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The role of competition in health care

Criticism Number 18

Answering some common criticisms

3. Efficiency related concerns

Increasing costs due to the requirements of managing private involvement

Samuel is careful not to claim that privatisation will be cheaper or reduce costs. In this he follows the premier and health minister in Alberta, Canada. I am not aware of any situation in the world where for profit private care has been cheaper than public care or not for profit private care. There is steadily mounting evidence of the opposite and I have already looked at some of this in Australia and Canada.

The sort of corporations which Samuel envisages have been more expensive and provided less care. The USA is much more costly than anywhere else. Add to this the losses from fraud and the vastly increased costs of surveillance which Samuel acknowledges. In a system with fewer paradigm conflicts surveillance might be less onerous and lest costly. There are fewer pressures towards dysfunctional practices. The additional costs of these processes are seldom added to health care costs when assessing them.

There is strong pressure for available data to be interpreted in a way which is favourable to the government supporting these policies. Evidence will be interpreted to show that there has been increased efficiency. The example reported in the British Medical Journal where a re-evaluation of data converted a claimed cost saving into a multimillion dollar loss is representative. We have seen the same problem in NSW and WA where the auditor generals reached very different conclusions about the benefits of contracts with health care corporations to those reached by the contracting government.

The model which Samuel advocates has many of the features of the US system including a complex of competing purchasers, providers and regulators. This is the most inefficient and costly system in the world. This is not my view but the view of the most powerful commercial group in the world, Healtheon - a joint venture by Murdoch, Gates and Jim Clark. Samuel's model is an exceedingly complex model and the principles underlying it are not only complex but unsound. We should strive for something simple, based on sound humanitarian principles, built on established performance in health care, and one with which we can all identify and support.

If Samuel were to actually claim that his model will be cheaper and show that similar models in health care have cost less then his proposal might have some credibility. If the proposal is not going to give us a cheaper health service then what is it going to give us and why should we be even looking at it? What is the exercise all about? The evidence clearly indicates that it is most unlikely to give us better health care. Could this be about protecting ideology from insight and little else - a kind of fundamentalist religion.

Reduced integration

Incentives: - Once again Samuel admits that the pressures of his system will drive people away from the desirable goal. He is going to address this with a system of incentives - the same strategies used by Tenet/NME and Columbia/HCA to achieve the goals they desire. The consequences are now only too obvious. Incentives are used to exert pressure on people to do something which the context in which they work does not do or discourages then from doing this. Values and norms may conflict with desired market outcomes creating a paradigm conflict. The consequence of incentives and the legitimacy they give is to increasingly make it acceptable to do things which are in breach of generally accepted patterns of conduct.

The other consequence of this common managerial practice is to generate dissonance among employees because of the conflicts between the conduct required by the incentives and value systems. The responses to this can be characterised as closed minded or open minded.

Psychological perspectives: - Closed minded responses address conflicts like this by compartmentalisation or by rationalisation. Tenet/NME for instance selected for closed minded people when interviewing. Instructions to those interviewing prospective employees were subheaded "Look for a shark" - people who would look past norms and values.

Tenet/NME also supplied its own rationalisations. It used team meetings to encourage staff to objectify and accept these rationalisations. Its administrators were advised to watch for people who expressed views which were not congruent and to weed them out. This process selects for the sort of people who are least suited to provide health care. This is part of the process of Social Darwinism which I have referred to.

Open minded people confront the conflict and attempt to resolve it. They become alienated and either resign or become whistle blowers. These are the socially motivated people who should be caring for others.

Corporate integration: - I accepted Samuel's acknowledgment that integration might be compromised in his system in order to address his explanations. He is of course quite wrong. Tenet/NME, Columbia/HCA, Sun Healthcare, Mayne Nickless and probably many others have built their health empires by using integrated systems. Vertical and Horizontal systems of integration have been among their prime money making strategies - Mac Medicine.

By integrating in a corporate environment there is no need to refer patients to competitors and instead these profit bodies can be moved around the system to improve profits. They provide the means for shifting money between different sectors or subsidiaries to manipulate or defraud the system. They also provide a means of rewarding doctors financially for support without breaching the complex Stark laws prohibiting kickbacks. They limit competition. Subsidiaries have a guaranteed market (e.g.. Pharmacy chain in a nursing home empire).

Integration is essential if we are to provide the sort of care and the teamwork which the technology of the 21st century will allow us to provide. The risks of a corporate controlled and operated integrated system are such that integration will I trust be resisted by all professional groups if Samuel's model is ever introduced.

Reduced quality

I have argued that quality is a poor word in the health care context. It lends itself to associations rather than precise arguments - so can be used to promote almost anything.

Once again Samuel retreats into a tightly circumscribed world barricaded from the rest of us and rejects the obvious. What we are talking about is the care of citizens and this is what it is all for. It is the raw experience of life at its most threatening - dealing with people who are frightened when they are confronted with the uncertainties of illness, suffering and their own mortality. All the talk about money, efficiency, productivity is subservient to this - part of stretching what we have for the benefit of someone in difficulty - not for the profit of shareholders. The problem comes when these tools for the job become an end in themselves becoming the frames of understanding used for action and so identity.

Samuel's points are easy to refute

1. Pressure for profit will not compromise care: - Material on this site shows that it has done so repeatedly and on a large scale - in the face of extensive regulation. First signs are apparent in Australia.

2. There are already many private providers and not for profits do not differ significantly from for profits in their conduct: - The important distinction is between for profit (particularly market listed) and not for profit. The "starting points are very different. Samuel is being deceptive in comparing not for profit private care with public hospitals and equating this with corporate for profit. The increasing volume of evidence from the USA refutes Samuel's position.

3. Contracting out services to private contractors has resulted in "very significant reductions in service costs": - The contracting of public care to corporate interests has attracted intense criticism. Auditor generals reports have been highly critical of the financial arrangements which have benefited corporations at the expense of the public purse. Private care in Australia costs more than public care. For profit care has not been analyzed and this is what is important. In the USA for profit care costs more than not for profit.

3. Contracting out services to private contractors has resulted in the "maintenance of satisfactory levels of service quality": - Corporations do not yet dominate the market so cannot impose their culture fully. Because of developments in the USA local corporations have been under intense pressure and scrutiny. This cannot be maintained. I know of no study which supports Samuel's claim. I attract stories about care in corporate hospitals but have no means of assessing their validity or the frequency of problems.

The information I have indicates that

  • In the USA not for profits employ fewer nurses, have a higher death rate and a higher incidence of complications. Teaching hospitals perform considerably better on these measures.
  • In Australia public and private hospitals have equal numbers of complications and deaths. Private hospitals treat better risk patients and less complex cases with the same complication rate. Patients with major complications often run out of insurance cover and die in the public hospitals. The comparison is between public, mostly teaching hospitals and private, mostly not for profit. Available figures do not distinguish between for profit and not for profit. These figures cannot be used to argue the case for for- profit medicine.

CLICK HERE -- for a page which explores these issues in more depth - particularly for profit and not for profit.

Moving toward US-style "managed care"

Samuel's is either ignorant, deliberately deceptive or ideologically blind. Each claim denying what is happening in the USA is false. He is aware that his audience could not possibly have access to all the information which shows this. This section is pure "NMEspeak". He ignores the facts and the criticisms. He asserts that by applying the very things which have been criticised and shown to cause the problems he will prevent the problems from developing.

1. Samuel asserts that the claims about the USA are exaggerated. As this site reveals this is nonsense. Angry US citizens and their relatives are taking to the courts across the US to avenge themselves for misuse and neglect. They seek recompense and punitive damages as a deterrent. Class actions are being taken against aged care and managed care corporations. Government investigations have confirmed understaffing. Studies show poorer outcomes in for profit systems. Attorney generals across the USA are taking actions against managed care giants for practices which impact on patient care. A public backlash has forced governments across the USA to pass a series of patients rights and other legislation to protect citizens from being exploited and misused by those who are supposed to be acting in their interests on behalf of society. This is what Samuel wants for us - only more of it.

2. Samuel's model will not have these problems because it "differs crucially in having a greater reliance on competition and market mechanisms". By any sensible analysis the underlying problems in the US health system are competition and market mechanisms. Samuel plans to avoid the problems caused by increasing the pressures which cause the problem's. As Kuttner indicated if a market does not work it can only be because it is not sufficiently market like. It is impossible for the theory of markets to be wrong - this is unchallengeable.

3. Samuel's model will not have these problems because it relies on "a better flow of information". Competition distorts the flow of information, creating a false perception of events. The sort of information needed is protected and difficult to secure. Misinformation and inadequate information have been features of corporate healthcare. Tenet/NME misinformed to admit patients and to keep them in hospital. HCA's advertising of psychiatric care in 1993 was deceptive. Managed care has repeatedly misinformed people of their options and their rights.

4. The "trained judgment of a health profession in the individual case will always be fundamental". This is what the managed care corporations claim. Doctors and patients disagree strongly and attorney generals have taken court action because of it.

Rochelle Jones, Dave Lindorff and Ron Williams who wrote books about corporate health care in the 1980's all indicated that decisions which affect health care are made in board rooms. Representative examples include Sun Healthcare's decisions about "therapies" as well as Columbia/HCA and its Macmedicine system of "integrated care".

Psychiatric care, substance abuse and rehabilitation corporations set up their own treatment programs to increase, length of stay, provide more profitable treatments and squeeze every cent out of the insurer. Much of this treatment was of little benefit to the patients but it made some very wealthy and vast empires were built. To "prescribe" it health care corporations bribed doctors to gain the use of their signatures and their MD degrees.
(Jones "The Supermeds", Lindorff "Marketplace Medicine", Williams "Remission Impossible)

5. Information sharing is now central to care so that patients make the choice. Health care corporations have repeatedly shown themselves to be dishonest and untrustworthy. They have exploited any weaknesses they could find. They have not adequately informed and have deliberately misinformed. Fraud is endemic. They cannot be trusted to share information which is not in their financial interests. They don't disclose their interest when supplying information or when marketing and lobbying. They fund "front organisations" which claim to represent the community. Aetna owns a patient information www site but does not disclose this to those who visit the site.

6. Information sharing among providers benefits patient care. Competing providers do not readily share information which will benefit competitors. Professional associations and professionalism have been the forces which have ensured that information and expertise are shared among "providers". They clearly do not play a prominent part in Samuel's system.

A community service where cooperating patients and health care providers driven by the same objectives share information and decisions about health care would accomplish this much better.

Also relevant to this discussion is the move away from managed care in the USA and a discussion about who controls the utilisation of medical services. These are in a separate page.

CLICK HERE -- to go to the discussion of these issues

Private provider failure

Samuel acknowledges that private providers may not fulfill the standards required in contracts and that something will have to be done about this.

This presupposes that

Samuel also claims that nonperformance is not limited to private operators. Obviously so but the experience in the US is that it is primarily for profit operators which cause the problems, often the larger corporations. There are no reasons for thinking it will be different here.

Addressing corporate breaches of contracts:- Once regional market control is secured corporations can thumb their noses at citizens and regulators alike. Columbia/HCA showed how it could be done. Aged care chains have done the same. It required a community revolt before governments stepped in to control PACMAN activity and before patients rights legislation to control HMO's was accepted. An important consideration is the deceptive conduct and lack of integrity displayed by corporate providers.

Not for profit:- In not for profit services the community served are directly involved so that problems are soon apparent and corrected. The public have shown themselves to be very effective. It is only where services have been separated from direct community involvement (e.g. orphanages) that serious abuses have occurred.

Public:- In government run facilities, the government is directly accountable and is vulnerable to public discontent. The way in which the public responds to underfunding and problems in care in our public hospital system places constant pressure on government. This is so effective that government are contracting to private providers who are less vulnerable.

The US experience:- Samuel's model must confront the US experience. Because of its smaller population and larger size the problems which occur in the USA will be more acute here - and much more acute in developing countries. Samuel's model presupposes that government will retain the upper hand and be able to both detect problems and then enforce the contracts. This is not the experience from the USA or Australia. The bargaining process is two sided.

The Australian Experience:- Queensland paid Virgin Airlines to come to Brisbane. South Australia is paying corporations to stay in that state. Wealthy companies are bargaining with politicians to screw as much as they can by threatening to leave
("Big companies hold state to ransom" The Australian 14/10/2000).

What chance that government will hold these companies to contracts when they threaten to leave the state or the country. Samuel's "arms length" roles will not be an impediment. Exactly this happened in Queensland where clauses requiring multimillion dollar revegetation were set aside in exchange for building and operating a new mine. The environment was traded for further investment and political gain. This is how the corporate market works. Our politicians now conduct the affairs of the state in the marketplace. State regulators who wanted to enforce the clauses were pushed aside.

A dearth of suitable competitors:- The success of contracts presupposes that there will be sufficient corporations willing to compete in this marketplace and to behave with integrity when they do so. Health care will be competing on the share market with other lucrative investment options like technology ventures. Corporations will only enter health care if they can generate sufficient profits to compete on the share market. Corporations may leave health care with the same facility as they entered it. They will do so if contractual requirements are stringent. States and countries will compete for corporate support and to do so will offer contracts which do not restrict corporate activity.

As Ron Williams indicated multinationals will only enter our health care market if they can impose their own ideas and their own profit first practices. The number of corporations prepared to enter our market on our terms in the future is likely to be limited. Health investment will also be subject to the swings and fashions of Wall Street. This will compromise the governments capacity to strike a hard bargain and so reduce costs. Australia's experience with companies like Tenet/NME, Columbia/HCA, GSI and Sun Healthcare is salutary.

Limited competition:- In order to develop Samuel's model large corporate providers would be required. In a small country like Australia this would soon be limited to two or three at the most. These would exert considerable leverage. If government tried to enforce contracts they might well find themselves without any competitors to provide the services.

Running a hospital and a health service is a major enterprise. The logistics of changing providers in a competitive process every 5 years or when a contract is breached will be considerable with a significant impact on the community. Government will be most reluctant to do so.

Bankruptcies:- The possibility of financial collapse is threatening. Five threatened bankruptcies in aged care in the USA have created a mammoth problem. What will happen in a smaller country where the resources to pick up the pieces are much less. The government cannot keep large standby teams sitting around in case they need to intervene. We already have a problem in South Australia where government have been forced to bail out a corporation contracted to care for public patients on multiple occasions. In Texas government were forced to take over the management of about 20 homes when the owner collapsed. Had it been one of the larger corporations they could not have coped.

CLICK HERE -- to proceed to the next criticism - Number 19

CLICK HERE -- to go to the next section of Samuel's speech

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This page created October 2000 by Michael Wynne