Public Versus Private Ownership
Michael Burke has a highly informative post on Socialist Economic Bulletin which shows that the delivery of public goods, such as health care, education, housing, transport, infrastructure and services like post and banking, are more effective and is more efficiently provided when done through a public rather than a private entity. While Michael uses the example of health care and the NHS in the UK specifically, he does so with OECD data to make a comparison of outcomes from health systems right across the OECD. While increasing the privatization of the NHS is at the top of the Tory agenda doing so is restricted as it remains the most popular institution in Britain, according to recent research. Anecdotal evidence about the ineffectiveness of those corporations that the Tory government wants to see take a larger chunk of the provision of health care in the UK, doesn’t help either, as can be seen in the current story about Blackstone. This private equity group, Michael points out, owned both Southern Cross, which is facing pressure from its landlords, “and the vehicle which became its landlord, NHL. Both were loaded with debt by Blackstone, the proceeds of which it took for itself. The debt was created in order to strip the assets. Blackstone’s initial investment of $500mn became a payout of $1.5bn”. This significant return on investment did not lead to the better provision of health care:
“In 2010 Southern Cross reported it had already 19 homes rated “zero stars”. It has been announced that 3,000 jobs will be cut in an effort to return to profitability- and with it a reduction in the level of care offered to residents.”
But by examining OECD data in its European Health At a Glance 2010, which relates increased life expectancy to increases in the money spent on health care provision, Michael shows that three countries have greater life expectancy for the money they spend, while three countries have lower life expectancy despite spending even more money. The difference between Britain, Denmark and Sweden, those above the trend (see figure 1), and Germany, Austria and Finland, those below the life expectancy trend, is how the money is spent. In the case of the former it is mainly through publicly provided health care, and in the latter money spent through the private system is greater.
“This is explained by who is spending the money, and what it is being spent on. In Britain, Sweden and Denmark the public sector accounts for an average of 81.6% of all spending on health. In Austria, Germany and Finland the public spending sector funds an average of 75.9% of all healthcare provision.”
These are significant sums - with annual public spending in the first group amounting to €2,819 per person, while in the second group it amounts to €2,331 per person (adjusted according to OECD Purchasing Power Parities , Tables 4.1.1 and 4.5.1).
It should be stressed that this is not a function of the first group spending more money - they spend less. The average total spending, both public and private sector spending of the higher longevity countries is €2,920 per person per annum. Total spending in the second group is higher at €3,066 per annum.”
As is widely know the US health system is almost entirely private, and also is much more inefficient than the NHS with regard to outcomes for the amount spent.
Michael points to an Economist article published on the 8th of June to explain the sources of this inefficiency. The article is addressing David Brooks’ recent claim in a New York Times op-ed that its near impossible to restrain the costs in health care through centralised government efficiency evaluations. Brooks’ argument was ridiculed by a number of commentators who point out “that every single one of the world’s centralised government-regulated health-care systems is far cheaper than America’s relatively decentralised private-sector one”.
The inefficiency comes from the cost of advertising that drug companies use to sell their products, the costs of which are passed on to the consumer. Michael says:
“The alternative US system means private sector drug producers are spending enormous sums marketing their products to a decentralised multitude of purchasers, equivalent to local GP consortia in this country. These costs are of course passed on, and the drug purchased is frequently the one with the largest marketing budget, not the most effective one. This inefficiency is replicated at every level of input for the private US healthcare system.”
Of course in Ireland we don’t have a universally provided public health care system like the NHS, and the ineffectiveness of increased spending on Irish health care is well known. Mary Harney, Minister for Health in the previous government regularly pointed to this increase in spending when responding to critics claims that the Irish health system is not providing for the Irish people at a comparable level to those with fully formed public health care systems.
For as long as the private sector provides a substantial element of Irish health care the ineffectiveness of the what is now a reduced amount of public money spent will continue. This cut in public spending of course, does not mean that it will lead to a reduction in public money being put into the private sector.
“The National Treatment Purchase Fund (NTPF) was set up in 2002 to reduce surgery waiting lists for public patients by using capacity in private hospitals. When a patient has been on a public hospital waiting list for more than three months, treatment can be sought in private hospitals and abroad.
In 2010,theMater Private received €23.6 million from the NTPF, while the Blackrock Clinic received €9 million.
The Galway Clinic, Beacon Hospital and Mount Carmel hospital received €8.6 million, €4.9 million and €3.5 million respectively.”
The Sunday Business Post reports that the allocation of €85.6 million on the NTPF this year to spend on treating public patients in private hospitals has been jeapordised by the setting up of the Special Delivery Unit (SDU) which is to prioritise waiting times in hospital emergency departments over in-patient waiting lists.
“The minister said the SDU would be allowed to spend money in public hospitals, whereas the NTPF was mandated to refer no more than 10 per cent of cases to public hospitals.”
Also in the news at the moment is the decision to deal with a deficit in the Fair Deal scheme which provides residencies for the elderly in private nursing homes with an additional 63 million euros that apparently we can’t afford.
Considering the story of Blackstone and how an operation of private nursing homes for profit leads to inefficient outcomes its worth noting why the deficit came about in the first place:
“Dr Reilly pointed out that despite the current economic climate, private nursing homes received price increases over the last nine months and the annual cost of these increases was of the order of €20 million.
“These increases are not sustainable in the current financial situation. I have instructed the National Treatment Purchase Fund (NTPF) to renegotiate the price increases for private nursing home beds, which were negotiated by the private nursing homes last year, with a view to producing further savings.”
As Michael’s post proves, there is a better way.
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