Chapter 24 from: J.J. Ray (Ed.) "Conservatism as Heresy". Sydney: A.N.Z. Book Co., 1974

The first part of this chapter appeared as an article in Nation Review, 18 May 1973, p. 946.

The National Health and the Case for Prepaid Medical Care



John Ray

No freedom for doctors?

THE LABOR GOVERNMENT'S attempt to deny doctors the right to choose their employer is a violation of one of our most basic democratic rights. Labor has made it clear that its ultimate objective is to turn all doctors into salaried public servants. Anybody who has had first hand experience of government bureaucracies (and who hasn't?) ought to be resisting with all their might and main this attempt to bureaucratise medicine.

We all know how contemptuously public servants treat us: Do we really want to convert our friendly family doctor into this sort of indifferent, impersonal public employee? Under the present system the doctor has some incentive to communicate with and endeavour to understand his patients. He might lose our custom (and his income) unless he does. By contrast, nothing but a bomb can shift a public servant.

One also wonders where Mr Cameron is now. We are so used to hearing him defend unionists and their strikes by talking of their right to withdraw their labour if things don't suit them. What about doctors? Don't they have similar rights? Mr Cameron's guiding rule seems to be that a Labor government should champion any claim that unionists make and do everything to see that unionists get their way. What about the AMA -- the doctors' union -- why aren't they included in his patronage? To be consistent he should be defending their right to determine their working conditions as vigorously as he has defended the rights of other occupational groups.

The problem

It is also clear that there is a shortage of doctors. Anybody who has had to spend hours in a waiting room knows that. It is equally obvious that totally free medicine would encourage yet more people to go to doctors for even minor complaints. Do we really want to wait even longer in waiting rooms while doctors see all the extra people? That is what Labor seems bent on condemning us to. Are they suddenly going to create a couple of thousand extra doctors out of thin air to cope with all the extra patients? It is about time they told us. As far as one can see at the moment we are going to have poorer medical service under Labor -- not better.

Perhaps the saddest aspect of the whole affair is that better alternatives to achieve Labor's stated objectives of improving the availability of medicine are already available. If only Labor had the imagination to learn from other people's experience there would be no need for any of the present commotion.

One solution

One alternative that would achieve more than Labor's present scheme, and do it with a minimum of unwelcome change, would be to pass a law requiring medical benefit funds to give special low rates to people in the low income brackets. If, as Labor says, the Funds are making too much money, this should certainly solve the problem while providing the social justice that Labor is so concerned about. Under these circumstances Labor could also then afford to protect people from themselves by passing a law making it compulsory for everyone to join a Fund of their choice. Since Labor is going to take compulsory health contributions out of our pay anyhow, why not make those contributions payable to private Funds if people so desire?

Economies of scale?

One reason that the average man sees for supporting a government monopoly in the health care field is that it must surely be more efficient to have one large government scheme than a whole lot of competing little ones. Surely there is much duplication of effort that could be avoided.

To say this is to ignore the most fundamental rule about bureaucracies: the bigger they get the more inefficient they get, the harder it is for them to change when circumstances demand it or opportunity presents itself.

But why then do factories get economies of scale whereas bureaucracies do not? Is it not trying to have one's cake and eat it too when invoking economies of scale to defend big business and then denying economies of scale in attacking government enterprises?

The inconsistency is only apparent and springs from a failure to distinguish what it is that enables economies of scale. Among the causes of economies of scale are: fuller utilisation of plant, specialisation of labour, splitting of productive tasks into maximally efficient units, maximum spreading of 'setting up' costs and maximum spreading of fixed overheads such as research and development costs or purchase of licenses. There are however also some 'DISeconomies of scale'. There are some influences which work to make size bring increasing unit costs. One of the most widely quoted of such influences is in fact bureaucratisation and the poorer intrafirm communications it brings. Yes, bureaucratisation is not unique to government. Even large private firms can suffer from it. So much so that there is in theory always an optimal size for any business enterprise -- the size at which diseconomies begin to exceed economies of scale. If businesses grow beyond this size, they grow less efficient, not more so.

One very good example of recognition of this fact is that of the world's largest corporation -- General Motors. General Motors had to face the fact, some time ago, that the bigger a bureaucracy gets the more it is a source of inefficiency. Its theoretical advantage -- co-ordination of the effort of a wide range of people -- was recognised to be, in practice, very much outweighed by its disadvantages -- slowness and distortion of information transmission, and consequent slowness and poor quality of decision-making. The result of recognising this was a radical one: General Motors split itself up into four almost completely independent divisions, each of which went its own way largely without consulting or co-operating with one another. In fact, they became fierce competitors with one another. Now General Motors was not doing all that for the good of the public. They were doing it for the quite selfish reason that they knew they had to keep costs down if they were to maximise their profits. They knew small bureaucracies were more efficient than larger ones.

So while one large health bureaucracy may seem more efficient in theory, we have every reason to believe that it would not be so in practice. Size promotes inefficiency and lack of competition creates inefficiency. We can do without inefficiency from both sources.

The best solution

The best health scheme of all is prepaid medicine. This was an idea initiated in the United States by the Kaiser Corporation for its employees. Under this system you have a network of private hospitals or medical centres and you subscribe a regular monthly amount to the hospital nearest you -- not to some independent medical benefits fund. You are then entitled to free or very low priced treatment at that hospital and all other hospitals with which that hospital has a reciprocal agreement. A small additional charge could also be made if you go to a hospital other than your own. The effect of this arrangement is that the hospital has an incentive to get you well as quickly and as efficiently as possible. You have already paid them your money. They don't gain any more by you staying in longer. If they are inefficient, they will have to charge higher subscriptions to cover their costs and this would encourage you to transfer your subscription elsewhere. In other words, inefficient or unpleasant hospitals would lose all their subscribers and collapse. They, would have though every incentive to make your stay as pleasant, as effective and as short as possible.

'As short as possible' does not of course imply that inattention or hasty care can be expected under this system. Obviously, a complaint not attended to properly early in its course would only worsen and involve the hospital in even more expense.

If the Labor government is going to spend money on health, it would be best spent giving loans and subsidies to encourage the setting up of such private comprehensive medical centres and hospitals.

What remains unsaid

In the confrontation between our Labor government and the doctors, there is a lot that neither side will tell the public. There is more to the debate than meets the eye and what is being concealed is explosive indeed.

What no-one is saying is that the government does have power to fix doctors' fees. And, equally culpable, no-one is saying that this would lead to patients being shunted through doctors' consulting rooms at thirty second intervals. The federal government has the power, but is rightly afraid to use it.

Under the Labor health scheme the patients' bills will be paid by the government, if -- and here is the catch -- the government approves of the doctor who sent the bill. As soon as the Labor scheme is introduced, the government has a weapon that could force doctors to toe the line on any issue the government chooses to name. At any time the government could -- either by legislation or by regulation -- declare that any doctor who refuses to fall into line over some issue would be 'non-participating' in the government health scheme. This means that if you go to such a doctor, you have to pay every cent of his bill out of your own pocket. That doctor would lose most of his business overnight and would have to give in to the government's demands.

We have every reason to believe that the Labor government will use the power of price control that this gives it. Doctors' fees will in fact be pegged. Any doctor who raises his fees will be declared 'non-participating'. It would be too good a chance for a socialist government to miss.

As soon as the government pegs doctors' fees, however, the same thing will happen that always happens when prices are pegged. There will be a diminution of supply. When President Nixon pegged the price of meat, it simply meant that many Americans could get no meat at all -- at any price. Doctors will alter the supply by collecting the same fee for a shorter consultation. The 'supply' of consultation time will be reduced. In a word, doctors will take more of their rewards in the form of leisure time -- something they are very short of at the moment.

This is the meaning behind the vague phrase the doctors have used over and over again in their dispute with the government: 'Decline in the standards of medical care'. This decline is what they say concerns them in the government's scheme, but because they are afraid to spell out what they mean by it, the public gets the impression that it is all waffle designed to excuse the doctors' stick-in-the-mud attitudes. It is not waffle. The danger is a real one. The government scheme will make medical care harder to get and of a lesser standard. Lives will be lost because if it. Any system that gives the doctor a vested interest in spending as little time as possible with his patients is stupid indeed. Out of sheer self-interest such a scheme must be rejected. The quality of medical care will only be at a maximum if the doctor is encouraged to spend more time with his patient not less.

How to pay doctors less

There is only one way to both increase the quality of medical care and make it cheaper for the public. That is to go back to the cause of high medical fees. Just to slap control on fees is like sitting on the valve-of a pressure-cooker in order to keep the steam from whistling out. The proper way to do it is to turn down the gas which is causing the steam to flow.

The cause of high medical fees is that there are too few doctors being trained. Following the laws of supply and demand, this means a limited supply of medical services and hence a higher price. The reason too few doctors are being trained is that the doctors themselves do everything possible to keep it that way. They like their high incomes so they have a vested interest in reducing the number of students getting through medical courses. Hundreds of high school students with good matriculation passes are refused entry to medical schools every year. This creates an artificial scarcity of doctors. People who want to train as doctors are not permitted to do so.

The doctors themselves have an almost watertight reply to charges such as this. They say they must maintain 'high standards' for such a vital profession. Critics charge that the standards are too high that many applicants who are now rejected could in fact become good doctors if given the chance. How you prove the case either way is anyone's guess. One indication might be that lower standards in the past and lower standards overseas seem to have worked well enough. Why have the standards steadily risen in recent years?

One thing is certain, however; even by the doctors' own standards there are still a large number of students who qualify for admission to study medicine, but who are excluded by medical school quotas. Even by doctors' own standards, there are more qualified students than there are places for in our universities. It is these students whom the government should be using to give the community better and cheaper medical care. In short, the government needs to accelerate the rate of building of medical schools. Some of our universities at the moment have no medical schools at all.

If the government spent on extra medical schools only part of the money it is already going to spend on subsidising doctors' fees, it could have many more medical graduates and, in real terms, the price of medical care would fall. In the long term, in spite of the reduced subsidy, patients might be paying no more than under the present system. The difference would be that there would be more doctors around and hence more medical service available to the community.

There is no reason why doctors' earnings should not be among the lowest in our community. As a rough general rule there are two ways somebody can be paid-either in money wages or in 'conditions'. People in occupations that are looked down on usually get high money wages: e.g. tradesmen and truck-drivers. People in "soft" jobs, such as government clerks, get quite poor money incomes. In isolated cases, however, such as doctors and airline pilots, strong union activity or other collusive activity has succeeded in getting both good conditions and good wages. In the case of doctors, the good conditions consist of very high public esteem. Many people would work as doctors just for the respect it earns them, even if the monetary benefit was much worse than it is at present.

And make no mistake, it is not their receiving a high income which gives doctors status. It is the fact that we allow them to interfere with our own bodies. This is something that we would normally greet with hostility so in order for us to allow doctors to do it, we have to attribute high status to them. This would happen whether or not the doctor was in receipt of a high income.

Because doctors are paid so highly in respect and prestige, therefore, we could afford to pay them less in money and still have considerable numbers of people willing to be doctors. The only reason they have high money wages too, at the moment, is because of their own restriction on the number of doctors made available. This must be broken down. Artificial scarcities in vital services cannot be tolerated in any community, and such things are an example of the worst abuses of monopoly. They can only be condemned as an evil.

Basically, then, the Labor government's actions so far are an attempt to treat the symptoms while ignoring the disease. The disease is the shortage of doctors. The symptom is the high price of medical care. The pity is that the attempted cure of the symptoms will worsen the disease. Between the stupid policies of the government and the selfish policies of the doctors, the poor old consumer of medical services (i.e. most of us) will receive even worse service than before.

In conclusion, we need not nationalised medicine, but a simple provision that everybody must have medical benefits payments deducted from his pay. What fund (or hospital, in the case of prepaid schemes) the payments go to should be the business of the taxpayer -- as it has always been. The government has a mandate to make health contributions compulsory and there is no need for, or advantage in, a new grandiose, cumbersome and inefficient government monopoly. If this was done it would not give the government a stick to threaten the doctors with and we might retain, or better, our present standards of medical care while extending those standards to the whole of the community. If the government wants to improve the present standards of care without it costing us more in doctors' fees, it could as a first step see that every Australian university has its own medical school. The ones already a-building are only enough to keep up with normal increases in demand. We need more doctors, not more bureaucracy.