The Consistent Effect Trap: An Argument Against Privatisation

I’m a medical student in Australia. Last year, I spent 4 weeks on an orthopedic rotation, under tutelage of an orthopaedic surgeon. A wonderful doctor, very patient-centred, and very good at his job.

Only works private.

If you know how Australian healthcare works, you can skip this paragraph and the next. In the Australian system, private healthcare is an adjunct mostly for elective procedures and services. For example if you want to get a hip replacement, you can wait two years in the public system and get it done in a public hospital, for free (covered by medicare) — and of course in the public system, the surgery would be done by a team: an advanced surgical trainee would do it under supervision of a specialist surgeon, or the surgeon may do the complicated surgery with help of a trainee, and so on.

Or you can use your private health insurance (if you have one), get it done in a private hospital within a few weeks from seeing the surgeon for the first time, and get covered by your insurance and usually be out of pocket a bit as well. The surgery will be done by the specialist surgeon, who will then come and see you straight after. Generally you get to see the surgeon a whole lot more — and you can be sure the surgery will be done by the surgeon personally. This is an example of private healthcare in Australia.

Now that you’re caught up, let me share my (admittedly limited) understanding of how we arrived here:

First, there is The Genius Hack: privatise part of healthcare, to bring in more money to the sector, for less government spending. So for example instead of $200 billion, government spends $150 billion, but there is an additional $70 billion from private investment — so that’s amazing! We’ve increased our spending on health overall, without draining the public coffers! (Note that the current real numbers are about $185 billion government spending, and $16.8 billion private).

But the twist is that the Very Useful Private Investment brings a new set of incentives and, over time, starts to affect the shape of the healthcare system in many ways. Here lies the privatisation trap: what was originally an effective solution, exacerbates the problem through shifting incentives. The effects of privatisation are not consistent over time.

These shifting incentives for example include resources across the board. In its extreme form, privatisation erodes the power of the single-payer healthcare system in driving down costs, ironically leading to increased cost of healthcare overall — one needs only compare our healthcare system with the American one, for example. These resources also include workers. This is arguably a benefit, as competition leads to better working conditions in the public sector to keep workers in (a good point of comparison here would be the British NHS with its infamously poor working conditions). However, we then need to consider the way that we’re incentivising our healthcare providers. The bottomline shifting from meeting public demand to profitability is a dangerous shift indeed.

Above all, the biggest incentive shift is shifting from healthcare delivery to profit. Profit is initially a useful tool for bringing in private investment, but over time profitability replaces healthcare delivery as the bottomline goal — no matter how you spin it.

Over time, our spending becomes less efficient as the end goal shifts.

Many of us have already seen examples of this in Australian healthcare — a simple example is provision of a more complex service, for example doing a procedure under general anaesthesia instead of under local, at least partly because it is larger billable service.

Before we talk about the political consequences of privatisaion, it’s worthwhile to mention another risk of private healthcare: private healthcare, by its nature of being small, cannot tap into the economy of scale or diversify losses in the way that the public can. It has to maintain profitability on the small scale. One consequence is that it cannot lend itself to provision of services in low density areas — which becomes another factor that exacerbates healthcare inequity. The public health system faces the same problem of course: it’s less cost-efficient to save or improve one life in the country, than in the dense city. But we acknowledge that those two lives belong to different people — we have to consider equitability, and private healthcare has no incentive to do that.

Atop the fact that private healthcare charges consumers and excludes the poor by that quality, it further separates haves and have-nots by the type of environment that it can operate in.

Now let’s go back to that big first problem: how privatisation shifts the healthcare landscape. Beyond shaping the incentives of the businesspeople and healthcare providers, new players in any market also bring in new lobbyists — creating a positive feedback cycle that generates political power consistent with the size of the private healthcare sector. Lobbyists have a vested interest in the profitability of the private sector, not in whether our healthcare needs are met.

Mo Money Mo Problems.

This essential pillar of political representation which underpins our democracy is, unfortunately, blind to other values. Once you have attracted people with the promise of money to be made, they will create further opportunities for making money. And while that makes good business sense, it doesn’t exactly solve the original problem: How can we best deliver healthcare to our population?

Make no mistake: delivery of healthcare is an inherently moral choice. As a society we don’t provide healthcare because it’s good business, we do it because it is the moral thing to do. At a more fundamental level, we establish and maintain public infrastructure for the common good - not for profitability. It doesn’t take a lot of thinking to realise that this applies to much of our economy as a whole. There is a reason that someone like Pope Francis writes a book about economics — knowing what value we want to maximise is as important as how we go about maximising it.

Not all private healthcare is bad, and people working in private healthcare are just as hard working, conscientious, and good as those in the public system. Indeed, a leading reason for clinicians to work in private healthcare is that they feel they can provide better care for their patients. But we have to acknowledge that the system as a whole will have a will of its’ own. The leash must be kept short: the incentives are stacked against us. If we do not limit the unintended consequences of privatisation, we are apt to see less efficiency, more inequity, and more injustice.