Failure in public organisations – especially healthcare

Failure is important in any organisation – without failing you don’t adapt or innovate, as it means you’re probably doing the same thing over and over. And even if you do the same thing, chances are the world is going to change so it won’t work any more. Failure is the heart of Tim Harford’s book ‘adapt’, as well as in Austrian economics (I wonder if Harford is an Austrian?).

The problem is that many public services deal in areas, where, if they fail, there are pretty large consequences. We don’t want surgeons getting too experimental with ourselves and our loved ones, even if it might lead to societal good if they find a breakthrough. We need what we might call experimentation within limits – trying new things in environments where it safe to do so. In terms of individual organisations we want to encourage our health services to experiment, but those experiments are more likely to be about their organisation rather than the substance of the service itself. We have a word for experiments in the substance of healthcare – trials – and they are tightly regulated.

Outside of individual organisations there are also big problems with failure. In a market context, failure is important because without it, you don’t really have a market. Failure is necessary in market mechanisms because it drives out poor provision and reallocates the staff and capital to more productive enterprises. But we still haven’t worked out a way for public providers of services (especially in healthcare) to be allowed fail because they are unfavoured in marketplaces.

The problem isn’t just restricted to market environments. Even where we have evidence that the performance of a public hospital or service provider is poor, it is often near-impossible to close them. We can’t just close comprehensive providers of healthcare – they are too important for local economies in terms of employment, and will often be the only providers of a range of treatments and services that the private sector isn’t interested in providing – typically the complex and difficult care. And we’ve seen repeatedly how attached local people are to their local hospitals – no matter how bad they are.

What all this means is that public hospitals (and many public organisations for that matter) are ‘too treasured to fail’. It’s politically just about impossible to close them, and even if it were, it would be extremely difficult to replace them with the large number of non-public providers that would be necessary to take up their slack.

I think what this shows is that market-based models of public reform presume that it is possible for failure to occur – and for failure to occur the market would have to be made up of lots of small providers. But that simply isn’t the case in healthcare, where we need public hospitals to provide comprehensive care, to provide clinical education, and to give some stability of employment, especially in areas which are deprived.

So another way of saying this is that one of the hidden assumptions about competition and markets in healthcare – that organisations have to be able to fail – simply doesn’t stand up. Another reason why markets won’t work in healthcare.


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