The Current Health Care System

Published Date: 02 Nov 2017

Promoters of this position have steadily escalated their use of scare tactics in the health care debate. The public is told that waiting lists have grown out of control, the system is becoming unaffordable, and that in the future, care for the elderly will bankrupt the health system.

We are told the "solution" to this crisis is to turn allegedly wasteful and inefficient health care services over to the "more efficient" private sector, to increase the role of for-profit providers and to experiment with the creation of for-profit hospitals.

Our group affirms that for-profit organisations should have no place in the delivery of human services and healthcare. As reputable Australian resources are scarce, I have argued my position using some information from our commonwealth friends of Canada as their healthcare system and government is very similar to our own.

Opponents of my argument suggest that private or for-profit healthcare will lower waiting lists. However, health policy analyst Steven Lewis stated that available data contradicts the prevailing opinion that waiting lists are out of control. That data reveals that more procedures are being performed than ever before. And that, on average, data shows stable or declining waiting times (Lewis 2000).

That is not to say that waiting lists are not a problem for people in pain or in deteriorating health. But, says health economist Robert Evans, when efforts are made to find out more about the problem, to determine who is waiting, how long, and why, and to determine what might be the best solution to the problem,

"... it turns out there is little or no hard data behind the clamorous rhetoric." The data tends to be anecdotal, and efforts to systemize it, and to target a response, are as likely to be attacked as welcomed (Evans 2000)."

Evans also notes that waiting lists have become an argument for those who promote two-tier health care, that is, letting those with the means buy services privately. He warns against such an approach.

"One of the clearest lessons from the U.K. National Health Service is that once you open up private market opportunities for specialists, no amount of public money will ever clear the public waiting lists. If there were no waiting in the public sector, who would ever pay extra for private care (Evans 2000)?"

Two examples that show that channelling public money to the less-efficient private system is a wasteful way to address waiting lists comes from the provinces or Alberta and Manitoba of Canada. Waiting lists are longest and costs are highest for cataract surgery in Alberta in centres where the proportion of private clinics is highest. Similarly, in Manitoba, waiting lists for cataract surgery were twice as long with surgeons who operated in both the private and public systems, in comparison to surgeons who did all their operations in the public system. Surgeons typically billed $1,000 extra per patient if the surgery was done in a private facility (Evans 2000).

Proponents of two-tier health care often point to the large number of aging baby boomers in our society and warn that the health needs of this aging population will bankrupt Medicare.

While health costs do rise as people age, particularly when people reach their seventies and beyond, the impact of aging baby boomers on the health care system is predictable and there is time to prepare. The peak of the baby boom will hit their early seventies in about 2030 (Catholic Health Alliance of Canada).

Careful analysis of health spending shows that our aging population will add more costs to health care, but it need not create a threat to Medicare. The challenge is to ensure that our health care responses to aging are appropriate and effective. For example, we have tended to emphasize institutional care over home care for the elderly, though home care is less expensive and often more appropriate (Catholic Health Alliance of Canada).

Furthermore, proponents of two-tier health care often argue for the contracting out of clinical services to for-profit corporations and maintain that increasing free markets and competition in the health care system would bring market benefits, most notably, lower costs.

This is the position presented by David Gratzer in his book Code Blue. Gratzer and other advocates of private, for-profit health care argue that competitive markets have produced an abundance of inexpensive, high-quality, and widely available food, shelter, and clothing, and that competitive markets would do the same for the health care system, if only the constraints of Medicare were lifted (Gratzer 1999).

But, what evidence is there that this is the case? Is private, for-profit health care cheaper and more efficient than public health care? Does for-profit health care serve more people better at a lower cost? All the evidence says no.

The presumption that there are significant savings to be gained by promoting for-profit health care is evident in Canadian province of Alberta’s recent decision to increase the role of for-profit health care providers in the area. Furthermore, after analyzing the evidence from the American experience, Robert Evans says:

"In effect, the Alberta government’s hopes for increased efficiency through increased for-profit provision of health care have no empirical support, and face extensive counter-evidence (Evans 2000)."

In fact there is strong evidence that the growth of for-profit health care will increase, not decrease costs. More than 20 studies have compared for-profit with not-for-profit acute care. Almost all showed higher costs with for-profit care. Michael Rachis (2000) highlights the fact that the four most recent studies, which he says are methodically very strong, all favour not-for profit delivery.

In a 1997 article in the New England Journal of Medicine, Harvard physicians Woolhandler and Himmelstein analyzed 1994 data from all 5,201 acute care hospitals in the U.S. They found that for-profit hospitals were 25 per cent more expen-sive per case than public facilities. Fifty-three percent of the difference in cost between public and for-profit hospital care was due to higher adminis-trative charges in commercial facilities (Rachlis 2000).

A 1999 study by Dartmouth University researchers published in the New England Journal of Medicine concluded that introducing for-profit hospitals increased community health costs. Using data from the entire American Medicare program, the authors found that health spending was higher and increased faster in communities where all beds were for-profit compared to com- munities where all beds were not-for-profit (Rachlis 2000).

Why for-profit health care is more expensive:

Investors expect profits of 15% annually.

Significant time and money must be devoted to investor relations, take-over strategies and defences, marketing, insurance administration, and bill collections — all of which drive up costs.

The necessity to compete with every other hospital and clinic results in costly duplication of equipment and facilities in for-profit hospitals.

The prevalence of fraud among for-profit providers in the U.S. has become a major cost factor. The cost of monitoring, suppressing and prosecuting such behaviour has become part of the administrative overhead associated with for-profit provision.

One of the principal justifications for extending for-profit provision of health care rests on the assumption that contracting with private, for-profit providers is a more efficient way of meeting health care needs than simply restoring some of the funding previously cut from the public system.

Canadian province of Alberta’s decision to allow private, for-profit facilities to be the site of overnight care covered under the Canada Health Act provides a good example. "The Premier would appear to believe that his proposal is a more efficient approach to expanding the supply of needed services, that private sector organizations, operating under the incentive of profit opportunities, can provide as good or better quality care at lower cost."

While no one questions the need to find ways to improve the efficiency and effectiveness of the health care delivery system, most sources of "efficiency" in the for-profit provision of care are more illusion than reality. When it comes to measuring quality, research solidly shows that the Canada’s single-payer, and similarly, Australia’s healthcare system works more efficiently than a for-profit system and protects against the deterioration of quality that is evident in for-profit organizations because of pressures to reduce operation costs and to protect larger operating margins (Catholic Health Alliance of Canada).

In fact an overview of studies prepared by Michael Rachlis indicates that the available data on quality of care supports a not-for-profit approach.

"Drs. Himmelstein and Woolhandler concluded in a 1999 article in the Journal of the American Medical Association that for-profit US health maintenance organizations (HMOs) rated lower than not-for-profit HMOs on all 14 quality indicators measured by the National Committee for Quality Assurance... The authors estimated that there would be an extra 5,925 breast cancer deaths annually in the United States if all HMOs were for-profit (Rachilis 2000)."

Another 1999 New England Journal of Medicine report, by Johns Hopkins researchers, investigated all dialysis centres in the United States. It concluded that patients receiving care at for-profit facilities had 20 percent higher death rates and were 26 percent less likely to be placed on a waiting list for renal transplantation than those attending not-for-profit centres (Rachilis 2000).

Advocates of for-profit health care and services argue that, in the case of health care, government has corrupted the market through the implementation of the entitlements established by Medicare. David Gratzer sets out this argument very clearly in his 1999 book, Code Blue.

"Consider that in a normal market, problems are solved by consumers and producers pursuing their own self-interests. Consumers tend to avoid waste and inefficiency because they usually result in higher prices. Instead, consumers seek good products at attractive prices offered by efficient suppliers. Producers search for less costly ways of delivering wanted goods. ... Pursuit of self-interest by consumers rewards efficient producers, and pursuit of self-interest by producers rewards cost-conscious consumers (Gratzer 1999)."

So this argument suggests that Medicare is bad for business because it disrupts normal market processes. However, a study by the Conference Board of Canada shows that Canada’s health care system has been a central determinant of the costs of doing business in that country. The study revealed that the lower costs of employer-paid statutory benefits and taxes in Canada, which reflected the existence of a publicly funded health care system, created a significant cost advantage for employers located in Canada (Catholic Health Alliance of Canada).

In fact the strengths of Canada’s Medicare system and its comparative efficiency is good for their whole economy and represents a bargain for Canadian business.

Health insurance premiums paid by Canadian employers amount to only 1 per cent of gross pay compared with 8.2 per cent in the U.S., giving them a big leg up on U.S. businesses.

In 1999, Ontario accounted for 17% of the North American vehicle production market, up from about 13.5% in 1994. Roughly 90% of Canadian-made vehicles are exported to the U.S. Those exports are valued at $100 billion a year. Automakers building in Canada gain from a number of benefit costs.

"Health care is one of the big advantages. Savings amount to between $1,200 and $1,500 for every vehicle assembled here. In terms of overall production, auto makers that manufacture vehicles in Canada save $3.5 billion to $4 billion a year (Rachilis 2000)."

In Canada’s health care system, it is the combination of public administration and not-for-profit care that helps keep costs under control and lower than those in the United States. A survey of the cash and stock received by senior executives of for-profit hospitals, HMOs, and the like, when a corporate takeover occurs, provides an example of why costs are higher in a for-profit system. To take an extreme example from 1996:

"Leonard Abramson, CEO of U.S. Healthcare, will get more than $967 million in cash and stock, plus a $25 million corporate jet and a $10 million consulting contract, from the firm’s purchase of Aetna. Two of U.S. Healthcare’s co-presidents will receive an extra $11.62 million in cash and stock for joining Aetna (Catholic Health Alliance of Canada)."