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