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There are many types of hospitals but the most well known are the Public Hospitals. What sets them apart is that they provide services to the indigent (people without means) and to minorities.

Historically, public hospitals started as correction and welfare centres. They were poorhouses run by the church and attached to medical schools. A full cycle ensued: communities established their own hospitals which were later taken over by regional authorities and governments – only to be returned to the management of communities nowadays. Between 1978 and 1995 a 25% decline ensued in the number of public hospitals and those remaining were transformed to small, rural facilities.

In the USA, less than one third of the hospitals are in cities and only 15% had more than 200 beds. The 100 largest hospitals averaged 581 beds.

A debate rages in the West: should healthcare be completely privatized – or should a segment of it be left in public hands?

Public hospitals are in dire financial straits. 65% of the patients do not pay for medical services received by them. The public hospitals have a legal obligation to treat all. Some patients are insured by national medical insurance plans (such as Medicare/Medicaid in the USA, NHS in Britain). Others are insured by community plans.

The other problem is that this kind of patients consumes less or non profitable services. The service mix is flawed: trauma care, drugs, HIV and obstetrics treatments are prevalent – long, patently loss making services.

The more lucrative ones are tackled by private healthcare providers: hi tech and specialized services (cardiac surgery, diagnostic imagery).

Public hospitals are forced to provide “culturally competent care”: social services, child welfare. These are money losing operations from which private facilities can abstain. Based on research, we can safely say that private, for profit hospitals, discriminate against publicly insured patients. They prefer young, growing, families and healthier patients. The latter gravitate out of the public system, leaving it to become an enclave of poor, chronically sick patients.

This, in turn, makes it difficult for the public system to attract human and financial resources. It is becoming more and more destitute.

Poor people are poor voters and they make for very little political power.

Public hospitals operate in an hostile environment: budget reductions, the rapid proliferation of competing healthcare alternatives with a much better image and the fashion of privatization (even of safety net institutions).

Public hospitals are heavily dependent on state funding. Governments foot the bulk of the healthcare bill. Public and private healthcare providers pursue this money. In the USA, potential consumers organized themselves in Healthcare Maintenance Organizations (HMOs). The HMO negotiates with providers (=hospitals, clinics, pharmacies) to obtain volume discounts and the best rates through negotiations. Public hospitals – underfunded as they are – are not in the position to offer them what they want. So, they lose patients to private hospitals.

But public hospitals are also to blame for their situation.

They have not implemented standards of accountability. They make no routine statistical measurements of their effectiveness and productivity: wait times, financial reporting and the extent of network development. As even governments are transformed from “dumb providers” to “smart purchasers”, public hospitals must reconfigure, change ownership (privatize, lease their facilities long term), or perish. Currently, these institutions are (often unjustly) charged with faulty financial management (the fees charged for their services are unrealistically low), substandard, inefficient care, heavy labour unionization, bloated bureaucracy and no incentives to improve performance and productivity. No wonder there is talk about abolishing the “brick and mortar” infrastructure (=closing the public hospitals) and replacing it with a virtual one (=geographically portable medical insurance).

To be sure, there are counterarguments:

The private sector is unwilling and unable to absorb the load of patients of the public sector. It is not legally obligated to do so and the marketing arms of the various HMOs are interested mainly in the healthiest patients.

These discriminatory practices wreaked havoc and chaos (not to mention corruption and irregularities) on the communities that phased out the public hospitals – and phased in the private ones.

True enough, governments perform poorly as cost conscious purchasers of medical services. It is also true that they lack the resources to reach a substantial segment of the uninsured (through subsidized expansions of insurance plans).

40,000,000 people in the USA have no medical insurance – and a million more are added annually. But, there is no data to support the contention that public hospitals provide inferior care at a higher cost – and, indisputably, they possess unique experience in caring for low income populations (both medically and socially).

So, in the absence of facts, the arguments really boil down to philosophy. Is healthcare a fundamental human right – or is it a commodity to be subjected to the invisible hand of the marketplace? Should prices serve as the mechanism of optimal allocation of healthcare resources – or are there other, less quantifiable, parameters to consider?

Whatever the philosophical predilection, a reform is a must. It should include the following elements:

Public hospitals should be governed by healthcare management experts who will emphasize clinical and fiscal considerations over political ones. This should be coupled with the vesting of authority with hospitals, taking it back from local government. Hospitals could be organized as (public benefit) corporations with enhanced autonomy to avoid today’s debilitating dual effects: politics and bureaucracy. They could organize themselves as Not for Profit Organizations with independent, self perpetuating boards of directors.

But all this can come about only with increased public accountability and with clear measuring, using clear quantitative criteria, of the use of funds dedicated to the public missions of public hospitals. Hospitals could start by revamping their compensation structures to increase both pay and financial incentives to the staff.

Current one-fits-all compensation systems deter talented people. Pay must be linked to objectively measured criteria. The Hospital’s top management should receive a bonus when the hospital is accredited by the state, when wait times are improved, when disrollment rates go down and when more services are provided.

To implement this (mainly mental) revolution, the management of public hospitals should be trained to use rigorous financial controls, to improve customer service, to re-engineer processes and to negotiate agreements and commercial transactions.

The staff must be employed through written employment contracts with clear severance provisions that will allow the management to take commercial risks.

Clear goals must be defined and met. Public hospitals must improve continuity of care, expand primary care capacity, reduce lengths of stay (=increase turnaround) and meet budgetary constraints imposed both by the state and by patient groups or their insurance companies.

All this cannot be achieved without the full collaboration of the physicians employed by the hospitals. Hospitals in the USA form business joint ventures with their own physicians (PHO – Physicians Hospital Organizations). They benefit together from the implementation of reforms and by the increase of productivity. It is estimated that productivity today is 40% less in the public sector than in the private one. This is a dubious estimate: the patient populations are different (sicker people in the public sector). But even if the figure is incorrect – the essence is: public hospitals are less efficient.

They are less efficient because of archaic scheduling of patient-doctor appointments, laboratory tests and surgeries, because of obsolete or non-existent information systems, because of long turnaround times and because of redundant lab tests and medical procedures. The support – which exists in private hospitals – from other (clinical and nonclinical) personnel is absent because of impossibly complex labour rules and job descriptions imposed by the unions. Most of the doctors have split loyalties between the medical schools in which they teach and the various hospital affiliates. They would tend to neglect the voluntary affiliates and contribute more to the prestigious ones. Public hospitals would, therefore, be well advised to hire new staff, not from medical schools, share risks with its physicians through joint ventures, sign contracts with pay based on productivity and put physicians in the governing boards. In general, the hospitals must shrink and re-engineer the workforce. About half the budget is normally spent on labour costs in private hospitals – and more than 70% in public ones. It is no good to reduce the workforce through natural attrition, mass layoffs, or severance incentives. These are “blind”, nondiscriminating measures which affect the quality of the care provided by the hospital. When compounded by work rules, seniority systems, job title structures and skewed grievance procedures – the situation can get completely out of hand.

The government must contribute its part. Public hospitals cannot comply or compete with the demands of national, publicly traded HMOs with political clout and the capacity to raise capital to finance hyper-sophisticated marketing. Public policy must be written to support “safety net” institutions. They must be allowed to organize their own MCOs (Managed Care Organizations of patients), to insure patients and to market their services directly to groups of potential consumers. This way they will save the 20% commission that they are paying HMOs currently. If they become more efficient and reduce utilization, they will absorb the full benefits, instead of ceding them to contracting groups of patients and insurance companies or even to the government’s medical insurance plans. The hospitals will thus be able to construct their own networks of suppliers and share their risks with their physicians or with the insurance companies as best suits their objectives.