Posted by: ayrshirehealth | February 13, 2013

Healthcare: We’re all doomed by @micmac650

We’re all doomed 

imageMaybe it’s the dark, wintry weather of February, but I’m having to work hard at being optimistic about healthcare right now.

Let’s compare 2012 to 1958: you need to work five times fewer hours to earn enough money to buy a washing machine. To buy healthcare you have to work four times more hours (via @fredlafeber). Why?  In this crude analysis of the admittedly inefficient US healthcare system, the conclusion is that it’s down to the lack of effective market forces driving improvement. However, an alternative analysis is that there are major differences between productivity in the manufacturing and service sectors.

These two diagnoses require radically different treatments.

Baumol’s Cost Disease

QuartetIn 1966, Baumol and Bowen pointed out the difficulty of increasing productivity in service industries. In 1785, Mozart’s string quartet no. 19 took four musicians 25 minutes to perform. 227 years later, it still takes four musicians 25 minutes. There has been no gain in productivity.  The musicians could play faster, or could reduce to a trio, but only at the price of reduced quality.  Electric violins won’t help. Of course, recorded music (a technological advance) has blurred the issue – it has reduced cost and increased accessibility, but is not the same product as live music. In other services technology has altered productivity little – the barber can still only cut one head of hair at a time.

In healthcare, technology can in some cases increase efficiency, with better outcomes for lower cost. However, many healthcare interactions are one to one (the nurse turning a patient; the surgeon excising a tumour), and much like the string quartet, it is difficult to conceive of technology increasing efficiency other than marginally.

The Adam Smith effect

When society relied on hunter-gatherers, simply surviving took most of our time and energy. As we moved to an agrarian society, one person could produce more food than he needed for himself or his family, so manpower was freed up for other activities. As the industrial revolution took hold, each worker’s productivity increased further. With fewer workers needed for each task, new things could be achieved with the freed up time. And now the information revolution is expected to give further gains in productivity. At the heart of this is Adam Smith’s proposition that by specialising, workers increase productivity. It is this increased productivity which drives the rise in real GDP and, if fairly distributed (and that’s a big if…), the wealth and quality of life of the whole population.

The Future of Public Service

Baumol is being quoted widely just now, and for good reason: the implications for public services are serious. Because real average wages will tend to rise with economic growth, there are three potential outcomes of static productivity in healthcare:

Option A: Healthcare eats the world.

Healthcare takes an increasing percentage of economic activity. This has been the UK’s approach until recently, but many have written about why it is not a realistic option for the future (e.g. my last blog). Private sector industries can pursue this, by competing within their industry (e.g. Apple iPhone versus Samsung Galaxy) or by diverting expenditure from other industries (e.g. the growth of the coffee shop). SLice of pieBut few industries come close to the percentage of economic activity of healthcare, and it seems unlikely that we can rely on taking a bigger and bigger slice of the pie, without damaging overall economic health.

John Appleby also points out Stein’s law: if something can’t increase forever, then it will stop rising.

Option B: Minimum wage workers

The pay of healthcare workers relative to average pay declines. Not particularly attractive to those of us in healthcare! If we act as pure economic animals then the quality of workers will decline. It will certainly test our altruistic motivation. Driving down the cost of workers (by reducing numbers and/or wages) has been used in many industries, and healthcare is no exception. Skilled tasks are transferred to lower paid staff. More recently, real-terms pay cuts are the norm. However, in service industries this approach is usually associated with a reduction in quality. For example, banks reduced staff numbers and wages by closing local branches and using offshore call centres: now, customers pursue the maze of automated telephone options, none of which are quite what you want, only to finally reach someone who can’t answer your question. Supermarket self-service tills are another example – they increase productivity, but only because they value the customer’s time at zero.

Option C: Never mind the quality, feel the width

We allow quality and/or quantity of healthcare to decline. Low-cost airlines are the classic exponents of reducing quality to give an apparent increase in productivity. Narrower seats, luggage restrictions and loss of free food and drink have all driven the reduction in ticket price. To date this is not considered acceptable in healthcare. The Scottish Government is committed to continuing increases in the quality of healthcare, and increasing access by reducing waiting times. Rationing is not even discussed.

Does Baumol Apply to Healthcare?

I don’t find any of these options appealing. In reality, all three will probably be applied to varying degrees. But the real question is whether we can pursue option D and prove Baumol wrong. Can we increase the efficiency and productivity of healthcare, to allow time for the one to one caring that many patients need? Can prevention reduce cost, or will it simply divert cost to other diseases? Can quality improvement lead to reduction in cost as reviewed in this Health Foundation report? imageCan evidence-based medicine stop us doing things that don’t work? Can we deliver technological advances at lower cost? So far the jury is out. I’m no economist, so would be delighted to have my errors pointed out by those who know better.

Maybe things will look brighter by Easter….

@micmac650 is an Associate Medical Director and consultant nephrologist in NHS Ayrshire & Arran. He is also a Health Foundation fellow.

Next week: @amcunningham features as a guest blogger on ayrshirehealth.


  1. […] Healthcare: We’re all doomed by @micmac650 by Ayrshire Health. […]

  2. […] Healthcare: We’re all doomed by @micmac650 by Ayrshire Health. […]

  3. @micmac650 excellant blog. Your compelling thesis highlights how we have pushed modernity to far.

    Do we need to continue to apply capitalism, economism and scientism to the way we think about healthcare? I am optimistic that we can totally reframe the way define public services to meet the significant challenges of delivering quality and sustainability. I have been hugely encouraged by the thinking of Phil Hanlon et al (2011) who make the argument that we can apply integrative platonic thinking to the challenges we face. He argues that policy development and decision making etc would be transformed if we paid equal attention to science, ethics and aesthetics.

    Wouldn’t it be great to have an option appraisal that gave equal weighting to the ‘good’ (is this the right thing to do?) and the ‘beautiful’ (will it raise our spirits and fire our imagination?).

    • Andrew I agree that we need to balance truth, justice and beauty, and would welcome an aesthetic element to option appraisals (Ask Eddie Docherty about the effort that was put into the physical design and cultural relevance of the hospital buildings in Alaska).

      But cost is simply a way of describing the value of human time, and that is a constrained resource. You have to fulfill the basic requirements (Maslow) before you have the time left to address aesthetics!

  4. […] Macgregor in his blog on ayrshirehealth Healthcare: we’re all doomed consider the cost of healthcare and the endless pursuit of cost cutting, potentially at the […]

  5. […] Healthcare: we’re all doomed. On ayrshirehealth February 13, 2013. […]

  6. […] patient, which is not readily automated: also known as Baumol’s cost disease (discussed in a previous blog). In other words, we have to prove Baumol wrong. Others have been recognising this productivity […]

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