Private provision of publicly funded healthcare: ownership controversies

Home Health and Care Private provision of publicly funded healthcare: ownership controversies
By Knowledge Hub

The private provision of publicly funded health care in the UK which is a matter of public controversy. There are strongly stated concerns regarding the increasing use of non-publicly owned, especially for-profit, firms to provide services: concerns that the NHS is being undermined, that future services will be at risk or even that health care that is free at the point of delivery – a key tenet of the NHS – is about to be abandoned. There are, however, also staunch defenders of the role of the private sector in health care who argue that private providers increase patient choice, reduce waiting times and drive innovation and efficiency improvements. Depending on the viewpoint, private ownership is either a disaster or a salvation for the NHS.

The annual accounts of the NHS in England, published by the Department of Health, include figures on “purchases of health care from non-NHS providers”. Over the 16 years to 2016/17, total NHS purchases from non- NHS providers increased eightfold in cash terms from £1.55bn to £12.75bn. Accordingly, the share of total NHS spend in England that has gone to non-NHS providers has more than trebled between 2000/01 and 2016/17, from 3.5% of total NHS spending up to 10.9% in the most recent year.

The contribution of privately owned organisations to hospital health care in other publicly funded health care systems in Europe varies considerably from country to country. For example, in the Netherlands the vast majority of acute hospitals are owned and run by NFP private foundations (Kroneman et al., 2016). In Germany (2012 figures) private hospitals have 52.5% of hospital beds (35.2% not-for-profit and 17.2% for-profit); and in France (2011 figures) private hospitals have 38% of hospital inpatient beds (14% not- for-profit and 24% for-profit). By contrast in Sweden private hospitals only provide 4% of all hospital beds.

The perceptions: Profit motive in health care

Privately owned “for profit” providers have profit as an incentive, as they are dependent on private capital (equity and debt) provided with an expectation of earning an extractable return. This is generally argued to lead to both benefits and problems (Weisbrod and Schlesinger, 1986). On the positive side, the profit motive is presented as a stimulus to the owners and managers of the for health care provider to be more efficient, more responsive to the requirements of patients and more innovative.

In contexts other than health care it is generally accepted that these benefits of ownership depend on the existence of effective competition between providers. If competition is ineffective, prices are no longer constrained to reflect costs and hence the incentive to be more efficient, responsive and innovative is weakened. A provider with monopoly power may simply raise prices as an easier route to profits.

Critics of “for profit” ownership of health care providers highlight a number of downsides of the pursuit of profit. The first group of arguments concern the incentive for “for profits” to cut costs and raise revenues even where that conflicts with the interests of patients. Whilst the same criticisms could be made of public and “not for profit” private providers, the risk of harm is usually presented as greater with private “for profit” providers due to:

  • an incentive to cut costs even where that harms service quality, if quality is hard for service users to perceive or competition with other providers is ineffective. For example “for profits” may seek higher profits by employing lower quality staff or/and paying staff less, or by employing fewer staff and making them cover ever larger responsibilities;
  • services being less secure for local populations. Private investors could withdraw/close/sell-up for commercial reasons without taking sufficient account of the impact on the local population and its health;
  •  an incentive to shift costs onto patients and their carers, for example charging (more) for use of TV and telephones by hospital inpatients and for car parking for visitors and outpatients;
  • ‘cherry-picking’ the more profitable patients, i.e. those requiring the lowest treatment costs relative to the price paid; and deterring or turning away less profitable patients, leaving them to travel longer distances to obtain care at other providers;
  • a disincentive to incur costs trying to prevent (further) illness and promote health behaviour;
  • supplier-induced demand, if payment for services provided is per unit of service/activity delivered
  • leakage of funds from the NHS. This argument is raised not only in the context of privately-owned for profit providers, but also in debate around the ‘private finance initiative (PFI)’ under which the private sector lends money to public health care providers to enable them to build and equip new facilities (new or extended hospitals, clinics etc.)
  • motivations of the staff employed by different organisations. Staff who choose to work for a public or other “not for profit” organisation, it can be argued, may on average be more motivated to help others, have a stronger ‘public service ethos’

International evidence: Impact of ownership on health care provision

Concerns about how ownership of health care providers might affect their delivery of health care are truly international (Pita Barros and Siciliani, 2011; Biesen et al, 2007; Busse et al, 2014; Barbetta et al, 2007; Kroneman et al, 2016;Chevreul et al, 2015). A lot of the evidence of the impact of ownership, especially prior to 2000, comes from the USA. Most studies use the fact that there are a variety of health care provider types in the USA – private for profit, private not for profit and public – and look at how, at a given point in time, those different types of providers perform in regard to “quality” and “efficiency”. Quality is almost invariably measured by patient mortality, hospital readmission or the prevalence of failed treatments, whilst efficiency is supposedly captured by financial performance measures such as cost per case, or profit (or surplus in the case of not for profit providers). To take account of the fact that providers of care with differing ownership also serve different patients, and may have different scales of operation, regression analysis is used to control for these other factors. The biggest concern with the veracity of the findings comes from the fact that relatively little is known about patients’ true medical conditions and that the relevant details of health care providers are sometimes sketchy or poorly measured.

It will come as little surprise to read that, taken overall, the evidence is rather mixed. But perhaps the nature of the ambiguities is surprising. A comparatively recent meta- analysis (Herrera et al, 2014) fails to find compelling evidence of differences between privately owned and publicly owned providers in respect of either quality or efficiency. The nature of the evidence is however informative. In respect of quality it is comforting to know that there are no large and consistent effects of ownership on patient mortality for example, although this fails to reassure in respect of the many other and more subtle aspects of quality of care.

In respect of mortality, the most commonly reported difference, where one is observed, is for publicly owned hospitals to have higher mortality, and therefore are assumed to have lower quality of care. This has been reinforced by studies outside the USA, including Australia, France and Taiwan. Most attention has then focused on the extent to which those differences are more apparent than real, due to publicly owned hospitals treating sicker patients.

In respect of efficiency, it is again important to reiterate the gap between what might be important and what can be measured, but nevertheless meta-analysis (Herrera et al, 2014) fails to find compelling evidence of differences that can be accounted for by ownership. There is rather more consensus in respect of the difference between “for profit” and “not for profit” private providers with, on balance, a view that the profit motive is associated with lower costs of treatment, other things equal.


Public ownership is not without its own challenges. Efficiently delivered health care to the desired standard is, sadly, not guaranteed in publicly owned hospitals any more than it is in their privately owned counterparts. All health care providers require regulation, public and private. It may be that private providers may need greater contractual and regulatory emphasis on demonstrable quality standards and that publicly owned providers may require relatively more contractual and regulatory attention being given to costs and hence prices, say, but all providers require regulation for both quality and efficiency.

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