What Makes Singapore’s Healthcare System Successful?

Adam Smith Center

Adam Smith Center

Members of Adam Smith Center Singapore.

Since 2012, the UN has touted the lofty policy goal of universally accessible, high-quality and affordable healthcare to nations everywhere. Three years later, the UN put in place a finish line for this goal in the year 2030, and in 2017 continued to urge the pursuit of this goal for governments everywhere.

As the annual UN General Assembly takes place this month in New York, UN officials are beginning to realise that the majority of countries are making slow progress and will not meet the healthcare-related Sustainable Development Goals (SDGs) by 2030, particularly among men.

One of the UN’s SDGs is Universal Health Coverage, which is an admirable end goal. But if political leaders are serious about improving healthcare outcomes, they must muster the will to make politically unpopular but necessary tradeoffs. The early leaders of Singapore did just that and Singapore’s healthcare success story provides many useful lessons that the UN should pay attention to.

 

Looking at Singapore 

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.

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.

How has Singapore succeeded in healthcare where others have failed? The simple answer is that both Singapore’s macroeconomic environment and its healthcare system is based on market principles of secure property rights, a free price system and profit-making.

On the macroeconomic front, Singapore scores well in the way of trade barriers: 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 are struggling to meet the UN’s health-related SDGs.

According to the Geneva Network’s 2019 report, medicine tariffs remain a significant political barriers that stand in the way of affordable medical provision to developing countries that need them the most.

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.

 

The healthcare system

Arguably the most important contributor to the success of the Singaporean healthcare system is the fact that it is rooted in market-based competition. Many of the local hospitals are labelled in name as “government institutions” or “public hospitals”, and this sometimes give the erroneous impression that the hospitals are centrally governed by political bureaucrats.

But 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 while providing care for subsidised patients, also compete against one another for  private patients consumers on the basis of profits, like in any other market. This is not the case in healthcare systems around the world, such as in 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…

These reforms were led by the late Lee Kuan Yew who understood the importance of market incentives and the dangers of moral hazards; he rejected the idea of government as 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, even outside of healthcare. 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, accumulating about 31% of total national health expenditures. 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, again reflecting the lesson of self-responsibility.

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.

 

Conclusion

To be sure, the healthcare system is not a complete free market and are still subject to certain across-the-board government rules.

But on the margin, it is undoubtedly true that the healthcare system has historically been set up in a way where 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.

It should also not be mistaken to mean that the system is without its problems. Increasing lifespans, an aging population, ballooning healthcare costs along with the lack of healthcare talent are all looming problems. The solutions to these problems will almost certainly require embracing politically unpopular decisions such as the increase of immigration or taxation.

If the United Nations is serious about achieving its healthcare-related SDG’s, 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 – healthcare is not an exception to this rule.

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Adam Smith Center

Adam Smith Center

Members of Adam Smith Center Singapore.