Level Playing Field Good for Public Patients

• Introduction
  • A Lot of Publicly Funded Health Care is Private Now
  • More and More Public Money is Being Spent Privately on Things People Like
  • Public Hospital are Being More Selective
  • Private "Hospitals" are Advantaged
• The Very High-Tech Procedures
• Need for Other Revenue
• “Close Me Down”

Introduction

During the Vietnam war military strategists sometimes spoke, apparently with straight faces, of “having to destroy the village in order to save it”.

Similar perverse logic applies to some of the widely held beliefs about New Zealand’s public health system: many of the things supposedly designed to protect the public system actually threaten it.

If one believes that the public health system is too valuable to ‘muck up’, then one should support having a dispassionate look at how it is set up, and challenging well-intentioned practices that hold it back.

The theme of this article is this: it is a false premise to think that the public health system can be protected by artificially dividing it from “private” health. This point can be illustrated with a number of examples.

A Lot of Publicly Funded Health Care is Private Now
General practitioners (GPs), for example, on the whole provide excellent care at low prices compared to hospitals. They are entrepreneurs who own and operate private businesses.

More and More Public Money is Being Spent Privately on Things People Like
The Lead Maternity Carer (LMC) system, for example, is very popular because it gives women choices. It is so popular in Wellington that, over the years, it threatened the clinical and financial viability of the Women’s Health Service at Wellington Hospital.

Are there those who hold the view that women should be worse served in order to protect the Hospital’s position? Anyone who says “no” to that question supports privatisation, for that is what the LMC system is.

Similarly, as Bill English, Minister of Health, has said publicly to the news media, the great innovations in health care are occurring where the Health Funding Authority (HFA) buys from alternative providers such as Maori health trusts. On the whole, these groups are providing excellent care that is superior from the patients’ point of view – and every single such scheme is a privatisation.

Public Hospital are Being More Selective
When people are turned away from the Emergency Department at Wellington Hospital and sent to a GP where they can get very good care at a cost of about $45 (including the Government subsidy), that is privatisation. Should the HFA instead pay $300 or $400 a time (the actual costs for an Emergency Department episode) to treat the hangnail, the sprained ankle and the sore throat? How would that make the public hospital stronger and make the public health system overall more sustainable?

Private "Hospitals" are Advantaged
For the most part, private hospitals are not hospitals at all. They are clinics providing cheap, easy, assembly-line procedures. That is fine, and may be consistent with good outcomes clinically and financially, so long as there is a level playing field.

That level playing field would require that, firstly, the private “hospitals” bear the true cost of their work; and, secondly, the effect on the public hospitals was reflected in the public hospitals’ revenue. At the moment neither is the case for two reasons:

• Because private “hospitals” are not really hospitals; when an operation goes wrong at a private clinic, the patient gets ‘off-loaded’ at the local Crown Health Enterprise’s (CHE) emergency room or Intensive Care Unit. This happens even when there is no incompetence at the private hospital, but merely when a known low-percentage risk actualises. On a level playing field, the private hospital would have to factor those costs into the fees and premiums it charges.
• When the private sector “cream-skims” the simple and cheap operations, it also cream-skims work that would make a public hospital’s most difficult operations more affordable. To the extent that public hospitals are deprived of this work, the unit cost of their high-tech, high-risk work goes up. For example, when the HFA contracts out cheap and easy hip operations to the private clinic down the road, it makes the public hospital’s orthopaedic surgery for trauma victims more expensive – but the HFA does not increase the price it pays for that surgery.

The Very High-Tech Procedures

Wellington Hospital currently has no Magnetic Resonance Imaging (MRI) scanner. As a tertiary hospital, of course, many Wellington Hospital patients need diagnostic MRI scans. They are purchased from nearby Wakefield Hospital.

Because of the expense, MRI scans are rationed by a committee of doctors. As an honest observation, these expensive scans are probably rationed below the clinically desirable minimum given modern expectations.

So why does not Wellington Hospital buy its own scanner? It is being evaluated and it appears that an MRI scanner at Wellington Hospital would only be viable if it were possible to charge for some scans. In other words, the Hospital would need to find private patients or insurance companies who will use the scanner for a commercial fee.

This appears to be an ideological minefield in the New Zealand context, but the supposed problem is difficult to understand. If a patient who would not get a MRI scan under the public system has insurance, and if the scan is clinically indicated, why should not Wellington Hospital perform the scan and charge the insurance company? And if the revenue benefits all patients (because the scanner would not be there at all otherwise) what is the objection?

Need for Other Revenue

The MRI example has analogies in almost every part of the public hospitals’ business. The core of the issue is that over 90% of public hospitals’ revenue comes from one source: central government, either through the HFA or the Accident Rehabilitation and Compensation Insurance Corporation (ACC). Despite every effort on their part to be ethical, those large organisations display some of the capricious behaviour one would predict from a near-monopoly. For example, even after “negotiations”, contract offers are routinely made on a ‘take-it-or-leave-it’ basis, and with all or most risk passed to the hospital.

Every large organisation has a proportion of hard-to-predict and hard-to-please customers, but they balance the risks by having a larger supply of reliable ones. Where would Fletcher Challenge Forestry be today if its marketing strategy had been to sell all its logs to a single Korean pulp mill? Public hospitals should also try to diversify their client base. Yet ideological barriers seem to apply: the concept of private insurance-paid patients in the public ward raises much concern.

“Close Me Down”

Much of Wellington Hospital would be closed down by the regulatory authorities if it was in North America.

More specifically, New Zealand authorities would shut down Wellington Hospital if it were operated in Wellington by Southern Cross or Mater Miseracordiae.

Wellington Hospital is “regulated” and audited by a plethora of agencies, none of whom appear to have real teeth: for example, because the Hospital is publicly owned, it is “deemed” to be licensed under the Hospitals Act.

When in May 1998 the Occupational Health and Safety service ordered a number of public hospitals to cease performing autopsies unless they improved their mortuaries within three months, that decisive action stood out like a beacon as an exception to the rule.

Much more typical is the result of Ministry of Health and HFA audits of Wellington Hospital, which took hundreds of hours and presumably tens of thousands of dollars to compile. They were duly published with great fanfare in December 1997. Several days of scandal followed in the news media - and then nothing. Where were the compliance orders? Where were the fines? Where was the shareholders’ decision to invest in the Hospital or close it?

The rationale behind these “standards” is difficult to imagine. Is there a presumption that because the hospital is publicly owned it will, as a matter of course, provide good standards in the public interest? Anyone who has visited Wellington Hospital’s Emergency Department recently will know that this is patently not the case.

A more cynical view is that the lower standards persist because they have enabled successive Governments to delay or avoid investing in better facilities and equipment.

To summarise, these are vital issues. The longer public hospitals are prevented from innovating and competing, the more financially unsustainable they become, and the lower their standards slip, the stronger the argument becomes for transferring the assets to an owner who can do better.

In other words, the negative effects of holding the public hospitals back become an argument for privatisation. If the aim is for public hospitals to flourish and to provide the public with first-class care at a reasonable cost, then the only course of action is to set them free.

Will the ideologues really be satisfied to watch the public health system wither and die – in order to save it?