Government Turns Over Hospital to the Private Sector - Then What Happens?
Strange Experiment in Public-Private Partnership
I’ve written a lot about the poor incentives in our healthcare system. Economics teaches us that systems tend to produce the outcomes that they are incentivized to. In our healthcare systems - be them the socialized ones in the UK and Canada, or the so-called “private” one in the USA, and even Singapore which is the best of a bad bunch in that they spend less and deliver better oucomes - everyone is paid for treating ill-health. And that’s what we get. We just get sicker and sicker for longer and longer and shell out more and more for the privilege. Everyone profits from good health in the long run, of course, but as Keynes quipped, “In the long run we’re all dead,” and our systems are so myopic and short-termist in nature as to disincentivize mobilizing the fact that everyone profits from good health in the longrun into coherent disease-prevention programs.
Valencia, Spain, accidently stumbled into a groundbreaking experiment in preventative care - as well as public-private partnership in health provision. The Socialist Party, who were in charge at the time, failed to provide funds for a hospital, following years of promises to the people. In response to a furore, they solicited a private company to pay for, design and deliver government-provided healthcare in an attempt to keep costs down.
The company was ingenious in their approach and provided lots of active, preventative care to keep people away from hospitals – and still managed to turn a profit! For example, the hospital took note of who would come in with chronic bronchitis in the winter, and then contacted them the following October to offer a visit. If they were suffering from poor health they were given preventative treatment making them less likely to end up in hospital later. This saved patients a traumatic trip to the emergency department on a cold winter night – and saved the hospital money. They also monitored people with known heart conditions to offer early treatment, and as a consequence managed to half the number heart attack admissions[1]
The private company got paid a sum per year based upon the number of people in the Ribera area, no higher than the sum spent per capita elsewhere in the region. If people left Ribera and went to hospitals outside, they would lose money, but if they came to Ribera to take advantage of the hospital, they’d make more money. I guess this solved the incentive problem. The better care they delivered the more money they'd get to keep. The government solved a problem at no cost, and gave us a bipartisan model to consider.
This is now called The Alzira Model, after the little town where the hospital was built and still functions. Some academic work has been done advocating it for adoption elsewhere, but I have seen precious few examples of it actually being implemented.
Alas, The Alzira Model was destined to fail in Valencia as the deal necessitated the private company handing the hospital back to the regional government ten years later. It’s amazing that even under these strictly government co-ordinated conditions, a set of outside eyes were still able to swoop in and turn things around. It can only provoke us to wonder what would happen in a free market environment where people cut out the middle men - private insurers and the government - and instead “subscribed” to their local hospital for a fee which might rise or fall depending on how well they took care of themselves and engaged in disease-prevention programs. Under these circumstances the hospitals would be incentivized to treat less wherever possible and offer evidence-based guidance to patients to help them avoid the need of care. We could save a lot of money on healthcare - not to mention unnecessary suffering.
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[1] Bartholomew, J. (2016) “The Welfare of Nations” Cato Institute, p64