June 12, 2015 1:00pm by David Farrar

Crampton on profit in health

Eric Crampton writes at the NZ Initiative:

Growing up in Canada, I often heard that profiting from illness was just wrong. Canada’s public health system generally banned private medicine. Whenever anybody pointed to systems like New Zealand’s, which provided better services by combining public and private provision, they would be shouted down.

So private doctors were banned from providing services that were also provided by the public health system. My great-grandmother consequently waited for a very long time for a hip operation. But at least nobody profited by alleviating her needlessly lengthy pain.

This week’s critiques of the government’s social bonds trial in mental health have been disorienting. It feels like I am back in Canada. Investors might profit by helping mental health patients into employment! Never mind that private hospitals profit by providing publicly funded surgery, private pharmacies profit by filling Pharmac scripts, and private medical device manufacturers profit by developing better replacement hips for publicly- and privately-funded operations.

Midwives are private practitioners? Would the left claim that midwives should be banned as they profit from childbirth?

It has also been disappointing to see the policy trial characterised as experimenting on the mentally ill. The government constantly tries new initiatives for helping different groups. If the policies are designed properly, they will be an experiment. But they also present the only real way of finding out what works.

Exactly.

Jenesa Jeram also writes:

Some have argued that social bonds are an internationally unproven model. It is true, social bonds are a new concept, not just in New Zealand, but around the world.

But it is a bit perplexing that social bonds have received such publicity when the Government is trying many different policy experiments in social development. Examples include Whanau Ora, Children’s Teams, Social Sector Trials, and Better Public Services targets. The social bonds model is just one of many.

Critics argue that the private sector would simply cherry-pick their clients who would most likely trigger a pay-out; that they would choose to take on the easiest cases (and reject the hardest cases) in order to make a profit.

Fewer people have pointed out the converse: that the government has an incentive to pass on their hardest cases to the social bonds programme, to avoid making a pay-out. Both are equally undesirable.

One method of dealing with this problem is to have willing participants enter a random lottery to be part of the social bonds programme. This would also mitigate the problem of self-selection bias in assessing whether the programme has worked.

Critics also highlight the risk of gaming: where people hit the target outcomes, but put their clients at risk. In other words, they meet the terms of the contract, but not its spirit. Again, careful contracting can target the intended outcome while monitoring for unintended consequences.

Both cherry-picking and gaming are concerns not just associated with social bonds, but most forms of performance-based contracting. Reassuringly, the government is already building expertise in this area.

The point of a pilot project, like the social bonds pilot, is to find out what works.