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Healthcare: private health expenditure grows

We need to move away from the logic of competition and turn the private sector into an opportunity

Francesco Ripa Di Meana

General Manager Institutes of hospital physiotherapy (IFO) Rome

By December 2020April 26th, 2022No Comments
Photo by Lorenzo De Simone

I have been working in public health management for over twenty years so I’m used to consider the opportunities of new processes without prejudice and try to identify any interlinking elements that might represent a potential push towards improvement and innovation.

Different levels of private practice

In Italy the term “private healthcare” immediately recalls the increased use of private services and the worrying growth and funding dynamics that stem mostly from the out of pocket model. However, these dynamics are consistent with the deconstruction of a rigid system- the product of many years- that struggles with the new cultural attitudes of individual citizens who want to access treatments and diagnostic exams that are often inappropriate. All of this happens in a context where the responsibility to regulate and manage the demand, distinguishing between what serves people’s health and what does not, should lie with the public sector, not the private counterpart.

This article aims to discuss the role of private provision of services and, more specifically, private services with accreditation, which are mostly funded by the Italian National Healthcare System (SSN). One initial consideration should be made around the different types of private providers that have accreditation. On one hand you have those with very high professional and technological equipment; they normally get assimilated- inappropriately, in my opinion- by the so-called “centres of excellence”. On the other hand you have those that just exist through the public sector, sometimes offering modest activity but covering large numbers, particularly in terms of socio-medical services. Finally you have those who display opportunistic, or even fraudulent, attitudes and that take advantage of weak controls and “generous” sentences; they constitute dead weight for the entire system. It is therefore necessary to select private services carefully, creating alliances with the first two types and explaining to the other ones that in the SSN there is only space for services that respect standards and contractual regulations, and that the main objective of their relationship with the SSN should be to maintain its quality and quantitative standards as a pillar of the constitutional right to health.

The assumption that the cuts were only applied to favour the private sector is not credible.

The other face of the financial crisis

In my opinion the assumption that the cuts were only applied to favour the private sector is not credible. When thinking about the increase in private healthcare expenses we should indeed consider whether any measure impacted- and if so, how much- the reduction of the National Healthcare Fund that started in 2008 and put the entire system under strain. Public healthcare management had to operate in more challenging conditions than its private counterpart due to the Fund being reduced, but also because of the planning delays (such as the absence of coverage for the demand of specialists) and the repercussions of bureaucratic decisions that impacted decision making and timelines. However, it should be highlighted that a phase of great redevelopment and the relaunch of public healthcare companies commenced in that same season.

In the past decade the public sector has had to learn- at its own expense- how to prevent waste and better invest the available budget towards the SSN. The new mantra became about retrieving resources through a general increased efficiency: doing more with less. This meant being able to close obsolete services that were still in place due to local favouritism, centralise the quality of specialised services to avoid small hospitals “duplicating” the work, design diagnostic-therapeutic routes for chronic patients and introduce a way of assessing the system with national and regional plans. This process contributed to reduce redundancies and improve the overall efficiency of expenses while freeing resources. It was also helpful to highlight that the strength of the public sector mostly depends on local health services, which the Covid-19 pandemic demonstrated to be still very inefficient.

For the sake of completeness, I should add that the containment and rationalisation of the public healthcare expenditures also penalised the private sector. In the regions subject to the Deficit Recovery Plan the private sector had to deal with frozen rates and budgets for years on end. It also experienced a setback in the turnover that came from litigations, which in some cases could raise thousands of euros given how much better the public administration has become at defending itself. Therefore the private sector had to cope with the cuts to the Healthcare Fund too, as it was part of a context that forced it to operate in difficult conditions.

The financial crisis started a phase that reshuffled the cards and the reduction of public resources was accompanied by new managerial skills, leading to a greater ability to respond to the outcome and overall efficacy indicators of the public sector, which nowadays, in the vast majority of cases, is more efficient than before, despite having fewer resources available. This context, though we just described it schematically, cannot be ignored and should accompany the increase of the private healthcare expenditures. It might have been partly determined by the reduction of the public sector, but one of the most significant elements that impacted its formation are the agreements that aimed to improve regional healthcare services.

The power of the private sector

The private sector is unquestionably strong. It is very strong in the socio-medical area, where it has been covering 75% of the provision for several years. The growth curves of the budget of accredited private practices originate more from the clinics than the hospital services. Private healthcare is therefore mostly oriented towards the management of chronic conditions, through the provision of both clinical and social support services, in clinics, residentially and semi-residentially, with local centres that treat the less serious cases and that should have a significant deinstitutionalisation function. The public sector seems to have delegated this responsibility almost completely to the private sector, but there is no critical discussion around the matter and the service is not valued.

We almost never asked the private sector for services paid by the SSN that would help to end the waiting lists, promote the referral pathways of chronic patient management or empty the emergency rooms- and when we did ask it was too late. We did not want to give up the ownership of the management and referral processes but what we actually did was allowing the private sector to ignore the challenges of the system, to feel free from the responsibility to face the bigger issues and free to irresponsibly follow inappropriate demands. Only recently we started asking acquired private services to integrate more and better within the system, thus improving its operations.

What we actually did was allowing the private sector to ignore the challenges of the system, to feel free from the responsibility to face the bigger issues and free to irresponsibly follow inappropriate demands.

The Covid-19 challenge

The systemic stress caused by the Covid-19 pandemic allowed to create a certain joint front around the emergency, which was also useful to identify and overcome the opportunistic tendencies of those who took advantage of some public hospitals turning into Covid establishments so they could increase their turnover as a high priority service provider. Part of the private sector also realised immediately that there was a problem and instead of dumping it on the public sector it took on the service provision that this was not able to cover. This part of the private sector had great cultural and technological standards; it equipped itself with Covid wards and entered the public network and it made agreements with companies to relocate operations and services that could not be provided any longer. It was also able to acknowledge the fact that those providers that cannot maintain an adequate level of quality and safety- for example in terms of virus outbreak- must leave the system and give up the revenue that comes with the position.

Based on this rationale the private sector represents an added value in the fight against the Covid-19 emergency. However, in order to stabilise this valorisation we need to move away from simplistic statements such as “private sector expenditure equals public deficit”, “private sector expenditure equals unjust profit” or “private sector expenditure means that they took advantage of the weaknesses of the public sector”. It is counterproductive to assume that the public sector is weaker than the private counterpart and that they could not be facing the same challenges coordinating more amongst each other. It is true that the pandemic also shed light on bad examples of private practice (in recent months various nursing homes were put under observation/investigation teams) and that amid the health emergency the public sector demonstrated its ability to transform whole wards into Covid intensive care units and hospitals. However, the more serious part of the private sector understood that if it were to compete it would have to be able to do certain things and do them in a better way: a viewpoint that considered, analysed and assessed the difficulties we are facing, and then forced us to adopt a proactive attitude that values collaboration.

Moving away from the logic of competition

In the 1990s there was a different ideological interpretation of the different forms of mixing that took place between the public and the private sectors in the regional healthcare systems- from the competitive model present in Lombardy to the collaborative framework of Emilia Romagna and the mostly parasitic one in Lazio. The adoption, at the beginning of the 2000s, of the healthcare- planning model, with caps on expenditure, and the financial crisis of 2008, started an interesting phase in terms of management. The differences between the regional models initially lessened and then reappeared with the Covid-19 emergency. The pandemic highlighted obvious differences in terms of resilience of local services, showing the weakness of the competitive performance based model and of the excessive allocation of the socio-medical services to the private sector. The focus should immediately be placed on radically rethinking the care provision in the community, which will necessarily involve every private party, including affiliated physicians, in a new integration process where there will be well defined responsibilities around patient management, even with home based services.

The true competition is between our entire national system and the European and global networks, not within our borders between the public and private sectors.

The Covid-19 emergency taught us many things; among these there is also the fact that the relationship between the public and private sectors can be beneficial and that the ability to make prompt changes is an added value. I think that part of the private sector is ready, not only to be a service provider, but also to partner with the public sector and work on the challenge of innovation, even investing its own resources, if adequately empowered to. Research was a great testing ground for the application of this new framework and the PPP (Public-Private) partnership showed clear potential. However, aside from the step forwards that we are currently witnessing (for example around the matter of the vaccine against Covid) we need to be able to decisively accelerate our work on shared projects. We should start from the premise that the healthcare sector has an expenditure of over 6.5% of the GDP and that this reaches 8% with an additional industry dedicated to healthcare. We need to move away from the logic of mere local competition- it is convenient for those who want it and those who hate it- and try to see private healthcare, without any ideological preclusion, as an ally rather than a competitor. The true competition is between our entire national system and the European and global networks, not within our borders between the public and private sectors.