The efficiency of public and private sectors with respect to public health
Musgrove (1996) suggests that, after public goods failures (which have been discussed above), the gap between demand (the willingness and ability to pay) and need (the capacity to derive a health benefit) explains most of the difference between the performance of the public and private sectors. There are two reasons for this gap: poor knowledge, which causes people to demand services which do not either meet their needs or make other contributions to their welfare, and divergence between need and welfare (the capacity to derive any benefit), which causes people to demand services which do not meet their needs but which do contribute in other ways to their welfare. Although these two issues are not clearly empirically separable, evidence considered most relevant to each has been separated between this and the following section.
In patterns i and 2 type of health systems, poor knowledge probably explains the demand for the dubious services of ‘quack’ health providers and widespread self-prescription of potentially harmful drugs, although inability to pay for safer services may account for the taking of known risks too. Among many examples, van der Geest (1987) has described die extent of such problems in Cameroon, and Whyte (1990) has pro-vided similar evidence for Uganda.
In pattern 3 type of health systems, ‘consumer ignorance’ may ex-plain non-price competition in tertiary markets (see Bennett, chapter 7 of this volume), if this is caused by consumers paying more for high-technology services than their value would be in full knowledge of their likely health-adding effects. This causes an excessively technology-intensive service profile. This aspect of the Thai health system is die one most emphasized by Nitayarumphong and Tangcharoensathien (1994) who point to a ratio of CT scanners per million population in Bangkok surpassing Western European countries and exceeded only by those of the United States and Japan.
Under all patterns, poor knowledge of consumers is said to cause the private sector to neglect preventive measures (even those which are not public goods) whose efficacy is said to be poorly understood by consumers, and to encourage unethical behaviour on the part of private-sector providers in recommending more, and more profitable, interventions which are not medically indicated (supplier-induced demand).
In this volume, Aljunid compares the pattern of service provision of public and private-sector clinics in Malaysia. Preventive services were offered in the private sector, but to a limited degree, and gave rise to serious quality concerns. In particular, the immunization cold chain was poorly maintained by private clinics, suggesting that in this respect the clinics may be doing more harm than good. The private sector’s contribution to preventive activities is significant in both Zambia and Kenya (Berman et al. 1995a; 1995b). Eighteen per cent of immunizations were privately provided in Kenya, and in urban areas, about 8 per cent by the private for-profit sector. However, there was no similar quality i evaluation to that undertaken in Malaysia. Evidence suggestive of supplier-induced demand is quite widespread. Thaver (1996) reports widespread polypharmacy and excessive use of antibiotics and injections in Pakistan, despite evidence that practitioners had good knowledge about appropriate prescriptions. Private providers’ higher rates of prescription of anti-diarrhoeal drugs than was likely to be warranted by disease patterns were also noted in this study, and in Kenya and Zambia (Berman et al. 1995a; 1995b).
Counter-balancing these sources of reduced efficiency in the private sector is the argument that there is enhanced internal efficiency owing to the incentive to cost-consciousness which is absent in the public sector. Naylor (1988), citing Frankish et al. (1986), noted that public-sector costs were 50 to 100 per cent lower per bed-day than in the private sector in South Africa, and concluded that it ‘seems most improbable that the private hospitals have any cost-efficiency advantage over their public counterparts’. However, it should be noted that private hospitals receive retrospective reimbursement on a fee-for-service basis from insurance bodies (see chapter 10) and thus have little incentive to contain costs. In Thailand, bed occupancy is 99 per cent in the public sector and only 58 per cent in the private sector (Nitayarumphong and Tangcharoensathien 1993). Mission providers are widely believed to be more efficient than their government counterparts yet studies suggest this difference to be exaggerated. Berman et al. (1995b) cite a study by Musau and Sliney (1994) which suggested a mixed comparison of quality and efficiency performance of government and mission hospitals and concluded that management was more important than ownership in determining this. Gilson (1992) reaches similar conclusions.
However, efficiency comparisons are notoriously difficult, and are complicated by issues of case mix, quality and equity. In this volume, Pannarunothai and Mills (chapter 4) suggest that comparing the performance of public and private hospitals in Phitsanulok, an urban area of Thailand, is beset by such difficulties. Comparison of a set of productivity indicators suggests no clear advantage of either public or private providers, and wide-ranging performance within each group of hospitals. However, the public-sector hospitals saw more complex and chronic cases and were generally chosen by elderly patients whereas private hospitals were more popular for children. The authors speculate that the cause of this pattern may be that the public sector’s price advantage (which is unclear overall for fee-paying patients) becomes increasingly marked for more expensive (complex and chronic) care. The private sector’s choice of a more intensive pattern of service provision (suggested by a higher ratio of intensive to other beds) makes it unclear whether higher overall costs are associated with high quality or low efficiency. In South Africa, the number of people per doctor is much higher in the public than private sector (Naylor 1988) but, at this crude level of comparison, it is unclear whether this is most important an equity or efficiency difference.
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