Public vs. Private Healthcare

Should healthcare be completely privatized - or should a segment of it be left in public hands?

By:  Sam Vaknin /Knoll Beta

Hospitals are caught in the crossfire of a worldwide debate. Should healthcare be completely privatized - or should a segment of it be left in public hands? As the debate infects countries adhering to the "social model of capitalism" (e.g., Scandinavia and France) and spreads to countries in transition in Central and Eastern Europe - it is worthwhile to study the experience of the bellwether in privatized health care: the USA.

Of the many mutations of the hospital, most people experience the Public Hospital. These are all-purpose, universal, and all-pervasive (inpatient and outpatient) institutions, which service even the indigent, criminals, illegal aliens, and members of the minorities.

Public hospitals are the descendents of almshouses, poorhouses, correction facilities, and welfare centers. Like other modern fixtures - the university, the school, the orphanage - most hospitals were originally run by the church and included a medical school.

Later on, local communities established their own hospitals. As the functions (and area) of these initially modest facilities expanded, hospitals were gradually taken over by regional authorities and state governments. Federal funding for hospitals - in the form of Medicaid and Medicare - is relatively new and dates back only to LBJ's (President Lyndon B. Johnson) Big Society in 1965.

Hospitals are now reverting to communal management. Bruce Siegel, President and CEO of Tampa General Hospital, notes in "Public Hospitals - A Prescription for Survival" that between 1978 and 1995 the number of government-owned acute care public hospitals declined by one quarter.

Most hospitals were or are being transformed into small, communal, suburban or rural facilities. In the USA, less than one third of hospitals are in inner cities and only 15% have more than 200 beds. According to the American Hospital Association, the 100 largest hospitals averaged a mere 581 beds in 1995.

Public hospitals are in dire financial straits. Even in the USA, one third of their patients do not pay for medical services (compared to less than 5 percent in  private hospitals). Medicaid barely - and belatedly - covers another third. Yet, the public hospital is legally bound to treat one and all.

In other countries, national medical insurance schemes, the equivalents of Medicare/Medicaid in the USA, (e.g., the NHS in Britain), or mixed public-private ones (e.g., Kupat Kholim or Maccabbee in Israel) provide fairly extensive coverage. Community medical insurance plans are on the rise in both the USA and Europe. Corporate plans cover the rest.

Still, uniquely in the USA, many potential patients remain exposed. More than 40 million Americans have no medical insurance of any kind. A million new disenfranchised join their ranks annually. This despite sporadic - and oft-unsuccessful - initiatives, on the state level, to extend insurance - in lieu of charity care - to the uninsured.

This kind of deprived patient often consumes less profitable or loss leading services such as trauma care, drug-related treatments, HIV therapies and obstetrical procedures. These are lengthy and costly. Private healthcare providers corner the more lucrative end of the market: hi tech and specialty services (e.g., cardiac surgery, cosmetic surgery, diagnostic imagery).

In "Our Ailing Public Hospitals - Cure them or Close Them?" published in "The New England Journal of Medicine", J.P. Kassirer mentions that public hospitals provide "culturally competent care". This fashion is the bane of public medicine. Providers are expected to deliver to their patients a politically correct package of social services and child welfare on top of the inanely expensive - and frequently unpaid for - medical treatment.

"Essential Community" hospitals are heavily dependent on public funding. State governments foot the bulk of the healthcare bill. Public and private healthcare providers pursue this money. In the USA, a majority of consumers organized themselves in Healthcare Maintenance Organizations (HMOs).

The HMO negotiates with providers (=hospitals, clinics, pharmacies) to obtain volume discounts and the best rates. Public hospitals - under-funded as they are - are not in the position to offer an attractive deal. So, they lose patients to private hospitals.

Public hospitals derive more than half their revenues from federal insurance schemes such as Medicaid. This is five times the national average for all types of hospitals. They also benefit from state and local matching funds tied to their Medicaid receipts. This addiction to dwindling - and unreliable - federal and state financing spells doom.

Medicaid Managed Care programs - intended to optimize the use of Medicaid funds - had the dual effect of reducing the coverage rate of public hospitals (i.e., their income per patient) and diverting business to ferociously competitive private ones. Public facilities are closing at a torrential pace.

In some states, one in twenty calls it a day every year. Many states (e.g., New York) and municipalities (e.g., Los Angeles) seriously considered the abolition or privatization of all public hospitals. In some states, private hospitals now enjoy almost as much Medicaid business as public ones. HMO's (Health Maintenance Organizations) have discovered Medicaid as well.

Yet, private, for profit hospitals, discriminate against publicly insured (Medicaid) patients. They prefer young, growing, families and healthier patients with Medicaid, Blue Cross/Blue Shield, or commercial medical insurance. These clients gravitate out of the public system, transforming it into an enclave of poor, chronically sick patients.

This, in turn, makes it difficult for the public system to attract human and financial capital. It is becoming more and more desolate, under-staffed, and poorly-qualified.

But public hospitals are partly to blame for this sorry state of affairs.

There are striking similarities between these decrepit institutions all over the world. Public hospitals in New York are often indistinguishable from their counterparts in Ljubljana, Moscow, Tel-Aviv, or Skopje. Their bloated management and heavily unionized staff are opaque and non-accountable. They refuse to measure up to performance targets lest their revenues and remuneration be linked to the results.

No one can tell how (in)effective and (non-)productive public hospitals are. There are no reliable statistics regarding the most basic parameters of service quality, such as wait times. Financial reporting and network development are dismal. As even governments are transformed from "dumb providers" to "smart purchasers", public hospitals must reconfigure, change ownership - privatize, lease their facilities long term - or perish.

But privatization is far from being a panacea.

It is difficult to imagine the private sector  - private hospitals and HMO's - assuming the full load of patients now treated by the public sector. To start with, existing laws would have to be changed in constitutionally dubious ways. It is even more difficult to conceive of the government as a ideal and long-term "smart purchaser" of healthcare services from the private sector. Additionally, to cover all the uninsured would cost a fortune. The communities that phased out public hospitals in favor of Medicaid managed care suffered greatly according to various studies.

Siegel notes that there is no data to support the contention that public hospitals provide inferior care at a higher cost - and, indisputably, they possess unique experience in caring (both medically and socially) for low income populations. He poses the following questions:

What are the costs and quality of public hospitals relative to their non-government peers in selected cities? These data would need to be adjusted for case mix, socioeconomic status, degree of teaching activity and other variables.
What segment of the public hospital market has been "captured" by competing HMOs and non-government hospitals? What are the risk profiles of these segments?
What are the legal obligations of health care providers to treat indigent patients in selected states?
Where public services have closed or been privatized, what is the impact on access to care for the Medicaid and uninsured populations? What is the impact on remaining providers?
What lessons can be learned from major cities and counties that lack publicly owned health care systems?
In the absence of factual answers to these questions, the arguments boil down to differences in worldview and politics. Is healthcare a fundamental human right - or a commodity? Should healthcare be left to the invisible hand and distributive justice of the market? Should prices serve as the mechanism of optimal allocation of healthcare resources - or are there other, less quantifiable, but pertinent parameters?

Whatever the philosophical predilection, healthcare should be reformed. Siegel and Altman and Brecher ("Competition and Compassion - Conflicting Roles for Public Hospitals") survey the landscape of hospital reform in the USA:

Public hospitals are increasingly governed by healthcare management experts who are likely to emphasize clinical and fiscal considerations - and not by politicians. This is coupled with the vesting of authority with hospitals, taking it back from local government.

Some hospitals are organized as (public benefit) corporations with enhanced autonomy (e.g., Memphis Regional Medical Center). Others organize themselves as Not for Profit Organizations with independent, self perpetuating boards of directors.

This is often coupled with increased transparency and accountability. Clear quantitative criteria are applied to the use of funds. Some hospitals started by revamping their compensation structures to increase both pay and financial incentives to the staff and thus attract talented people. In these reformed institutions, pay is linked to objectively measured performance and skills-related criteria. A system of bonuses, incentives, and - more rarely - penalties has been applied to senior management.

The management of many public hospitals is trained now to use rigorous financial controls, to improve customer service, to re-engineer processes and to negotiate agreements and commercial transactions. In some cases, staff is employed through employment contracts with clear severance provisions that allow the management to take commercial risks.

All this cannot be achieved without the full collaboration of the physicians employed by the hospitals. Their very profession is being revolutionized. Siegel:

"Most major public hospitals obtain a majority of their physicians through affiliations with nearby medical schools ... But the nature of these contracts and of health care has changed. Public hospitals are now under intense pressure to improve continuity of care, expand primary care capacity, reduce lengths of stay and meet a host of managed care and budgetary constraints. It will be impossible for them to do this so long as the physicians who make the bulk of the clinical decisions practice in ways that are not aligned with the imperatives of managed care and capitation. Physicians must adapt their styles of practice and accept an emphasis on absolute productivity."

Some hospitals in the USA (e.g., Cambridge Hospital in Massachusetts) formed business joint ventures with their own physicians (PHO - Physicians Hospital Organizations). They benefit together from the implementation of reforms and from increased productivity. Scheduling of patient-doctor appointments, laboratory tests, and surgeries are computerized.  Obsolete information systems replaced. Long turnaround times and redundant lab tests and medical procedures eliminated.

According to various studies published in "Modern Healthcare", public hospitals have been downsizing for well over a decade now. They reduced their labour costs from more than 70 percent of their budgets 8 years ago - to less than 60 percent today. Many cut their labour force by half. Union membership is on the decline.

Public hospitals all over the world are transforming themselves into outright businesses.

They lease to their physicians - for use in their private, after-hours, practice - space (e.g., operating theatres) or time slots, or underutilized equipment. This kind of arrangement cropped up in countries as diverse as Israel and Macedonia, Russia and Germany. The lessee physician pays the hospital - either in the form of fixed fees or in the form of revenue sharing (franchise arrangement).

In some countries, the physician also commits himself to provide community-oriented, non profit or pro bono services in return for the right to use what is, essentially, community property.

Another method of using the hospital's excess capacity is to sell it, rent it, or lease it to entrepreneurs who are not members of the hospital staff: small laboratories, specialty medical services, primary care, and specialist practitioners. All these make use of the superior infrastructure of the hospital under a concession, a franchise, or a rental arrangement.

The hospital provides these professionals with a "captive market" of patients. This is very much like the relationship between an "anchor" in a shopping mall and the small retail shops surrounding it.

Hospitals - mainly in eastern Europe - also sell medical - and, sometimes, non-medical - products and services to the community on a commercial, competitive basis. Some hospitals offer for-pay medical legal services, or print jobs by the hospital's print shop. They operate the hospital's social services as a profit centre, offer medical consultancy on a fee per service basis, and even sell food from the hospital kitchen through a catering service, or data to researchers from its archives.

A hospital is a galaxy of small (to medium) size businesses operating under one organizational roof. Laundry, cleaning services, the kitchen and its attendant catering functions, the provision of television sets and telephones to patients, a business centre for the inpatient businessmen - these are all profit or loss centers.

"Internal privatization" (or intrapreneurship) transforms the hospital into a holding company. This holding company owns and operates a host of business entities. Each such entity constitutes a separate contractor which provides the hospital with a service or a product.

Thus, all laundry is done by a company which charges the hospital for its services. The same goes for the kitchen, the print shop, the legal services department and so on. These corporations employ the former staff of the hospital. This way, institutional knowledge and experience are preserved.

These corporations, owned by former employees, usually maintain a "right of first refusal" in the first five years following the transformation. They are allowed to match the best offers obtained in yearly tenders conducted by the hospital. They are also allowed to offer their services to other customers. Thus, they reduce their dependence on one client, the hospital. They become truly entrepreneurial entities, competing for profits in a market environment.

A part of the re-engineering process is to determine which of the roles of the hospital are "core competencies". All "non-core" functions are outsourced in a tender to the most competitive bidders. The hospital is likely to benefit from the transfer of these functions, in which it has no relative competitive advantage, to expert outsiders. This is somewhat akin to international (free) trade, where each nation optimizes its resources and passes the (beneficial) results to its trading partners.

To control this kind of transformation, medical information management systems need to be introduced. These improve both the quality and the quantity of data available to the management of the hospital and, as a result, the decision making process.

This makes it easier for the management to pinpoint which areas require doing what - for instance, what kind of incentives should go to which members of the staff, where could costs be cut, and where and how could productivity be improved.

Finally, a novel concept is emerging. Universities and hospitals are two important repositories of human knowledge and experience. Virtually every hospital somehow collaborates with an academic institution, or with a medical school.

But, during the last two decades, hospitals have re-cast themselves in the role of partners to the commercial exploitation of the results of research conducted within their premises or with their co-operation. Hospitals now collaborate in pharmaceutical, medical, genetic and bioengineering studies. Hospitals believe that by refraining from getting commercially involved - they give up money which really is not theirs to give up in the first place.

Large hospitals also entered the managed care market - where laws permit it. Some have established MCOs (Managed Care Organizations of patients). Others insure patients outright and market their services directly. Most hospitals now maintain their own network of suppliers. HMO's are inevitably less than thrilled with the emergence of these new competitors - but this process of disintermediation is thought to have increased both the profit margins and the absolute profits of public hospitals.

Public hospitals also pool resources to benefit from advantages of scale. They relegate services - from auditing and accounting to political lobbying - to commonly owned or merely centralized service providers. These providers also negotiate contracts with suppliers and specialists on behalf of the hospitals.

Some observers decry the apparent convergence between public hospitals and their private brethren. Such derision is misplaced. Public hospitals still treat the destitute and the immigrant. They still provide a medical safety net where no alternative exists. They are just doing it better, more rationally, and more cheaply. They should do more to open up to scrutiny. They should spin doctor. They should streamline. But one thing they should not do is regress to where they have been in the early 1990's. This is what the doctor ordered.


oh I thought you were going to blame

health care or lack of it on adoption in the USA, as they do ever other week on yahoo answers adoption section

have you ever had to go to public mental health, dental clinic, or health clinic? I did as a foster parent for foster kids... IT SUCKED!!! they treat you and the kid like SHIT

gee, you can take the same medicaid to Kool-Smiles and the same kid can get treated right and you actually don't even have to take off work....

same for mental health (though all mental health services kind of suck imo)

oh well,

I spend about $5,000 a year for medical care for my kids and myself...

Private v. Public interest

I used to work in a private teaching-hospital in a very wealthy community.   It was freshly renovated, complete with a really good coffee-shop/restaurant and Labor and Delivery unit.  [Peds and the psych unit, however, remained in the bowels of the old-building for YEARS.]  This hospital did not come even CLOSE to the other "local" hospitals.  Those hospitals specialized in either trauma or old people, and all of them were very dismal and depressing to go-through.

I remember one day, I was very surprised to see an old friend from high-school standing among the group of brand-new first-year residents that was about  to infest our floor of chronically ill patients.  In complete happy shock, I asked him, "What are YOU doing here?"

He said, "No one in his right-mind would want to work in a public hospital unless you were really into research or a glutton for punishment."

Someone else let out a laugh and said something like, "managed care ruined everything", but as a nurse who worked at an hourly rate, I had no idea what the residents and doctors were snickering about.  Clearly it was an inside-joke I knew nothing about.

Years later, my beloved OB/GYN told me he was leaving medicine because he could no longer deal with the demands and requirements insurance companies were putting on him.  Between the soaring cost of his own mal-practice insurance, and the limited time and tests he was "allowed to give" his patients, he found himself completely disgusted with medicine as he once knew it.

When he left the group-practice, I did too.

I have always found it very sad that scared and nervous patients are losing really great caring, compassionate doctors, just because there are those in company-seats more interested in the almighty dollar.

Yahoos like this poster need

Yahoos like this poster need to get their eyes off of their own purse-strings and bad experience and look at what's happening around the world. Hate to burst your bubble, mac, but limited health care provided by a government is exactly why so many choose adoption. If you don't have a job, you more than likely don't have health insurance. Why do you think adoption recruiters working with maternity services, are able to get so many women in crisis to consider an adoption plan? You think these maternity services are free, or done through charity?

IMHO, foster parents who get sick of state services are the worst. They either stop fostering, of they decided to adopt because they're sick of Medi-Cal or Medicare, and the shitty clinics they have to go to for covered health-care.

Do yourself a favor, angry foster parent, educate yourself. Read up on privatization and charity services, and what may happen if America is forced to face a health-care crisis because of corporate greed. Then do us all a favor, and drink some more of that stale kool-aid you like so much, as you pretend poor health care has nothing to do with adoption.

If you're a foster parent, and not getting enough money for services you need, do what most foster parents do, provide minimal care, and don't worry about it, because that's how the corrupt system works best. You'll still get your monthly subsidy check, so even if you deny care, CPS agents aren't going to come back and arrest you. They're too busy looking for good healthy adoptable kids from negligent or abusive birth parents. Foster parents with a domestic adoption plan will tell you, the best kids to foster and adopt are the infants that did not move from place to place or live in homes where a social worker never came to see if the boyfriend was raping the kids while mom was at work or buying groceries.

The only reason adoption might be the best option for a child is if the adoptive parents have good private health care, with a zero or a no annual deductible health insurance plan. But even that does not guarantee the adopted child is going to be seen by a decent doctor any time soon.

Pound Pup Legacy