It’s Time to Overcome Private Healthcare Fears

I was glad to see Stephen Duckett, an expert advisor with EvidenceNetwork.ca and the former President and Chief Executive Officer of Alberta Health Services, speaking out this week in support of the private delivery of health care.

Admittedly, he did mention some potential risks having to do with poorly specified contracts, based on his experience in Alberta. But he also rightly criticized opponents of private delivery for evoking scary images of the "Americanization" of our health care system.

Why not let the private for-profit sector provide services, even hospital services, as long as it is within a universal system financed by government, as is the case in Europe? Well, some people have certain fears when it comes to private involvement in the field of health care. They think that the profit motive would encourage "the cutting of corners," that profit would add to the cost of providing a service, or that for-profit medical facilities would avoid the more complex cases.

In fact, in many European countries, the private sector plays a leading role within health care systems that are universal, like Canada's, but where patients can choose which facilities will treat them, and where public funding follows the patient. Given their experiences, it's clear that our fears in this regard are unfounded.

Private companies have to offer goods and services that are valued by consumers if they want to prosper. The profit motive pushes them to do their best to satisfy their clients. A company that does not manage to do this will see its market share eroded, to the benefit of competitors.

Health care is no different. The revenues of privately run medical facilities depend on the number of patients they treat. In order to attract clients, they have to maintain their reputations. In a competitive environment where the money follows the patient, hospitals that cut on service quality drive away their clients and simply cannot make a profit.

As a result of these competitive pressures, private hospitals offer quality services. The private Ribera Salud group in Valencia, Spain, for instance, ensures its profitability by continually improving the quality of its services. It attracts patients from all over Spain, who are taken care of at no charge regardless of income level. Emergency room patients are seen by a doctor within less than 60 minutes, compared to an average of 131 minutes in public hospitals in Valencia.

The average wait time for elective surgery is also shorter than in the region's public hospitals — at 32 days, about two to three times shorter. Unsurprisingly, patient satisfaction rates are high, and employees are happy too, as shown by an absenteeism rate of 2.5 per cent, well below that of public hospitals.

But surely, better service must cost more, right? After all, since they have to make a profit, this has to be added to the other costs of providing services, doesn't it?

The error in this line of thinking consists in overlooking the role of competition and in assuming that costs are inflexible and are the same for all medical facilities. Yet the usefulness of the profit motive is precisely that it pushes private providers to increase their efficiency — that is, to reduce costs for a given volume of services of a certain quality — by doing a better job of allocating available resources. And the case of Ribera Salud illustrates this: It receives 26 per cent less public funding than other comparable public hospitals.

The oft-repeated concern that private hospitals would neglect the more complex cases is also unwarranted. In a competitive context where hospitals are remunerated based on the complexity of pathologies, for-profit medical facilities have an interest in attracting the difficult cases, especially insofar as they can treat them more efficiently and less expensively than their competitors.

In Germany for example, private hospitals treat patients who are older on average and who have more serious health conditions than those in public hospitals. The data also show that private for-profit hospitals are better equipped to treat difficult cases and more complex pathologies. Moreover, a larger proportion of beds in these hospitals are reserved for emergency room and intensive care patients.

In France, Italy, Sweden, Switzerland, and many other countries, private hospitals and clinics have long been integrated into the public system. The experiences of these countries show how the profit motive can lead to a better utilization of resources, to the benefit of the companies, of patients and of the public system.

A health care system can remain public and universal all while allowing entrepreneurs to compete to provide services and attract clients, instead of leaving patients trapped in a public monopoly that fails to respond adequately to the demand for treatment. But first, we have to get over our fears concerning the role of the private sector in health care.

Yanick Labrie is an Economist at the Montreal Economic Institute. The views reflected in this op-ed are his own.

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