Is the free market system compatible with our health system?

M. Iqbal Mochtar, Ministry of Health, Makassar, South Sulawesi

In an international survey conducted to measure the health system in 191 countries, Indonesia's health system was categorized as bad and was among the worst in Southeast Asian countries. Health experts here have blamed many factors attributed to the centralized health system.

Some of them raise the need for a free-market system to ensure the best delivery of health care services, given its efficiency, equity and equality. A free market would mean that both health care providers and patients would seek and compete with each other to get the best value for their money.

Hospitals should be free to determine the cost of their services, doctors fix their standard consultation fees and patients deserve the right to go to any hospital or doctor according to their preference. Given the nature of competition, health care providers try to provide efficient services and prices.

However, there are some likely fallacies underlying this pro- free market notion.

In a competitive market, income distribution is determined by two factors: The workers' salary and their skills. Yet, these factors may vary widely from person to person. Every worker certainly has their own knowledge and ability, and thus each receives a different salary. As a result, the unequal distribution of income can be observed in everywhere, particularly in a developing country like Indonesia.

In the health sector, unequal distribution of income usually benefits those who are better off, as they are much more likely to be able to afford health care than the poor. The more expensive the health care, the larger the discrepancy between the rich and poor in their access to health services.

The free market mechanism cannot easily be applied to the health sector because the categories of health care are broad and varied, particularly in developing countries. Some curative medical services and medicines are categorized as private goods, while most public health programs are public or "merit" goods -- the latter refering preventive programs such as vaccination.

The free market system is likely to be applicable to private goods only. In Indonesia, however, the need for public and merit goods have remained substantially higher than the need for private goods. The number of people needing free clean water and immunization is considerably higher than the need for plastic surgery and weight-reduction programs. As a result of this discrepancy in health needs, the government is required to keep control over the availability of public and merit goods.

The government's interference under such conditions would disrupt the significant role of price as a result of the relationship between supply and demand, which means that the free market system cannot function in this particular situation.

Another argument against the free market system in the provision of health care is that the nature of health needs may simply not be viewed in the same way as with other goods and products. Health is one of the most valuable things an individual has, and therefore, the quality of health demanded cannot be justified simply by pricing and market equilibrium. Patients do not have alternatives to health or life. This is not the case with other goods, such as chocolate or butter.

To be efficient, the free market system requires both producers and consumers to have adequate knowledge regarding the goods on offer in order to make a rational decision in selling and buying goods. In the health sector, particularly in developing countries like Indonesia, however, this requirement does not seem to be fulfilled.

Health care providers surely have a much more superior knowledge than patients in terms of health care services. Thus, health care providers have an advantage and may perform any health treatments they choose -- for whatever benefits -- while patients are mostly dependent on their providers' discretion. This amounts to inefficiency in a free market system.

The advantages of a free market system -- minimizing complex costs of administration and bureaucracy -- occurs in an environment of real competition.

Like the governments of many countries, the Indonesian government is currently examining which health care system is most compatible with the conditions here. But nowadays, given the particular circumstances of a developing country, the health sector cannot rely on a single system, whether a free market or a centralized system.

A combination of the two systems may provide the flexibility necessary to achieve efficiency. In a combined system, the government may control the market to maintain efficiency, while it must control the price of health care provision relative to consumption through the direct and free provision of certain health services. It also needs to control the behavior of health care providers through appropriate legislation.