Tuesday, 6 October 2015

Protected, or exploited?

If you're interested in markets, competition or regulation, you're bound to have a few eye-opening and brain-opening moments along the way: for me, one of the key ones was The Commerce Commission v The Ophthalmological Society of New Zealand Incorporated And Ors, a 2004 High Court judgement known in some circles as 'Eyes 1'.

The case, which the Commerce Commission won,  was about some Southland ophthalmologists and their professional body. They had acted together to intimidate some (highly qualified) Australian surgeons from dealing to the backlogged waiting list of cataract operations in Southland, and at a cost much lower than the fees the incumbent Southland doctors wanted to charge. And one of the deplorable tactics they used was declining to provide 'oversight' to the Australian medics. Supposedly, these eminent Australian doctors required 'oversight' to operate safely in New Zealand, and since their New Zealand colleagues refused to provide any, their plans got scuppered.

It was a brutal example of how regulations brought in for one, worthwhile, and even necessary purpose (patient safety) can be piggybacked into an anti-competitive rort. As the judge in the case said, “I do not accept that the defendants had any proper foundation to believe that the proposals would put patients in jeopardy”. On occasions, the alleged worthwhile basis for a regulation or practice can be very flimsy indeed, and little other than a convenient cloak for protection of a professional market.

It seems to me that this is going to be an increasingly fraught issue across a wide range of services, including education and health, for a whole range of reasons. Services in general are becoming an ever larger share of modern economies, some services such as health are becoming more important to us as we live longer, and there is a general trend to greater credentialism and professional/occupational licencing, which gives ever greater leeway to gatekeepers to abuse quality standards to protect their own patch.

It's even cropped up as a (somewhat peripheral) issue in the current US presidential primaries. Last month the Committee for a Responsible Fiscal Budget, an independent non-partisan think tank in Washington, looked at the policy plans Hillary Clinton and Bernie Sanders have come up with to tackle US prescription drug costs. Both of them have identified a "safety" provision they'd like to deal to. In the Clinton plan, she "would allow Americans to safely and securely import drugs for personal use from foreign nations whose safety standards are as strong as those in the United States". In the Sanders plan, he would "Allow individuals, pharmacists, and wholesalers to import prescription drugs from licensed Canadian pharmacies".

There is, of course, no good pro-consumer reason why American (or other countries') consumers shouldn't get their prescriptions filled in Canada or the UK. As Hillary Clinton puts it, "it’s unfair that drug companies charge far lower prices abroad for the same treatment, while imposing higher prices on Americans", and - while I wouldn't normally give you tuppence for Bernie Sanders' views on anything - you've got to admire him when he says that in 1999 he "became the first Member of Congress to take a busload of Americans across the border into Canada to purchase prescription drugs. Americans should not have to pay higher prices for the exact same drugs than our Canadian neighbors simply because Congress is bought and paid for by the powerful pharmaceutical industry".

The same tension between competitive provision and real or fantasised patient safety crops up all over the place. I recently read in the Harvard Business Review, for example, 'Why Health Care Mergers Can Be Good for Patients'. The author says, and I'm sure he's right, that "Patients who undergo complicated operations fare worse when their hospitals or surgeons rarely perform them", and his response is that hospitals should bulk up so that there are high volumes of lower-risk operations being performed all the time. The flipside, though, is that there are all sorts of clear competitive downsides to wholesale health mergers: as the American Medical Association recently said, 'Health-Care Mergers: Good for Health-Care Companies, Not So Good for Patients and Doctors' (though in this case it wasn't a completely pro-consumer stance, as the AMA was also concerned about the enhanced countervailing power of merged insurers against doctors).

Maybe it's time for competition authorities to be given the job of riding shotgun on some of these 'patient safety' and 'professional qualification' arrangements?

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