On markets and double standards

  • Posted on 26.01.2011

On markets and double standards


John Wilkinson

Former Chief Executive of Eucomed


Just before the Christmas break I purchased a beautiful flat screen television of exactly the same dimensions as one that I had bought four years previously. The price was something like 25% of what I had paid earlier and the picture much better. I also engaged in a renegotiation of my mobile phone contract and was amazed at just how much more value I got for the same price, compared with my previous contract and certainly compared with the contract I was on four years ago.

Such is the power of market forces as long as there is vibrant competition amongst suppliers. The story of increasing value for money has fuelled consumer expectations and the dreams of my father are now everyday items in my household. Despite the crash and somewhat appropriate calls for better regulation of the financial services sector, there is no viable alternative to fostering highly competitive markets. Markets like banking do need effective regulation because there is market distortion due to the ‘too big to fail’ effect on those managing risk (or not managing risk as we have found out to our cost). Governments’ role is to ensure that markets work and that distortions do not rig them in favour of either buyers or sellers. That way competition creates incentives for investment in innovation and rewards those that deliver superior value in the long run. In working markets prices will vary, especially across time, and customers with different needs will cut differing deals with vendors. If I buy a bottle of water in a top hotel in Brussels I expect to pay a different price to buying a pallet load of litre bottles in a discount warehouse. Prices do vary and that is the sign of a working market. If they don’t vary then the consumer and regulator does have room for suspicion unless retail price maintenance is in place, a practice that was outlawed in Europe many years ago.

Imagine my surprise then when I hear procurement people in the NHS expressing the view that variations in price across the UK are both a surprise and unacceptable. Customers in health systems have varying needs and sign contracts at varying times and of varying lengths. It is no more of a surprise that there are differing prices in the market for medical devices than that there are different prices for mobile phones and associated service contracts. The supply side of the medical device industry is fiercely competitive with many suppliers in any given category of product. The market will deliver best value over the long term whereas governments seek political advantage over the short-term. Forcing prices down by governments dictating appropriate levels is perhaps viewed as acceptable by many who are facing challenges of managing health systems, but it hides huge dangers, some of which are already surfacing.

Investors will not invest in projects which do not appear attractive in terms of returns. Governments fixing prices and paying no heed to value delivered will eliminate incentives for investors to put money into innovative new technologies. That means that the pace of innovation in health will slow dramatically and the progress that has been delivered so far, thanks to a myriad of technologies that both improve the lives of citizens and reduce the total cost of care, will dry up, with the rate of progress coming to a shuddering halt. Healthcare is an activity which is hugely dependent on very high labour costs so the last thing that makes sense is to turn your back on technology which can make that labour much more efficient and effective. This is not about substituting technology for skilled doctors and nurses but about helping Europe face the demographic challenges which mean that there will be chronic shortages of these skills in the future.

Minimally-invasive surgery has hugely reduced pain and suffering as well as slashing the cost of interventions; orthopaedic implants have seen millions out on the golf course or playing tennis rather than vegetating, depressed and confined to their homes; intraocular lenses have restored sight to countless numbers of people allowing them to carry on with very normal lives rather than giving up work and leisure activities… and a myriad more examples…

So we face a stark choice. Trust the markets to create the incentives and rewards whilst delivering value into the future, or ask governments to be the arbiters of value and destroy incentives for the developers of the treatments of the future. And destroy the opportunity for Europe to lead the world in taking medical research from the laboratory into the hospitals, homes and lives of all of us.

– John Wilkinson, Chief Executive, Eucomed

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