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Open Access Highly Accessed Debate

Market failure, policy failure and other distortions in chronic disease markets

Jennifer J Watts1* and Leonie Segal12

Author Affiliations

1 Centre for Health Economics, Monash University, Building 75, Melbourne, Australia

2 Health Economics & Policy Group, Divn Health Sciences, GPO Box 2471 University of South Australia, Adelaide, Australia

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BMC Health Services Research 2009, 9:102  doi:10.1186/1472-6963-9-102

Published: 18 June 2009

Abstract

Background

The increasing prevalence of chronic disease represents a significant burden on most health systems. This paper explores the market failures and policy failures that exist in the management of chronic diseases.

Discussion

There are many sources of market failure in health care that undermine the efficiency of chronic disease management. These include incomplete information as well as information asymmetry between providers and consumers, the effect of externalities on consumer behaviour, and the divergence between social and private time preference rates. This has seen government and policy interventions to address both market failures and distributional issues resulting from the inability of private markets to reach an efficient and equitable distribution of resources. However, these have introduced a series of policy failures such as distorted re-imbursement arrangements across modalities and delivery settings.

Summary

The paper concludes that market failure resulting from a preference of individuals for 'immediate gratification' in the form of health care and disease management, rather than preventative services, where the benefits are delayed, has a major impact on achieving an efficient allocation of resources in markets for the management of chronic diseases. This distortion is compounded by government health policy that tends to favour medical and pharmaceutical interventions further contributing to distortions in the allocation of resources and inefficiencies in the management of chronic disease.