity treatments, were not included. The five largest hospital operators account for approximately 70 per cent of privately- funded healthcare revenues in the UK.Almost 80 per cent of UK patients using privately-funded healthcare services are funded by insurance. The other 20 per cent are ‘self-pay’ patients. These healthcare services are also used by overseas patients, particularly in London. The four largest private medical insurers account for approximately 87 per cent of insurance premium revenue with the two largest alone accounting for 65 per cent.
A key issue for this investigation is the way in which the privately-funded healthcare sector is affected by the conduct of, and interaction with, the private medical insurers (PMIs).Defining the market in itself is difficult. Local aspects may arise because patients may prefer not to travel far to hospitals or because there may be limits on patients’ ability to travel (eg limited geographic coverage by the insurer or GPs referring primarily to local consultants). On the other hand, patients may be willing to travel different distances depending on the type of treatment (eg patients may be willing to travel further for treatments for more serious conditions). There also seems to be differences in the type of ‘product’ being offered; for example, oncology (cancer management) is offered by a lower proportion of general private hospitals.
The analysis nicely falls into the factors described by Porter, as follows:
Supplier power:
Many PMIs expressed concerns that HCA hospitals in London have market power. There are a substantial number of private hospitals in London, and London private hospitals differ from those in the rest of the UK in that they offer different sets of specialties, some hospitals are very specialised and their patients may work in London but reside further away. Their analysis identified some ‘hospitals of potential concern’ in London but it may not fully capture the extent of any competition problems in London. Consultant market power may be caused by several factors, some specific to the location in which the consultant works and others reflecting the way in which privately-funded healthcare services are purchased.
These factors include:
(a) a limited number of consultants in a particular local area for specific treatments or specialties;
(b) the way that referrals are made and consultants selected; we note that the pro- cess of choosing anaesthetists for a patient differs from that for other consultants and typically involves less input from the patient and/or GP; and
(c) joint setting of prices by some consultant groups.Buyer power:
This theory of harm hypothesises that insurers may possess buyer power in relation to consultants.The Competition Commission have stated that if insurers are suppressing consultant fees to a level below those which would prevail in a competitive market, this could lead to a reduction in the quality of service provided by consultants to patients and affect the incentives to innovate. They also considered that insurer conduct may distort competition between consultants when caps on the reimbursement of fees are applied to some consultants (eg newer or junior consultants) and not to others (eg more experienced ones).
Threat of substitution:
There are real problems with the substitution arguments. Private hospitals may be able to change the treatments they supply if they supply a range of different treatments and may be able quickly to change how they operate. Supply-side substitution by consultants is likely to be more limited than supply-side substitution by private hospitals. In the absence of demand-side substitution, treatments (or specialties) that should be defined as separate markets may be aggregated into clusters of treatments (or specialties).
Threat of new entry:
These are complicated. For example, one source of a ‘barriers to entry’ could be that of customers into privately-funded healthcare resulting from bargaining between insurers and hospital chains. This theory of harm hypothesises that bargaining between PMIs and hospital chains creates barriers to new local entrants. In particular, it may result in contractual terms that disincentivize PMIs from recognizing new entrants. This bargaining pattern may lead to a hospital operator placing pressure on PMIs to continue to recognize all the hospital operator’s hospitals and not to recognize hospitals of new entrants. High fixed costs of hospitals make it attractive for hospital groups to offer ‘volume for discount’ deals to PMIs, if by doing so they can secure business from the insurer that they would not otherwise receive.
However, the Porter analysis is notorious for its poor comprehension of anti-trust of anti-competitive regulation across a number of jurisdictions. That’s why the Competition Commission is unable to address competitive rivalry at all – this is still extremely disappointing for a statutory legal authority for the regulation of competition, and provides for ultimately a weak, incomplete analysis whatever is finally returned. The analysis is traditionally attacked from the perspective that the conclusions from Porter’s analysis, originally achieved from the automobile industry, do not easily extrapolate. Whilst there have been attempts at applying Porter to the internet or telecoms in general, there is a real paucity of data looking at the application of Porter either in private healthcare markets. Therefore, one can only be immensely frightened to consider how such an analysis can be properly applied to the NHS, which can described as a ‘hybrid market’ at best (avoiding the flawed term ‘quasimarket’); it is beyond the scope of this article to consider how it may not be possible to consider the current NHS as an example of market socialism.
The political lesson here is that privatisation of the utilities under the Conservative governments has been an unmitigated disaster from the perspective of the UK citizen. From the viewpoint of a company director or shareholder in a privatised utility, it is of course a ‘cash cow’ as there is no competitive rivalry. The competition authorities have immense difficulty in regulating this market, such that prices continue to go up under the pretense of ‘returning investment’ to the infrastructure. This argument cannot be easily applied to the NHS, as the Health and Social Care Act (2012) has totally demolished the ‘national’ nature of the NHS, delivering a highly fragmented service which is beginning to bear a resemblance to the disasters of the privatised railways industry in England.
The biggest problem with the fact that the new NHS is not a real ‘market’ is that in an oligopoly, a market with few players, the participants can easily bump up prices when they are not really competing with each other anyway. They either are offering the same product at the same inflated price (e.g. a ‘standard hernia operation’), or they can easily cherrypick what services they wish to provide at high volume and low cost to maximise their shareholder profitability. As the Secretary of State no longer has a duty for the NHS to offer a universal national health service, this is no longer an issue legally.
We can argue until the cows come home about the efficacy of the current political coalition in the UK, but the problems of ‘forming coalitions’ is well known in the legal academic press and increasingly so in the business press. For example, in an excellent paper called “Michael Porter’s Missing Chapter: The Risk of Antitrust Violations” from Fried and Oviatt in February 1989, the authors describe that:
“Porter also proposes forming coalitions to raise entry barriers, although he does not provide any detail or exam- ples of what he means. Statutory prohibitions on conspiracies and combinations show that antitrustlaw takes a dim view of coalitions formed to raise entry barriers unnecessarily. In addition to the cases previously discussed involving coalitions, organizations (sic) in many industries have attempted to form “associations” for the purpose of limiting competi- tion in a trade by limiting access to suppliers. Diamond dealers, kosher butchers, and golf club manufacturers have all been ordered at one time or another to stop this behavior. Much more prominent is a Supreme Court case that dealt with the garment industry.^s Fashion Originator’s Guild of America, Inc, (EOGA) was an association of designs, manufacturers, and distributors of women’s clothes. The manufarturers in FOGA controlled over 60% of the high- price segment of the market, FOGA members were upset because after original clothes designed by FOGA members entered the retail market, competitors would copy the designs and sell identical garments. To combat this “style piracy” guild members refused to sell to any retailer who sold copied fashions. The Court ruled that in so doing FOGA was in violation of antitrust laws.”
One suspects that if the UK competition authorities, such as Monitor, OFT and Competition Commission, fails to regulate properly even the private healthcare market, they are going to have a pretty disastrous time with the NHS at general. But the people who wished to introduce the market in the NHS in the first place should have thought about. None of us, as such, voted for it.
