This is the second part of the thread on market failure and the private hospital and healthcare sector, having posted part 1 on the 19th June. This post picks up and examines the details of the triple crises of market failure in private sector health, particularly in private hospitals during the pandemic. It is worth noting that financial pressure on the sector was already apparent even before the pandemic had fully reached some LMIC regions, these crises are now intensifying and interacting with the pandemic, collapsing the business and service model. In most LMIC regions private hospitals provide nearly to 50-80% of tertiary care capacity, so the stakes are presently high with regard to their solvency and continued operations. High income countries, especially the United States, are also witnessing the unravelling of the private healthcare model, with a liquidity crunch percolating up through to bankruptcies, service disruption and hospital closures. All this as hospital capacity is needed as never before.
The triple crises of private hospital and healthcare are now widespread across many countries, both north and south, with this piece illustrating just how far-reaching the market failure is by means of country examples drawn from emerging data, press reports, NGO and multilateral opinion pieces and so on. Evidence from systematic studies, data and analysis is surely being conducted, and new information portals are currently assembling data on the private healthcare for the WHO, national governments and industry bodies. Despite the patchwork nature of current information, we can still glean enough to give a rough measure of how badly private sector health has faired in the last six months and offer some projections as to its future in the third of these posts. There are clearly exceptions to the picture of market failure in private healthcare, and countries with more robust systems of social risk pooling are continuing to routinely transfer money to private hospitals and health services, meaning the sector seems to be weathering the storm in some national contexts.
In countries such as the Netherlands and Germany it is likely that the private sector service model has been adjusted temporarily to cater for surge capacity and with government enforced closures of non-essential services, all this aided by government intervention, regulation and newly negotiated arrangements with the private sector. For example, this has proven the case in Australia with the federal government intervening in the private hospital market in late March to secure continued operation and capacity, private hospitals suspending normal services in return for government financed surge capacity. But detailing how the sector has been supported in these more stable and successful national systems is not the real purpose of this analysis.
What is apparent in other fragmented systems and much more dysfunctional cases, as in the USA and a range of LMICs, is that the private sector is facing substantial and unique financial pressure, a collapse from which there may be no return for some operators. Political challenges are also developing, with a fissure emerging between states and market-provided health. If the private sector stays afloat at all in a prolonged pandemic, then it will need reform or massive state and/or multilateral financial intervention to do so, and this may be the basis of radically new arrangements with providers and the business model that has developed in recent decades.
At the same time, attempts to sustain the case for the private in health and hospital care are emerging in high-level policy discourses, much centring on the efforts of the International Financial Institutions and the WHO to maintain and legitimise the public-private partnership model that has occupied global health policy for over 10 years. The different motives for these efforts and discourses I will return to at the conclusion of the third piece.
The components of the triple crises are worth rehearsing briefly. We have a financial and liquidity crisis in the private sector caused by the pandemic disrupting and established service and business model. This service model is not designed for universal coverage or acute care, but for cherry picking. Second, there is a crisis of pricing and service provision, affecting both government and patients just when private sector capacity is most needed, and not based not on the ability to pay or price setting by providers. Third, we have an attendant crisis in the established pattern of state-firm relations, with governance responses to crises 1 and 2 still being hastily constructed at the sub-state, national and multilateral levels.
To telegraph where these interlocking crises are heading, there seems to be a major crisis in legitimacy of the token and illusory public-private partnership model, with market failure exposing the emptiness of calls to harness the private sector for delivery of healthcare or even Universal Health Coverage. With market failure in viral crisis and withdrawal of services, the furloughing of staff and private clinic and hospital closures, we are beginning to see political and social hostility ramping up with regard the imbalances between private and public hospital and healthcare in many national systems. Criticism is not just being directed at the more immediate problems of public access and cost of services during the pandemic, but toward the very role of private health in national systems. The case for reform and substantial investment in public health system provision is also being asserted in many national and regional contexts, with a view to a post-pandemic reformation of health service composition and coverage. The SDG commitment to UHC is just one source of unease about relying on private health after COVID has passed.
However, what is also apparent is that many national health systems presently need the private sector hospitals and clinics in order to respond the unfolding or looming pandemic. In many national systems this is a case of there being no other alternative, short of speedy and possibly risky nationalisation. But the crisis facing the sector is also threatening its own internal implosion. So today I focus on financial collapse.
1: Liquidity and Financial Crisis
While data is still patchy, it is clear that COVID has created an acute liquidity crisis in the private sector internationally, with the impact most felt by smaller and medium size practices, clinics and hospitals. Industry bodies have been warning of these operators heading financial cliff since March, in Africa, the Middle East, the USA and India, Iran and Pakistan. Even larger multi-site private hospital chains have been much impacted, although are in a better position to take the hit for now. Many operators, where they are still afloat, are running on fumes where government support has not been forthcoming. Present research has not yet generated a complete international picture, but same financial catastrophe has engulfed private hospitals in the USA, and it is likely also to be the picture in countries such as Turkey, Thailand, Costa Rica, Brazil, Ecuador. We also know that the liquidity crunch has certainly affected India, Nigeria, Lebanon, Australia and many other countries.
The service and business model of the private sector is so geared to elective and outpatient care, and specialised surgeries, that it was destined to implode in a pandemic. The centrality of medical tourism to business models of many national private hospital providers in middle-income should not be discounted, itself being one of the major motivations for the last decade of huge international investment and financialization. All these sources of revenue have quickly dried up. In one recent report drawing on key informant interviews in 12 countries, a team from the World Bank Group, WHO and the University of Edinburgh looked at private
provider positions in a range of LMICs (Ethiopia, Kenya, Nigeria, Uganda, Thailand, South Africa, India, Sri Lanka, Philippines, Pakistan, South Korea, and Iran). Although clearly not a deep dive into each country sector, the report (published via multiple channels) speaks to a generally catastrophic financial and liquidity crisis in LMICs:
‘There is a risk of this situation leading to large-scale insolvency among private health care providers. The stress is particularly acute for Small and Medium Size Enterprises (SMEs), (e.g. primary care practitioners, small community hospitals, individual laboratories and pharmaceutical retailers), many of which seem unlikely to survive the pandemic without additional financial assistance. This is likely to have major implications for health systems – especially in the majority of LMICs in which private providers play a major role in delivering essential health products and services to the population, including many poor people. And for many countries, the threat to health care supply could not be happening at a worse time.’
The authors detail 5 key drivers of the financial crunch at play in some shape or form across LMICs (these also resonating in the US).
First, government emergency regulations have forced the temporary shutdown of elective and outpatient services, with further uncertainties occurring as some of these restrictions are for indefinite periods.
Second, patients are deferring treatment and procedures due to fear of COVID, or lockdown measures preventing routine access.
Third, economic disruption has meant that insurance or ability to pay out of pocket have both been affected.
Fourth, private providers are experiencing rapid cost escalation because of infection control and PPE, but also evidence of the high cost of medicines and COVID patient treatment.
Fifth, private insurers are also in trouble in some countries arising from cancellation of cover (by employers and individuals), higher claims, and are deferring or delaying settlement with private sector providers just when cash flow is most necessary.
This is already a compelling list of reasons for the financial and liquidity crisis being presently experienced. Indeed, much the same drivers of the crisis are present in the United States and have been since early March. However, there are important additional drivers of the crisis that have not been factored into the report.
In some countries the insurance system is clogged up and there are reports of private and state funded insurance schemes failing to settle with hospitals in a manner that eases liquidity problems. Lebanon, Iran and Kenya are examples of state-based insurance systems generating severely delayed payments have to private providers, this adding to the immediate credit crunch arising from the disruption of the basic business model (this being a problem in Lebanon before the pandemic, as it probably was in many LMIC countries). Revenues have dried up in many of the resource and oil driven economies, meaning there less fiscal space for governments to transfer revenues to the private sector. This is a real and present crisis of state-private sector financing models in countries such as Nigeria, Iraq, and Iran.
Moreover, evidence from India and the USA suggests that private insurance could also be delaying payments and settlement due to financial impacts of COVID on insurers. Some 43 million US citizens are thought to have either already lost or will lose private cover, with unemployment meaning lack of cover. Indian insurers are publicly stating that their model is not up to the demands of a pandemic. That country reported 112 million newly unemployed on the 29th June. In Australia, many thousands have dumped private cover.
It is also clear that one of the major sources of revenue for private sector hospitals in many LMICs comes from medical tourism, and that this has almost entirely dried up with travel restrictions and the economic fallout of COVID. Countries such as India, Thailand, Brazil, Mexico, Turkey, Costa Rica, Malaysia and Ecuador have all seen huge investment in private sector hospitals to cater for foreign patients seeking lower cost and often internationally accredited high-quality care.
For some of the bigger Indian hospital chains such as Fortis and Maxim, or large single site hospitals, medical tourism accounts for 20% of all revenues in 2018-19. For Thailand this figure rises to 30%; Brazil, Costa Rica and Turkey towards 20%; and Taiwan and the Philippines it is 10-15% of revenues. In South East Asia some industry analysis speaks to 30% of all revenues for private hospitals and specialist clinics now coming from medical tourism. This is an international competitive market worth some $54 billion in 2019, catering for the globally wealthy health seekers. Regional hubs have formed as have national specialisations. Turkey and India see patients from Africa and the Middle East; Brazil and Costa Rica the North Americans, and so on. Service models have become specialised to compete. India is a centre for cardiology and orthopaedic surgery and care; Mexico does bariatric surgery very well; Thailand plastic surgery; Brazil plastic surgery and dentistry, with other niches being filled alongside recuperation holiday package deals.
Mexico is a newish entrant to this market, offering medical services at some 40% of the equivalent cost for treatments as the US. Investment capital has financed a wave of hospital building and site upgrades all to service patients mainly from the USA. As with India and South Africa, the ability to attract wealth neighbours and to act as a regional hub for quality has sucked in financialization, investment necessary for technology and large site developments, but also because there was money to be made. Profit and growth projections for LMIC private hospital sectors are routine, and they have been constructed as an hot area of investment in global health. In India, Fortis and other big providers have been bought out by investment groups from Dubai and Singapore, and similar buyouts have been experienced in Australia and the USA. And much the same has happened in South Africa, Thailand and Turkey. In middle income countries there has been a corresponding concentration of ownership in the big hospital providers and allied services such as laboratories.
Of course, specialisation and gearing services to higher fee areas of services creates a business models that skews the health services away lower value procedures and those less able to pay. Smaller and rural hospitals have been consolidated, or have become marginal and financially vulnerable players in middle and high income country private healthcare. Much the same is true of private hospitals in the USA, plagued in recent years by consolidation, bankruptcy and closures, leaving rural and remote communities without coverage, and forcing health seeking in metropolitan areas where larger hospitals have remained viable with ramped up prices and profits.
With COVID much of the service model described above has hit a financial wall. There are numerous country level examples of acute financial crisis. In the second section on the crisis of service provision and pricing I will unpack the response of larger hospital chains in middle income countries to the credit crunch, but for the moment the outlines of the financial collapse is worth detailing because of the precarities it introduces to pandemic response, and for what it signals about the viability of the private sector model if the pandemic is prolonged.
In India much of the financial impact has been witnessed as a result of the different drivers detailed above (government mandated closure of non-essential services, decline in footfall, a total drop-off of medical tourism visas, etc). Fortis the large multi-site provider saw a 90% reduction in admissions in the first quarter of this year, with some 50-80% fall in revenues. The private sector in India is thought to have some 60-70% of total hospital beds, and bed occupancy was collapsing even before COVID hit the country fully in late May, down to 20 to 30% by April. With much of the normal work having closed private health industry groups are turning to state level support, with the hospital business association in Karnataka state requesting that the government support 25% of staff salaries in May in order to continue operations. Across South East Asia and Africa industry analysis is citing a 70% downturn in revenues and huge fall offs in presentations and bed occupancy. In Australia, toward the end of March, private sector hospitals were threatening mass closure due to the fall in revenues, requiring government finance to keep afloat and open in a package worth $1.3 billion. Germany also closed down non-essential services and electives, and the federal government headed off hospital closures by means of a hospital relief act.
In Iran, a country severely impacted by the pandemic, private sector sources are reporting complete financial collapse, compounded by a workforce crisis resulting from loss of life and lack of money for wages:
‘the Chairman of the Internal Medicine Community of Iran [is quoted] as saying: "Unfortunately, the hospitals are on the verge of bankruptcy and this includes the public sector and the 3rd and 4th grade private sector hospitals." As a result, hospital managers declared that private hospitals have started to fire some of their staff members to prevent their bankruptcy while government hospitals are also unable to employ new staff members including nurses. According to Ebtekar newspaper, "the hospitals' bankruptcy is partly due to the fact that the insurance companies and social security failed to fulfil their obligations. Their non-payment to hospitals reduced the hospitals’ budgets and made them indebted. As a result, they had to fire their personnel and limit their services." 
Much the same is being experienced in South Africa, with even the big operators seeing a dramatic decline in revenues and stock market valuations:
‘South African hospital operators were expected to benefit from increased demand for health care services during the Covid-19 pandemic. Instead, they have ended up suffering, according to Old Mutual Wealth Private Client Securities. Updates from Netcare Ltd., Mediclinic International Plc. and Life Healthcare Group Holdings Ltd. show “significant loss of revenue” during the crisis, placing further financial pressure on the industry and damping chances that it will emerge in a stronger position’.
Lebanon’s private sector (and public sector) health system is also in freefall, combining with that country’s presently huge economic and food crises. The private sector accounts for
over 80% of that country’s beds and there is mass closure and bankrupcy. In Mexico, it seems that normal revenues have also dried up, with President Orbrador having to agree a deal in April to finance hospitals in return for securing 50% of bed capacity (this President having cut 44% of the public sector hospital budget in his first months in office). In Iraqi Kurdistan the IHP carries a blog last week detailing huge staff layoff and hospital and clinic closures and bankruptcies. The sense of losses and collapse are multiplying across the world.
It seems that the World Bank and WHO study cited above is accurate in its representation of a huge systemic crisis in private health and hospital care across many LMICs. While clearly significant for the future of that private system after the pandemic, the real immediate concern is that financial collapse will imperil the ability of countries to respond to COVID and have capacity at the national systems level. In Africa and Asia most countries are heavily dependent on the formal private sector which accounts for average of 40% of healthcare in these regions, this figure rising to over 80% in countries such as India, Bangladesh and Nigeria. If the private sector suffers even modest collapse and closures, then capacity will be a problem in the pandemic. The financial response in states with resources to intervene in the failing market are detailed in the final section on the triple crises of market failure, but it is clear that some countries cannot do so due to lack of resources or care. This is an alarming crises of health governance that the downstream economics effects of the pandemic will surely make worse.
However, it is not just a credit crisis in private healthcare that is being felt in LMIC countries. The United States is experiencing a tidal wave of closures, bankruptcies and mass staff layoffs. The losses already incurred are genuinely eye watering, with similar drivers of financial crisis apparent to those at play in LMICs. Barnett and Landon estimate that the US private sector hospital providers will lose $200 billion by the end of June 2020. Their end of April assessment in the NEJM looks accurate and is confirmed by the peak sector body, publishing its own state of the sector report in mid June:
‘U.S. hospitals are predicted to lose more than $200 billion in revenue by June 30, according to a report by the American Hospital Association. The industry group estimates the total revenue hit from the pandemic at about $50 billion a month among health-care facilities since March. Hundreds face bankruptcy, industry experts say… “The worst is yet to come,” said Michael Topchik, executive director of The Chartis Center for Rural Health, a Chicago-based management-consulting firm. It found that 453 of the country’s 2,000 rural hospitals were in danger of closing and 216 were identified as “most vulnerable… It’s no exaggeration to say the sky is falling,” he said.’
The service model is broken in the US, with electives having traditionally cross-subsidised less profitable areas of care. Of the 200 billion losses from March to June, some $160 billion has merged from cancelled procedures. With electives gone the revenue stream is falling back on to COVID and acute care, both of which are plagued with escalating cost of PPE and infection control measures. The costs of US hospital supplies have increased some 30% and drugs some 40% in the last 2 quarters. Against this, the decline in spending on health is dramatic and affecting not just the hospital sector, but the entire fabric of US private care. The slow down in the general health spend – last year a staggering $2.2 trillion per annum and 18% of US GDP – is thought to account for 20-40% of the total downturn in American consumption since the pandemic began.
What has happened is already catastrophic in terms of closures, bankruptcies and staff furloughed or permanently laid off. In terms of bankruptcies, private hospitals, particularly those in rural areas, were already in trouble prior to the pandemic, and cases of insolvency have ratcheted up in recent months. Quorum Health a Southern multi-site provider filed bankruptcy April 7 with the hedge fund investors citing debt and restructuring; Randolph Health in North Carolina filed in March to restructure its debt; Faith Community Health Systems went for bankruptcy protection on February in Texas 29; and Pinnacle Healthcare System and closed its hospitals in Missouri and Kansas filed for Chapter 11 bankruptcy on also in February. The list goes on. Note that many of these bankruptcies actually pre-date the epidemic in the US, with declines in Medicare and Medicaid payments contributing to a credit squeeze particularly in the Southern and rural hospitals. The casualties are now escalating rapidly.
In the pandemic many US healthcare professionals have lost their jobs, been furloughed or suffered pay cuts. The Guardian cites the Federal Bureau of Labor Statistics reporting 43,000 healthcare workers lost jobs in March alone. This has got worse and will get even worse. Indeed, we are now in much bleaker territory in the US health in terms of job losses across all sectors of private healthcare, making the figures in March the first conservative indications of what is now substantial systemic damage:
‘The Bureau of Labor Statistics places the number of health care positions lost since January 2020 at 1.436 million, an 8.7 percent decline. Hospitals have shed 121,000 jobs, a drop of 2.3 percent. Ambulatory health care services have shed 1.2 million jobs, 15.4 percent. Offices of dentists have let go of 519,000 jobs, which account for 53.2 percent of their workforce. Physicians’ offices have cut 249,000 positions, a 9.2 percent decline. Additional sectors impacted by job losses include nursing homes, mental health institutions and community-based residential care facilities.’
The US government response was to inject $100 billion into private sector health in April, under the CARES Act. This however compares very badly to the $2.2 trillion annual spend on health and the projected $200 billion in hospital losses alone in the first six months of this year. Many hospital managers reported that the resulting injection earned them only weeks of reprieve. All this as demand on US hospitals has now entered into its most dramatic phase so far in the second half of June, with COVID seeing hospital admissions reach capacities in many states. As COVID rages staff are idle and hospitals have closed.
In conclusion, we have seen a huge financial crisis unfold in private hospital and healthcare in countries where the market model and financialization have been left to run riot over recent decades. COVID is clearly an exceptional crisis, but it has exposed the dangers in weighting health services to profit and business models where elective health has triumphed over essential and universal services. In the next of these threads I will look at the response of the private sector to COVID in a range of countries, above and beyond closure and bankruptcy, as well as the state and multilateral crisis of governance that is centring on the viability of the private in health both within and beyond this pandemic.
But as the pandemic progresses the prognosis for the private sector only gets bleaker and bleaker.
 https://ghpu.sps.ed.ac.uk/covid-19-and-the-collapse-of-the-private-health-sector-a-threat-to-countries-response-efforts-and-the-future-of-health-systems-strengthening/  Ibid.  https://www.expresshealthcare.in/blogs/is-covid-killing-hospitals-too/419902/  https://en.radiofarda.com/a/private-hospitals-go-bankrupt-nurses-fired-amid-covid-19-crisis-in-iran/30541842.html  https://au.finance.yahoo.com/news/hospital-finances-strained-covid-19-120153435.html  https://www.arabnews.com/node/1692016/middle-east  https://catalyst.nejm.org/doi/full/10.1056/CAT.20.0153  https://www.marketwatch.com/story/the-coronavirus-is-devastating-