The role of the private sector in health service provision
Against a historical background of neglect of private-sector providers in some countries and outright abolition in others, an increasing emphasis has been placed on the potential for them to play a complementary role in an overall strategy defined by public interest. Such an approach requires that an overall strategy be developed along with the identification of the respective roles of public- and private-sector providers within it. These roles need to be considered in the light of what have been established as the strengths and weaknesses of public and private providers. While a great deal has been researched and written about the performance of public providers over past decades, similar knowledge about private providers has only begun to emerge over the last few years. This chapter aims to apply recently provided evidence to the debate about possible definitions of a future complementary role for private providers.
One starting point for these identifications and definitions can be found in the 1993 World Development Report (WDR), Investing in Health (World Bank 1993). WDR argues that there are three general rationales for government intervention: the provision of public goods; the reduction of poverty; and the correction of market failure. Within the health sector, it argues that these correspond to three different public-sector roles: the provision of health services with public goods characteristics; the public finance of an ‘essential package’ of health services identified according to cost-effectiveness criteria; and the regulation of health care and health insurance. This restricts the public-sector role in provision to dealing with public good and poverty problems. However, it is not clear whether what is implied by the proposed response to the poverty problem is the provision of an essential package of services to the poor only, or to the whole population. Assuming that the intention is to ensure universal provision, the corollary is that the role of the private sector is the provision of private goods which are less cost, effective than the essential package, but are demanded by the popula-tion.
In general, the distinction between public finance and public pro-vision is not discussed in this section of WDR, although elsewhere the strategy of contracting out of what governments have decided to ensure is provided, is recommended. Discussion of the appropriateness of this strategy is reserved for the final section of this volume.
The translation of the three rationales (which are themselves quite widely accepted) into prescription of specific roles has generated considerable debate. The public goods question is perhaps the least contentious, although governments still have to decide the level of provision, the level of externality which constitutes a ‘public good’ case, and to what extent to contract provision to the private sector.
Much more debate surrounds the translation of the poverty rationale into a specific public-sector role. Bobadilla et al. (1994), having discussed the content of a minimum package of public health and clinical interventions, argue that: ‘Governments should ensure that, at the least, poor populations have access to these services/ This suggests an alternative interpretation of WDR, and implies that the role of the private sector includes the financing and provision of services included within an essential package to the population classed as non-poor. This implies some form of targeting of publicly-provided services, despite evidence that available methods of targeting are all subject to important errors. The question of the relative importance of inclusive errors (which allow some subsidy to continue to reach the non-poor) and exclusive errors (which exclude some of the poor from subsidy) depends on the weight accorded poverty alleviation relative to other objectives of public policy. This issue is explored further below.
The restriction of the public sector’s role to regulation in dealing with other types of market failure, most importantly those caused by the unpredictability of health-care demands, has also been challenged. Hammer and Berman (1995) argue that the most important public-sector role is to provide insurance, where insurance markets fail. This may well take the form of provision of services for which the demand is unpredictable but the cost catastrophic from the individual’s point of view. Such services may be among the least cost-effective of those which the state might provide. Rannan-Eliya (1996) suggests that this strategy underpinned Sri Lanka’s success in achieving health transition and he suggests that Sri Lanka’s current pattern of health provision (85 per cent of primary health-care expenditures are private, while 95 per cent of all inpatient care is publicly provided) is the result of public preference. If the role of the public sector is to provide insurance, where insurance markets fail, then it is precisely the relatively un-cost-effective, expensive, tertiary and rarely-used services which need to be publicly funded.
The rationales for public-sector involvement of both WDR and Hammer and Berman (1995) are strong ones, and suggest that there is an argument for public provision (or at least public finance) at both more and less cost-effective ends of the spectrum. The positions are not mutually exclusive; rather the debate between them suggests that the appropriate roles for public and private sectors are not determinable on a theoretical basis. The poverty rationale responds to the needs of a vulnerable section of the population who ‘cannot afford’ even ‘basic’ services. The size of this population will depend on the definitions of both terms ki inverted commas but, at least by some sets of definitions, will imply a minority of the population in any country. The insurance rationale is argued by both Hammer and Berman (1995) and Rannan-Eliya (1996) to respond to population preferences, and indeed responds to the needs of the majority who ‘cannot afford’ ‘more expensive’ services. It is possible to imagine a spectrum of services ordered on an increasing cost (or alternatively, a declining cost-effectiveness) scale, and correspondingly increasing proportions of the population who ‘cannot afford’ them (according to any definition). Where the line is drawn between the two rationales can only be arbitrary.
In many industrialized countries, including most European ones, the state’s ensuring of universal (or virtually universal) provision of services at all levels of the spectrum implies that both rationales have been simultaneously accepted. In many of the poorest countries, attempts to imitate ‘Bevanite’ (universal public finance and provision) patterns have been thwarted by limited public-sector capacity, and abandoned. At least some middle-income countries could achieve universal public finance and provision if they chose, but have opted for a public-private mix which includes elements of this, elements of the ‘Bismarckian’ model (which relies on social insurance), and elements of pure private-sector provision. These patterns are discussed further below. Both imply the need to identify a priority role for the public sector.
In the framework outlined above, the choice of the priority role for the public sector can be made only by making a choice between the majority and the vulnerable. If it is decided to include provision at the ‘basic’ end of the spectrum at all, whether this provision is targeted or universal depends on a similar choice: toleration of some degree of exclusive targeting error allows some trade-off in favour of the majority who gain from the reduced cost of provision aimed at the vulnerable minority, at the expense of the population who are excluded as a result of the targeting error.
While absolutist solutions are tempting, real solutions will be guided by the extent of the various trade-offs involved. These solutions will be best formulated in the light of evidence as to the actual division of responsibilities between different sectors, and how the patterns described perform in the light of efficiency and equity criteria (pages 24-7 describe the patterns). Efficiency can be defined according to public-health objectives (how efficiently public and private sectors improve the health of their users and the population), and according to demand (how efficiently public and private sectors meet the demands of their users and the population). Although there is considerable overlap between the two definitions, this chapter separates the evidence as far as is possible. The section beginning on page 31 reviews the contribution of the two sectors to an equitable pattern of provision, and the chapter concludes on the contribution of this evidence to the debate outlined above.
Health handbook introducing you to read the article: KEY QUESTION AND STRUCTURE OF THE HOOK
Copyright ownership rights: Private Health Providers In Developing Countries – Serving The Public Interest?