The role of the private sector in the health system

BARBARA MCPAKE: When we think about the private sector, we tend to have a single image in our head– perhaps of a shiny, expensive hospital in a capital city or of a drug vendor peddling cheap and, perhaps, fake, expired, or otherwise poor quality medicines. We tend to think about private providers and, indeed, the private provision of healthcare is the main focus of this presentation. Nevertheless, it’s important to notice the health system’s combined public and private roles in both the finance and provision side. Public financing comes from taxation or other mechanisms by which governments directly earn income.

In addition to taxation, governments might receive grants in aid from development partners, or governments might have taken ownership of sectors of the economy, such as diamond or copper mining and directly generate surplus through exploiting natural resources. Where households pay directly for healthcare, either out of pocket or through private health insurance, the financing can be categorised as private. Public or private provision can be categorised by ownership– who owns the facilities in which the activity takes place. If they’re privately owned by a business or charity, then the facility is private. If owned by local or central government, then public. Within a public or private facility, staff might be employed publicly or privately.

For example, some staff working in private mission facilities in a number of African and Asian countries are seconded from the public service. While in some countries doctors working in public hospitals do so under a contract for delivery of services, like a private subcontractor, rather than under an employment contract. There are plenty of instances of pure public and private provision and financing combined in free-at-the-point-of-use government-funded service delivery in government-owned facilities, and privately-funded healthcare delivered in privately-owned facilities. But, equally common are combinations of public and private financing. Fees are commonplace in public healthcare, and innovations like private finance initiatives promote private investment in public sectors. It is also common for private provision to be paid for from public sources.

The primary care services of both the UK and Australia are primarily publicly funded but privately owned, for example. The contracting out of service provision, which channels public financing to private providers, and voucher systems by which patients exchange publicly-funded vouchers for privately provided care, are common innovations in many countries. From shiny hospitals to dodgy drug vendors, there are a huge range of private providers with different characteristics. It’s important to recognise this heterogeneity in thinking about how to derive population benefits from any given public-private mix. It’s almost never possible to make a statement about the private sector that would apply to all its elements. See if you can think of even a very simple argument that does.

A common distinction is made between formal and informal providers, though, in practice, there is a scale of informality. The dodgy drug vendors – unqualified, registered nowhere, unresponsive, and largely unchecked by regulations about who can sell medicines and medicine quality controls– might be at one end of the spectrum. And the shiny, private hospital– full concordant with government regulation and, perhaps, even accredited by an international body to facilitate medical tourism– might be at the other. In between, there are pharmacies that are registered but employ unqualified staff and sell prescription-only drugs without a prescription, or hospitals that have achieved regulation by demonstrating an ability to meet a set of specified standards, but have then let them slip.

Finally, much of the argument about public and private provision might be premised on the implications of the profit motive for provider behaviour. An important part of the private sector is not for profit and, purportedly then, motivated by another objective– for example, a charitable mission to lessen the burdens of ill health and health expenditures in a population. Nevertheless, there is a significant debate about the extent to which not-for-profits have the space in health markets to operate differently from a for-profit provider. They still have to cover costs, attract good staff, and generate resources for investment. And, in many cases, that implies that their prices and market behaviours may not be too different from the for-profit provider.

At the other extreme, ‘briefcase NGOs’ may be for-profits in disguise, using not-for-profit status fraudulently to achieve tax breaks or other benefits. Friends and foes of the private sector have to recognise that it’s an important phenomenon in most contexts, and people use it extensively. How they use it is usually patterned. For example, the poorest people in the most remote locations are most likely to use small-scale, community level, and informal providers like the drug vendor. Their services are cheap, and they are local and don’t require transportation. Even a reasonably close-by public facility may be relatively expensive for such users.

They might require transport to be paid for, might require a lot of time getting to a facility and waiting that has a high opportunity cost, and they might not provide a treatment without further expenditure when out of stocked drugs, or travel to a third location to access care. Weighing these things up, people often take their chances with informal providers, even when they are well aware of the risks. Hence, this kind of private provider reaches where the public sector doesn’t– to more remote locations, to people who cannot manage transport costs and travel and other time costs, and to offering treatments where there are gaps in public provision.

Richer people also choose to avoid the inconveniences that are often associated with the public sector and are able to use their money to be better assured of standards by going to registered or accredited services or ones that have been recommended by word of mouth. The private sector is also an important influence on what the public sector can achieve. When public health staff charge informal fees or operate as dual practitioners– working in both public and private sectors– they are acting as partially private providers, and the associated incentives can undermine attempts to achieve equity in the public system. The private sector generates resources– for example, when it operates training schools that increase the availability of skilled labour in the health system.

But it also absorbs resources– perhaps most importantly, the available skilled labour in the health system that are then not available to those who cannot afford to access private sector care. The origins of healthcare are in private initiative. Before developments that sought to organise health as a single system and ensure a wider population access to services, the only way to access healthcare for anybody was to seek out someone with purported expertise and solicit, and almost always pay for, their help. Everywhere, the origins of medicine are traditional. Before the advent of a more scientific approach to medicine, those sought out based their remedies on a combination of hunch, experience, and practice passed on from the previous generation.

Those who undertook this practice had to make a living from their efforts. As more scientific medicine started to emerge in a number of traditions, more formal training began to involve significant investment

on the part of those who undertook it: the emergence of an associated elite of those who had undergone the training, and; a greater expectation of a higher standard of living. The debate over the rights and wrongs, strengths and weaknesses of public and private systems is as old as colonial government. These examples– an American academic arguing against the private American system in 1953, and a British academic arguing against the public British system in 1962– highlight the need for research and empirical evidence to support theory and ideology and helping to inform how best to use planning, public subsidy, and market forces to deliver an efficient, accessible, and equitable health system.