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Time to open up our health system to “disruptive innovation,” says new IEA publication

Author Nima Sanandaji outlines how entrepreneurship in healthcare can create better outcomes

  • Most of the benefits of free markets have not been transferred to healthcare;
  • The UK’s centrally-planned system had problems prior to the Covid-19 pandemic, with long waiting times, inefficiencies and patient safety incidents;
  • The crisis has brought about comparisons between healthcare systems across the globe – rather than the binary choice between the NHS or the US system;
  • Without reform, existing issues will continue to plague health systems in Western countries;
  • Further, their funding is likely to require a “substantial increase” in the tax burden as populations age;
  • The organisational changes needed to drive costs down and at the same time increase quality and safety – such as economies of scale and high levels of specialisation – have not been implemented to a significant degree under welfare state models;
  • “Overly strict regulations” restrict the ability to adopt radical change. The focus is on controlling healthcare costs over the short term rather than “increasing quality and fostering innovation”;
  • By contrast, developing countries are not stuck in the Western model. The greater openness of health markets in countries such as India has paved the way for the “Henry Fords of healthcare”;
  • Healthcare entrepreneurs show that radical innovation is possible in the sector and they are achieving substantial cost savings and productivity gains;
  • Without major reform, however, it would be difficult to introduce a similar approach in Western healthcare systems;
  • Large numbers of patients are already travelling to destinations such as Thailand, Mexico and India to avoid long waiting lists or save money. This trend is likely to increase as the problems with welfare-state systems intensify.

A new publication from the Institute of Economic Affairs, by Dr Nima Sanandaji, examines the lessons Western nations could learn from some developing countries in fostering innovation and entrepreneurship in healthcare. Health systems in Western countries are “plagued by inefficiency and productivity growth”: in adopting a new approach they could cut costs, increase quality, and reduce waiting times.

The Henry Fords of Healthcare outlines how, during much of the twentieth century and the beginning of the twenty-first century, Western nations embarked on a policy route in which entrepreneurship was allowed to change the service delivery model of most sectors of the economy, yet healthcare was heavily regulated and thus impeded from enacting change.

In the UK, the private sector has little freedom to change systems of health delivery: it is not allowed to use its greatest strength – innovative, disruptive entrepreneurship – to improve the way health services are offered.

Perhaps, however, it is time to change this attitude – by learning from the Henry Fords of healthcare. Just as Henry Ford revolutionised the process of car manufacturing, so innovative businesses have shown that healthcare provision can be organised in ways that reduce costs and increase quality.

The most successful firms are delivering high-quality mass healthcare at affordable prices – something that eludes Western countries. A common feature of the successful models is their use of an assembly-line approach to healthcare provision, enabling them to capture economies of scale, achieve a high degree of specialisation, and therefore provide a high volume of good quality treatment at low cost.

Without major reform, however, it would be difficult to introduce a similar approach in Western healthcare systems. The funding and organisation of healthcare often gives each local hospital the task of treating a very broad range of conditions, making high levels of specialisation harder to achieve.

Moreover, healthcare systems are frequently organised such that patients receive portions of care from a variety of health providers, which may limit economies of scale.

Even though Western welfare states have so far been relatively closed to entrepreneurship, this might change if policymakers realise that it offers an opportunity to drive down costs and drive up quality, while also reducing waiting times. Allowing more room for a “lightly regulated private sector” would encourage the kind of innovations seen in developing countries.

Growth in health tourism will enable more Westerners to benefit from entrepreneurship and innovation in healthcare, even if regulatory barriers are retained in their own countries. Large numbers of patients are already travelling to destinations such as Thailand, Mexico and India in order to avoid long waiting lists or to save money, and this trend is likely to increase as the problems with welfare-state systems intensify.

Dr Nima Sanandaji, President of the European Centre for Entrepreneurship and Policy Reform, and author of The Henry Fords of Healthcare, said:

“The core innovation of entrepreneurs such as Devi Shetty is high levels of specialisation, with rooms in the hospitals dedicated to fit a particular form of medical treatment. Doctors and nurses similarly specialise in particular treatments, becoming increasingly good at it. The route of the patient through the hospital environment is streamlined, driving down costs while retaining high quality. Healthcare is thus delivered according to well-known lean principles, something not achieved well in Western health systems, which are restricted by overregulation and bureaucracy.”

Original article link: https://iea.org.uk/media/time-to-open-up-our-health-system-to-disruptive-innovation-says-new-iea-publication/

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