If you’re wondering why the Government’s $600 million funding boost for public hospitals failed to reduce elective surgery waiting times, a trip to the local supermarket will help explain.
When announcing the plan prior to Labor’s 2007 election, the (then) Shadow Minister for Health, Nicola Roxon said, “our $600 million elective surgery plan will reduce waiting times, state by state and hospital by hospital”.
However, the State of our Public Hospitals report — which should be available here sometime today — shows that the average waiting time for treatment has increased from 32 days in 2006-07 to 34 days in 2007-08. Almost a third of people presenting to emergency departments were not seen within the recommended time, an increase on the previous year.
Given that the government’s additional funding enabled hospitals to treat more patients, why did waiting times increase?
The reason lies in a basic economic principle — that as the price of most goods and services drops, the demand for them will increase.
Of course public hospital services are free to consumers at the point of service, but it would be a mistake to think that this means that they cost nothing. As Adam Smith famously wrote, “The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”
One of the costs of public hospital treatment to patients is the time spent waiting for treatment. So if consumers believe that waiting times — and therefore the cost — of public hospital services will decrease, their demand for these services will increase.
This will result in an increase in waiting lists, despite the fact that more services are being provided.
A similar effect can be observed in supermarket queues. The reason that supermarket queues are all about the same length is that people will adjust their behaviour to minimise waiting times. If one queue suddenly gets shorter, people will quickly move from a longer queue to even up the difference.
If a supermarket decided to increase the output at one checkout — for example by putting in another operator so two people could be served at once — this queue would not be half as long as the others.
As customers became aware that one queue was moving more quickly than the others, enough of them would move to ensure that the waiting times at all check-outs were about the same.
A similar effect has occurred in the public hospital system. As hospitals have increased the numbers of elective procedures they perform, demand for their services has risen.
This increase is likely to have come from at least three sources:
- a shift from the private sector as people re-evaluate whether or not it is worth paying the additional cost of private hospital treatment to avoid waiting times (even with private health insurance this can often involve substantial co-payments);
- a re-evaluation of treatment options from people who have the choice of or an alternative treatment for their condition — such as someone with a sports injury who has the option of surgery or an extended course of physiotherapy; and
- a return to waiting lists from people who had ‘given up’ seeking treatment due to the long waiting times.
Of course, the fact that more people have received public hospital treatment is a good outcome. Despite the media and political focus on waiting times and waiting lists, they are not good measures of hospital performance when looked at in isolation.
A reduction in waiting list numbers simply measures the increase in output of a hospital relative to its increase in demand. By this criterion, a hospital which is not popular with consumers would score better than one with a higher demand for its services (even if they have both increased their output by the same degree).
Better outcome measures are the overall increase in numbers of patients receiving treatment and their level of clinical need.
If the Government wants to claim its $600 million funding boost as a success, it needs to stop talking about waiting list reductions and start focussing on the outcomes that really matter.
Good article. It highlights the critical factor that is often forgotten in health policy, which is that our system of health care involves choices and people will respond to incentives in fairly logical and understandable ways.
As am aside, I’ve worked in supermarkets and in (both public and private) hospitals and there is one difference between the two which I observed. The supermarket customers were prepared to pay what their groceries cost. The hospital customers are often not. Strange but true.
A great discussion with good insights, thanks Jennifer. So ….. what really is the answer, then, to long waiting times? I agree that it is silly to focus just on waiting times, to evaluate the effectiveness of the recent injection of new money. But … for those who are concerned about the waiting times, what is the answer?
I wonder if there comes a point where more and more resouces will eventually mean less waiting times? To use the shopping analogy: if more and more cashiers are put on some lines to speed up how fast they get customers through, then yes, more and more customers will jump onto those faster lines…. but eventually, when everyone is on that line…. and still more resources are poured into those same lines, then the times will reduce. Hmmm – does that mean we should slowly phase out the private hospitals altogether? 😉
There is a formula that is commonly used for calculating queue length and queue waiting times.
It basically involves an arrival rate (the rate at which customers arrive) and a service rate (the rate at which customers are served).
Now if queue waiting times have increased, it either means the arrival rate has increased (increased demand) or the service rate has decreased (more inefficiency) or a combination of the two.
The problem with your theory of increased demand based on lowered price is that it assumes Health care is a price elastic good/service. That demand will fluctuate widely based on price. In fact Health Care has been proven in numerouse studies to be, like petrol, more of an inelastic good. Demand doesn’t really change that much based on price changes.
The supermarket analogy isn’t a good example either. By adding an extra person to the checkout, you are effectively increasing the service rate. As customers move to the fast queue, all other queue waiting times will be reduced; not necessarily by 50% but there would be some reduction.
As to why waiting times in Public Hospital’s have not decreased with an $600 million increase, I can’t say but in my opinion, this theory is not the reason.
Jim – I think the key issue is to look at who is on the waiting lists and who is being treated. If waiting times are longer but those people on waiting lists have less serious conditions (because people with higher levels of clinical need have been treated) then it is a positive outcome.
Scott – my reading of the evidence is that many forms of health care are price elastic. Although some forms of care (eg emergency) are relatively inelastic. Even if demand for hospital services overall were inelastic as you say, you need to take into account the availability of alternative options (such as private hospital or alternative forms of treatment). Overall demand may not change in response to price changes but it is likely to shift from one supplier to another.
As long as politicians, especially during elections, undertake to reduce or eliminate waiting lists for hospitals – they will fail, add another unnecessary rod to their backs & unrealistically raise everyone’s expectations. Waiting times for hospitals should carry a public health warning that ‘waiting is going to be inevitable’. Politicians should resist the temptation to promise things they cannot deliver. As Jennifer pointed out – clinical need is the important factor and every state and territory needs to have an effective and transparent unit that oversees clinical need. With an ageing population and improving treatments plus technology there is going to be an ever-increasing demand for beds leading to waiting times; we have to accept them and educate the community to expect them. Marginal reductions may well be achieved by charging for services in public hospitals but there is a cost for doing that. We still have by international standards a good, solid health system but every now and then it requires tuning. As far as the public hospital part of it is concerned this is one way to approach it.