Overview of poll results by Professor Anthony Scott

Professor Anthony Scott

Professor Anthony Scott

Improving both the level of and access to health care and education are important societal objectives. Equity of access and universal access is perhaps more important than efficiency in the provision of these services. The health and education sectors in Australia are characterised by a relatively large share of both private for-profit and not-for-profit provision and private finance.

For-profit provision of public services is controversial due to a range of market failures, notably price signals being distorted by insurance and/or government subsidies, and prices, if they exist at all, not reflecting demand due to informational asymmetries between providers and consumers. In these sectors it is also difficult to measure outcomes or quality, particularly in health care where there is no routine measurement of patients’ health improvements after receiving care. There is a high chance that consumers could be disadvantaged in such markets. In both the health and education sectors, these issues have led to regulation of providers in terms of licencing, minimum standards, and regulation of government funding.

Forty seven percent of the panel disagreed or strongly disagreed with the above statement, 20 per cent sat on the fence, and 33 per cent agreed or strongly agreed.

Though most seemed to disagree with the statement, this was because poor outcomes and high costs to government were possible only if there was weak oversight and regulation. Most agreed that the issue is not about ownership per se, but about getting the incentives and regulation right (Flavio Menezes, Uwe Dulleck, Gigi Foster, Doug McTaggart; Rana Roy; Julie Toth; Matt Butlin). “What is especially important is having well-designed incentives in the system that reinforce and reward good outcomes and penalise abuse and over-servicing.” (Matt Butlin).

For example, if one is concerned about access to health care and education, then for-profit provision often results in adverse selection of either the healthiest patients or brightest students, as these are also the least costly. Evidence suggests that better observed client outcomes from for-profit providers is driven by selection rather improved efficiency. Incentives therefore need to be in place to limit selection. In health care insurance and provider markets, ‘cream-skimming’ is a key issue that various types of payment scheme have been designed to reduce.

Fixed or capitation payments have built in incentives to reduce costs, and so it is important that such payments are ‘risk-adjusted’, such that providers receive adequate remuneration for more costly patients. In both health and education, adjusting payments for ‘need’ has been an important component of funding models across many countries.

Panellists also emphasised the need for choice and information in these markets, a fundamental issue across many markets (Saul Eslake, Lisa Cameron) and a key focus of the recent Productivity Commission Review on the role of competition in human services. Regulation to promote choice and produce relevant information, combined with outcomes-based payment (Uwe Dulleck), can help drive better outcomes both on the demand side and on the supply side, where strong reputational concerns can also drive performance in sectors such as health care. But a key issue with choice in human services is that information is costly to produce and use and so long-term relationships between providers and consumers that build on trust can, in some circumstances, be more efficient.

There are examples where moving from public to for-profit provision has led to poor outcomes and panellists mentioned the opening of the Vocational Education and Training (VET) sector to private provision (John Quiggin, Beth Webster). This depends not only on regulation but on the ethical standards of the professions in these organisations.

But there was also strong support for the status quo in Australia. A mix of public and private is good (Jeff Sheen, Geoffrey Kingston, Matt Butlin, Julie Toth), as “…exclusively public provision leads to mediocrity and excessive bureaucracy.” (Geoffrey Kingston). “The risks of government failure are at least equal to those of market failure and each instance of provision needs consideration on its relative merits” (Lin Crase). Not-for-profit providers maybe more altruistic and have welfare-maximising objectives (Rana Roy) which reduces the need for strong incentives. But in for-profit provision: “it is often difficult for clients to assess the level of quality prior to purchase and there are incentives for private providers to exploit the system and drive up costs to both governments and clients.” (Lisa Cameron)

Several panellists also note the lack of good evidence and evaluation (Harry Bloch, Tony Makin). “In the absence of systematic evaluation, we are left to choose among anecdotes…” (Harry Bloch). The role of for-profit versus public provision is often ideological rather than based on good quality evidence.

The Productivity Commission has wisely steered away from recommending increased private provision in human services, and has focussed more on the role of user choice and information. Hopefully they will also recommend strong independent evaluation of any proposed reforms.

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