Privatization processes in health care in Europe—a move in the right direction, a ‘trendy’ option, or a step back?

Conceptualizing privatization

Privatization in health care is a hot topic of discussion in most European countries. Driven by the political agenda, privatization as a general process in the society is often offered as a panacea for all sorts of problems, where health care is seen as one of the potential areas of implementation. This requires some initial delimitations and clear definitions of basic terms. Let us take the definition proposed by the European observatory on health systems and policies: ‘Privatisation is the transfer of ownership AND government functions from public to private bodies, which may consist of voluntary organisations and for-profit and not-for-profit organisations’. In everyday life, we see that these components are taken at leisure and are then combined with different preferences. Therefore, it is useful to develop both concepts as well as criticisms around them. There is a taxonomy proposed by Saltman¹, differentiating between different categories of public and private providers:

• Public

  • State: Ministry of Health, National Boards

  • Public, but not state: regional and local government, public corporations

• Private

  • Not-for-profit (mission-driven): community-based, religious, charitable, NGOs

  • For-profit (return-driven): small businesses, large corporations

Then we need to explore, what part of health care is privatized. We have the typology, proposed by Maarse²: privatization of health care financing, privatization of health care provision, privatization of health care management and privatization of health care investment. It happens rarely that we see all parts of health care privatized at the same time and to the same extent. This typology provides ground for assessing the presence of each component and the extent to which privatization is developed.

Reasons for privatization

One of the issues that are often skipped but essential in evaluating the impact of any type of privatization is—Why is it necessary? We can see that drivers for privatization are different in the Western part of Europe from those in its Eastern part. Ideas about privatizing health care in Western Europe were triggered by the crisis of the welfare state, push factors for more efficiency and exemplification of private businesses as role models for optimization of service delivery. Historically, the negative experiences, which opened the door to privatization, were rigidity of public institutions and their inability to change or adapt to different stimuli from their environment, including the population's and patients’ expectations. While that is partly true, the frequent opinion that all private structures per se function more efficiently and more productively is nothing but a statement. At that point, we can look at two interesting examples. One is the experience of USA with its large share of health sector belonging to the private owners and investors. But some of the fundamental institutions in health care, which have turned very efficient and important for the successful functioning of social protection, such as Medicare or Veterans’ Administration,³ are fully controlled, funded and managed by the state. The other example is the nominal statement that private businesses are more efficient and should be widely welcome as they are supposed to ensure rational management of health care funds. Rational management and cost containment at the provider level do not necessarily lead to any benefits in patient care, rather the opposite. But they may on the short run provide for ‘savings’ at a larger scale. And as ‘the West’ was trying to optimize its health care delivery by flirting with privatization, ‘the East’ was faced with political demands for privatization in different domains of life, sometimes even looking back to the situation before World War II in their own countries. In its extreme, privatization was seen as a human right and as a natural extension of the political demands in other domains of life. This was a reaction to the previous loss of individuality and of the entrepreneurial spirit. Eventually, privatization in health care was ‘a side effect’ or, depending on our views, ‘the collateral damage’ of such processes.

A number of reasons are usually explicitly or implicitly stated as those, which serve as the political framework for privatization. There are internal and external reasons for privatization and they largely belong to these categories:

1. Internal reasons

   • dissatisfaction with poorly managed public services

   • privatization as a part of the general social processes

   • re-introduction of private practice

2. External reasons

   • patient rights—to choice, to diversity, to quality health care

   • privatization as an option for competition and ‘market-oriented’ health care

   • quality, competition, ‘better overall performance’ of providers

Purely public systems often suffer from inefficiency and lack of adaptation to the users’ or consumers’ needs, in our case to patient needs. Once deciding for privatization of any type, there are several important questions to be answered or raised.

1. What are the goals that we want to achieve through privatization?

2. Are we going to develop a comprehensive privatization of health care?

3. Are there going to be certain types of privatization of services within health care, which will remain publicly financed?

4. Is there an ambition to build a parallel system for private patients financed from purely private sources?

5. If we decide for a public/private mix, what control mechanisms will there be in place to allow for rational and purposeful use of all resources?

Modalities of privatization

How did the different parts of Europe deal with the challenge of privatization? In the ‘West’, there was public tolerance and even incentive on private expenditures for health care. The system also changed in the direction of attracting more private providers in order to diversify the market of health care services. This was often done through the introduction of purchasing as was the case in the UK in 1990.⁴ Additionally, in many countries privatization included another dimension—selling out infrastructure to private investors. Finally, privatization of public insurance schemes through private provision also added a new dimension in the privatization process.⁵ An important (but still controversial!) development was the formation of entirely parallel systems, such as the private health care insurance and delivery in the UK. Many of these initiatives and steps were reactions to the inadequacies, inconsistencies and insufficiencies of the existing public settings. Two important principles of social systems are seriously challenged, if not undermined, in such changes:

• that access to health care be universal and affordable at the point of use; and

• that health systems should aim at reducing or buffering the impact the socio-economic differences have on health and certainly not to increase them.

The political changes in the countries of central and Eastern Europe (CCEE) added their own views and complexities to the issue of privatization. It was seen as the ‘politically correct move’ as privatization was a wide-spread process extending to the different social and other services in these societies. The CCEE saw privatization as an opportunity of increasing efficiency in health care, but this was in part driven by the foreign consultancies and some international organizations, which often did not take into account the specificities and complexities of the situation in the different countries. Often, privatization was simply seen as the return to the ‘good ole’ times’—an already well-tested concept. The CCEE faced the same negative challenges as the Western countries, but were additionally bearing the burden of the worsening social circumstances, at least for a good portion of the 1990s.

Risks of privatization and the possible precautionary measures

In the period of political changes favouring privatization, little was said about the risks privatization may bring along. Such warnings were regarded as obstacles to the ‘normal’ course, especially in the CCEE. Such views were due to privatization starting as a political slogan and its consequences not clearly elaborated. Privatization is one of the interventions, which are never black or/and white but bear different shades of grey. The most important risks that privatization bears are:

• challenges to equity, especially when introducing significant personal expenditures in replacing the public ones (e.g. substitutive insurance);

• challenges to transparency if private providers are favoured only based on their ‘effective’ use of financial resources, but not on outcomes; and

• development of a parallel health care system available to those with a better ability to pay and directed mainly to offering and providing services (instead of a comprehensive disease management).

Once a parallel system is built, it is then difficult to contain it or to set the rules ex post. Many countries have failed to secure the adequate regulatory mechanisms. Regulation of the system is necessary for a number of reasons, but most importantly due to:

• securing equity to all patients with health needs in a system driven by social values and social responsibility;

• ensuring quality of care, which should be, in principle, independent from the ability to pay; and

• providing enough performance data and information to patients enabling them to make informed choices.

Without proper regulation, there are several possible deviations and abuses of the system. The first one is the skewed preferences to services. In a system driven by private values and preferences, sooner or later, those services, which have the most users and which pay best, are selected. This adverse selection may have deleterious effects, such as selecting off serious chronic patients, or patients with mental problems. Defining private health service financed from public sources as not-for-profit is essential in assuring the defence of the public interest.

Convergence or divergence of systems across Europe with respect to privatization processes

There is a range of problems modern health systems are faced with—inefficiencies, consumer-driven demand, quest for quality, etc.—but they can neither be universally addressed nor universally solved. The ambition to increase efficiency of the system is a convergent characteristic, but the responses to this challenge vary as we have seen from a few examples. Improving and optimizing the use of resources will become even more important as these become scarcer due to financial shortages and cuts. The negative experience of market imperfections speaks in favour of further caution with the extent of the privatization process. We should not forget that there is a social cost of privatization—challenges to fairness and equity, increasing inequalities and individualization of demand through consumerism in health care. Last, but not least, are we to become more accountable for own health if we spend more from our own pockets? The answer is a most likely ‘no’, if such a direction effectively prevents some of the worse off to even use health services.

Conclusions and recommendations

The answer to our initial question cannot be one-dimensional and simple. Privatization is a process that is likely to remain an important policy option. This does not put aside strong reserves about defining it as the step in the right direction. Privatization poses several challenges: to effective use of public financial resources, to equity and to the existence of a rational and universally accessible health care. Universal privatization in health care challenges the most important principles of socialized health care, while providing insufficient proven ‘benefits’. If we believe that health care systems are levers of reducing (or at least buffering) inequalities in health due to other determinants, it is that much more difficult to accept privatization as means to the same end. While we can expect that solutions in introducing privatization and market-driven elements will become even more diversified, we should strive for the preservation of all the positive values of socialized and publicly financed health care systems.

Countries contemplating privatization as a policy option need to reflect about the following:

• how much market do they want to have introduced into their health care;

• monitor changes brought about by privatization with respect to access, co-payments, adverse selection and other challenges to equity; and

• how much incentive they have introduced into their existing (public) system before concluding that it was ineffective and overall poor performing.

We could draw the following recommendations:

• Privatization is a process that requires clear health policy goals that can also be measurable.

• Health care should not be treated as any other commodity.

• The core of the health service should remain publicly financed, regardless of how and under which ownership the provision is organized.

• Privatized services, provision, insurance or facilities need to be regulated, monitored and evaluated under the same terms as their public equivalents.

• Privatization of health care provision and insurance poses a threat to equity and accessibility of health care services.

• Managerial improvements and raised business awareness in the public sector may bear relevance over the eagerness with privatization.

• Preference for public financing and control and not-for-profit options need to be promoted and maintained.

• Transparency and accountability for the use of public finance are very important, also in view of the origins and the consequences of the present financial crisis.

This article is based on the material prepared and presented as an oral presentation in the workshop on privatization in health care during the EUPHA Annual Conference in Lisbon, November 2008.

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