If you’re wondering why the Government’s $600 million funding boost for public hospitals failed to reduce elective surgery waiting times, a trip to the local supermarket will help explain.

When announcing the plan prior to Labor’s 2007 election, the (then) Shadow Minister for Health, Nicola Roxon said, “our $600 million elective surgery plan will reduce waiting times, state by state and hospital by hospital”.

However, the State of our Public Hospitals report — which should be available here sometime today — shows that the average waiting time for treatment has increased from 32 days in 2006-07 to 34 days in 2007-08. Almost a third of people presenting to emergency departments were not seen within the recommended time, an increase on the previous year.

Given that the government’s additional funding enabled hospitals to treat more patients, why did waiting times increase?

The reason lies in a basic economic principle — that as the price of most goods and services drops, the demand for them will increase.

Of course public hospital services are free to consumers at the point of service, but it would be a mistake to think that this means that they cost nothing. As Adam Smith famously wrote, “The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”

One of the costs of public hospital treatment to patients is the time spent waiting for treatment. So if consumers believe that waiting times — and therefore the cost — of public hospital services will decrease, their demand for these services will increase.

This will result in an increase in waiting lists, despite the fact that more services are being provided.

A similar effect can be observed in supermarket queues. The reason that supermarket queues are all about the same length is that people will adjust their behaviour to minimise waiting times. If one queue suddenly gets shorter, people will quickly move from a longer queue to even up the difference.

If a supermarket decided to increase the output at one checkout — for example by putting in another operator so two people could be served at once — this queue would not be half as long as the others.

As customers became aware that one queue was moving more quickly than the others, enough of them would move to ensure that the waiting times at all check-outs were about the same.

A similar effect has occurred in the public hospital system. As hospitals have increased the numbers of elective procedures they perform, demand for their services has risen.

This increase is likely to have come from at least three sources:

  • a shift from the private sector as people re-evaluate whether or not it is worth paying the additional cost of private hospital treatment to avoid waiting times (even with private health insurance this can often involve substantial co-payments);
  • a re-evaluation of treatment options from people who have the choice of or an alternative treatment for their condition — such as someone with a sports injury who has the option of surgery or an extended course of physiotherapy; and
  • a return to waiting lists from people who had ‘given up’ seeking treatment due to the long waiting times.

Of course, the fact that more people have received public hospital treatment is a good outcome. Despite the media and political focus on waiting times and waiting lists, they are not good measures of hospital performance when looked at in isolation.

A reduction in waiting list numbers simply measures the increase in output of a hospital relative to its increase in demand. By this criterion, a hospital which is not popular with consumers would score better than one with a higher demand for its services (even if they have both increased their output by the same degree).

Better outcome measures are the overall increase in numbers of patients receiving treatment and their level of clinical need.

If the Government wants to claim its $600 million funding boost as a success, it needs to stop talking about waiting list reductions and start focussing on the outcomes that really matter.