Affordable Excellence: The Singapore Healthcare Story

Controlling Costs

 Affordable Excellence CHAPTER 4 Controlling Costs  Once a healthcare system is built, it is much more difficult to reduce fixed costs, and when those costs spiral out of control, national budgets are strained. When nations can no longer support the system they have produced, they may need to resort to unwelcome alternatives that can include long delays for appointments, testing, and treatment; rationing; limitations of service; and even denial of service. Singapore has mostly avoided these problems. It has had the advantage of being able to build its system almost from the start, and of having a farthinking government that carefully planned for healthcare, implemented its plans and now continually monitors, reassesses, and adjusts as necessary. The results have been outstanding. Singapore is well-known for spending a relatively small percentage of GDP on healthcare while still achieving worldclass health outcomes. The total healthcare expenditure as a percentage of GDP has stayed between three and four percent since 1995. As a point of comparison, total expenditure in the United States is almost 18 percent of GDP and rising.1 Most of the Singapore government’s spending comprises the subsidies allocated to the hospitals and polyclinics, spending on construction of healthcare facilities, and human resources. Its rigorous cost controls, as I discuss in this chapter, range from wide-scale management of the market, to regulations on how new technology is introduced to the public hospitals. Regulating the Healthcare Marketplace Singapore is focused on managing both public and private outlays for healthcare while at the same time keeping quality at the highest levels. The government’s most consequential approach to keeping prices under control: Affordable Excellence combined t64 64 3/21/2013 7:13:04 PM Controlling Costs  they have developed a quasi free market within which the healthcare system must function. The result has been better efficiency and improved delivery of care. Bureaucratic processes and structures have been replaced by a new form of healthcare marketplace.2 Public and private hospitals coexist in this market, but most hospital care is intentionally directed toward the public side through the patient incentives and subsidies I have described. With the ability to set the prices of services at the public hospitals, and with the ability to regulate the number of public hospitals and beds they provide, the government shapes the marketplace. It then allows market forces within that marketplace to regulate the private sector, which must not price itself out of the market. The system works because the extraordinarily high quality of the public hospitals has long been established and is scrupulously maintained. One study comparing healthcare systems among the developed Asian nations described the Singapore government as “micro-managing provision,” ensuring that public hospital charges are kept at acceptable levels, and in turn relieving pressure on Medisave accounts. It went on to say that the government “uses funding (and hospital ownership) in a calculated manner to control service costs and subsidize care, in turn limiting expenditure from insurance accounts and providing incentives for private providers to keep costs down.”3 The effectiveness of Singapore’s “micro-managing” can also be seen in the average cost of basic medical insurance—especially when compared to other countries. A study by Deutsche Bank’s Global Markets Research Team and reported in Business Insider shows that the average annual premium for basic health insurance in Singapore is just under S$88, a cost that is just two percent of what Americans pay for their insurance.4 See Table 4.1 for more details. In another effort to keep the system in balance, the government has gone as far as allowing Singaporeans—starting in 2010—to use their Medisave dollars for care in overseas hospitals (owned by Singapore healthcare groups) with tie-ups with Singapore-based healthcare groups, where costs are much lower.This freedom allows Singaporeans the opportunity to benefit from lower prices and also provides a check on the costs in hospitals in Singapore itself. In order to take advantage of this opportunity, Singaporeans must first be referred by the healthcare groups’ referral centers in Singapore.5 According to the Ministry of Health, some 127 Singaporean residents used their Medisave for elective hospitalization and day surgeries in Malaysia. Former Health Minister Khaw Boon Wan has said that the public sector should always play the dominant role in providing care services, but Affordable Excellence combined t65 65 3/21/2013 7:13:04 PM  Affordable...