How Swedish socialists chose private health care

«Let the market take over health care!» declared a 1997 headline in Dagens Nyheter, Sweden’s leading daily newspaper, with a circulation of around 350,000.

Surprisingly, this quote didn’t come from an economist or a right-wing policy wonk; it came from the chairwoman of Sweden’s National Union of Nurses, Eva Fernvall. The majority of her union’s 120,000 members backs her «health care pluralism,» mostly out of self-interest – under Sweden’s nationalized system, nurses had been stiffed on wages.

This openness to market solutions for medicine, remarkable in a health-sector union whose counterparts in North America and the rest of Europe fiercely oppose them, didn’t come about by accident. Eight years ago in Stockholm, a centre-right coalition holding power on the Greater Council – the regional governing authority – decided to try a little competition to stimulate the Swedish capital’s underperforming civic service monopolies. For more than two years, the Greater Council licensed private providers in parts of the government sector. The result: Competitive contracting of public transit in greater Stockholm has cut taxpayer costs by roughly 25%, and its ambulance service costs have dropped 15%. Meanwhile, overall service quality has increased noticeably.

Stockholm’s Greater Council also issued 150 licences to small and medium-size health care contractors. Of these, most were nurses demoralized by poor working conditions and low pay, who jumped at the chance to start up their own enterprises and ride the «marketization» wave. Their union actively supported them, and even created a company to research new forms of entrepreneurship.

The Greater Council pays the nurses’ companies directly, as with other contracted health service producers, but patients are free to use whichever care services company they want. All patients pay a basic C$20 «patient fee» (or user fee), which the nursing companies keep. Since private competition for nurses began, wages in the profession have risen 26% – three times the public-sector rate of increase. While private employers are reluctant to provide compensation information, industry observers estimate that private-sector employees in general enjoy 5% to 10% higher salaries than their public-sector counterparts.

In 1994, the Social Democrats took power and the reforms stopped, but they were not reversed. That gave the nurses (and the public) time to evaluate the effectiveness of these policy experiments. Of the original 150 contractors, all but one had survived. Most had thrived. By 1998, when the reformers returned to office, Sweden was ready for more.

Since decision-making and control rest at the local government level, Sweden’s health care system is more flexible and decentralized than Canada’s. Right now, around 150 other health care units are in the process of leaving public ownership to become private companies, with free training and start-up help provided by the Greater Council. The new contractors will run local health care stations, GP group clinics, treatment centres for mothers and infants, laboratories and psychiatric out-of-hospital clinics. When this transformation is complete, private contractors and GPs will deliver around 40% of all health care services in the metropolitan area.

Even more shocking, last year the Greater Council sold one of Stockholm’s largest hospitals, the St. George, to a private company called Capio Ltd. As expected, in its first year of marketization, St. George achieved efficiencies 10% to 15% higher than realized by its best-run public counterpart, the South Hospital.

This success portends similar changes for the remaining seven emergency hospitals in the Stockholm region. Two have already been turned into commercially viable, and thus saleable, council-owned companies. Two others are slated to become council companies next year. The remaining three are «candidates» for marketization. In other words, there are formal possibilities to sell all of Stockholm’s hospitals, but the strategy is to give the hospital companies a chance to prove their efficiency before making any new moves.

A profusion of private health care companies is replacing the single-provider system. The largest, Praktikertjänst, is set up as a producer co-operative, owned by doctors, nurses, psychiatrists, dentists, physiotherapists and support staff. The co-operative’s 2,300 practices offer workers and consumers the best of two worlds – common administrative expenses and the cost and quality benefits of a decentralized, small-scale operation.

These reforms have encountered significant ideological opposition. Reports Johan Hjertqvist, a Swedish health care consultant and advisor to Stockholm’s city council: «Sweden’s future health care system is changing fast. Many do not like this new development or the side effects of the emerging welfare-services market. In Sweden, as in Canada, the deficiencies of the American health care system are frequently used to divert and confuse the debate over reform.»

Mr. Hjertqvist, however, is certain the best is yet to come: «Health care consumers want a customer focus, no waiting lists and highly motivated service providers. This type of service is best delivered by small, independently operated enterprises, particularly employee-owned firms.» Eva Fernvall agrees. «In societies of today the old [health care] model no longer works,» she wrote in 1997. «Now there is a need for flexibility, entrepreneurship and new channels to let loose the complexity of demand and supply, held back since decades when it comes to health care services.»

According to Ms. Fernvall, splitting the functions of the purchaser (the government) and the providers (health care workers) creates a dynamic that helps to minimize cost and maximize quality. She fervently believes the market promotes competence in the field because the best nurses are recognized and rewarded. Competing multiple producers, she says, benefit patients more because they complement organizational structures and offer stronger incentives to improve.

When operations are privatized, the overall situation improves. Private nursing homes have reduced costs by 20% to 30%, and Mr. Hjertqvist notes a recent study showed private medical specialists are more efficient than their public colleagues because they focus on «with-patient time,» resulting in increased patient value. While public doctors have more staff at their disposal, they spend more of their time on paperwork and request budgets 10% to 15% higher than private-sector budgets for the same treatment.

Sweden’s reforms have bubbled up from the bottom, reflecting a movement in the country toward stronger regional governments and a weaker central administration. Stockholm leads the trend, with other large cities slowly adopting the competitive model. In rural areas, support for the traditional public monopoly is stronger, and private medical contractors are rare.

As Canadian politicians prepare to toss billions more dollars into our own besieged medicare system – despite evidence that more money without structural reform will have little appreciable positive effect on patient outcomes – the Swedes are proving the size of the budget is less important than the framework that receives it.

Michel Kelly-Gagnon est président de l’IEDM, Peter Holle est président du Frontier Centre for Public Policy.