Doctors' fees: From guideline of charges to benchmarks
From 1987 to 2007, a guideline of fees was widely used by doctors and patients. In 2010, that guideline was deemed anti-competition. Yet this year, a schedule of fee benchmarks was issued. What has changed?
On Nov 13, the Ministry of Health (MOH) announced the issuance of fee benchmarks for the most common 222 procedures performed in the private sector.
The current MOH fee benchmarks came about after a painful 11 years when there was no guidance of any sort for both patients and doctors on how procedures should be priced.
In the same period, there was only one legally established case of overcharging and it was a very egregious one involving $24 million for a years' work in 2007.
There are essentially five ways to charge for any product or service.
• Charge nothing - for example, free parking.
• Charge a subsidised rate or nominal fee that is below cost - for example, school fees at public schools or restructured hospitals' C or B2 Class services.
• Charge at cost recovery - for example, when a public agency sells services to another public agency or charitable organisation.
• Charge at "cost-plus" - for example, the principle behind fee guidelines and benchmarks - where fees are pegged to a level that enables doctors to earn a decent living, and what is deemed fair, reasonable and customary.
• Charge at what the market can bear - for example, a largely unregulated world without fee guidelines and benchmarks. This is the market for doctors' professional fees from 2007 to this year, where professionals maximise profits at the individual level and let competitive market forces drive prices down so that consumers and patients can get the best deal.
Prior to the fee benchmarks, the Singapore Medical Association (SMA) had a guideline of fees (GOF) from 1987 to 2007.
There was no evidence to show that medical inflation peaked in the period when there was a set of fee guidelines, or that doctors' professional fees increased. This would rebut the suggestion that the GOF promoted price collusion and was anti-competitive.
In fact, the contrary is probably true - that is, without fee guidelines, professionals may feel free to charge as the market can bear, leading to fee increases.
This was indeed what happened after the GOF was scrapped in 2007. I was president of the SMA then, as that period fell within my term from 2006 to 2009. The SMA decided to withdraw the GOF after the Competition Act came into force in 2007 and its lawyers advised that the GOF might contravene the Act.
The Straits Times reported that between 2007 and last year, the average inpatient bill in the private sector increased by nine per cent each year, when the public sector's A Class wards bills increased by 4.9 per cent each year over the same period.
In January this year, then Senior Minister of State for Health Chee Hong Tat said in Parliament that medical inflation was 2.4 per cent from 1997 to 2007, and 2.6 per cent in the following 10 years when there was no GOF.
It can thus be concluded that the SMA's GOF did not contribute to higher medical inflation. It had probably helped to curb the rate of increase of professional fees in the private sector.
Yet it was outlawed by the Competition Commission of Singapore (CCS) in 2010. (The CCS is now the Competition and Consumer Commission of Singapore, or CCCS.)
In 2010, the SMA applied for a formal decision on its GOF. The CCS ruled that the GOF was anti-competitive. It said: "In general, price recommendations by trade or professional associations are harmful to competition because they create focal points for prices to converge, restrict independent pricing decisions and signal to market players what their competitors are likely to charge."
It can be seen from the above statement that the CCS at that time outlawed the GOF for two main reasons.
The first was the matter of who issued the guidelines. The CCS viewed that the SMA, being "a trade or professional association", will issue price recommendations that are harmful to competition. It said: "CCS is also of the view that as SMA is made up of doctors, there is an inherent conflict of interest for them to set prices."
The second reason was that the GOF was deemed to have undesirable effects on competition.
In the above press statement, it can been that from CCS' viewpoint, "focal points for prices to converge, restrict independent pricing decisions and signal to market players what their competitors are likely to charge" were all undesirable.
It would appear that at that time, the CCS wanted a healthcare market with wide dispersion of prices, where the "animal spirits" - a term coined by economist John Maynard Keynes - of individual sellers and buyers are given full expression.
It is also quite clear that for most of the earlier part of the last 10 years, in the aftermath of the withdrawal of GOF, the Government believed that the private sector should be left to unbridled market forces and that such competition will give patients the best prices.
This can be seen by the fact that in the absence of the SMA GOF, no other party or organisation was asked to step in and guide the private healthcare sector with some other fee guidelines or benchmarks.
Benchmarks or guidelines were deemed unnecessary until about last year when the Health Insurance Task Force recommended that fee benchmarks or guidelines should be put up.
There has been clearly a shift in thinking on whether and how fee benchmarks or guidelines should be used to tame those "animal spirits".
In my view, that shift in part reflects a greater understanding of the limits of free markets and competition in delivering good outcomes for consumers (patients in the case of healthcare).
With the benefit of today's knowledge, we can now revisit old dogmas that were held up as evident truths between 2007 and last year, and reframe them as new insights gained.
Dogma: More competition is always good for the consumer.
Insight: Competition is a tool, not an end. Price is the real deal.
In healthcare policy circles, it is widely known that the "golden triangle" comprises of accessibility, affordability and quality.
These three factors are really what matters to the patient. Assuming accessibility and quality are kept constant, affordability or price is what matters. The patient is concerned about price, not competition.
Competition is a means to an end, it is not an end in itself; price is. The experiment from 2007 to last year of a world without fee benchmarks or guidelines obviously did not lead to lower prices for patients.
Dogma: Fee guidelines issued by professional and trade associations are undesirable because they restricted competition. Also, professional or trade associations always seek to increase and maximise their members' incomes.
Insight: Fee guidelines that work to benefit patients is what matters. The identity of the issuing party is secondary.
Trade or professional bodies do not always seek to maximise profits for their members. The fact that inpatient bill size growth rate and healthcare inflation were higher in the 10 years without the SMA GOF than in the preceding 10 years when the GOF existed supports this.
The famous saying by Deng Xiaoping still holds true: "It doesn't matter if a cat is black or white, so long as it can catch mice, it is a good cat."
However, the correct definition of mice needs to be established. The "mice" here is not competition but lower prices for the patients. As long as the outcomes are good in terms of greater social well-being for the majority of people, potential conflicts of interests can and should be managed, in place of a blanket ban.
For example, MOH could easily have suggested placing the SMA GOF under a MOH supervisory committee in 2007. After all, the SMA GOF was originally launched in 1987 only because the SMA was strongly encouraged by MOH to do so in the 1980s. It is also noteworthy that seven of the 12 members of the MOH Fee Benchmarks Committee which came up with the fee benchmarks are doctors.
Dogma: Price convergence, restriction of ability to price independently, and signalling to market players what their competitors are likely to charge are all undesirable.
Insight: Price convergence, restriction of ability to price independently and signalling to market players what their competitors are likely to charge are not always undesirable.
The MOH fee benchmarks will, in all likelihood, cause all of the above to occur, directly or indirectly.
Even though the effects of the fee benchmarks will be quite similar to the now defunct GOF, it is important to note that this current body of work is not deemed anti-competitive because it is issued by MOH, which is exempt - as is the whole Government - from the provisions of the Competition Act.
Conclusion: The 1993 Affordable Health Care White Paper by the Government then clearly stated that "the healthcare system is an example of market failure".
In addition, the Government's healthcare philosophy was also spelled out in the executive summary of the White Paper. The philosophy is reproduced here:
•To nurture a healthy nation by promoting good health;
• To promote personal responsibility for one's health and avoid overreliance on state welfare or medical insurance;
• To provide good and affordable basic medical services to all Singaporeans:
• To rely on competition and market forces to improve service and raise efficiency; and
• To directly intervene directly in the healthcare sector when necessary, where the market fails to keep costs down.
The newly-launched fee benchmarks by MOH represents a return to the practice of its own 1993 philosophy - to intervene directly where the market fails to keep costs down - so articulately enunciated in these five points.
• Dr Wong Chiang Yin is a public health physician by training who works in the private sector. He has been a council member of the Singapore Medical Association since 1999 and was its president from 2006 to 2009.
Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.