Private provision of publicly funded healthcare: ownership controversies

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By Knowledge Hub

The private provision of publicly funded health care in the UK is a matter of public controversy. There are strongly stated concerns regarding the increasing use of non-publicly owned, mainly 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 fundamental tenet of the NHS – is about to be abandoned. However, staunch defenders of the private sector’s role in health care 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 spending in England that has gone to non-NHS providers has more than tripled 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, most 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). In contrast, private hospitals only provide 4% of all hospital beds in Sweden.

The perceptions: Profit motive in healthcare

Privately owned “for profit” providers have profit as an incentive, as they depend on private capital (equity and debt) provided with an expectation of earning an extractable return. This is generally argued to lead to 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 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 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 raise prices as an easier profit route.

Critics of “for-profit” ownership of health care providers highlight several 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 more excellent with private “for profit” providers due to:

  • An incentive to cut costs even where that harms service quality, if the quality is challenging 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 more enormous 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 the 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 the 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. It can be argued that staff who choose to work for a public or other “not-for-profit” organisation may, on average, be more motivated to help others have a more robust’ public service ethos.’

International evidence: Impact of ownership on healthcare provision

Concerns about how ownership of health care providers might affect their delivery of health care are genuinely 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). Much of the evidence of the impact of ownership, especially before 2000, comes from the USA. Most studies use the fact that there are various healthcare provider types in the USA – private for-profit, private not-for-profit and public – and look at how, at a given time, those different types of providers perform regarding “quality” and “efficiency”. Quality is almost invariably measured by patient mortality, hospital readmission or the prevalence of failed treatments. Still, 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 into account 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 integrity of the findings is that relatively little is known about patients’ actual medical conditions and that the relevant details of healthcare providers are sometimes sketchy or poorly measured.

It will come as little surprise to read that, taken overall, the evidence is somewhat 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 and publicly owned providers concerning quality or efficiency. The nature of the evidence is, however, informative. Regarding quality, it is comforting to know that ownership has no significant and consistent effects on patient mortality, for example. However, this fails to reassure concerning the many other subtle aspects of quality of care.

Concerning mortality, the most commonly reported difference, where one is observed, is that publicly owned hospitals have higher mortality and, therefore, are assumed to have lower quality of care. Studies outside the USA, including those in Australia, France, and Taiwan, have reinforced this. Most attention has then focused on the extent to which those differences are more apparent than actual due to publicly owned hospitals treating sicker patients.

Concerning efficiency, it is essential to reiterate the gap between what might be crucial and what can be measured. Still, 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 on guarding the difference between “for profit” and “not for profit” private providers with, on balance, a view that the profit motive is associated with lower treatment costs than things square l.


Public ownership is not without its own challenges. Efficiently delivered health care to the desired standard is not guaranteed in publicly owned hospitals any more than 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. Still, all providers require regulation for both quality and efficiency.

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