In May my posts on this site carried some analysis of COVID and the mass market failures that have occurred in vaccines and medical technologies, aged care and health and healthcare that have been the hallmark of the last six months. The background or structural precursors to the present raft of market failures were largely attributed to neoliberal market-driven reform of health-related sectors and the financialization of healthcare (https://covid19healthdiaries.com/enter/diary.php?did=176).

The first case study of market failure in the COVID crisis centred on the long-term aged care sector in a range of mainly OECD countries, with the virus interacting with the erosion of standards of care, patient and workforce precarity, and weak government regulation and abnegation of responsibility for the elderly, all producing huge failure in terms of mortality. Aged-care is a private-provided and neoliberalised sector of health and social care that was predetermined to fail in a pandemic.

Today’s post is the first of two entries that will pick up the theme of COVID and market failure in health. I want to look at the market failure that is transpiring in private healthcare, especially in private hospital care where the most acute cases of COVID are (or at least should be) being treated. In this case, the failure is apparent in both LMICs and in certain OECD countries. The pandemic has now moved on to LMIC regions, and new pressures are apparent on private healthcare and hospitals in countries as diverse as India, Mexico, Brazil, South Africa and Pakistan. Market failure is transpiring in India, for example, with presently dire consequences for COVID capacity and access to treatment, all as that country’s epidemic really starts to escalate. There is clearly a moment of potential transition developing between governments and states and the private health and hospital sector, with present and still unfolding market failure bringing into focus the place of the private sector in national health systems in the present pandemic and thereafter. I will return to this later.

As was the case with private long-term aged care, the present instance of market failure was long in the making, with the conditions for failure being constructed by the marketisation and commodification of healthcare, coupled with the more rise of financialization in health since the 1990s, the latter process intensifying markedly post GFC. I want to construct what is happening in private healthcare now first via a historical lens. But first I detail what I will expand upon in the second of the 2 linked posts - what can be viewed as a triple crises of market failure of private hospitals and healthcare in the viral pandemic.

First, the pandemic is rapidly multiplying financial damage to the private providers (and not just hospitals) with rising concern over mass insolvency in many national contexts. A mixture of lockdown measures, government regulation to withdraw certain services, combined with hospital capacities and service orientation, are all leading to huge drop-offs in demand for services and footfall. Elective procedures have been cancelled in many countries and patients are deferring treatments. As a consequence of these and other pressures, closures are multiplying s revenue streams dry up, particularly is smaller and middle-tier hospitals and surgeries. This is already in train, even as some governments issue bailouts and guarantees in efforts to retain badly needed private sector capacity, or are doing so so because they are so ideologically wedded to and dependent on the private industry model. There is a financial crisis in the sector as the service model collapses with the pandemic.

Second, the insurance models that underpin many national systems reliant on private health and hospital care had not factored in a pandemic emergency into their schedules. There are multiplying examples of insurers and the private hospitals kicking-back and transferring the cost of COVID care back to patients and governments. This involves COVID-related price gouging by private hospitals as a result of opportunity for profit or their own COVID-induced financial precarity, and insurers delaying or rejecting payments and claims. Governments in some countires (Lebanon, Kenya) are also not paying hospitals quickly enough under insurance schedules, a process that starves private providers of liquidity dating back pre-pandemic, but nonetheless adding to the present financial crunch. Some hospitals are taking the more extreme step of simply closing to COVID patients and trying to stay afloat by furloughing staff. There is a crisis of service provision and a crisis of payment for services use in the pandemic. Larger multi-site providers, particularly in large metropolitan areas have wriggle room here. They have the revenue base to stay afloat and play hard-ball on prices.

Third, there is a crisis in relations between the state and private hospital providers. The governance model of public-private partnership for private care is fraying in some national contexts just as the need for additional hospital capacity in national responses to the pandemic meets the bottom line of private providers seeking bailout or higher fees to compensate for apparent losses.  Governments are trying to access to surge capacity where they are taking responsible meausures at all. The different degrees of intervention in the market on offer are quite striking. Some states and jurisdictions are taking a laissez faire approach and allowing price gouging of COVID infected by the private sector; others are attempting middle grounds of negotiated emergency access regulation, or price for service guarantees for private hospital admissions; and yet other governments and jurisdictions have taken steps to legislate for the temporary commandeering of private capacity, or are sequestrating private hospitals by threat of, or actual nationalisation measures.

In all this there is a deeper crisis of market and state-market relations, and it is presently bland enough to state that it is fluid and chaotic health governance space, especially in LMICS feeling the first waves of the epidemic. Governance and policy response to the situation is presently shifting and being constructed on the hoof in many national contexts, but the fissure between privately provided health and the public and national and health is readily apparent and may outlive the pandemic. There is a clearly a global crisis of private sector health governance, and in many ways the realities of parallel private systems could settle the fate of unfettered privatisation and deregulation of national health systems toward more publicly grounded universal health governance and social risk protection. If the first crisis leads to widespread financial collapse, this may also prove to be a further tipping point toward the re-entry of the state into national health systems. Questions of present and future private sector governance will occupy the tail end of my second post on market failure in private healthcare in coming days, but this is clearly unsettled and in flux.

What is clear is that the more the pandemic bites and spreads the more these cascading pressures there are on the business models of service providers and insurers, and the more apparent are the vulnerabilities of populations and national systems dependent on the provision of health and hospital care by market means, and ultimately arbitrated by the ability to pay (by out of pocket or government means) in the absence of longer-term risk pooling measures. Governments and the multilateral backers of the private sector are presently reacting and across a very broad spectrum of policy and financial measures – from no strings attached bailout and cash injections, through to nationalisation.

The chaos occurring around private hospitals in India presently as a result of private health sector market failure is not good in a pandemic crisis, with government inaction or fragmentation leading to gouging and unused capacity in some states. Other nations, like Spain and Ireland have refused to waste valuable time and resources, and exercised emergency powers to secure the entire private hospital sector as part of the national response. Yet, clinic and hospital closures while obviously not good things in national responses are nonetheless occurring internationally due to temporary private sector withdrawal from the market, or from complete insolvency and investment flight. The vulnerabilities and uncertainties being created testify to the need for more universal and stable forms of healthcare provision.

Before unpicking with detail how the triple crises has unfolded in the last 6 months it is necessary to take a step back and show how we have got to the present mess we are in. I will try not to repeat the content of the post provided in the link above and mark out some fresh terrain. However, it is worth stating that the private provision of health and hospital care is not simply an artefact of neoliberalism. Rather, market-provided health and medicine are features of many developed and less developed countries’ health systems throughout the Twentieth Century, and represent entrenched interests in for-profit health at play in medical professional association positions and government policies. For example, mixed systems such as Australia are defined by the historical provision of primary care by the private sector largely as a consequence of  the political, social and professional power of Australian doctors, this system existing alongside a public health system of tertiary care that has itself been encroached on by a burgeoning private hospital industry. Other countries, such as those in European country systems, have differing degrees of private and public sector provision, all mixed with different forms of social protection and employer and personal insurance. In the USA and many LMIC countries, the picture of the majority of health and hospital care being provided by the private sector is more common, with a reliance on private insurance or out of pocket payments for access to services. In LMICs, while information of exact private share of the health ‘market’ is unclear, there appears to have been a sharp recent historical turn to private hospitals being the majority providers, with informal healthcare and public/private primary care facilities being the only options left in place for those less well off.

What neoliberalism has acted toward in recent decades is the increased privatisation of service provision and the opening-up of health markets to foreign and domestic finance, coupled with cycles of austerity which have shrunk budgets for publicly provided healthcare and allied services. In the Global South, this long process of rolling back the state in public health starts with the SAPs of the 1980s and 1990s, also apparent in state withdrawal and austerity and cuts after national, regional and global financial crises. All this tumultuous abandonment and freeing up is rehearsed in more detail in the first piece on neoliberalism and present market failures tagged above.

However, in a new wave of the neoliberal project dating back at least to the 1990s, but really gathering pace in the 2000s and post-GFC, we see increased financialization of healthcare, and this has particularly present in the hospital sector and extends into a range of allied services. Many middle-income states opened-up to investments by a heady mix of foreign hedge funds, large investment capital, or cash rich local elites and tycoons, with these players investing in the new deregulated spaces of health services and hospitals. Governments permitted new patterns of investment and ownership of hospitals and other health services by means of permissive health sector reforms, or in policy shifts arising from new measures and rights of entry under trade and investment deals. These moves are also actively and assiduously facilitated, brokered and funded by bilateral aid and particularly International Financial Organisations often operating in consortia with potential investors or proxy health industry and financial investment bodies. It has been an incremental process in one direction. One excellent survey by Hopkins and Murray (Development and Change, June 2019) captures the multilateral mobilisations that have ratcheted up to secure this financialized (re)transformation of healthcare:

‘Private healthcare investments — by development finance institutions and others — have so far predominantly been made in large middle-income countries where the state has liberalized its regimes to allow private activity. Private healthcare companies burgeoned in India, for example, after the federal government lifted national restrictions on foreign direct investment in hospitals in 2000, while the loosening of restrictions on foreign ownership of hospitals in China during the 12th and 13th five-year plan periods offered similar in-roads… The World Bank’s private equity investment arm, the International Finance Corporation (IFC), occupies a central role in this process, much as the World Bank has led the private turn in development financing generally. Between 1998 and 2013 the IFC committed US$ 1.9 bn in the health sector, including commitments for diagnostic chains, health insurers, information technology and medical education (IFC, 2013b). Its health and education commitments (grouped together in IFC annual reports as ‘consumer and social services’) increased from 2 per cent of its overall investment portfolio in 2007, to 8 per cent in 2015 (IFC, 2007, 2016). The IFC’s reports ‘Business of Health in Africa’ (2008) and ‘Landscape of Inclusive Business Models of Healthcare in India’ (2014) championed private financing to expand corporate healthcare chains, and the organization has facilitated private finance initiatives for healthcare infrastructure (IFC, 2013a). Companies in receipt of IFC investments had 142 million healthcare users by 2017, and the IFC aims to increase this eight-fold by 2030 (IFC, 2017c).’

The resultant shifts have led to a two-tier private hospital and health service industry structure in many middle-income countries, with big multi-site chains occupying a large percentage of the market share (by value and volume of care) in counties such as India, South Africa, Turkey and Nigeria. Beneath these larger private hospital and service chains sits a tier of smaller tier of private clinics and hospitals. This tier has also been the subject of financialization. In the United States smaller and often rural hospitals have been the route in for investment capital, and that country has seen an extraordinary growth in hedge fund and investment capital purchases of smaller and middle tier hospitals and other services. These targets have provided a route in for investment capital to circumvent state laws or anti-trust prohibitions on concentrated healthcare ownership. As detailed in the past pieces on aged care, much the same momentum has been apparent in other sub-sectors of health at least since the early 2000s. But the smaller tiers of hospital providers have also provided a route for consolidation, with hospital mergers and closures leading to contractions in the numbers of hospitals and coverage of patients in both geographical and socio-economic terms.

The commercial logic of financialization of private hospitals in both middle income countries and the USA has been much the same. In the first instance the business model has been based on the provision of lucrative ambulatory care, outpatient services, elective surgery and allied services, such as day and specialised surgeries, diagnostics and MRI, IVF, dialysis, and routine check-ups and monitoring of chronic conditions. Specialisations, and even national specialisations have appeared, in areas such as with plastic surgery. These are all high-value services for patients with money; patients who have economic choice over health beyond that offered in the eroding public system. Where non-ambulatory care is offered and beds provided for longer term care, as for maternity services or end of life care, this is supplied at premium prices, usually commanding the upper tiers of insurance cover. What is clear is that private sector hospitals do not have either the service or business models of hospitals in the public sector by design.

In the US the nature of the insurance system and permissive nature of government regulation of price for services has meant that big city-based private for-profit hospital providers have made a lot of money, this sucking in more investment capital. The rural smaller private hospitals have not faired well, and while the subject of investment for back door entry into the sector, they have either been merged, or closed and the land and assets sold off. There has been a wave of concentration and mergers in the sector, with most US states seeing 3 or four dominant providers closing and merging hospitals and laying off staff to form super-size hospitals. Prices for treatments and admission have risen sharply with over 100% price hikes in a ten-year period, rises above those of the smaller industry hospitals (for more on this see various critiques by Eileen Appelbaum). Smaller and middle tier providers are more vulnerable to economic or other shocks, and closures and insolvency have proved routine in the USA and elsewhere, this concentrating ownership in the sector yet further.

Although the data is patchy in many LMICs, we have seen concentrations of ownership and focus of private hospitals in capitals and metropoles as one would expect. This is precisely where the better off clientele are present and hospitals are therefore close to their market. Cities are where economies of scale can be achieved. Despite private sector hospital care being the biggest providers of care in Africa and Asia (up to 80% of the total by national expenditures according to some very dated studies), the clientele is certainly only those better off in society, and most of LMIC populations rely on primary health where it is available or corner shop pharmacies and community health workers. These are services that clearly do not cater for those suffering from acute respiratory viral infection.

Finally, with financialization and marketisation there has been very little corresponding attempt to assimilate the private sector into what is routinely described as the national health system. This has largely been a failure of governance where it has been present at all. Indeed, the private system in LMICs exists very much as a separate and parallel entity to the public system, albeit with regulation loosely present in areas such as licensing to practice and minimal controls on quality and staff competency. Interactions with the public sector health system are often negligible, or indeed are predatory in terms of poaching trained staff and government finance.  This has been tolerated perhaps for too long, although the political interests and political economic drivers the separation are obvious. What we are left with are bifurcated systems attending to the health needs of different socio-economic groups. Unless funded by risk pooling or social insurance that allows co-payment, access to private hospital care is conditional on ability to pay, and this is problematic in a pandemic (as it is in normal times).

Assimilation has not worked or even been sought in terms of data on the composition and activities of private sector hospitals and healthcare in many LMICs. Indeed, there is so much that is unknown about private sector health and hospitals in many countries that it is hard to make concrete statements about the capacity, capabilities, services offered, or for that matter real national expenditures on health. The private sector in many LMICs is simply a data and informational black hole. This is again plaguing present pandemic coordination efforts in Africa, Latin America and Asia. Many national governments (or health systems monitoring bodies such as WHO or the World Bank) simply do not know the quantum of private hospital capacities, the services they offer, or the composition of the staff employed. As such, the mobilisation of the private sector or factoring it in to pandemic response is a major hurdle to public-private pandemic partnership. In much health information systems data private sector capacities are not included in country reports and health systems audits, with data gathering concentrating efforts to on what are often a minority formal public health hospital system or primary care capacities. Sometimes even baseline system indicator information, such as number of beds held by private hospitals, is unknown. Worse still, we know little about capacities such as technologies present at sites, the ICU beds, personnel training and specialisations, or even numbers employed, the nature of footfall and the type of admissions, and so on.

For the private providers much of the above has proved convenient to date. Private providers are left alone and not counted, existing in a largely unfettered regulatory space often not even subject to routine government audit or national service planning. In terms of the extraction and off-shoring of profits resultant from financialization and privatisation, the complex patterns of investment and ownership are also convenient informational black holes. The lack of knowledge about the private sector health and the shaky regulatory attempts to assimilate that sector into national systems, have bot meant that the chickens have now come home to roost in the COVID crisis. Governments, regional bodies (such as the African Union) and the WHO and IFC are all presently seeking ways to rapidly audit the hospital and health service capacities at their disposal. These resources are proving necessary in each country affected by the pandemic, even in countries such as the UK where the vast majority of hospital capacity lies in the public sector health system. Lists of available private sector ventilators, ICU beds, trained and registered nurses, isolation facilities, laboratory and diagnostic facilities, are all being hastily assembled. Information on the private sector is absent or patchy and having to be gathered hastily. Ownership structures are also being considered as negotiations ensue to secure or sequestrate hospital capacity. Assimilation and partnership once spectral, is now urgently needed.

In the next post, I will detail how the triple crises of market failure in the private hospital sector has or is playing out in the OECD and LMIC countries using information and reports sourced from multilateral bodies and news outlets. As stated previously, it is a chaotic and still unfolding set of crises, and another major point of potential structural transition from a almost system designed to fail.

I will argue that the triple market failure will impact on COVID outcomes, particularly for the poor who cannot access private hospital care. Near future and present esponses to the pandemic in LMICs will be dependent in some cases on agressive regulation to secure hospital capacity and its continuity in further waves, or sequestering such capacity into national systems, as has been done in Ireland and Spain. For countries that cannot afford bailouts or high access prices for COVID patients, there is perhaps little choice but to enter into the latter policy route, and to do so quickly.