Who profits?
Private healthcare - opportunity or risk?

As evidence about the importance of the private sector in healthcare delivery accumulates, emphasis is being placed on better understanding the opportunities and risks it creates. Private providers are often key sources of treatment for diseases of public health importance, such as malaria, sexually transmitted infections (STIs) and tuberculosis (TB). They are also an important source of care for poor people, who may use private providers nearly as much as better-off groups. But there are concerns about their quality and affordability.

What do we mean by the 'private sector'?

The term 'private sector' covers an enormous range of provider types. They include those who operate on a for-profit basis, and non-profit organisations. They range from highly qualified specialists through to 'less-than-fully qualified' practitioners and untrained shopkeepers; and from complex organisations such as inpatient facilities or provider networks, to very simple organisations such as solo-practitioners or itinerant drug pedlars. The types of care provided also vary, from a complete service involving sophisticated diagnostics and treatment through to the sale of simple public health products such as drugs, mosquito nets or condoms. Often the boundary between public and private is blurred - individual practitioners may work in public and private practice at the same time (known as 'dual practice'- see Steve Jan); public hospitals may create 'private wards' within their institutions; and commodities such as drugs and vaccines may leak from public sector facilities to be sold in shops. As a result, it is impossible to generalise across providers and types of care: the mix of providers, motivations and outcomes will vary from place to place.

Although we define the private sector to include non-profit organisations, these may require different types of policy measures from for-profit organisations. In many countries, non-profit organisations are already integrated into public sector structures and their behaviour is more akin to that of public sector organisations. Most of the interventions described below target for-profit private providers.

Why are private providers so popular?

Hilary Standing and Gerald Bloom trace the success of private providers in part to public sector weaknesses. People seek care from private providers because they are often more accessible, their opening hours more convenient, and their waiting times shorter. Private sector care may be more affordable than notionally 'free' public services where, for example, drugs may be out of stock and an additional visit to a private pharmacy is required; or if informal charges are applied by public sector health workers. Because they have stronger incentives to attract and retain their clientele, private providers are more responsive to their patients. In more complex institutions, private sector managers may be better able to monitor the performance of their staff, and have greater autonomy in managing their personnel than their public sector counterparts. This may be why people commonly perceive that they receive kinder and more respectful treatment from staff in the private sector. Yet, although they clearly appreciate this greater convenience and interpersonal quality, patients are often sceptical about the technical quality of care provided (particularly by for-profit providers) and aware of providers' incentives to over-prescribe drugs and tests.

While widespread use of private providers creates opportunities to extend coverage of key public health services, private provision also has downsides. Most concern has been expressed about technical quality. Two factors are important. First, providers may simply lack knowledge of appropriate treatment. For example, in registered pharmacies, untrained shop assistants often provide advice and dispense drugs. Even fully qualified providers in the private sector do not have access to the same continuing training as their public sector counterparts. Second, the provider is usually better informed than the patient, and the patient is unable to judge the quality of care received. This 'information asymmetry', combined with the financial incentives facing the provider, make the patient vulnerable to poor quality care and over-charging. While poor quality of care by private providers has been documented for malaria, TB and STI treatment, there has been little research on how quality differs among different types of private provider. Quality problems are often more severe among informal providers who are more likely to be used by the poor. Another potential risk of private provision occurs in the case of dual practice (Jan), where public resources may be diverted to private patients. Both problems are exacerbated by the weakness of structures for regulating private provision of care in low and middle-income countries (Standing and Bloom).

What can be done to improve private healthcare provision?

Interventions to improve the delivery of private sector services can:

• strengthen the role of consumers in their interaction with private providers
• work with private providers to improve their knowledge and alter their incentives to favour good quality practice
• intervene at the system level to change the way the public sector engages with both public and private providers.

Often interventions address more than one area simultaneously: policies may involve 'carrots' (positive incentives to change behaviour, such as contracting) or 'sticks' (such as regulation).

Interventions directed at consumers include provision of consumer information; subsidies for services or products provided through vouchers; and consumer protection legislation. Vouchers offer a promising way to transfer purchasing power to consumers and allow them to shop among competing providers. Vouchers may also allow subsidies to be targeted to specific population groups. Peter Sandiford describes this process for reproductive health services in Nicaragua. Vouchers which can be redeemed in private sector shops have also been proposed to target subsidies for insecticide-treated mosquito nets. Such systems must develop mechanisms to distribute the vouchers to the target groups, allow shops to exchange vouchers for cash/stock and minimise trading of vouchers and exchange for other products.

Training, accreditation, franchising and social marketing involve working directly with private providers to improve quality. Ruairi Brugha highlights some of the key issues; Vicki Marsh describes an innovative programme of training shopkeepers to improve malaria treatment in Kenya; and James Newell assesses a partnership with private practitioners to improve the quality of TB treatment in Nepal.

More ambitious approaches involve restructuring health systems to alter the incentives facing both public and private providers, with the aim of improving quality and efficiency. These approaches can include contracting (see Natasha Palmer), vouchers, strengthened regulation, and purchasing of services from both public and private providers.

What are the key issues and lessons learned?

Key issues and lessons to be considered by policy-makers are:

• Different strategies will work in different contexts, and for different provider types. For instance, decentralisation may change the policy tools available to central government to influence private sector behaviour. A careful assessment of the range of providers involved, the specific problems faced, and the policy tools available will help to guide the choice of interventions.
• Successful intervention is expensive, so priorities need to be set. But there may be a conflict between equity and feasibility: the groups that are easiest to work with (the 'organised', fully-qualified providers) may not be the most important source of care for the poor, who may rely on itinerant sales people, shops, and less-than-fully qualified providers.
• A number of contributions in this issue identify the need for strengthened regulation of the private sector, but in most contexts this is a medium-to-long-term strategy. Regulation requires substantial capacity within government, resources, and the ability of providers and regulators to collect and process information.
• The more complex interventions require government officials to learn new skills, for example designing and monitoring contract performance, regulation and information processing. Other interventions make fewer demands on government and may therefore be more feasible in the short term, such as working with non-governmental organisations (NGOs) to improve consumer information or social marketing of public health products. Engaging the private sector will also require a change in attitudes of government officials who have traditionally been hostile towards private providers or have ignored their presence altogether.
• Most interventions to date have operated at a very small scale. Scaling-up to national level may require fundamental changes to programme design, since the mechanisms and safeguards available to small-scale projects will not be feasible at a national level.
• A number of interventions rely on competition to improve quality and efficiency. But competition will be limited in some areas, particularly rural locations. Furthermore, competition in health services may lead to cost escalation and a focus by providers on the most easily observed aspects of quality. Caution is therefore required.
• For-profit private providers work according to a commercial logic: strategies need to recognise the incentives they face and work within these to encourage and support better practice.

The private sector is already an important source of care in many settings, and shows little sign of diminishing. The challenge for health policy lies in devising strategies which guard against the negative aspects of private care, while making the best of the opportunities it offers to extend coverage of key public health interventions.

Kara Hanson
Health Economics and Financing Programme
London School of Hygiene and Tropical Medicine
Keppel Street
London WC1E 7HT
UK

kara.hanson@lshtm.ac.uk

Kara Hanson is lecturer in health economics with the Health Economics and Financing Programme at LSHTM. Her research interests fall into two main areas: health systems and financing and organisation including the role of the private sector in health systems, and the economics of malaria interventions.

See also
'What can be done about the private health sector in low income countries?', Bulletin of the World Health Organisation 80(4): 325-330, by A. Mills, R. Brugha, K. Hanson, and B. McPake, 2002

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