Should we privatize global health systems? A view from Nepal…

For the last several years, we’ve heard that privatizing public health systems in poor countries would be the best way to build more sustainable, efficient and effective healthcare systems. Large multinational firms and the World Bank have put out several reports advocating for the poorest countries to privatize.

Privatization proponents argue that the private sector is already delivering the lion’s share of services in most poor countries. Those arguing for greater reliance on public systems, by contrast, have contended that public-sector medical care is more equitable to the poor.

The following is a guest post written with Jason Andrews, MD:

My colleagues and I recently evaluated the evidence for these claims, reviewing studies comparing public and private healthcare delivery in low- and middle- income countries. The full study is released today in the peer-reviewed journal PLoS Medicine.
We evaluated studies in both the published literature and those released by private organizations and international agencies, categorizing their findings into six themes that have been used by the World Health Organization (WHO) to assess health system effectiveness: 1) accountability and responsiveness; 2) quality; 3) patient outcomes; 4) accountability, transparency, and regulation; 5) fairness and equity; and 6) efficiency.

We found that the data do not support the idea that private providers are more efficient (in economical terms); rather, the private sector was associated with higher drug costs, weak regulation, and perverse incentives for unnecessary testing and treatment. We also found poorer adherence to evidence-based care for conditions like tuberculosis and sexually transmitted diseases among private providers.

However, private providers were often preferred to public providers due to timeliness and hospitality towards patients. Transparency and accountability was poor for public and private systems, and the availability of more data would be helpful in facilitating further comparison.

A view from Nepal

In 2007, the Interim Constitution of Nepal explicitly endorsed health care as a basic right, laying the foundation for the Ministry of Health and Population’s (MoHP) revised health policies. Later that year, the government declared all health services at public health posts and sub health posts to be free of charge to all.

In 2009, free health care was extended to primary health centers (the level above health posts), 40 essential medicines were declared free of charge at district hospitals, and health care related to deliveries was made free at all public institutions. Within the first two years, outpatient care visits by the very poor increased by 97%.

However, increased stockouts of medications were seen in the setting of rising health care use. The public system is likely underfinanced to meet this demand. In 2009, the entire free medicines budget amounted to approximately $0.39 per capita. As of 2010, only 33% of Nepal’s total health expenditure was from public funds, approximately 8% higher than two decades ago.

The 2011 Demographic and Health Survey (DHS) for Nepal underscored the reliance of the poor on public health systems. Among women delivering children in health facilities, 84% of the poorest quintile used government services and 10% used the private sector. By contrast, 64% of the wealthiest quintile used government services and 29% used the private sector. However, as the poor are significantly less likely to deliver in any facility (13.5% versus 79% for the richest quintile) despite free services, much work remains to be done beyond the policy level.

The DHS survey also asked where children with fever or cough were taken for health care. Among those seeking care, the proportion seeking care in public institutions was identical between the poorest and richest quintile in 2006 (29.9% for each). In 2011, the poorest quintile had increasing use of the public sector (46.9%) while the richest quintile had decreasing use (13.6%). When pharmacies are not considered health care providers, 78% of the poorest quintile used public services, compared with 21% of the richest quintile.

Despite considerable success towards achieving the Millennium Development Goals, Nepal continues to have disparities and deficiencies in its healthcare delivery. The Government of Nepal appears committed to investing in its public health care system via the free care policy, but whether it can adequately finance it while delivering on quality, equity, responsiveness and accountability remains an important question.

Broader implications

In the broader scope of the debate about private versus public sector care in poor countries, we often assume that markets will bring more efficiency and less corruption. This would be true, except for the data we have on healthcare showing how different it is from other goods. The Nobel-winning economist Kenneth Arrow explained in the 1970s that markets are often not the best way of letting consumers get good healthcare because of information asymmetry—that is, it’s very hard for consumers to actually tell if what they’re getting is good healthcare. Furthermore, the prices of healthcare aren’t competitively set like the price of bread—consumers are often not in a position to shop around, but must take what they can get in the context of urgency and often poverty.

A lot of the faith in the market for healthcare has derived from Ricardo’s theory of comparative advantage, which tells us that competitive specialization will lead to more efficiency and better outcomes for everyone (the basis of modern free trade theory). Yet Ricardo’s model makes several assumptions that aren’t true of modern healthcare markets: including that resources are fixed and can’t be lost (unlike the brain drain on doctors) and that markets are perfectly competitive and can’t be manipulated such that consumers will have perfect information (they know the drug they’re being prescribed is the best one for them, or that the test they’re getting is necessary and the risks outweigh the benefits) and producers will not be capable of wheeling-and-dealing amongst themselves. A look at the modern sector of healthcare delivery in poor countries, which is filled with informal drug shops and quack doctors, gives an altogether different reality in contrast to this theory.

That does not mean that the public sector is doing well. Rather, we found in our recent review that the public sector is full of challenging inadequacies, particularly in timeliness of patient care and overall hospitable treatment of patients. But we also found a phenomenon of “competitive dynamics” between public and private sectors that often kept the public sector from improving – that the private sector would be built-up by public funds through subsidies or other tax-based supports, and then draw away the richest consumers, preventing them from cross-subsidizing the poorer hospitals; public funding would then also decrease toward the public sector, essentially forcing the poor to go to an underfunded public facility or informal drug sellers on the street. A two-tiered system would be built and reinforced. Much of this competitive dynamics is now being observed in South Asian countries like India, where glass-and-metal private hospitals tower above slums.

These issues bring to mind questions of how to better produce equitable financing for the healthcare of the poor in developing countries, not allowing the wealthy to create their own system for themselves, but participating in meaningful redistribution of wealth. Nations like India, Rwanda and Ghana have started to put forth proposals that engage with this problem, and we look forward to seeing how well they can improve their delivery of healthcare to the poor in this setting.

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