MOH Budget Speech 2005 (Part 1) - The Best Healthcare that Singaporeans Can Afford

08 Mar 2005

By Mr Khaw Boon Wan, Minister For Health

Venue: Parliament

Speech By Mr Khaw Boon Wan, Minister For Health In Parliament: 8 March 2005

"The Best Healthcare that Singaporeans Can Afford"

Mdm Halimah Yacob, Dr Michael Lim, Mdm Cynthia Phua and Mr Gan Kim Yong voiced their concerns over healthcare cost. Dr Wang Kai Yuen quoted the survey results by the Feedback Group.

We Are Not Alone

Public concern over healthcare cost is global, from China to US. Last month, Harvard University published a study which estimated that medical bills forced 2 million Americans into bankruptcy every year. The study leader had this to say: "Our study is frightening. Unless you're Bill Gates, you're just one serious illness away from bankruptcy."

Last month, an East Asian Institute's report on health care in urban China drew these conclusions: "health care costs are soaring", "health care providers are concerned with making money", and "the inaccessibility to health care for the poor is widespread". I recently met an American scientist who is familiar with China's healthcare scene. He made a shrewd observation that China now carries out more Lasik than cataract surgery. In other words, the doctors there are carrying out more elective surgeries for those who can afford it, neglecting the basic medical needs of the masses.

Our healthcare system is not perfect, but objectively, it is not bad. Singaporeans enjoy a high standard of healthcare. Our health status is among the best in the world. Our fees are not low, but for the vast majority of Singaporeans, they are affordable.

Save For Rainy Days

Medical treatment is not cheap, especially in the hospitals. But most people do not require frequent admissions. If we contribute regularly to our Medisave, we should have enough to pay for our Class B2/C hospital bills. The average Medisave balance exceeds $11,000, enough for more than 10 Class C hospitalisations. And this average is growing.

I have read the Feedback Report. The self-employed are significantly represented among those who expressed concern about healthcare cost. If a self-employed person does not contribute regularly to Medisave, he ought to be concerned. Without Medisave, any hospital bill may be unaffordable. We must get our self-employed to contribute regularly to their Medisave.

SM + MM = SMs

This is very important. Without Medisave, we cannot help Singaporeans deal with the issue of healthcare costs. With Medisave, and after we have fixed MediShield, practically all Singaporeans should have no problems with hospital bills. Medifund will take care of those who drop through the Medisave/MediShield net.

This SMs (Subsidy, Medisave, MediShield, Medifund) model of funding hospital cost delivers better results with less abuses. Our unique model has been noted by others. The World Healthcare Congress, an international forum for global best practices in healthcare financing, is holding a meeting in France. They have invited Singapore to share our Medisave experience with them.

The US studied our Medisave and MediShield. Last year, President Bush established tax-free Health Saving Accounts (HSA) for individuals. The HSA is very similar to our Medisave, except that it is not compulsory, nor nation-wide.

Our SMs model comprises 2 parts: SM and MM. Government provides S and M: subsidy and Medifund. Singaporeans deliver M and M: Medisave and MediShield. If we both play our parts, nobody should have to worry about basic hospitalization cost being unaffordable.

Medisave Contribution Ceiling

The more we have in Medisave, the stronger our system becomes. That is why I support Mdm Halimah's suggestion that we lift the Medisave Contribution Ceiling, instead of letting the excess overflow to the Ordinary Account.

But some CPF members may prefer the current system as it allows them to use excess monies for housing, investment, or education needs. In any case, the CPF Board will, on a case-by-case basis, allow members to reverse the Medisave overflow, if they incur very large hospital bills.

Medisave For Outpatient Treatment

Mdm Halimah argued for Medisave to cover outpatient treatment. But Medisave is intended primarily for inpatient care. Nevertheless, we have allowed Medisave for day surgeries and certain expensive outpatient treatments, including renal dialysis and chemotherapy.

We review the list of approved outpatient treatments regularly. New treatments will be added when appropriate.

Means-Testing

Several Members have commented on means testing. Dr Chong Weng Chiew wanted it done as soon as possible, while Mr Andy Gan had some reservations. Dr Michael Lim asked for more details.

The purpose of means testing is to better target our subsidies at those who need them most. The principle is simple, the implementation not so. If we are clumsy, as Mdm Halimah put it, we can cause "a lot of angst without achieving its objective".

I am not in a hurry to implement means-testing. I have taken the advice of Dr Lily Neo to do means-testing after the MediShield reform. She explained that the impact of the MediShield reform ought to be studied first, before we introduce means-testing. Meanwhile, I have noted the suggestions made by Dr Tan Cheng Bock, Mdm Halimah, Mr Andy Gan and Dr Chong Weng Chiew. We will consider them at the appropriate time.

Medishield

Let me turn to MediShield. Mr Steve Chia claimed that Singaporeans are worse-off with the MediShield reform. Really? He has either misunderstood the facts or chosen to disregard the benefits of the reform.

The reform is not cost-free. But I have minimised the cost to Singaporeans. The fact is that with only a modest increase in premiums, policyholders will enjoy substantially higher payouts if confronted with large hospital bills.

I am sorry to hear of the death of Mdm Cynthia Phua's former classmate. Her family is now left with a large hospital bill, nearly $90,000, despite our subsidy. Her classmate had MediShield but the payout was not as much as the family had hoped for. Such cases of major illness and large hospital bills are not common, but do occur. I want to help these poor patients cope with such large bills. MediShield reform is the answer.

That is why I am baffled by Mr Steve Chia's conclusion. The increase in deductible is necessary as MediShield is a catastrophic medical insurance. What is MediShield for? It is to protect against large bills, not small bills. If the deductible stays unchanged, then MediShield must end up covering more and more small bills, leaving patients with large bills insufficiently protected. Then it is no longer a catastrophic medical insurance. When MediShield started 15 years ago, it covered about 5% of hospital admissions, the very large bills. Today it covers 50%! If you want MediShield to cover both small and large bills, the premiums will have to be very much higher.

Actually, my preference is for an even higher deductible so that I can reduce effective co-payment for large bills from 60% to about 20%. This will give greater payouts to such patients. But unionists talked me out of it. I have therefore settled on the current package, as the most optimal trade-off that we can achieve. The key question is whether Medisave is sufficient to cover the increased deductible. Here the answer is a definitive yes.

Mr Low suggested that the young pay more premiums to cross-subsidise the old. That is possible, but then the premiums for the young would have to go up drastically. Today, the premiums range from $30 per year to about $500. Mr Low's suggestion would require us to up the premiums for the young many times. Would the young be happy to do so? What if there is an exodus of the young from MediShield? Then there would be few left to fund the cross-subsidy, and the premiums will have to go up further. That must trigger another round of exodus. So that is not a workable solution.

More Explanations And Assistance

Mdm Halimah and Dr Chong asked for greater publicity and explanations on the MediShield reform. I agree. As one insurer put it, insurance is a complicated subject. But medical insurance is among the most complicated of all insurance products.

We will continue to engage the public, right through the July implementation and also after it.

Dr Chong suggested that we work with the CDCs to reach out to those who have difficulties paying their MediSheld premiums. In fact, with healthy Medisave balances and Government top-ups, premium affordability should not be an issue for almost all Singaporeans. But for the small minority with genuine financial difficulties, I agree the Mayors and community leaders will be in the best position to provide targeted assistance. I hope they will support our efforts to get all Singaporeans "Shielded".

Cover Dentistry

Mr Andy Gan asked for MediShield to cover long-term dental care. The differentiation is not between medical or dental treatment. The issue is inpatient vs outpatient treatment. MediShield is primarily for inpatient care. It does cover some dental treatment which requires hospitalisation.

I would however be against extending MediShield to routine dentistry or cosmetic orthodontics. More coverage only means higher premium. For the basic MediShield policy, let us keep it to essentials so that the premiums will also be minimal.

No-Claim Bonus 

Mdm Halimah asked that we use MediShield to encourage healthy lifestyles among Singaporeans. Specifically, she asked that we incorporate a no-claim bonus (NCB) in MediShield. Dr John Chen first raised it when I did my walkabout in Dr Amy Khor's constituency. I thought it was brilliant.

But when I discussed it with the experts in the insurance industry, they voiced concerns. Experience elsewhere has shown that an NCB arrangement could lead to perverse outcomes. At the end of the insurance term, the NCB may lead to some patients postponing medical treatment by a few weeks in order not to lose their NCB for that year. Unlike motor car insurance, where postponing repairs may not do any irreversible damage, delayed medical treatment in some cases may prove detrimental. I am persuaded by the insurers.

Plain Vanilla

On the other hand, there may be a case to load a higher premium on policyholders who insist on continuing with unhealthy habits, for example smokers. In life insurance, smokers attract a higher premium. A case can be made for higher medical insurance premiums for chain smokers or heavy drinkers. But implementation will not be easy. How would insurers verify their extent of smoking or drinking?

It is therefore better that we keep MediShield simple, as a plain vanilla model, with the lowest administrative cost at lowest premiums. But I will welcome it if some private insurers decide to offer niche products with NCB features, or enhanced insurance plans with premium discounts for those with proven healthy lifestyle.

In this way, we have a basic MediShield to meet essential needs of all Singaporeans, and an innovative and dynamic private insurance market on top, offering a wide range of choices to Singaporeans who want and can afford better coverage. This is in fact a very important part of the MediShield reform.

Medishield Plus

To speed up the development of this private insurance market, CPF Board will tender off its MediShield Plus portfolio to a private insurer.

Prof Ong Soh Khim was worried that this tender could lead to more healthy lives leaving the basic MediShield scheme. This will not be so. A key part of the MediShield reform is precisely to remove cherry picking. From July 1, all private Shield plans will include the basic MediShield. Their policyholders will all be covered by MediShield at the basic level.

Mdm Halimah and Prof Ong stressed that we should protect the interests of existing MediShield Plus policyholders. I agree. The tender terms will require the successful tenderer to fulfil certain obligations. For example, the insurer cannot unilaterally withdraw coverage on grounds of pre-existing illness. Any downgrading to the basic MediShield scheme will remain possible. We will also require the successful insurer to guarantee premiums for at least 3 years.

Mdm Halimah asked if we would regulate premiums of the private insurers. We should not. We do not regulate the price of rice. But we ensure that consumers are informed of the prices of rice and there is also NTUC Fairprice available. Likewise, we should make sure that the insurance market is transparent, so that consumers can make better choices. And I am comforted by the presence of NTUC Income.

Healthcare Subsidy

Mdm Halimah shared a perception that "the government is trying to reduce its share of the healthcare cost". How could it be? In fact, with progressive ageing, we know that we have to do more.

Our healthcare subsidies have been increasing steadily, from about $850 million in FY2000, to $1.26 billion in FY2004, and now, $1.32 billion in FY2005. This covers immediate consumption each year.

Over the same period, Government has topped up Medisave, Medifund and Elderfund by a total sum of $1.8 billion. This sum will provide for future healthcare consumption. It is our way of collectively saving for future needs. Better make hay while there is sunshine, for we cannot be certain of budget surpluses in the future.

Not Money Alone

However, it is not just how much we spend that counts, but also how we spend it. As Mdm Halimah and Dr Michael Lim noted, healthcare is more than about financing. Money is not everything. A strong healthcare system has to deal with two other important aspects: the healthcare delivery system itself and the role played by patients.

(A) Healthcare Delivery System

First, the healthcare delivery system. How are services delivered? Do providers have the incentives to optimize their services, to do more with less?

Sadly, there is no perfect healthcare system in the world. We all say that prevention is better than cure, that early intervention can reduce more costly treatment in the future. But how many doctors, clinics and hospitals in the world are pro-actively, consistently practicing this regime?

We all say that chronically-ill patients are better-off being treated by GPs, community hospitals, or nursing homes, instead of expensive acute hospitals. Again, how many of the chronically-ill are actually so treated?

We all say that healthcare providers should treat patients holistically as a team, share information about the patients, and partner one another to bring care to the patients, without duplicating efforts and replicating tests. But again, how many patients in the world consistently receive medical care in this manner?

Question: why is it so difficult to get all doctors, patients, insurers to do the right things, all the time?

Can Markets Work in Healthcare?

Market competition has worked in almost every sector of the economy. It has improved the airlines, banking, telecommunications, computer, and other industries. Products and services improve, while costs come down.

Yet the conventional wisdom is that for healthcare, there is "market failure". My view is that though healthcare has certain intrinsic differences with other industries, the market does not necessarily fail. It fails only if we allow it to.

It fails when we create distortions in pricing, reimbursement and remuneration systems. It fails when we create wrong incentives, leading to wrong behaviour. It fails when we limit the supply of critical resources, like specialists, creating long queues of patients and yet somehow expect the providers to charge less out of the kindness of their hearts. It fails when we keep cost and outcome information away from patients and their referring doctors, thereby further worsening the "unequal powers" of providers and patients.

I believe we can make markets work better in healthcare. I am optimistic because we know there are some healthcare activities where the market does not fail. Our obstetrics market is highly competitive. Obstetricians compete robustly. As a result, one obstetrician once lamented to me, that over the last 10 years, his professional fees remain unchanged. And since there is a physical limit to how many babies he can deliver a day, his income in real term has actually declined in the last 10 years. I quietly felt happy for our pregnant mothers.

The Lasik surgery market does not fail. After I published the range of Lasik surgery fees last year, prices in some centres fell by a big amount.

What is the lesson here? Healthcare is subject to the economics of the market too. But for economics and markets to work, we must make sure that the conditions for market competition exist.

That is why I published the bill sizes for the common medical treatments. My objective is for more of these medical treatments to be like obstetrics, and Lasik surgery, where patients can make informed choices. When competition is brought to bear on these services, we will then have the right incentives for the healthcare providers to do the right thing, to raise standards even as they reduce cost.

I will continue to push out more relevant information, on prices and outcomes, to the public. Last month, a friend told me that our MRI fees were higher than the private sector. I found out that our MRI charges range from $500 to $900, almost double. Preliminary soundings suggest that MRI charges in our public hospitals are not the cheapest in town. I wonder why. When we have finalised our market survey, we will publish the data. I bet it will have an impact on MRI charges here.

Block Budget

Likewise, if hospitals have the wrong incentives, they may pursue wrong objectives. That is why I am refining our hospital subvention model to include some elements of block budgeting. As Mdm Halimah has pointed out, if hospitals are given piece-rate incentives, they would tend to pursue volume, leading to over-servicing and higher healthcare cost. And as Dr Michael Lim noted, night polyclinics are a reflection of this. I agree with him that it is not a meaningful deployment of limited resources.

But subventing hospitals at a fixed block is also not the panacea. Hospitals may pocket the block budget and do the minimum, pushing patients to one another to shift their costs, resulting in longer queues and under-treatment. In my younger days, public hospitals were in fact on block budget. MOH subsequently switched to piece-rates, not without good reasons.

I am not completely discarding piece-rates for block budget. I am going for both. Where outcomes are well-defined, it would make sense to continue with piece-rate subvention. We have identified 70 medical conditions which form the bulk of our patient-load in the hospitals. We should now go more deeply into the costing of these medical conditions and subvent hospitals based on their volumes for these 70 medical conditions.

As for the rest of the medical conditions, the subvention will come under a block budget. This will be a better way to align our interests. The clusters will then seek to co-ordinate care more effectively. They will "right-site" their patients by treating them at the most appropriate and lowest cost setting.

Right-Siting

On right-siting, Mdm Halimah reminded me not to "put the cart before the horse". Let me assure her that I am no "bull in the china shop". All my current initiatives - right-siting, disease management, healthy lifestyle, transforming primary healthcare - are long-term strategic initiatives. They will take years to complete, as mindset change is a crucial part of this transformation. We have to be patient. But if we stay focused, then step by step, we will make progress.

GPs and polyclinic doctors have to upgrade themselves. Good family physicians can provide better care for the chronically-ill than the army of specialists in the hospitals. There is a role for "kueh lapis", if I may use Dr Michael Lim's jargon. He himself provides an excellent layer of our "kueh lapis". I agree with him that for chronic illnesses, care is best given in family physician clinics. But this will not happen overnight. We will start some experiments, pilot some Family Physician Clinics at polyclinics, and take it from there.

But no amount of tinkering with subvention, or preaching and pleading by MOH officials can work as effectively as the power of competition in driving productivity and innovation. That is why we will continue to monitor key quality indicators and publish them. This will provide comparative benchmarks to drive efforts for efficiency gains by both public and private healthcare providers.

When we compare with globally-competitive activities like manufacturing, we know that healthcare is rather inefficient. There are wastes, duplication, delays. Decades of protection and market distortions have caused this.

It means opportunities for us to do what is right and clean up the inefficiencies. But we have to make the effort and learn from world-class organisations, including those outside of healthcare. Let me just give a couple of examples to illustrate the possibilities.

Toyota in a Hospital

Last week I published the waiting times at our A&E Departments. AH came up tops. It is easy to dismiss this finding by noting that AH is the least busy. But it would be unfair to their staff.

Over the past year, AH team has been learning from Toyota, visiting their plant in Japan and workshop in Singapore and learning from Toyota Managers. I know cars are different from patients. But there are lessons to be learnt from Toyota. The Toyota Production System (TPS) is now closely studied by many management schools.

Prior to introducing TPS, AH's median waiting time at A&E was 25 minutes, not unlike the other hospitals. Their waiting time is now 14 minutes, half, despite treating many more patients than before. As Dr Francis Lee, their A&E Head puts it: "The key is to engage every staff to focus on delivering value and eliminating waste every day. Patients come to us for diagnosis, treatment and advice. We focus on doing just that and removing all the unnecessary work. No magic bullet. Just a culture of continuous experimentation, daily grind work to simplify processes, standardise work and remove bottlenecks. It is step by step, minute by minute." He is sounding like Mr Toyota!

They are now going to extend TPS to the other departments. The intent is to re-engineer the entire hospital operation, so that when they move to Northern General Hospital in 2010, it will be a new hospital with a completely new operating system. I am watching the Toyota experiment in AH with great expectations.

Microsoft in a Hospital

As we learn from Toyota, we are also learning from Microsoft. Last year, Microsoft's CEO, Steve Ballmer, visited us in Singapore. I shared with him my vision of a hassle-free hospital, with IT fully exploited to make the lives of patients and their visitors easier. Members may recall our discussion of this vision in last year's Budget debate.

I suggested to Steve Ballmer that the current system of running hospitals in US or anywhere else in the world is not sustainable. But if we can transform the current system, we would have made a major contribution to the world.

He was excited by the prospect and the opportunity. We decided to use AH as the test site for such a major experiment or what the Americans call "skunk works". We are involving other partners, including Nanyang Polytechnic. Principal Lin Cheng Tong offered to help. His academic staff and students came forward and worked closely with AH, Microsoft, IDA and others. They wrote most of the computer software on trial at the Emergency Department that allowed the staff to change and modify their processes quickly.

This has been a most productive engagement. The students get to work on cutting-edge projects in a real environment, while hospital patients benefit from faster improvement. Microsoft has a work discipline which demands progress every 90 days. Our NYP students do not disappoint. Many worked past midnight and through Chinese New Year to deliver within 90 days. I have no doubt the outstanding ones will find jobs with Microsoft in due course. One Singaporean, One Electronic Medical Record (EMR)

As I said, we are extending this skunk works to other parts of AH. My IT vision for healthcare is "One Singaporean, One EMR" which is updated real-time and accessible to the healthcare team that serves the patients. This vision will take time to realise, but initial steps have already been taken, benefiting patients in our emergency departments.

Mr Low Thia Khiang is worried that electronic medical records would cause huge problems if they are inaccurate. He quoted a case of his constituent being wrongly recorded as HIV-positive.

I do not know if this is a result of wrong diagnosis or wrong recording. I will need specific details to find out what caused the error. But there is no excuse for human errors. All hospitals have a duty to keep medical records accurate, current, complete and confidential.

That said however, let us not throw out the baby with the bath water. The change from paper-based systems to electronic ones has in fact improved the accuracy of medical records. For example, in most emergency departments, recent records are no longer handwritten which are prone to misinterpretation. Lab tests results are transmitted directly to the attending doctor to minimise errors.

Various safeguards are in place to ensure the accuracy and integrity of electronic medical records. For sensitive information such as HIV status, there are additional safeguards.

We should not be afraid of IT. Healthcare is inefficient partly because it is such a laggard in IT exploitation. I am determined to change that. Our pilot skunk works can potentially transform the way we run hospitals, bringing new benefits to patients. We do not underestimate the challenges, but if we are creative and determined, some of these skunk works may succeed.

(B) Role of Patients

Finally, the other important aspect in any healthcare system is the role played by patients. This has traditionally been neglected.

We all say that people value good health. But how many really take this to heart, and proactively work with their doctors to preserve their health?

Many patients are passive. When well, they take their health for granted. When sick, they ask the doctor: what can you do for me?

Healthcare is a partnership, a partnership between the carer and the patient. There is no such thing as "a pill for every ill". To stay healthy and to recover from an illness, the patient has to play an active part.

Let me give you my personal example. I am predisposed to high cholesterol. Years ago, my doctor spelt out the protocol for me: diet, exercise, statins, periodic medical assessment. I take the protocol seriously. Friends know that I am strict on my diet, and consistent with my exercises, and fully compliant with my intake of statins. Without this personal involvement, there is a limit to what my doctor can do to effect a change in my health status.

I am optimistic that more and more patients will be pro-active. Doctors are increasingly being challenged by their patients, who come with printouts of articles that they read in the Internet. I welcome this development.

However, let me caution that being proactive does not mean trying to play doctor and demanding every new drug advertised on the Internet. Your doctor will have to assess your needs and prescribe accordingly. As always, there are trade-offs to be made. Many new drugs come with a high price, for marginal benefits.

For subsidised patients, we have to make the choice on behalf of them. That is why we have standard versus non-standard drugs which Mdm Halimah and Mdm Cynthia Phua brought up. As trustees of limited public funds, it is our job to spend it in a way that brings maximum benefits to all. If we merrily incorporate all new drugs into our standard drug list, we will quickly run out of money.

Dr Michael Lim gave vivid examples of how technology can postpone death and bankrupt the society along with it, often with little quality of life for the dying patient. He wisely advised our medical community to ensure that our clinical practice guidelines require cost-effective care. I cannot agree more.

Politicians have a role to play here. As advised by Mr Gan Kim Yong, we must help moderate the expectations of the patients.  We must not fan unnecessary expectations of patients. We cannot afford to do so.

Conculsion

Meanwhile, let us try to make the market work better for us. The healthcare market will never be perfectly competitive. But it is so imperfect that any incremental improvement will mean big progress. If each year we make it less imperfect than before, we would have made a meaningful contribution.

Singaporeans can then continue to enjoy a high standard of healthcare services, a world-class health status, at a cost which our society can afford.