3. Plan trades off with nonmedical solutions which solves conditions better.

Where subsidies are not uniform, but depend on modality or other health service characteristics, the more heavily subsidized service will be promoted. This of course may be the intention, but generally such subsidies are set without regards to the distortions that this will create. Many health systems provide more generous public subsidy for medical and pharmaceutical services than for non-medical services. This is despite evidence suggesting that non-medical services, including allied health services, may be highly cost effective in the prevention and management of chronic disease [21,22]. The price differential created by public subsidy for medical primary care services means that that the price to the consumer without insurance for non-medical services will be high relative to publicly subsidised medical services and pharmaceuticals. This provides an incentive to the consumer to increase their demand for medical services compared to non-medical primary care services. This further enhances the monopoly provision of medical services that is already present by default of practice licensing and registration. Even if the consumer has private health insurance, non-medical services are likely to be capped unless the insurer has both an incentive and the ability to reduce health care costs, for example, by promoting alternative models of health care delivery (such as case management), to their insured population with chronic disease. Typically however, subsidy regimens mean that allied health services will be underutilised relative to the level of consumption that is optimal for people with chronic disease [6]. Such funding arrangements create distorted incentives potentially redirecting resources away from cost effective care and undermining the role of non-medical primary care services which are critical to the prevention and management of chronic disease. A further contributing factor to market distortions arising in the primary care setting is the complementarities that arise between medical care and pharmaceutical management. Most ongoing pharmaceutical management requires a prescription from a medical practitioner, thus consumers require regular doctor visits, particularly where drugs have been prescribed for long-term management of chronic disease. Although there is a complimentary relationship that exists between medical and other non-medical services, such as allied health care, they are also substitutable services, and thus potential competitors, particularly in the market for chronic disease management. Inequitable distribution of non-medical primary health care services relating to third party compensation Even within the market for non-medical primary care services there is likely to be an inequitable distribution of services, where entitlement to third party compensation is the driver of demand rather than clinical need. Unlike road traffic and work-place accident victims, people with chronic disease are often not entitled to third party compensation for allied health and other non-medical primary care services, the exception being veterans and holders of private health insurance. Increased demand for these compensated services has resulted in a shift in supply to meet this demand, thus creating a relative shortage of non-medical services. The shortage that has resulted has enabled monopoly pricing, thus the service is targeted to those who are able to pay, or who are eligible for third party funding. Services become even less accessible and affordable to the population with chronic disease or in need of other preventative care. A second effect is that non-medical service providers may focus their effort on services needed by compensated (predominantly accident) victims, thus changing the mix or profile of services that are delivered in the primary care sector away from those needed by people with chronic disease. Possible policy responses to market failures in chronic disease management If the assumption is that consumers with a chronic condition are 'expert patients', information asymmetry is not a significant cause of market failure in the market for chronic disease management. Therefore, supporting consumers to manage their care in partnership with providers, combined with the removal of funding anomalies is necessary to achieve optimal care in chronic disease management and a health service mix across the system more consistent with allocative efficiency objectives. In the long run it is the price effect resulting from public subsidies for some services and not others that is likely to be the major influence on underutilisation of non-medical primary care and preventative services, rather than a consumer's preference for acute care over health promotion or secondary prevention. If the price for preventative services was subsidised to the same degree as medical services and pharmaceutical products there would be less market distortion created by differential subsidy arrangements. Moreover, ideally the level of subsidy (per service and number of services) should reflect current evidence of cost effectiveness. Alternative market solutions to chronic disease management could also be considered, particularly those that encourage competition between providers and promote consumer choice. Publicly provided and funded service vouchers, for example through a scheme such as Medicare in Australia, can support consumers to access appropriate care from an allocative efficiency perspective from providers that may not be currently eligible for subsidy [23]. The allocation of service vouchers could be based on evidence of cost effectiveness of particular services or preventative care for chronic conditions and be may be able to provide sufficient incentives for consumers to access appropriate care from their provider of choice. Where patients have knowledge of their chronic disease then enabling them to choose a provider eligible for a subsidy should be consistent with improved health outcomes. Service vouchers might also help overcome the larger market failure in chronic disease management where individuals are myopic with respect to the consumption of preventative services. Vouchers provide a level of information to the consumer about the services they should be accessing to manage their disease. Consumers would have an entitlement to a given number and type of service vouchers, and, if services are fully subsidised, the price effect is removed from the consumption decision [23]. Other total system options include the adoption of risk-adjusted capitated fund-holding models, which promote flexibility in the service response. Government intervention in health care markets through funding and other mechanisms to address various sources of market failure and inequity in the distribution of health care and health outcomes is widely accepted. However, where governments have intervened by subsidising some types of services and service providers over others, irrespective of evidence of cost effectiveness, this will reduce the ability of the market to achieve efficiency. This is an issue for the management of chronic disease where government subsidy has favoured acute care, including acute exacerbations of chronic disease, and medical services rather than primary and secondary preventative services that are more consistent with the cost effective management of chronic disease [5]. These distortions are exacerbated by fee-for-service payment systems that provide incentives for health care to be technically efficient at the level of a single provider, however provide few incentives for socially efficient delivery. Resource shifts from acute care markets to markets for the primary and secondary prevention of chronic disease, supported through alternative and flexible funding arrangements, are likely to be consistent with achieving allocative efficiency across the health system. With the increasing prevalence and burden associated with chronic disease it is important that these issues are addressed. Alternative funding mechanisms such as service vouchers and fundholder or capitation models may overcome some of the anomalies that have developed over time between the provision of acute services and chronic disease management, supporting health system objectives of equity and efficient allocation of health care resources.