February 22, 2001
Is Profit A Poison Pill For Healthcare?
The debate whether markets or central planners are better at delivering the goods was largely settled with the collapse of the Soviet Union in 1991. The consumer reigns when competing suppliers battle to sell their products to willing buyers. The ability to choose provides a powerful customer sanction against mediocrity and high prices.
Can you imagine what the pizza business would be like if the government ran it as a non-profit monopoly like Medicare? Domino's Pizza delivers "in 30 minutes or it's yours free," but that would turn into, "If it didn't arrive today, fill out these forms, write the Winnipeg Regional Pizza Authority or talk to your politician, and we'll see what we can do for you…." Pizzas produced in a market of competing for-profit companies are cheaper, better made and arrive on time.
In our Alice in Wonderland healthcare system, our NDP Government has declared profit -- the essential marketplace ingredient that rewards producer excellence and innovation -- verboten in Manitoba.
The fear and loathing the p-word invokes in our governing party encapsulates all that's gone wrong with the system. Without profits, the competition for rewards continues, but it carries on in ways that are less direct and much less beneficial. Political priorities guide the resources through a maze of government administrators, facilities and organized provider groups with a strong interest in maintaining the monopoly. That's why, despite much new spending, we've seen no reduction in waiting times for a range of crucial services. To a distressing extent, the money we spend --the most per capita in Canada -- goes to the winners of a political ping-pong game, not to ordinary patients.
Health Minister Dave Chomiak admits his government has failed to end hallway medicine. Will his party, Jon Gerrard's Liberals or Stu Murray's Tories ever comprehend the utter futility of throwing more and more cash at a system with zero incentives for service, innovation or efficiency?
In this surreal context, a debate is raging over whether the proposed establishment of a small for-profit clinic by a BC medical entrepreneur would harm our troubled health-care model. Dr. Mark Godley, who operates the False Creek Surgical Centre in Vancouver, wants to expand his operation to Winnipeg. Predictably, there are howls about "Americanization".
But wait a minute, it's "Swedenization" we should be looking at. Godley's new consumer option is tantalizingly close to what's now taking root in the oldest cradle of social democracy. After discovering that more money is not the answer, Stockholm's regional government started taking itself out of the business of being the front-line provider of health-care services. Instead, it allowed competing, profit-making (often employee-owned) health-care providers to enter the field and began buying services from them. The key component of Medicare, public funding, remains but introducing demon profit made productivity skyrocket, with savings shared by the staff and the public funder.Nurses' and doctors' salaries have risen dramatically. New primary-care doctors make roughly $10,000 a month, meaning that the least skilled of them easily earn much more money than their senior managers in the bureaucracy. Swedish healthcare unions, particularly the nurses, appreciate the merits of a competitive, for-profit model and promote it.
The statistics on Swedish waiting lists confirm the usefulness of allowing profit. Overall, authorities in Stockholm have reduced delays by two-thirds. Compare the waiting lists between Stockholm, where competition and profit guide services, with areas of the country which run with the old monopoly model. Heart-surgery patients wait 2 weeks in the capital, 15-25 elsewhere; Stockholm's hip replacement wait is 3-10 weeks vs. 45-50 outside; rheumatology, 6 weeks wait in Stockholm vs. 20.
By allowing private competition within the public funding framework, Stockholm's medical authorities reduced costs for lab and X-ray services by 50%, for nursing homes by 30% and for ambulances by 15%, even as they increased the quality of the product. Private doctors performing the same procedures as their public counterparts are billing 10-40% less.
The 1998 privatization of Stockholm's St. George's Hospital has been so successful that another major public facility is up for sale. The company that now runs it has increased its efficiency -- the number of services performed against cost -- by 30%. It makes profits, but the changes it has made to improve service and shorten waiting lists would not have been possible otherwise.
In Manitoba's ossified policy environment, surely there is room for a limited measure of perestroika. The Stockholm model of public finance and competitive production would be a start to reforming a critical public service. How can Medicare's defenders equate our ramshackle, expensive single-provider model with the world standard in healthcare? All other rich countries allow choice and profit in the industry. The Germans are moving to privatize 90% of their hospitals. The British Labour Government is pushing forward with public-private management of hospitals.
Likewise Singapore, which uses a system of Medical Savings Accounts to guarantee premium service and accessibility, is moving completely towards for-profit hospitals because "they are more customer-sensitive". Current standards in the island-state dictate that nobody waits more than 15 minutes for medical service. A clinic or hospital that fails to meet its patients' needs in a timely way runs the risk of losing its customers. In all this, profit, so despised by those in thrall to the old thinking, plays a key role.
Profit is not the poison pill that will kill Medicare. It's the key ingredient in a customer-based model that rewards excellence and efficiency. More bluntly, it is the antidote to the ideological obsessions now afflicting it.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."