For-profit

Private, For-profit Solutions to Funding and Delivery

What’s the Issue?

Public or Private? These are loaded words in the healthcare debate.  There can be public and private roles in both the funding and delivery of healthcare. What is the best balance for Canadians?

Who pays for health care? Healthcare funding can be public, quasi-public and private. Let’s explore the variations with some examples, understanding that many of these examples are still evolving and may have changed.

Public funding may refer to support from various levels of government. In Canada, about 70% of health care expenditures come from public sources. The Canada Health Act dictates that medically necessary hospital care and physicians’ services must be publicly insured in order for provinces to receive federal transfer payments. But the extent to which provinces go beyond this minimum can vary among provinces, because healthcare is under provincial jurisdiction. For example, Ontario has much more public coverage for homecare than does New Brunswick.

Quasi-public funding sources are legally private, but highly regulated by government and expected to act in the public interest. Quasi-public funding examples are Canadian workers’ compensation plans and European sickness funds. Note there are a number of different models used in European countries, all of which result in universal, or almost universal, coverage of the population.

Private funding can describe out-of-pocket payments, and services paid for through private insurance. In Canada, most dental care, vision care, and a considerable proportion of outpatient drug costs are funded privately. Private insurance companies have a lot of variability in what they will and will not cover, but the Organization for Economic Co-Operation and Development (OECD) identifies three basic models:

• Private insurance can be a substitute for public coverage for all or part of the population. For example, in the US, certain segments of the population qualify for publicly funded insurance, but the rest do not, so out-of-pocket payments or private insurance are the only alternatives for those people.
• Private insurance (often with deductibles and co-pays) may cover services not included within the basket of publicly-insured services. This is how most dental plans and prescription drug plans work in Canada.
• Private insurance can also allow access to private providers in systems where parallel models exist. For example, in England patients with private insurance can choose to go to a private hospital and jump the queue.  Most analysts have found that these private alternatives are more likely to apply to elective surgeries than to medically necessary care.

At times, it can be a complicated matter to separate what precisely falls under public and private spending domains in Canada. The majority of publicly-provided funds go towards physician and hospital services for necessary medical services, as mandated by the Canada Health Act. Pharmaceuticals administered to inpatients (those staying in a hospital bed) are paid for by the public. While there are other smaller costs also included in the public total, most of these vary by province. For example, workers’ compensation boards qualify as publicly-provided care, as does the Quebec Drug Insurance Fund, a universal drug insurance plan. In addition, governments often subsidize many health services which fall under private care such as pharmaceuticals, nursing homes and dental care, although the eligibility and extent of these subsidies vary widely by province. Finally, there are a number of public health insurance programs offered to select groups of people, such as First Nations, refugees, veterans, members of the Canadian forces and RCMP, and inmates.

Private spending applies to spending on health care that aren’t covered by the government. The most common forms of this are eye and dental care, outpatient pharmaceuticals, and physiotherapy (although as mentioned above, a portion of these costs are sometimes paid for publicly). Long-term care is more difficult to pinpoint, as nursing homes and other institutions are subsidized by the government for their services, but private fees (usually income-dependent) are also applied. Furthermore, several tangential health services must be paid for privately, such as private rooms in hospitals acupuncture, and services provided by audiologists, podiatrists and several other practitioners. Most elements of private spending are funded through out-of-pocket payments by patients or private insurance, supported through regular premiums, deductibles and copayments.

Who delivers health care? Healthcare delivery can also be public or private. England’s National Health Service was formed around public hospitals and some military clinics; their employees worked for the government. In contrast, it might surprise many Canadians to hear that almost all Canadian healthcare delivery is private. Even many hospitals that Canadians call public are in fact private, not-for-profit organizations, which happen to get much of their funding from the government. Canadian doctors are also private providers, not public servants. The mix up occurs because although the delivery is private, almost all services delivered in hospitals or by physicians are publicly financed.

Private delivery can be further divided into:

• For-profit, corporate services, which have fiduciary responsibilities to their shareholders.
• For-profit, small-business services, such as private offices and clinics run by physicians and physiotherapists.  These are sometimes called “not-only-for-profit,”
• Not-for-profit organizations, which describe most Canadian hospitals as well as many agencies offering community services. In many provinces, hospitals have been subsumed into regional health authorities, which are still legally private, but are sufficiently heavily regulated to fit into the quasi-public category.

Comparing these different types of private services with public services is complicated. In fact, attempts at comparing costs or outcomes of private versus public delivery models are like comparing apples to oranges. One reason is because they usually do not offer the same healthcare services. For example, in those jurisdictions where multiple models compete, analysts have found that for-profit, corporate providers will tend to serve potentially profitable services (e.g. elective laser eye surgeries) and client groups (patients with no complicating conditions), and leave other services and sicker patients to public or not-for-profit providers. This is often referred to as “cream skimming.”

Another complicating factor is that healthcare differs from many consumer goods because it is based on need rather than demand. Few would worry about buying a pair of shoes that aren’t needed; however, few would wish to undergo cancer chemotherapy if there was no cancer to treat, even if the treatment was “free”.

The evidence suggests that under most circumstances corporate for-profit healthcare produces few benefits to the patient or to the healthcare system. For-profit health care can offer advantages if there are potential savings from strong economies of scale or better management. However, for-profit providers may improve their bottom lines through the use of more contentious measures including

• Freedom from union agreements
• Evading cost controls placed on the public system (e.g., the price paid for physician services)
• Sacrificing difficult-to-measure intangibles (e.g costs associated with teaching the next generation of doctors, performing research, doing quality assurance, etc.)
• Avoiding risky patients or less-remunerative treatments (i.e. cream skimming).
• Permitting dubious practices including fraud (billing for services not delivered) or pushing treatments which are not medically necessary.

In theory, these problems can be minimized if performance is monitored, but monitoring adds additional costs. Also, monitoring may be difficult where outcomes are not easy to measure. If performance cannot easily be monitored, not-for-profit or not-only-for-profit delivery is more likely to provide less expensive, high quality outcomes than is corporate for-profit delivery.

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