Privatise the profit, socialise the risk – Increasing private health care provision

datePosted on 13:15, July 5th, 2009 by Anita

National are, true to prediction, privatising health provision. Also true to prediction they are doing so in a way that gives all the wins to the private sector and keeps all the financial risk for the taxpayer. Private providers may look low cost, but that’s only because they transfer huge amounts of cost to the public sector in terms of both management and back-stop services.

To give an example of a well known issue with private providers, every hip operation has a low very chance of complications leading to the patient spending time in an ICU.

When we cost public provision of a hip op we cost in a part of the cost of public ICU services. When we cost private provision we don’t, but we have to pay for the public ICU costs on top of the private hip op charge. That’s the first issue with the private provider efficiency – they rely on expensive back stop services being provided by the public sector. So we screw the costing model so that the private provider can make a profit off every hip op that goes well, and the public system ensures them against additional costs for the unavoidable not-so-good outcomes. Privatise the profit, socialise the loss!

The second is that there is additional cost in transferring a patient with complications from a private provider to a public ICU – we’re not only screwing the cost model to the benefit of private providers, but we’re actually incurring extra costs to do so.

Third problem? No matter who actually does the surgery “bureaucrats” are required to manage the provision, the eligibility, the bookings, the payments, etc. If one region uses eight small private providers then while each provider might look cheap and light on management there’s going be a team somewhere in the public system making sure that all the patients are allocated and treated, that the contracts are negotiated and the bills are paid and so on. Again, more inefficient that a single large provider responsible for both allocation and provision, again designed to make the private sector look lean and efficient, and the public sector bloated with bureaucrats.

Why, when so many other countries have proved that private healthcare provision is neither cheaper nor more effective thanpublic provision, when our largely private primary health provision is failing to meet demand, and when it is obvious that the private sector would only involve itself in healthcare so it could turn tax dollars into a tidy profit, is National pushing on with privatisation?

Part of the answer is ideological blindness, but part is also the make up of National and its closest friends. The links between National and the private healthcare lobby go back decades. In recent times the fundraising, personal and lobbying ties between National and the Private Hospitals Association are well documented in The Hollow Men, and a quick glance through the list of current National MPs shows just how entwined they remain, from Michael Woodhouse (ex-President of the NZ Private Surgical Hospitals Association), to Jonathan Coleman (a consultant in the medical sector) the list of Nats with personal interests in the profiteering of the private healthcare sector is deep and long.

Between ideology purity and self interest it looks like we’re on a long journey to inefficient expensive and ineffective privatised healthcare courtesy of Tony Ryall, John Key, and friends.

[This borrows from a comment I made on this thread at The Standard. Marty G has some great analysis on just how much of the current National spin about healthcare costs is … just spin]

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7 Responses to “Privatise the profit, socialise the risk – Increasing private health care provision”

  1. r0b on July 5th, 2009 at 18:38

    Excellent post – thanks! If you have further practical examples of how the public system subsidises the private do post them in comments.

    Claim and counterclaim on health is one of the areas where I’ve had most trouble sorting out for myself what’s going on – your post here and Marty G’s have both been enormously helpful.

  2. Anita on July 5th, 2009 at 20:44

    r0b,

    Thanks! :) I suggest reading this article by Toni Ashton, she points out two additional concrete problems from increase private provision; firstly both public and private are competing for the same tight labour pool – so increases in private sector provision will flow on to increased understaffing in the public sector (and presumably increase public sector wages as they try to retain staff).

    Secondly, we train our health force in our public hospitals, so letting the private sector cherry pick the easy high volume work with damage our teaching and research capacity.

    She also has a good argument for why increasing private health insurance (through tax breaks) will actually increase the public health care costs.

  3. ak on July 5th, 2009 at 22:32

    Try the Commonwealth Fund site for more than you’ll ever want to know r0b – link below is a good comparative study showing we outperform the US at a third of the price per capita

    http://www.commonwealthfund.org/usr_doc/1027_Davis_mirror_mirror_international_update_final.pdf?section=4039

    Main thing to remember in the NZ public/private debate is that it’s like comparing a contractor responsible for every aspect of every single building in the country, with a few subbies gibstopping a few rooms here and there. Money to be made if you’re in with the top brass….

  4. StephenR on July 6th, 2009 at 10:14

    ak, i’m not sure anyone is saying we should be like the US system, just that we should have a better system.

  5. r0b on July 6th, 2009 at 13:23

    Thanks folks.

  6. cha on July 7th, 2009 at 09:52

    hmm… anecdotal I know but my family have seen the best and the worst of private health care.

    The best, an aunt having to choose between a long wait for a hip op or go private. My aunt went private with a ten day wait, surgery and home within a week and a 10/10 recovery.

    The worst, an in-law with knee problems exacerbated by a weight problem and getting bigger by the month because of mobility problems and despite making it to the front of the public queue it was catch 22, to big for surgery but unable to lose the weight.
    So of course the private sector said sure, we’ll do you, weight, no problem.
    So a long story short, post -op life threatening respiratory problems, to hard basket, and off he goes to the public system where he spent three months in ICU and another seven weeks in a medical ward.

    The best of the private lets my aunt return to a normal life and the worst is cherry picking of the most cynical nature.

  7. kelsey on July 12th, 2009 at 20:21

    I don’t think these issues are quite as simple as you make out:

    1.

    \Private providers may look low cost, but that’s only because they transfer huge amounts of cost to the public sector in terms of both management and back-stop services.

    Well sure, but that’s a money-go round. If the private provider were to pay for the insurance on the chance of a complication, the money would just be going back to the DHB anyway. And you’d essentially be punishing people for going private – in no other case do you charge for the public service.

    The second is that there is additional cost in transferring a patient with complications from a private provider to a public ICU.

    That can’t be large, surely.

    Third problem? No matter who actually does the surgery “bureaucrats” are required to manage the provision, the eligibility, the bookings, the payments, etc.

    See this is a fundamental difference between the two. You don’t need these people in the private system – this is an extra cost for the public and the private system isn’t “feeding” off the public system.

    Ultimately the public system has a number of benefits, as does the private system and they both have their challenges. I don’t understand why so many people seem to hate the existence of the private health system.

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