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Privatization and Quality

By August 3, 2016Commentary

Around the world, and even in the US (think VA), health services are frequently provided by government-owned or employed providers.  In England, for example, most health services are rendered by the government’s National Health Services arm.  There tends to be an assumption that because there is no explicit profit motivation, these providers must be focused on delivering the best quality of care and measures should reflect that.  On the other hand, people in government organizations (bureaucracies really) tend to lack any financial or other incentive to do a good job for customers, and the best people may not even want to work in such organizations, and that may end up resulting in worse quality (think VA).   Health Economics carries a study from Sweden examining the effect of privatization of nursing home care.  (Hlth. Econ. Article)   The authors seem to start with the assumption that nursing home care in government-owned facilities would be good quality and that privatizing it might lead to quality issues, which to me is a very dubious starting assumption.  As they note, contract terms can be used to try to ensure good quality at private facilities, but they wanted to see if on quality dimensions which weren’t amenable to contract controls, would performance get better, worse or stay the same.  So they picked mortality as the measure.

Over 20 years, about a third of Swedish municipalities privatized nursing home care, in whole or part.  The authors measured mortality changes for those municipalities that privatized versus those that didn’t.  Privatization appeared to be associated with around a 1.6% reduction in mortality, as well as with a reduction in per resident cost of about 1.7%.  Now that seems pretty common sense to me.  If you keep people alive longer, they can remain as paying customers for an extended period of time.  And, although I am not 100% sold on this idea, it has become a widespread idea in health care that better quality lowers costs, so it is possible that the private nursing homes invest in quality because in the end it raises their profits.  Whatever the rationale, I think almost all Americans would rather be in a private nursing home than a government-run one; and I suspect most Europeans are coming to that conclusion as well.

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