A Comparative Study of Cost Management Practices in Public and Private Hospitals

Literature Review

The comparison between the management of utilities or service provision between the public and private entities has been in existence for a long time. Both entities are governed by different goals, different accounting practices, targets, areas of concerns as well as having different parties to satisfy. The purpose of this review is to compare, summarize and analyze the findings from existing literature as well as finding out the gaps existing and generating questions for further research.

After reviewing a total of 17 studies representing around 5500 hospitals around Europe. Tynkkynen and Vrangbæk (2018), identified that public hospitals had better cost management practices as compared to their private counterparts. However, Tulchinsky and Varavikova (2014) highlights that private not-not-for profit (PNFP) come second with the private-for-profit (PFP) being the least in cost management. Tynkkynen and Vrangbæk (2018), however, failed to capture the relationship between the economic management and the quality of services as well as the operational dimensions which Emery et al. (2018) claims are almost equal due to the healthcare market regulation.

Lautour (2018, p. 161), conducted a study with the major systematic themes being, accessibility of services, quality, responsiveness, quality, accountability, outcomes, efficiency, transparency and regulations which Paton (2016), also emphasizes as the main themes to consider in evaluating the effectiveness of the cost management. After analyzing 1,178 previous studies in a comparative and crossectional method, Lautour (2018), concluded that private hospitals are less efficient, medically effective and accountable in their cost management in comparison the public hospitals. Jeve (2017, p. 105) supports this claim stating that healthcare provision at the private hospitals experiences more cases of standards violation, poorer patient outcomes, unnecessary testing, and treatment which he concluded lowers the efficiency of cost management as well as service quality. Nonetheless, Basu, et al. (2012) suggests that the same private hospitals were better ranked in timeliness and hospitality of patients while public hospitals experienced limited access to trained personnel and equipment.

According to Tynkkynen and Vrangbæk (2018), the public-private comparison for cost management can be explained by the “public choice and property rights theories” In this case, the study explains that the results of this comparison revolve around competition and public ownership. Tjerbo and Hagen (2017) adds to this claim stating that, despite healthcare markets being imperfect, competition is beneficial citing the competitive pressure placed on private actors to improve efficiency. On the other hand, the public providers are pushed by political and administrative pressures. Tjerbo and Hagen (2017, p. 187) further explains that private hospitals are led by the incentive to continue with the service provision without the possibility of bankruptcy nor risk being out of business while the public hospitals are mandated to be accountable to the owners and all shareholders. Additionally, Javanparast, et al. (2017), justifies their study’s hypothesis that different service characteristics lead to more or less favorable conditions for in-house performance towards transaction cost economics.

After quantitatively reviewing 40 studies, Hamadi, et al. (2017) identified that ownership of the hospital explained the magnitude of the variation for revenue, profit margin and cost management between public-owned hospitals, PFP, and PNFP. However, the studies showed a negligible difference between PFP and PNFP. The study concluded that private healthcare provision is not necessarily associated with better patient outcomes and efficiency. Jeve (2017, p. 107), adds that this includes the specialty hospitals hence rebutting the popular assumption embraced by policymakers that specialty hospitals such orthopedic are more cost-efficient and offer better services.

The National Health Service (NHS) in the UK is currently investing a lot of finance from the private finance initiative (PFI) to improve infrastructure as well as increase the number of public hospitals. Paton (2016) argues that this will is a long-term innovation that will ensure value for money in the public healthcare provision. The author further highlights that the public hospitals spend a lot in contracting private hospital services owing to the surplus demand for health services. The private hospitals, on the other hand, benefit form employees who have their insurance packages catered by big companies and specialist referrals from the NHS. However, despite the low demand of patients, Northcott and Llewellyn (2010), insists that the private hospitals lack consistency in quality. This explains the results of a survey conducted by the authors showing 71% of the sample population of 543 individuals still favored the NHS for general care.

In a different twist, McDermott, et al. (2017) develops a different methodology to measure the different management practices by interviewing 182 physicians, and managers from both private and public hospitals. The authors establish that cost management of the hospital has a strong correlation with the hospital’s general performance, patient outcomes, and financial outcomes. In this study, the authors conclude that hospitals with a greater autonomy from the government have better cost management than those under full control of the government. However, this study assumes the input of patients who form the largest portion of stakeholders in the healthcare industry.

Palm (2013), used 32 hospitals equally utilizing both private and public hospitals. In his study, Palm (2013) compared their financial efficiency with their service and technical efficiency. In agreement with Tynkkynen and Vrangbæk (2018), theory, public hospitals evidenced better service and technical efficiency than private hospitals. The author affirms that public hospital management work hard to please the stakeholders to attract more funding through offering better services as opposed to Private hospitals which are more interested in financial efficiency in order to maintain their profit margin. In this case, the results prove that public hospitals have more value for money contrary to private hospitals.

In a report by Tavakoli (2017, p. 83), the annual records of the Care Quality Commission (CQC) showed that, while both private and public care providers are assessed in the same criteria, Private hospitals provided outstanding care with more than 90% of them compliant with the set regulatory standards. However, Tuohy (2018), refutes this claiming that most private institutions lack transparency while submitting their records as a way of maintaining their competitive edge. However, this cllaim has limitations due to the lack of credible proof from the CQC. In a study to compare the rate of pay-bed patients admitted in either facilities, Bevir and Waring (2018, p. 127), sampled data from 71 hospitals. the results identified 21% more cases of pay bed patients in public hospitals as compared to the private hospitals. A further research identified the reason towards this trend as high costs and the reductio of referals from the NHS. Tuohy (2018) also identified the strict policy on NHS hospitals against unwarranted refferals as one of the reasons for their improved financial management as well as patient outcomes.

In almost all countries, the healthcare cost has been on the rise taking a substantial percentage of the GDP. This has led to tightened measures of performance by the governments. Hewison, et al. (2013, p. 88) insisted that there is a great variability in the performance of different hospitals. The authors believed that the main evidence could be found in case studies as opposed to systematic quantitative evidences. According to Hewison, et al. (2013), the results showed a strong correlation between cost management and performance measures such as; mortality rates, waiting lists, and staff turnover. Moreover, the study evidenced that hospitals with managers with clinical qualifications performed better than those managed by non-qualified medics. Marr and Creelman (2014) adds that the results to any comparison are dependent on the context and other varying specifics such as the financing methods, the contracting process and the level of competition in the healthcare market. Moreover, in the UK, private service providers are potentially affected by administrative burdens, and high transaction costs, unlike public providers which seem to be monopolizing the healthcare market (Dineley, 2016).

Most of the studies have incorporated the themes of either efficiency, ownership, and performance as some of the factors affecting the cost management in hospitals. However, citing the  assumption of crucial factors that could possibly alter the market forces, there exists a gap in literature that requires more research. For instance, politics, and staff motivation play a major role operational disparities between the two entities. Additionally, Methodological approaches varied hance giving varying results. Therefore, further investigation should be conducted integrating all stakeholders in the healthcare sector. Overall, the research has established the contextual differences in the cost management as well as their relationship in comparing the performance of both entities. In the wider healthcare sector, this research fits in the financial management and the care quality service departments. Summing up the review, most studies identify that public hospitals are more superior in economic management as well as performance.

References

Basu, S. et al., 2012. Comparative performance of private and public healthcare systems in low- and middle-income countries: a systematic review. PLoS Medicine, 9(6), pp. 1244-1261.

Bevir, M. and Waring, J., 2018. Decentring health policy: learning from British experiences in healthcare governance. Abingdon: Routledge.

Dineley, L., 2016. Risk management systems in healthcare. Risk management systems in healthcare.

Emery, P. et al., 2018. Cost effectiveness of secukinumab for the treatment of active Ankylosing Spondylitis in the UK. PharmacoEconomics, 36(8th), pp. 1015-1027.

Hamadi, H., Apatu, E. and Spaulding, A., 2017. Does hospital ownership influence hospital referral region health rankings in the United States.. International journal of health planning and management, 33(1), pp. 168-180.

Hewison, A., Gale, N., Yeats, R. and Shapiro, J., 2013. An evaluation of staff engagement programmes in four National Health Service Acute Trusts. Journal of Health Organization and Management, 27(1), pp. 85-105.

Javanparast, S. et al., 2017. Change management in an environment of ongoing primary health care system reform: A case study of Australian primary health care services. International journal of health planning and management, 33(1st), pp. 76-88.

Jeve, Y. B., 2017. Raising quality whilst reducing cost in health care: A retrospective cohort study.. 1st ed. Sussex: Wiley.

Lautour, V. J. d., 2018. Management Accounting in the Public Sector. 2nd ed. Cham: Springer International Publishing.

Marr, B. and Creelman, J., 2014. Doing more with less : measuring, analyzing and improving performance in the not-for-profit and government sector. 2nd ed. New York: Palgrave Macmillan.

McDermott, A. M., Kitchener, M. and Exworthy, M., 2017. Managing Improvement in Healthcare: Attaining, Sustaining and Spreading Quality. 1st ed. Cham: Springer International Publishing.

Northcott, D. and Llewellyn, and. S., 2010. The balancing act in hospital performance measurement:. Research executive summaries series, 5(2), pp. 1-10.

Palm, W., 2013. Building European reference networks in health care: exploring concepts and national practices in the European Union. Copenhagen, Denmark: European Observatory on Health Systems and Policies.

Paton, C. R., 2016. The politics of health policy reform in the UK : England’s permanent revolution. 1st ed. London: Palgrave Macmillan.

Tjerbo, T. and Hagen, T. P., 2017. The health policy pendulum: Cost control vs activity growth. International journal of health planning and management, p. 187.

Tavakoli, M., 2017. Health Policy and Economics: Strategic Issues in Health Care Management. London: Taylor and Francis.

Tulchinsky, T. H. and Varavikova, E., 2014. The new public health. 3rd ed. Amsterdam: Academic Press.

Tuohy, C. J., 2018. Remaking policy: scale, pace, and political strategy in health care reform. Toronto, ON: University of Toronto Press.

Tynkkynen, L.-K. and Vrangbæk, and. K., 2018. Comparing public and private providers: a scoping review of hospital services in Europe. BMC Health Services Research, 18(1).