Health-care prescription: decentralization

Health Minister Gaétan Barrette is currently piloting Bill 130, which curtails the autonomy of doctors and gives the health minister the right to make changes to the internal rules governing health establishments. This is just the latest of countless attempts in the past three decades to reform the province’s health-care system. The reason for this governmental hyperactivity is simple: There are multiple systemic problems, especially in terms of long emergency room wait times and long delays for surgeries.

Not only has the Health Ministry been unable to plan the long-term development of the system in such a way as to put an end to these problems once and for all; it also seems unable to allocate resources efficiently when the unexpected occurs. The slightest thing, like hospital staff vacations or the early onset of the winter flu season, creates a chaotic situation in emergency rooms.

Barrette seems to think he can resolve these problems by increasing the centralization of decision-making. The current MUHC crisis, with the independent members of the board of directors resigning en masse, is just the latest manifestation of this permanent crisis.

Other sectors of activity, however, do not seem to be saddled with the same recurrent problems. Normally, there are not long wait times to see a dentist, an accountant or a hairdresser, and most goods and services that we can buy are not in short supply. What, then, is so different about health care?

Planning the production of health-care services requires a great deal of information, for example on the characteristics of the population, the most common illnesses in each region, the level of use of emergency rooms. The more complex and vast a system is, the more information that needs to be processed. 

For Nobel laureate in economics Friedrich Hayek (1899-1992), the problem is complicated by the fact that a large portion of the information that’s needed is not accessible. It is known only to the millions of individual actors, and even then, is only generated as they make decisions and act. In a 1945 article that has become a classic in economics, Hayek explained that it is impossible for bureaucrats at the head of a vast and complex organization to control everything in an efficient manner, given that there exists no mechanism for obtaining this information.

In contrast to planning, the market allows for an effective allocation of resources without needing to centralize this information. The innumerable market interactions between individual agents give rise to prices, which are signals that transmit information about the needs and wants of participants, the availability of resources, the values of alternative uses for these, and so on. Prices signal to each party what he or she must do to make the most of existing resources, and they produce incentives that ensure effective coordination.

In short, centralized planning requires an omniscient planner if selected objectives are to be achieved, while the market does not need us to know everything, but merely requires actors to react to prices.

It’s no surprise, then, that health-care systems that work better than ours, like Sweden’s, are generally more decentralized. This decentralization allows actors on the ground, who see the needs of patients and the availability of resources, to make the necessary decisions.

A related measure consists of relying more on market pricing as a co-ordination mechanism. These prices could emerge in a system based on patient choice and competition between public and private care providers, instead of a public monopoly. Competition itself plays an essential role in the discovery of information, as Hayek also explained.

Even in a mixed universal health-care system financed for the most part by government, it is possible to steer clear of the main hazards of centralized planning. According to Hayek’s teachings, instead of further centralizing administration to resolve recurring problems, Barrette should do the exact opposite.

Germain Belzile is a Senior Associate Researcher at the MEI and the author of “Viewpoint – Centralized Health Care: A Recipe That’s Doomed to Fail.” The views reflected in this op-ed are his own.

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