The confused politics of health care
Regular HBI readers understand the widely-held belief that in health care “for-profit = bad” is far from the whole story – and often not a part of it. But it is worth pondering where this view comes from, and disentangling the various assumptions which underlie it, in order to separate ideas which have some justification from those that are confused, or even outright inconsistent.
The most obvious confusion here is the mix up between privately funded and privately provided care – a perennial theme in countries which have Beveridge/NHS-style systems. In the UK in particular it is too often assumed that private sector involvement in the provision of care inevitably means a move away from the NHS’ founding principle of free-at-the-point-of-use publicly-funded care for all.
But beyond this, the reason which is normally given for why the profit motive has no place in health care is that it inevitably leads to corners being cut, and lower quality of care.
Is there any justification for this? A priori, of course there is: privately owned for-profit companies exist to generate income for their shareholders, and the managers who run them are judged primarily on how well they achieve that end. If a company can increase margins by skimping on quality of care without it affecting their top line, why wouldn’t they?
There are two obvious issues with this, however. One is that skimping on quality generally will affect the top line for businesses in any industry, as long as there is sufficient choice and competition in the market. The other issue is that regulations exist to control quality and standards, and in health care they are more stringent than in almost any other sector.
But might privately owned businesses not expend their resources on undermining these quality controls? Sometimes, perhaps. Private sector people do love to complain about ‘red tape’. But based on what strategy consultancy Bain & Company’s Franz-Robert Klingan told us this week, there does appear to be a general recognition in the health care investor community that a strict distinction must always be made between regulations which uphold medical and ethical standards, and administrative regulations which place arbitrary barriers on private investors and operators.
“You need to distinguish between different levels of regulation,” Klingan tells us. “Medical and ethical standards should be left untouched. It’s always best to have the highest medical and ethical standards, it’s the basis of what we’re doing. But when it comes to administrative regulation, it’s a bit more difficult to disentangle. Sometimes the basis for a regulation is actually an economic desire, e.g. wanting to keep good jobs out in the countryside. Or there might be barriers that make it difficult for investors to consolidate. In Germany, these restrictions are not helpful, because there is a lot of slack in the system with almost 2,000 hospitals that would benefit from more ambulatory investment, and PE investment could be – and already has been – very helpful in taking costs out. There seems to be a bit of an ideological element to this. But the medical quality doesn’t get any better or worse depending on where the money comes from.”
Another widely-held assumption is that private ownership and profit-making are fine as long as it’s on a small scale and by health care professionals. In the UK most primary care practices are owned by GP partners and run as businesses, even when they only serve NHS patients. In France and Germany there are significant restrictions on ownership of outpatient clinics by non-doctor investors, but all outpatient clinics are privately owned and run – just usually by doctors. And no one seems to have much of an issue with this.
But why would the profit motive only encourage corner-cutting by non-doctor (corporate or private equity) owners? A doctor who owns their own clinic has just as much of an incentive to do whatever they can to lower their costs.
And then there is the oddity that private ownership and profit-making companies are only typically seen as problematic in some areas of health care and not in others. You never hear people complaining about the evils of private ophthalmology, for example, or companies that provide digital health tools. Is the idea that the less acute the care is, the less bad it is to have private provision? If it were, then presumably people should care at least as much about the privatisation or outsourcing of acute psychiatric care as they do about the privatisation or outsourcing of elective care or primary care. But they don’t.
Ultimately, the claim that for-profit health care providers in general provide worse quality care than public providers (or small-scale doctor-owned private entities) is an empirical one, and hence one that requires data to back it up. Some researchers have attempted to do that (for example, see here), but the evidence is at the very least far from conclusive, and perhaps even dubious.
Whilst there are many cases we can all think of for-profit providers cutting corners and delivering care of inadequate quality, there are also many private health care groups proudly providing best-in-class care to their patients.
Klingan says: “There is value to proper medical oversight, but if you put artificial hurdles beyond those medically required into the legislation, simply because you don’t like financial investors, you might lose important capital that could be deployed to create a more efficient health system that everybody could benefit from.”
But this may be preaching to the converted!
We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.
