At the press briefing closing the ANC Policy Conference held at Gallagher Estate in July, the Minister of Health, Dr Aaron Motsoaledi, announced: “Laundry, security and cleaning services in hospitals must be brought back in-house...[as] some contractors will just stop supplying food to the hospital because they are angry for one reason or another. This then threatens the supply of basic services. People must be assured of services, despite what the market says.”
Could the source of this anger be that the private sector actually expects payment for the services they provide to government-run healthcare facilities?
In response to my colleague’s query, whether the move to return these services “in-house” would further compromise efficiency within the public healthcare sector, the Minister stated: “...I don’t hate the markets, but in health they cause havoc.”
The truth be revealed: Dr Motsoaledi views healthcare as somehow different to other goods and services. He has repeatedly stated that he is against the so-called “commodification of healthcare”. Sadly, for Dr Motsoaledi, it is impossible to change the laws of economics at whim. Unambiguously, healthcare is a commodity, as too are the auxiliary services currently provided by the private sector on a contractual basis to government-run medical facilities.
Contracts
Under existing circumstances, government cannot hold private contractors who do not deliver solely accountable. Anyone, whether government or private sector, who hires a contractor must ensure that (1) the contractor that is chosen has the necessary capabilities to perform the contract and has a track record of delivering on contracts (which can be checked by enquiring from other customers of the contractor); (2) the contract is properly prepared in order to cover all eventualities; (3) the contract contains penalties for non-performance, including warnings of termination, and finally termination for non-performance, (4) all contracts have to be properly supervised and regular performance checks have to be carried out, and, finally, that (5) government, and anyone hiring a contractor, must carry out their part of the contract, particularly payment according to the terms of the contract, with penalties and termination for non-performance. Contracts have two parties to them, and both parties have to perform punctually in terms of the contract.
Government cannot rely on the fact that since supplying food is an essential service it can neglect to pay contractors, to the point of bankrupting them, without there being any repercussions and then proceed to blame those contractors when there is no food.
As things currently stand, the South African government has sub-contracted virtually all the auxiliary services required in public hospitals with the exception of the most important one, namely, clinical service. This is the single, most important service a hospital provides and is what government ought to outsource to the private sector. To do so in a competitive bid process, it would receive the biggest “bang for its buck” – the automatic consequence when privately competing businesses vie for government contracts.
This applies to the provision of most government services. For example, when government wants to build a road, it does not build the road itself. It puts the task out to tender, and private enterprises compete for the business. Similarly, when it wants to build RDP houses, it does not build the houses itself. Again, the task is put out to tender and the private sector builds the houses. This is the correct way a government can and should make the most effective use of scarce taxpayer resources.
Government has introduced myriad laws and regulations to overcome what it deems the “uncontrollable cost of private healthcare”. If we put aside that people everywhere are living much longer than ever before (average life expectancy at birth has increased from 53 years in 1960 to 70 years in 2010) and that the introduction of new medical technologies exert upward pressure on costs, we find that much of the cost increase can be directly attributed to government interference.
NHI
Unfortunately for us all, there appears to be no doubt, given the minister’s view on private healthcare and the government’s decision to introduce a National Health Insurance-style system (NHI), that the long-term aim is to socialise medicine in South Africa, and, in the process, crowd-out the private sector. Indeed, government appears to be going ahead with its policy to introduce NHI, as evidenced by the introduction of the pilot sites, regardless of the outcomes of public input. All the while, the private sector is jockeying for position, too scared to speak out against the impending disaster because it might jeopardise its future position under the NHI.
The government’s mantra that the NHI will provide “free healthcare for all” is well-meaning, but not practically possible. It refuses to recognise a reality of life that while resources are limited, the wants of people are unlimited. When we cannot have as much as we would like of anything, we are forced to choose from whatever alternatives are available. The resources used to produce one article or service, reduce their availability to produce others.
Similarly, government’s resource, the pool of revenue available to it to fund competing services such as policing, schooling and healthcare is limited. Our demand for these services, though, is limitless, especially when they are perceived as “free”. The amount of funds swallowed up by government providing one service, leaves it that much poorer to provide every other one.
Healthcare spend
So how much should we be spending on healthcare? As an economist, the theoretical answer is straightforward – we should spend money on healthcare until, at the margin, a rand’s worth of healthcare spend is equal to a rand’s worth of some other goods or service that we can buy. Practically, however, I have no idea what your personal preferences are for spending.
Similarly, you have no idea what sacrifices I am willing to make with my limited financial resources. Simply put, every individual is unique with a different set of circumstances, preferences and tolerance for risk. But now, along comes government, taking control of all our healthcare financing under the NHI, a single-payer model, proposing to treat everyone the same and promising “free healthcare for all”.
Promising “free health care for all” raises an unrealistic expectation of what is actually feasible. Of course, we all would like something for nothing. But, in reality, this is not possible. “There ain’t no such thing as a free lunch.” There is always a cost that someone has to pay.
The South African government, like any other, may be able to shift costs but it can never avoid them. It can introduce a policy of forcing A to pay for B’s medical care and forcing B to pay for A’s. While A and B may be duped into thinking that someone else is paying for their free medical care, in reality they are still paying for it, just through another channel. Ultimately, such a system encourages both A and B to overspend on health care. They don’t take responsibility for their own individual medical-care requirements because they are under the illusion that someone else is paying. This is why, whenever possible, we should favour systems that allow individuals to decide for themselves how and where to spend their hard-earned money.
Empowering individuals to choose their healthcare options for themselves and encouraging private sector competition is to utilise scarce resources most efficiently. But then, there are the truly destitute who can barely afford to provide food and clothing for themselves, let alone purchase medical care. What about them?
Healthcare for all
Instead of promising “free healthcare for all”, government should concentrate its efforts and scarce taxpayer resources on the people who truly cannot afford medical care. Acting as financier, it could purchase for them the best possible care available by enlisting the support and help of the private sector and contracting out to them the services they invariably provide more efficiently. Government should also enlist the help of charities and philanthropists wherever possible. Private charities based in communities have a very good idea of what services are needed without being a burden on taxpayers.
If government views “healthcare for all” to be politically essential, it could require the population to privately and individually purchase mandatory cover to insure against catastrophic health-related events but otherwise leave people to provide for their own and their families’ day-to-day medical-related and other needs. Furthermore, instead of government itself undertaking the management of taxpayer-provided funds intended to cover the medical costs of the poor, it should put the task out to tender.
In the same way as people have many options to choose from in household insurance, car insurance and myriad other products and services, publicly funded patients will then have a multiplicity of medical schemes to choose from. Competition between public hospitals and clinics, and with private facilities, to win business from taxpayer-funded public health-insurance beneficiaries will thrive and ensure that the best service for the best price is given.
By laying the foundations for NHI before the merits of the proposed system have been adequately discussed, government is putting the cart before the horse and comes at a cost to every person in South Africa, rich or poor. Increasing government’s role in healthcare will make the health system less flexible and innovative – the opposite of what is needed to adapt to future changes in demographics and disease burdens in this country. It will not be today’s typical voter that will have to endure such a system, but rather their children and grandchildren. The goal of healthcare reform should be to create conditions for the private sector to expand and give more and more people access to better healthcare from vigorously competing medical schemes and healthcare providers.
Government’s motivations to provide healthcare to all South Africans are laudable. Empowering individuals to choose their healthcare options for themselves and encouraging private-sector competition is arguably the best way to achieve this outcome. The state can play a role and pick up part of the bill – but it needs to allow healthcare providers to compete, to drive down prices and provide the poor with quality medical care, in the same way as with food, transport, clothing and all the other products and services we cannot live without.
“This article was first published by Healthcare Review 2012” and may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.