Private Versus Public Health Systems

Sunday, 2 March 2025, 6:28 pm
Opinion: Ian Powell

When I began employment as Executive Director of the Association of Salaried Medical Specialists in 1989, the relationship between the private health system and the public health system was much different from today.

One did not undermine the other. Those who used private hospitals did so more for the greater privacy and more hotel-like services. It was by choice, not necessity.

Some paid for it through private health insurance; others were able to ‘pay as they go’ without. If anything, the latter option was the biggest challenge for private health insurers to overcome.

Private hospitals niche boutique market

Overwhelmingly private hospitals did relatively less complex planned surgery and clinics which could be deferred for a clinically reasonable period of time.

They did not take acute admissions (treatment, often surgery, that could not be deferred or planned in any way). It was, and still is, a niche boutique market.

As such, and while public hospitals were able to do a reasonable volume of planned surgery and outpatient clinics in a timely manner, private hospitals and private health insurance continued to be a  matter of choice rather than necessity.

In the mid to late 1990s, as funding became more constrained, more patients with private health insurance began to use it. Seemingly this was positive for the insurance companies.

But the more those already privately insured used it for planned surgery and other non-acute treatment, the more the costs to these insurance companies increased.

The consequential outcome was that the companies increased their premiums making, for some, private insurance too expensive.

Exposing the changed public-private relationship

Has today’s relationship between the private and public health systems changed and, if so, how and why? This question was well covered recently by  Radio New Zealand’s very good health reporter Ruth Hill (18 February):

Is private healthcare the answer to public funding woes, or making it worse? | RNZ News 

In summary, she reports that:

• Private hospitals say they are reducing the burden on public system by doing 70% of elective surgeries.
• Professor Robin Gauld (previously Otago University and now Bond University in Queensland) says private providers are undermining the public system by poaching staff and diverting resources.
• Government and Health New Zealand (Te Whatu Ora) claim that outsourcing to private hospitals (part-privatisation by another name) is a “pragmatic” way to reduce wait times in public hospitals.

Highlighting the seriousness of today’s environment, Hill quotes a Waikato bowel cancer patient who spent her house deposit on private diagnosis and treatment, but saved herself about seven months’ wait-time in the public system.

Who knows what could have happened in that time? It would be horrible to think I could have had disease progression and it was just public health delays that meant I hadn’t got on top of it sooner.

It’s not a nice position to be in where there is that chance of disease progression, and you’re faced with that choice of spending your savings, or borrowing, or waiting to see what would happen.

Private hospitals now do 70% of elective procedures (about 224,000 a year). From 2016 to 2023 the number of publicly-funded operations in private hospitals doubled. Much, not all, of this huge increase occurred under the previous Labour-led government.

Private hospitals try to argue that they are helping public hospitals out as if they are providing a public good.  But they follow the money only providing what is sufficiently profitable.

Primarily this is less complex non-acute or non-emergency cases leaving the harder and more demanding, stressful and costly work with public hospitals.

An opposite view

In contrast to the claims over the benefits of private healthcare to the public health system, Professor Robin Gauld argues that not only is there no evidence that private healthcare increases capacity in the public system, it is actually eroding the health system beginning by “poaching staff”.

He is right. The only way private hospitals can increase their hospital specialist workforce to meet this expanding work  is for hospital specialists to either reduce their time in public hospitals  or leave them completely. The former option is more prevalent at least at this stage.

Gauld states, again in Ruth Hill’s above-mentioned article, that:

The studies that have been done in the past show that where there is increased access to private sector delivery there is actually less access to public sector.

Unless you bring in a volume of specialists and theatre staff to ensure the whole system is able to improve it’s capacity, it’s a zero sum game.

Taxpayers were subsidising private providers, by paying the ongoing cost of upskilling part-time public specialists and providing emergency back-up.

Gauld referred to a 2021 Otago University study (based on 2013-14 data) which found that 2% of private patients had a subsequent admission to a public hospital within seven days, with an average cost of $2,800 and $11.5m overall. He adds that:

If there’s a cardiac event on an operating table, they will routinely be put in an ambulance and sent to the public sector, because they can’t deal with it themselves.

He wryly observed that this was one reason why private hospitals were usually built close to public ones.

I would argue that this is, in fact, the main reason and that by providing clinical back-up when this occurs, public hospitals are, in effect, subsidising private hospitals.

I also argue that the more publicly funded planned (elective; non-acute) services are outsourced to private hospitals, the more specialists working in the public system are disproportionately left with the much harder and stressful acute work.

Those hospital specialists who do acute work need a reasonable amount of non-acute work for balance and skill maintenance. The more the balance is reduced, the greater the pressure on an already fatigued, and in some cases burnt-out, workforce.

Missing salient point

Professor Gauld’s reported criticisms are pertinent but don’t include the critical point (he nevertheless may agree with me as it might have been out of scope for his interview).

Yes, expanding private healthcare is presently harming public hospitals. Private hospitals’ claims of benefits to public hospitals are little more than self-serving.

But, in different circumstances, it need not. An example is the time of my commencement of employment with the Association of Salaried Medical Specialists in my above opening paragraphs.

In today’s environment private healthcare expansion is not the first step in this chain of events. Something happened earlier to trigger this expansion.

The trigger or initial causation was the continuing rundown of public hospitals by successive governments through factors such as relative underfunding, acute demand increasing at a higher rate than population growth, bed-blocking in the wards,  and (critically) unaddressed severe workforce shortages.

In an earlier time use of private hospitals (and private health insurance) was a choice, not a necessity. Today it is not a choice. Instead it is a necessity for those who can afford it; tough luck for those who can’t.

We now have a vicious circle. The most effective way of increasing private healthcare (including its profitability) is for governments to allow public hospitals (and general practice) to rundown.

But the more this happens, the more this private expansion further contributes to this rundown.

© Scoop Media

Ian Powell

Otaihanga Second Opinion is a regular health systems blog in New Zealand.

Ian Powell is the editor of the health systems blog 'Otaihanga Second Opinion.' He is also a columnist for New Zealand Doctor, occasional columnist for the Sunday Star Times, and contributor to the Victoria University hosted Democracy Project. For over 30 years , until December 2019, he was the Executive Director of Association of Salaried Medical Specialists, the union representing senior doctors and dentists in New Zealand.

Contact Ian Powell

• Website - Otaihanga Second Opinion