Rationing

Most governments control health spending by using price controls in the form of price ceilings. When prices are not free to change in response to the interplay of supply-and-demand forces, some other mechanism must replace the role of prices in allocating goods and services among competing uses. Price ceilings result in shortages. Rationing carries out the allocation function normally associated with price changes. Health care is typically rationed through longer waiting times, a decrease in the overall quality of health care, and reduced access to certain health care services.

The interaction of supply and demand is key to resource allocation in a private enterprise system. Prices are determined by the interplay of supply and demand forces. Given quantity supplied, an increase in demand for a health care service not only increases the price but also leads producers to supply greater qualities of the service. Price changes allocate scarce resources among competing uses on the basis of priorities. Higher prices stimulate production to meet the needs of consumers who are willing to pay more for a health service.

Government-sponsored health care programs control spending by setting a price ceiling for each service that is less than the market-clearing equilibrium price. Excess demand exists at the administered price. This excess demand, in part, represents consumers who are queued and are willing and able to pay more to avoid long waits. Because the market price cannot rise above the ceiling, rising demand does not expand output despite the needs of consumers and their willingness to pay more. One effect of efforts to hold prices down is to limit production and make the product less available. Because prices are not left to the free interplay of supply and demand, some form of rationing must be used to allocate health care services among competing uses.

Health care is rationed through longer waiting times, a reduction in the quality of health care, and reduced access to certain services. Patients will wait longer in emergency wards, months for referral to a specialist, or a year for a long-term bed. Only patients willing to wait will have access to certain health services. Some patients will seek health care in other countries. Physicians will be encouraged to devote less time to each patient. Lower prices and profits may reduce capacity and limit the use of new technologies. Hospitals will raise the threshold for admission and for performing expensive diagnostic and therapeutic procedures. Attention will be focused on providing primary and emergency care, and less specialty care services. A government's refusal to approve a new drug because it is not deemed a significant improvement over an existing drug is a form of health care rationing. The effect of a system that[Page 483] depends on rationing access to health care is often to delay, or simply not provide, certain health care services.