Why the markets can’t run hospitals

The evidence overwhelmingly shows that public care is better-quality–and cheaper

“The evidence is very, very clear that the core provision of health services is more effectively done through the public model.”—Roy Romanow, Nov. 27, 2011

It’s an exciting time in the world of health care. Like our neighbours to the south and other developed countries across the ocean, we’re in the midst of another discussion about the future of our health-care system. But there’s one debate that rears its head no matter what decade we’re in: private versus public health-care. After a meeting on the new health accord in Halifax last month, Roy Romanow—the former Saskatchewan premier who led a landmark commission on how to improve the health system in 2002—stated very clearly that expanding “private” care would be perilous. But does the evidence support the mighty Romanow’s claim?

Defining public vs. private care

Before we go any further, let’s clear up what private and public funding and delivery means in the Canadian context. (Policy wonks please proceed to the next section.)

According to the non-partisan Evidence Network website, out of the University of Manitoba, health care funding can be public, quasi-public and private. Public funding is paid for by the government: medically necessary hospital care and physicians’ services. Quasi-public funding, such as Canadian workers’ compensation plans, is “legally private but highly regulated by government and expected to act in the public interest.” Private funding refers to that which you pay for out-of-pocket: dental care, vision, outpatient drug costs, private hospital rooms. The government doesn’t cover this stuff, so you can pay for it yourself.

Then there’s health care delivery. Despite the way the public-private discourse unfolds in the media, almost all delivery is already private—but publicly financed. (The exceptions to this rule are the groups to whom the federal government directly delivers health care: aboriginals, the military and veterans.) So though we call hospitals public, they are actually private, not-for-profit organizations that get much of their money from the government. Doctors operate private businesses, but the government pays for their services.

Therefore, the public-private debate is actually a not-for-profit/for-profit delivery debate. The question we are usually asking is: Should we expand for-profit delivery settings? Should we bring in for-profit hospitals, for example, and allow people who are willing to pay jump the queue?

The science 

This is a complicated issue and there are many ways to interpret Romanow’s statement about the public model being “more effective.” Science-ish will look at two areas where there is robust evidence: cost and saving lives.

In the past couple of years, some of the leading thinkers on health policy have suggested that for-profit health care is more expensive and leads to worse health outcomes.

In a seminal 2009 New Yorker piece, entitled ‘The Cost Conundrum,’ Dr. Atul Gawande used “the most expensive town in the most expensive country for health care in the world”—McAllen, Texas—to show that more spending and “overuse of medicine” does not equal better health care. In fact, U.S. states that spent more on health care tended to be near the bottom of national quality and patient-care rankings.

Dr. Gawande suggested there is an essential conflict between the profit motive—with “physicians who see their practice primarily as a revenue stream”—and cost-effective, quality patient care.

Evidence out of Canada supports a similar conclusion. McMaster University associate professor Dr. PJ Devereaux—who led almost all the systematic reviews (the highest form of evidence) around this debate—has studied death rates in private for-profit and private not-for-profit hospitals, as well as out-patient for-profit dialysis clinics compared to not-for-profit clinics. In both systematic reviews, for-profit ownership resulted in a statistically significant increase in the risk of death for patients. Dr. Devereaux found the same association between worse care and profit in his BMJ systematic review on the quality of care in for-profit and not-for-profit nursing homes.

As for cost, another systematic review, published in the CMAJ, looked at payments at private for-profit and private not-for-profit hospitals. Again, the not-for-profits outperformed the for-profit hospitals by costing less. Some explanations for this: For-profit hospitals are driven to generate revenue for investors and executive bonus incentives are over 20 per cent higher at for-profit hospitals. The data could also be interpreted to mean that for-profit institutions are providing superior care—but then the earlier review about mortality showed this isn’t the case.

Similarly, a robust systematic review of studies comparing health outcomes in Canada and the U.S. noted that while the Canadian model “has many well-publicized limitations. . . Canada’s single-payer system, which relies on not-for-profit delivery, achieves health outcomes that are at least equal to those in the United States at two-thirds the cost.”

A limitation of this type of science is that it’s all based on observational studies, and one should be cautious about observational data (see this article  on different types of evidence). It’s unlikely we’ll see better data than these, however, since a randomized study for which patients are assigned to non-profit and for-profit care settings would cost a lot and raise ethical concerns.

The bottom line

Some argue that more “privatized” or for-profit care will lead to shorter wait-times and give patients more choice. Others fear a “two-tier system” that would cause the rich to jump the queue and health professionals to flee for shiny, profit-driven hospitals. Science-ish can only vouch for the best-available evidence on quality of care and cost. It suggests not-for-profit settings win.

This raises an interesting question: If markets work well for things like laptops, why don’t they work well for hospitals and doctors’ services?

“Most people consuming health care are critically ill,” Dr. Devereaux told Science-ish. “You don’t have time to shop around for a hospital if you break your hip.” When you buy a new computer, on the other hand, you can do research in advance, and the product isn’t as prohibitively expensive as a week in the hospital for major surgery.

Also, in his research, Dr. Devereaux found that profit-driven institutions tended to invest in appearances—decor and food—which health-care consumers like. But they cut corners by employing less highly-skilled health professionals, and giving lower doses of medications. “It’s so easy to fool people into thinking you’re getting the best because it’s a brand new, shiny building,” he said. “The problem with health care, it’s not simple to decide what’s good.”

Indeed, Dr. Devereaux isn’t the first to conclude that health care isn’t like any other market and that people aren’t good at telling what’s good and what’s bad when it comes to medical services. Postwar economist Kenneth Arrow won the Nobel Prize in the 1970s for explaining these things. But, of course, the debate will continue—and well beyond the next health accord.

Science-ish is a joint project of Maclean’s, The Medical Post, and the McMaster Health Forum. Julia Belluz is the associate editor at The Medical Post. Got a tip? Seen something that’s Science-ish? Message her at julia.belluz@medicalpost.rogers.com or on Twitter @juliaoftoronto




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Why the markets can’t run hospitals

  1. I know anecdotes are usually not helpful but there was this elderly man who was on vacation in the US and had some chest pain.  He went to a very upscale private hospital and was told that he needed cardiac surgery.  Of course his insurance company flew him back to Alberta to one of our not so upscale hospitals.  He wasn’t pleased with the surroundings in the hospital here…definitely not as posh.  However, he was shocked to learn that he didn’t need heart surgery but just medication to treat his condition.  Perhaps the cardiologist in the US was mistaken or maybe profit motive guides practice…In Canada, we know that is not usually the case.

  2. Thanks. Rather than the usual neoliberal dogma, it’s good to hear from folks who
    have looked seriously at things and actually know stuff. There’s quite a few of them
    out there.

    • Liberals?

      How are you blaming this on the Liberals?

      The Liberals commissioned Romanow (the  one quoted) to look at health care
      It’s the Harper Cons who want to privatize!

  3. I’m forever indebted to Canada for providing my mother with top quality cancer treatment.  I always delight in the reactions I get when I tell my American friends that my family paid nothing for it.  Health is a universal right.  There’s no freedom in private (or for-profit) health care.

  4. This is an interesting article, and makes some good arguments.

    There are several arguments not addressed here, however.  Of these the most blindingly obvious (particularly to anyone who has lived in both countries who has or knows those with young children) is the difference in availability.  If one wants a doctor in the US, or a specialist, one makes an appointment.  This is generally within the week, often same-day.  Getting a doctor in Canada is quite often impossible for those who move to a new area, particularly for families, unless they have insider connections at a hospital or clinic.  Getting a specialist is an order of magnitude worse.

    • The funny thing is that lack of availability is not the rule everywhere in Canada.  If you live in a small city with specialists, you have no problem getting appointments or being seen in the ER in timely fashion.  However, if you live in one of the large cities or have to go to a large city, things are hopeless.

    • So I presume you expect for-profit doctors to come over from the States to take care of our shortages?  But the thing is, we don’t *really* have a doctor shortage.  We have a shortage of our medical board(s) examining and certifying immigrant doctors now driving our cabs.  Wouldn’t U.S. doctors add to the immigrant doctor cabbies/waiters/whatever?  Or do they somehow get a special pass?  And if they do get a special pass, doesn’t that say a great deal about the real purpose behind the for-profit argument?

      • Yes, you’re right, arguing against public healthcare is racist.  In fact, every non-socialist thought is inherently racist.  Let’s all nod in careful Trudeaupian agreement lest we risk a forbidden idea entering our heads.

        Or, alternatively (if we’re allowed to think alternative thoughts here), perhaps a for-profit system would accelerate the medical board situation since there would be profit to be made by bringing in suppliers (i.e. immigrant doctors) to meet the demand. 

        • Wow, that’s what you got from my question?  Reading it again, I can see how its possible to think that’s what I was saying; but no, I was really saying the same thing as you–follow the money and the problem will become more clear.  And the problem is the medical board wanting to make money off our having sufficient doctors.  And how is that different from a payoff, a bribe, and why should we bow down to it?!  If the medical board doesn’t want to do the job it is mandated to do (that of examining and certifying doctors) why don’t we go elsewhere–and there ARE doctors, trained in this country, who would be happy to do so.

  5. Socialism has shown to be a failure everywhere it’s been tried, and this is no different. 

    Comparing to the US is useless, the US health system is ranked low in global rankings, and there is just as much public spending in the US health system as there is in Canada.

    The primary reasons why the public health care model is worse:
    -the lack of price signals
    -the knowledge problem common to all command economies
    -the lack of innovation driven by competition
    -the lack of response to supply and demand

    These are all reasons why the Canadian system is ranked so low in global rankings, and why the availability of care in Canada is severely lacking in pretty well every measure, whether for diagnostic machines, ER care, or specialist appointments.

    Eventually the Canadian system will collapse, likely in about 20 years.

    • “The primary reasons why the public health care model is worse:
      -the lack of price signals
      -the knowledge problem common to all command economies
      -the lack of innovation driven by competition
      -the lack of response to supply and demand.”

      None of the top countries operate according to these principles.

      • Everything in the world, either in human society or in nature, operates according to these principles, including the MRI machines you use to diagnose illnesses, to the doctors available to you in the ER, to the vast resources, in terms of knowledge and tools, at use within any medical institution.

        No dynamic complex system like a national medical plan can be controlled by a central authority (ie a government) in an efficient manner. The inefficiencies and resource imbalances will multiply as time progresses, as more and more time elapses since the moment when resources were in balance. The end result is simply widespread corruption and complete breakdown of order.

        This can be seen, for instance, in the complete and total disorder seen at essentially all ERs across Canada, where the balance between demands on the system and the resources needed to satisfy those demands have, over time, become completely unbalanced. Over time, this situation will worsen.

    • RE: -the knowledge problem common to all command economies
      Can somebody explain to me what this means?

      • Here’s another simple way of putting it.

        It is impossible for a system to be efficient when the needs are local (ie individual) but the resources are allocated by a central authority.

        The needs are driven bottom-up. The funding and resources are driven top-down. And there is simply too much complexity, too much local activity, and too many actors, to be able to manage and allocate resources for such a system effectively, top-down. As soon as any decision is taken, it is already immediately out-of-date, and there is no way of escaping that. There will always be imbalances, and as time accumulates, the imbalances will grow. That is the knowledge problem.

        In a market system, the knowledge problem is alleviated by several things: prices dictate the costs and benefits of resource allocation within the system, the laws of supply and demand dictate prices, and consumers themselves dictate resource allocation with their needs, demands and choices. The system self-corrects itself.

    • The French healthcare system is ranked very highly in the world and yet it is also largely supported with public spending as is the German system.  In France, people do pay a portion of their bills for surgery but not if they have chronic illnesses such as heart disease and cancer.  No matter what way you look at it, healthcare is a costly business.  What some of these countries do is bring in wealthy private patients from countries in the middle east….health tourists…and charge them big money.  We could do that but we are way off the beaten path and we have no swanky facilities.  Banff hospital used to have a “ski and vasectomy” weekend in the rockies….

      • Those countries have parallel private systems. 

        The parallel private systems have:
        -price signals
        -not managed by central authority
        -innovation
        -response to supply and demand

        The public system can, in effect, “piggyback” on the private systems to achieve some degree of the same elements (although even then, there is a limit, particularly due to entrenched interests common to any public bureaucracy). This “piggybacking” will reduce, but not eliminate, some of the imbalances that would otherwise occur in the public system.

        That is the reason those countries have better health systems. No, bringing in a small number of rich Saudi oligarchs does not improve the system. In fact, both Canada and the US spend far more money that Germany and France on health care, so no, money is not the answer. Even with the wealthy private clients that may arrive in Germany and France, there is more money being spent per patient in Canada and the US.

        • If you look at their systems, they are not really “parallell private systems” by rather “partnership private systems”.  The government still runs the show and makes ALL who live in the country have healthcare insurance.  In fact, you cannot enter France as a visitor without private health insurance.
          If you work, your healthcare insurance is provided through your work…otherwise the government sets it up for you.  If you want to pay for extra private insurance or it is offered through your work, you obviously can go to the private hospitals but the public hospitals are just as good.  You can change family physicians but you just let the government know.  Some physicians chose to work in the less strenous private practices, rather than the hospitals.
          If you have surgery or a baby, you might pay 20% of the cost.  Dental care and medications are also covered under the health insurance.  It is still a very costly system.
          I never said bringing in rich Saudi’s “improved the systems”.  I said it brought money into the system.  How do I know this.  I worked with a phyician who came from there.  He didn’t think the private system was all that great…there is a constant demand to make money for the system, which means no matter how a patient behaves, you must suck it up and go along in the best interest of making money.

          • I’ve entered France without private health insurance. Multiple times.

            Whether you call it parallel or partnership makes no difference. The private system is what brings the efficiency.

          • It is a totally socialist healthcare system.  It is universal healthcare; government run; non-profit insurance…some of the care is provided by private hospitals but very little.  It is really well organized and it IS SUPER EXPENSIVE.

          • Not true.

            Around 65% of hospital beds in France are provided by public hospitals,
            around 15% by private non-profit organizations, and 20% by for-profit
            companies.

            So 35% is provided by private entities, 20% of them companies.  That’s not “very little”.

            Insurance is also provided by private companies, although heavily regulated by the state.

            And yes, it is universal, but at the same time patients must typically pay 30% for services, or purchase additional insurance to cover such payments.

            So there does exist a private system in addition to the public system.

    • “Socialism has shown to be a failure everywhere it’s been tried, and this is no different. ”

      Since European socialist democracies regularly top lists of countires with the highest standard of living / quality of life / etc., perhaps you mean “Communism”… or “pure socialism”… or “what those nasty socialists *really* want”… ?   If so, then you’re right… except for China.

      • Have you paid any attention to the news lately? Three European countries have been bailed out so far, but not for long, and a total of six are expected to go bankrupt within the next year, with the rest of them at risk. Of all those countries, only one of them, small Ireland, is at risk due to anything other than excessive government spending. They’ve been trying to sustain a standard of living that they simply cannot afford anymore (with the possible exception of Germany, which managed to become the strongest economy despite absorbing the poverty-stricken and socialist East Germany in the 90s).

        And have you noticed over the past 30 years how Europe’s standard of living has been declining relative to everywhere else?

        Anyway, even Euro countries are not totally socialist, unlike the Canadian health care system.

        This is quite a digression. What the Europeans got right is that they have dual health care systems, private and public, in every Euro country.

        • No, “quite a digression” was starting off your original post (on an article about the careful study of evidence in the pursuit of good health care policy) with the claim that socialism has failed everywhere.

  6. The author of the article would have been well advised to search an English language dictionary first for the meaning of the word “private”.
    Let us go to the Oxford Dictionary:
    - private (of education or medical treatment) conducted outside the state system and charging fees to those who make use of it.

    So, no nonsense like “private practice, but financed by the government”. Anything paid for by the government is not private. Period.

    • Doctors charge fees to the state – the user of their services.  They are not paid salaries by the government.

      This use of “private” is widely accepted in discussions of Canadian health care.

  7. It’s not really the case that markets can’t operate hospitals, as the headline claims – clearly the article contains information obtained from observing ‘market’ hospitals.

    Setting aside the poor headline, the article indicates that:
    -  in Canada there is a quasi-market between large purchasers (mostly the provincial governments) and service providers (eg hosptial/clinic staff and professional corps), where governments have a lot of clout to dictate to service providers
    -  the government side of this market is influenced by citizens (voters)
    -  that market seems to deliver pretty good actual health outcomes, at a relatively low cost, but has the shortcomings of being not so timely, especially for less pressing cases (also, apparently, the surroundings aren’t super shiny and the food isn’t great)

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