Private Hospitals Can Improve Healthcare

Commentary, Healthcare & Welfare, Frontier Centre

The Province of Manitoba, stuck with Canada’s most expensive health-care system, deserves credit for at least beginning to look outward for new ideas. At the same time, it is unlikely much progress will be made here around the hairline cracks crazing the rock face of monopoly Medicare.

Were we just going through the motions when a diverse collection of groups and individuals, including the Frontier Centre, gathered at a public consultation on January 24th to survey the challenges? The august confabulation broke into small panels that hammered out their top ten ideas and passed them up the chain. Aside from satisfying the democratic impulse, no clear value emerged from the whirr of statistics and the tier-wringing. No surprise.

Such collective navel-gazing sessions are an over-complicated response to a simple problem. Service levels will continue to decline and the system’s thirst for funding will never be slaked because Medicare’s monopoly, from its inception, has outlawed the incentives necessary for self-correction, never mind improvement. Even though every politician running for office talks up a storm, “better management” and “fixing hallway medicine” amount to little more than rhetorical flourishes when we have banned the very means to achieve them.

We’d do better to ask Ercan Sahin, CEO of a psychiatric clinic for troubled youth in Stockholm. Assisted by the regional health authority in setting up his enterprise in direct competition with the public system, he says this about the opening-up of Sweden’s single-provider structure:

“According to public sector values it was more or less rude to ask for productivity. How you spent your working day was up to you. Serving the clients was not the number one issue. I was in a managing position but lacked the tools to run the operations. Today the situation is radically different. Meeting the demands of the clients is why we are in business. Thus today we have no waiting lists.”

Enshrined as a non-contestable public good, Medicare fails to perform because providers have no personal stake in outcomes. Eva Trillkott, the CEO of the Seven Sisters nursery care clinic, just outside Stockholm, prefers the new, decentralized arrangement: “Today we control our budget. No guy in a distant office can sidestep us any more. We are in charge. If we need to bring in another doctor to make the job, we do so.” Stockholm’s largest hospital St. Goran’s was privatized in 1999. Since the shift to the competitive model began in 1994 it has cut unit costs by 30% now takes care of 100,000 more patients a year with the same resources.

Nor is Sweden the only country to separate providers from the clumsy hands of bureaucratic funders. Federal and state governments in Australia, according to a new short paper by two experts at the World Bank Group (see below for link), have invited private participation into more than 50 hospitals. For-profit firms are building new ones, buying or leasing existing ones, managing others the government still owns and even co-locating private wards inside public facilities.

In Mildura in the state of Victoria, the health authority has closed the public hospital and signed a 15-year contract with a private company to build a new one and hire the same staff to run it. The government has guaranteed access and payment, but it has also subjected the company to rigorous standards, including an annual performance bond equivalent to 5% of annual revenue. The cost of building the new hospital came in 20% below that of comparable ones put up by the government. All standards have been met or exceeded, patient volume is up by 30%-and the company has made a profit.

The state of Bahia in northeast Brazil has built 14 new hospitals but hired private companies to run them. The firms, which recruit all staff and manage the enterprise, sign annual funding contracts with the government that require no one be turned away. They have had to achieve 80% of stated patient-volume targets in order to be paid, which they have routinely exceeded by 30%.

In the last ten years, Britain’s National Health Service has entered into similar public-private partnerships. In all these cases, the public sector has remained responsible for paying for care while private contractors have brought in new capital, assumed all operational risks and immensely enhanced efficiency.

None of these countries saw the need for a national chitchat before dealing with the crisis in publicly funded health care. Instead, they went to the heart of the matter: they’ve set up incentive structures that give stakeholders a strong reason to improve the system. It sure beats arguing over sandwiches.

Federal Health Minister Anne McLellan recently said she had nothing against private hospitals as long as they remained in compliance with the Canada Health Act. Hopefully, someone in her office will inform her that the Canada Health Act needs to be amended to allow such arrangements.

We can have a Medicare system that works, but not if the government insists on monopoly control.

”Code Blue” is available through the Frontier Centre online bookstore