Private vs public hospital costs revisited

Garth Zietsman is a statistician who analyses and writes for the Free Market Foundation.

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This article was first published by Medsuite on 1 February 2023 (see hard copy below)

Private vs public hospital costs revisited

Around 2009 I responded to the then Health Minister Aaron Motsoaledi’s assertion that private medical care was much more expensive than public medical care. I answered that it was true that patients paid more in private care but that this is very misleading and drew attention to some relevant facts and studies.

Procedures used to compare costs are not equivalent. A fair comparison would compare overall hospital costs per patient, after controlling for differences in the reason for treatment (type of problem), the severity of the condition (number of days admission involved), and the risks involved (extra procedures or expertise necessary to counter these).

Innovative Medicines South Africa (IMSA) conducted such a study and found that private hospital costs were 1.438 times more expensive than public hospital costs before, but 1.053 times larger after, applying these controls. They then deleted their study and criticised me for citing an inadequate study.

It was however the only study ever done in SA directly testing a claim the Minister made on zero evidence. Furthermore, at the time I found replications of the findings in two studies done in Asia.

Private medical care often ‘over-service’ for profit but despite that private hospital care isn’t costlier than public hospital care. The quoted cost of procedures at public hospitals are not the true costs. Omitted are the huge state subsidies financed through taxes (including on private medicine). For example, the late economist Mike Schüssler found patients bear 100% of the cost in private hospitals but only 2% in public hospitals.

Public health relies on low paid interns or doctors doing community service and requires them to spend less time on each patient. Private hospitals have better equipment and larger stocks of medicine, rubber gloves, syringes, swabs, etc., and patients get decent bedding and food. The effect on outcomes is substantial. In “A Comparison of health outcomes in public versus private settings in low- and middle-income countries” Montagu et al report that risk of mortality in private health settings is 60 per cent of that in public health settings. SA’s public hospitals also suffer rampant theft and resentful sabotaging of care.

Insufficient pay in the UK’s NHS (National Health Service) and France’s medical system caused a cascade of staff shrinkage, and the result is a medical system crisis in both countries. Lower pay in SA’s public healthcare system to lower costs will eventually result in a similar crisis here.

Schüssler showed that, accounting for government funding, costs rose 46% faster in public than private hospitals between 2000 and 2008. Despite an increase in medical demand, the ability of public health care to reach the poor declined by 7.4% in this period. Public hospitals are getting worse at providing affordable health care to the poor.

If the 60% relative mortality rate applies to SA, saving a life is 36.8% cheaper in private hospitals than in public hospitals.

Public hospital care is, and will continue to be, a larger burden on the economy than private hospital care, and government makes it worse by shifting productive efforts away from other important purposes.

Garth Zietsman

Garth Zietsman is a consulting statistician. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Foundation.

Publish date: 08 March 2023
Views: 24 269

Garth Zietsman, hospital costs, healthcare, government, Healthcare

The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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