Expensive Medical Treatment Rooting in Over-control and Information Asymmetry
Commercial bribes by executives in GSK Corporation bring such issues as high costs in drugs and medical treatment into public attention again. Some people even allege a drastic drop of medical treatment and reduction range of drug price by 20% by cutting down commercial bribes. It seems reasonable on first thoughts, yet things are by no means the case after prudent reflections.
To start with, reduction of corporation costs shall not inevitably result in price falls of drugs. The so-called drug price refers to medical payment in hospitals, yet drugs would undergo several rounds of pharmaceutical companies, dealers and hospitals pending being sold to patients. Drugs within national basic medical insurance are given a limited tag by National Development and Reform Commission. In other words, a pharmaceutical company is only a small portion in this interest chain.
Furthermore, price falls of drugs shall not, for 100% sure, give rise to final decreasing of medical treatment. “To cover hospital expenses with medical revenues’ has been, for a long while, the most serious issue for the contemporary domestic medical system, which indicates sufficient incentives of hospitals and doctors in choosing expensive or prohibitive drugs. A fall in drug price would equal to prescribing more drugs to patients so as to gain high incomes same as previously. Hospitals and doctors would try getting profits from detection expenses when medical quantities are under governmental control, giving birth to the phenomenon of ‘excessive medical treatment’. In that way, what is the real root producing high medical cost? As many people have learned that ‘covering hospital expenses with medical revenues’ would serve as the foundation for high price costs, yet what shall happen to medical costs should this policy is abolished? Nothing might happen, for as I put it, hospitals and doctors shall generate incomes by other means. After all, such costs shall be paid in the name of medical expenses or of other formats.
Does it mean that such a phenomenon of prohibitive medical prices shall remain unsolved? The solving of this issue shall require finding of its root. What constitute the high costs in medical treatment? As for me, high costs in medical treatment are resulted from various causes, among which over-control and information asymmetry serve two primarily important ones. The solving of this issue shall require efforts on these two aspects.
Different from ordinary goods, drugs, in particular prescription ones, shall undergo several rounds of detection as the launching of a particular drug shall require approval by different departments including medical detection department for its registration, Development and Reform Commission for price setting, Human Resource and Social Insurance departments for medical insurance, local office for inventing tenders and hospital directors, head of pharmacy department and so on for being listed in hospitals. Each round would indicate expenses or even illegal trade. So channel costs shall witness a drop by shortening these rounds. By supposing the market as fully competitive, such reduced costs shall be reflected by a drop of prices so that patients shall be benefited herein. s
Yet how to solve the issue of prohibitive medical prices, despite of drop in unit price, eventually assumed by patients under the premise of medical model remaining unchanged? As hospitals would foot the bills for many medical expenses, excessive medical treatments shall bring about unbearable stress for social medical insurance as a whole. In the past few years, many local governments try solve this issue by setting a limitation on medical insurance for each hospital when the medical insurance system shall not account for those surpassing this limit and thus this sum goes to patients themselves. This approach of controlling total quantity would, without doubt, reduce pressures confronting the medical insurance system; yet such expenses shall be imputed to patients. Many hospitals would reject patients in November and December each year, unless patients would pay out of their own pockets, a reason of which is running out of medical limit.
So, controls on total quantity, by limiting costs of medical insurance system, shall not decrease per capita medical treatment expenses and shall not solve costs of a huge proportion of people in China beyond the system. All these issues are, in the final analysis, resulted from information asymmetry normally existing in contemporary medical system when the Government, having clarified ideas on costs required by treating diseases, shall refer to the approach of controlling total quantity without reflecting on how ordinary patients would avoid excessive treatment.
In my view, establishment of a third party insurance institute proves an effective alternative. As ordinary patients have no clues on medical costs, they shall consult on an insurance enterprise that can calculate expenses for each disease after marketing survey. Once the applicant is suffered with relevant diseases covered in the insurance type, such an insurance enterprise can cover the pay when economic disputes occur. By giving specific calculations on treating a certain disease, the insurance enterprise shall, at the same time, communicate with the hospital to reduce unnecessary payments.
A single patient cannot match a hospital in negotiations, yet an insurance enterprise can do with abundant patients as its backup. Hospitals might reach a reasonable price on agreement by the insurance enterprise, so that excessive medical treatment might be averted.
Overseas experience shall guarantee the establishment of profitable insurance companies to clamp down on hospitals as a mature method. For example, in the United States, insurance companies would stimulate medical price falls so as to gain profits. To this end, there exist rigorous regulations on expenses regarding ward living, drugs and therapies etc; some insurance varieties also stipulate provisions on days of hospitalization when insurance companies shall not pay extra days. Such compose the reason that free pricing tag in the United States remaining comparatively high, yet proportion of medical expenses remaining at 12.5%, much lower than that at 17% in France, a country formulating strict controls in drug price.
Claim settlements for automobile industry in foreign countries also give full supports for the case. Most car owners do not have a clue on expenses paid after car accidents, yet they would refrain from excessive payment with the help of insurance companies. The Government would reduce prohibitive medical costs by reducing drug prices yet result in failure of controlling total costs. On the contrary, in the claim settlement field of automobiles, total costs are controlled by means of loss assessments. A vivid analogy goes like this: an insurance company shall not replace automobile repair plants in purchasing components, as the key link lies in loss assessment. The governmental control of single medical price is likened to that the insurance company replaces an automobile repair plant in purchasing components instead of controlling total costs.
Much though cracking down on commercial bribes in pharmaceuticals companies serve as an approach, yet they do not serve the root. To solve the issue of high medical costs, confirmation on medical expenses of a single disease might prove more feasible against the backdrop of breaking over-control and ensuring full marketing competitions. Commercial insurance companies shall play a role in cutting down medical expense of a single disease.
Originally published on Southern Metropolis Weekly | 2013-7-24
