How Singapore Produced A World-Class Healthcare System
Economists and politicians have long marvelled at Singapore’s healthcare system as one of the best in the world. As per the Bloomberg Health Care Efficiency Index, Singaporean healthcare has a high quality output and is widely accessible while most importantly remaining affordable, ranking out at an outstanding second in the world, only outnumbered by Hong Kong.
Nor does this healthcare system come at huge expense of the taxpayer. World Bank data shows that Singapore’s government health expenditure in 2015 is only 4.3 percent of GDP, a small fraction in comparison to other first-world countries — 16.9 percent in the US; 11 percent in France; 9.9 percent in the UK; 10.9 percent in Japan, and 7.1 percent in Korea — while achieving comparatively equal or superior health outcomes of low infant mortality and higher life expectancies.
The reasons for Singapore’s success
How has Singapore succeeded in healthcare where others have failed? The simple answer is that Singapore’s healthcare system is rooted in a framework where market principles of secure property rights, a free price system, profit-making and economic freedom prevail.
Firstly, on a macroeconomic front, Singapore scores well in the way of trade barriers. For example, tariffs levied on pharmaceuticals are almost non-existent. In comparison, countries that impose heavy duties on imported medicines such as Nepal, Russia, India and Thailand — usually in the name of protectionist measures to privilege domestic producers — are also the same ones that struggle to deliver quality healthcare for its people.
Another barrier to achieving better healthcare outcomes are weak intellectual property (IP) protections, commonplace in many low to middle-income countries. While patents might take up to 10–11 years in countries like Brazil or Thailand to be approved, the average patent takes 2–4 years in Singapore, and as little as three to six months if the patent falls in a special track for emerging technologies such as AI.
Singapore’s strong commitment to the protection of IP rights and an efficient patent approval process sends a welcoming signal to pharmaceutical companies that their drugs are welcome in our economy, and will not be subject to arbitrary licensing or confiscation by the state. This standards in stark contrast to countries such as Malaysia where its governments have overrode the IP rights of pharmaceutical companies for its own political purposes.
Free market competition
Arguably the most important contributor to the success of the Singaporean healthcare system is the fact that the system is largely subject to market-based competition. Many of the local hospitals are labelled in name as “government institutions” or “public hospitals”, and this gives the erroneous impression that the hospitals are centrally governed by political bureaucrats.
In reality, Singapore’s hospitals operate far more like for-profit private firms. They enjoy high operational autonomy when it comes to staff recruitment, remuneration, the types and amount of services, technologies deployed, data policies, treatment protocols, and undertaken research. Most importantly, hospitals compete against one another for consumers on the basis of profits, like in any other market. This is not the case in healthcare systems around the world, such as the U.S. or Britain.
William A. Haseltine, who penned perhaps the most authoritative book on the Singaporean healthcare case study puts it simply:
A sweeping reform started in the 1980s, when the government embarked upon the restructuring of its public hospitals, giving them greater autonomy to function more like private hospitals than public institutions under a central control… The goal was to allow the public hospitals to compete against one another. The unsubsidized wards were meant to serve as a benchmark in terms of quality and price for the private sector. This action helped stabilize prices throughout the system. The public hospitals were given a freer hand to implement management practices for improving effectiveness and efficiency, and much more freedom in their day-to-day decisions…
The late Lee Kuan Yew also understood the importance of market incentives; he was fully cognisant of moral hazards and rejected the idea that government should be the main provisioner of healthcare. In his memoirs, Lee remarks:
The ideal of free medical services collided against the reality of human behaviour, certainly in Singapore. My first lesson came from government clinics and hospitals. When doctors prescribed free antibiotics, patients took their tablet or capsules for two days, did not feel better, and threw away the balance. They then consulted private doctors, paid for their antibiotics, completed the course, and recovered.
A user fee of 50 cents was soon after implemented in clinics and set Singapore on a divergent path from that of the big welfare states typical of Western countries. This policy change told Singaporeans that their government would not be acting as a welfare net, and that they should be self-responsible for their own healthcare expenses.
The core idea of self-responsibility rests at the very foundation of the Singaporean healthcare system and is replicated in many of the city-state’s policies. This is best exemplified in two case examples. Firstly, the Central Provident Fund (CPF), a mandatory savings system which forces Singaporeans to save for their own retirement and healthcare.
Secondly, out-of-pocket expenditures for healthcare are the norm in Singapore, coming up to about 31% of total national health expenditure. According to World Bank data, this is comparatively much higher compared to most other developed countries. In other words, CPF monies are not easily accessible except for serious healthcare expenses.
In the event that Singaporeans are allowed to access their CPF savings for healthcare expenses (after paying initial deductibles and coinsurances), it is subject to multiple market-based mechanisms that internalises the price of healthcare goods to the consumer and disciplines reckless spending. For example, while the government subsidises ward hospitalisation, these subsidies are heavily reduced if patients opt for higher class ward amenities.
The overarching principle of the healthcare system design is one that consistently reinforces the philosophy of individualism and self-responsibility.
In conclusion…
To be sure, Singapore’s medical institutions are still subject to certain across-the-board government rules and they do not operate with a theoretically free market.
But on the margin, it is undoubtedly true that key decision-making in hospital operations is made by entrepreneurs operating within a free market environment to provide consumer value, rather than by centralised political bureaucrats dictating it through legislation.
If other countries are serious about achieving healthcare outcomes, they should heed Singapore’s lessons and encourage the adaptation to a market-based framework. Market competition is the best way to guarantee better quality goods and services for consumer s— healthcare is not an exception to this rule.
