Is Private Production of Hospital Services Cheaper than Public Production? A Meta-Regression of Public Versus Private Costs and Efficiency for Hospitals

Abstract

The question of whether private organizations can outperform public ones in public service delivery has been a major topic of interest over the last few decades. However, the empirical evidence does not systematically support the hypothesis of lower costs and higher efficiency when private organizations deliver public services. To better understand the cost and efficiency differences between public and private organizations, we have conducted a metaregression analysis of econometric studies relating to hospital ownership and performance.We have analyzed 61 estimates extracted from health studies, using public versus private hospital costs and efficiency as an independent variable. Our analysis shows a genuine true effect in favor of public sector hospitals. Although we found evidence that the public sector may provide public health services more cheaply than the private sector, the latter achieves better productive efficiency. We discuss how this divergence in results is affected by factors such as country, year, the use of panel data in a study, the extent to which performance is measured by examining financial costs, and the inclusion of not-for-profit hospitals.

Financial Performance of SDG Mutual Funds Focused on Biotechnology and Healthcare Sectors

“…The adoption of a differentiation or a cost leadership business strategy depending on the lack or existence of a universal healthcare system is congruent with the findings of Lin et al [23], that Taiwanese privately owned hospitals bear lower operational costs than those owned publicly, and those of Woolhandler et al [24] showing that the costs of delivering health services are higher for US private hospitals than for Canadian private hospitals [25]. These operational costs could increase due to the implementation of high-tech medical technologies as a differentiation business strategy [26], allowing them to grow their revenues proportionately, justified by a higher value added of rare and imperfectly imitable medical technology resources that provide them with a competitive advantage, enhancing long-term corporate financial performance according to the firm resource-based theory [27].…”

Comparing the average cost of outpatient care of public and for-profit private providers in India

“…The practice of overcharging or price gouging has been reported from some High Income Countries (HICs) too [ 62 ]. Some reviews from HICs have concluded that the charges taken by for-profit providers tend to be much higher than their cost of production [ 63 ]. Such findings can have implications for the allocative efficiency in health systems [ 63 ].…”

“…Some reviews from HICs have concluded that the charges taken by for-profit providers tend to be much higher than their cost of production [ 63 ]. Such findings can have implications for the allocative efficiency in health systems [ 63 ]. The current study suggests that this might be the case in India too.…”

“…Quality of care and medical outcomes are also important aspects for a comparison which the current study could not include in its scope. It has been suggested that greater competition among providers can influence cost [ 63 ]. The current study did not examine this aspect.…”

Between Revenues and Public Service Delivery

“…International reviews of literature on privatization of government services show that results in terms of cost-saving are mixed (Bel and Warner 2008;Boyne 1998) and consequences for consumers in terms of prices and efficiency and quality of service delivery are inconclusive and most often not included in assessments at all (Petersen, Helby, and Vrangbaek 2018). For instance, in the United States and Europe, partial contracting out to private-health-service delivery firms did not increase cost-effectiveness and efficiency of the health services delivered (Bel and Esteve 2019).…”