Government Expenditures on Hospitals - Should Hospitals Go for Profit or Not - Research Paper Example

Government Expenditures on Hospitals It would seem that with the increasing developments in technology, changes in the environment and differences in the lifestyles of people have also brought about more diseases and health concerns. New types of cancer, new virus strains, new bacteria, new psychological terms for conditions and the like have been featured in scientific journals and television programs as well with goals of raising concern among the people and preparing them as well. People from all walks of life are afflicted with diseases and they are in need of hospital services for the cure of these diseases. It is human nature to want to be well and subsequently search for ways to be healthy no matter what the cost may be. It is also perhaps human nature to want to have the best services any hospital can offer and thus the bias toward the best hospitals even if these hospitals are considered as for-profit organizations. This paper holds the argument that hospitals are better privatized such that the government can lessen its expenditures on these and focus on other aspects of governance and development. In doing so, it would present first, by way of introduction, a brief history of hospitals and how the dichotomy of private and public or for-profit and not for profit hospitals came to be. Second, it would show the differences between these two and how they affect the government and the country. Third, it would show possibilities and further support the position of this paper. The terms for-profit and private hospitals as well as not for profit and public hospitals are used interchangeably in this paper. History of Hospitals Hospitals as we know it today were very much unlike the hospitals in the history of hospitals. Let us begin with a brief history about hospitals and its development by time. The helpful resource is the timeline of the history of public hospitals by the National Association of Public Hospitals (2009). According to their account, public hospitals in the US emerged only in the 1900 as most Americans “gave birth and endured illnesses and even surgery at home” (para. 1). In as much as the Americas in the 1900 was highly rural with large lands separating them. It seemed to be more convenient for doctors to visit the houses than for them to go some place else for their treatment. Public hospitals then were charitable institutions that cared for the needy. These institutions were called almshouses. These however developed to places where people, not just the needy, could go for treatment of their illnesses. These were still charitable in the sense that doctors and nurses were not paid as much but volunteered and donated their time and efforts. This is because these hospitals did not have money for their operations. But in the 1920s, due to changes in medical practices, breakthroughs in medicine, lowered charitable services and payment of the services of nurses and doctors, hospitals required significant funds and evolved. According to Henderson (2009) the nursing program appeared as a great step toward a new level of giving quality services in hospitals. Hospitals kept developing their services to better themselves and achieve the goal of providing treatment to all. From the 1930s to the 1960s, hospitals saw a turning point in their history for the better. Due to burgeoning suburban living, good employment rates and Americans moved from the cities to the suburbs. Thus, there were also the need to create hospitals in the suburbs. Private hospitals started to appear and reveal that they can provide service for patients similar with the services that public hospitals provide, even better sometimes. In the same year, the first investor-owned hospital opened (Henderson, 2009). These kinds of hospitals were rare and small as an organization back in the day. Later on, hospitals improved and developed until the 1980s when hospitals became an essential aspect of the gross domestic GDP while healthcare expenditure exceeded the 10% of the total GDP of the US (Henderson, 2009). For profit hospitals, however, are still a minority as of late. In 1995, some not for profit hospitals converted to for profit hospitals but there are still a few for profit hospitals as can be seen in the following chart taken from the data from the site of the American Health Association (2010a). Some not for profit hospitals converted to for profit hospitals in the 1990s but even with the conversion for profit hospitals were still quite a few. In the paper of Silverman, Skinner and Fisher (1999) there were about 192 hospitals that converted to for profit between 1990 to 1996. This shows that these hospitals saw the need to convert to for profit hospitals in order for them perhaps to provide better services. Because this conversion entails a lot of hard work and a lot of convincing of investors to support the move. If there are no investors this conversion would not be possible. It also goes to show that private investors are also into the hospital sector now a days. It is either they see the need to support the healthcare of the people or they see healthcare as a profitable venture in these days. Regardless of the reasons, the fact exists that investors are interested in supporting hospital businesses these days. For Profit and Not-for profit Hospitals in the US For a long time, the government has been responsible for providing healthcare services to its residents. Government owned and government funded hospitals were dominating the field of healthcare in the US and these were considered as not for profit. Other not for profit hospitals were run by non-government institutions like charities and foundations, religious orders that make healthcare their mission and personalities like scientists and doctors. For a time however, for profit hospitals have also slowly thrived. There is the notion that for profit hospitals are far better than not for profit hospitals. This is because of the fact that since for profit have the objective of increasing their profits they also have the goal of providing better services than not for profit hospitals. They have better funding that is why they have better services. However, there is also the notion that for profit hospitals do not give quality services as compared to not for profit hospitals because of the organizational behavior brought about by the need to increase profits. Since they need to increase profits, there may be greater pressure for the employees (doctors, nurses, etc) to save on services or as according to Silverman, Skinner and Fisher (1999) “the obligation to maximize the shareholders’ return on their investment will cause for profit hospitals to eliminate necessary but unprofitable services” (p. 420). There is also the tendency to reduce charitable services and eliminate pro bono services as well. On the other hand, they may also prescribe unnecessary treatments and healthcare plans that can possibly increase their profits. As reviewed by Liu, Li, Hou, Xu and Hyslop (2009) however, literature reviewed are not consistent with their findings in terms of the performance of for profit vs not for profit hospitals. Some literature claim that for profit hospitals are better in terms of efficiency as stated by Devereaux, et al. (2004) and that of Harper, Sampson, See, Kealy and Meredith (2000) as well as that of Silverman, Skinner and Fisher (1999). On the other hand, some literature would claim that there is no conclusive difference in the efficiency of these two types as coming from the articles of Farsi and Filipini (2008) and from Shen and Eggleston (2005). Healthcare systems took a place in the government’s expenditures yearly. For Example, the US government has been providing programs such Medicare and Medicaid that have been created in 1965 (Cutler, 2002). Medicare is provided for certain people as citizens who are 65 years and older. This is also provided for thedisabled. Medicaid is provided for those citizens who have low income including children and pregnant women and also disabled people. So, it’s a kind of huge responsibility for government toward its citizens. The magnitude of expenditures that the government should spend on hospitals and from where the government should finance these institutions is a bit of concern for the government as well as for the citizens as well. Obviously, hospitals get their financial supporting from the government by taxation that the government receives. So if the government could use the finances allocated to these hospitals to other services for the people other than healthcare but would be as beneficial or more beneficial to the people then it should be a better deal. However, if the citizens are not able to avail of proper healthcare, without the help of the government, how else could they better themselves? This question of course merits another discussion in another section of this paper. What follows is a discussion on the trends of spending in either type of hospital as possible proof of preference of the people. Trends show that there is an increasing spending in for profit hospitals which show proof of preference of the people on the services of these hospitals as according to the study of Silverman, Skinner and Fisher (1999). Chart 2 derived from the aforementioned study shows that there is an increasing trend in spending in all types of hospitals namely for profit, not for profit and those of mixed ownership types. The chart also shows that the per capita spending is highest in for profit hospitals and lowest in the not for profit hospitals in all the years in question. Based on the reasoning of Silverman, Skinner and Fisher (1999), since people show preference to for profit hospitals, this implies that for profit hospitals would have better services since they are being patronized by people even when they charge, perhaps, more than what not for profit hospitals charge. Which hospital type is better? It would seem that for profit hospitals are more efficient than not for profit hospitals. There are many reasons that can be use to explain that. First, for profit hospitals provide more advanced technology than other hospitals or healthcare providers. Advanced technologies such as the blood tests, the digital or 3D X-ray chest, or eye examinations, and other state of the art technologies for diagnosis and treatment are by far more advanced in these hospitals because they have the facilities for the provision of such. It would also follow that they should have these because these are their investments in order to have more clients. If they have more clients, they would be able to increase their profits better. After all, this is their main objective – to increase profits. Most of the patients would rather to go private hospitals than public hospitals because they are better assured of their services. This is especially true for patients who already have insurance coverage. Since they have invested in their healthcare it would be better to be treated in a state of the art hospital with state of the art skilled doctors and staff because they would be assured of better diagnosis and treatment. If patients are treated well, this would reduce mortality and of course a better citizenship and a better country as well. From my experience, in Saudi Arabia, the mortality rate is higher in the public hospitals than in the private hospitals. The reason is that private hospitals are more concentrated in every step in diagnosing the patients. This is because they have the advanced technologies for diagnosing the patients and treating the patients. They have also invested in their doctors like sending them on fellowship or scholarship to the US so that they can learn the latest breakthroughs in medicine and the best treatment plans for known diseases and illnesses. . The private sectors also are always focused on how to do the right things with their patients. There is an article called Do No Harm written by Claudia Kalb (2010) and she mentioned the Boothman Approach where in the private hospitals are mandated to pay for their transgressions if they have medical errors. This is a strong point for private hospitals to do the best they can while maintaining their goal to increase their profits as compared to public hospitals. It is a known fact that public hospitals are already low in their budgets and also tight in their expenditures because of this low budget. A consequence of this is the fact that they may not have the best diagnosis or treatment for patients going to them for treatment. It is also a known fact that public hospitals are limited and that they still need to refer to bigger private hospitals for cases that they could not treat. As such I make my case that hospitals are better off as for-profit hospitals because they can better treat the patients well at the same time achieving the goals of increasing their profits. On the philosophical and social point of view, while it is true that businesses exist to increase their profits, it is not always the case that increasing profits would already hamper the ability of these organizations to be charitable and be of service to the people. Corporations are already vigilant about their corporate social responsibility and are serious about it. For some countries, they require corporations – big or small – to do an act of social awareness. For private hospitals, their corporate social responsibility could be their pro-bono services because not all people can pay for their services and not all people have Medicare or Medicaid. I know of doctors who go to the rural areas to do free clinic and free surgeries because individually, they also feel responsible to cure their fellowmen who do not have the capability to go to a decent hospital for cure. Government support does not seem to be sufficient in these times. The American Hospitals Association have released statistics on uncompensation as well as undercompensation of the hospitals in the US with the Medicare and Medicaid benefits of the patients. Statistics would show that even when the patients are covered with these health benefits from the government, there is some sort of delay in payment by the government to these hospitals or worse, no payment or reimbursements at all resulting to undercompensation and uncompensation of the hospitals. The data is shown in Chart 3 and Chart 4. Chart 3 would show an increasing underpayment in hospitals for both Medicare and Medicaid. This also shows that Medicare has higher underpayment than Medicaid. It is a known fact that Medicare and Medicaid are health benefits from the government for the indigents and elderly citizens. Public hospitals are mandated by government to care for those but private hospitals could not completely escape from these because of certain tax exemptions thus, they are also included in these hospitals who are not underpaid by the government for Medicare and Medicaid. Hospitals are also suffering from increasing uncompensation as reported by the American Hospitals Association (2009c). Chart 4 shows the uncompensation of hospitals in the US from 1980 to 2008. Uncompensation is referred to the unpaid services rendered whether in bad debt or charitable services. The data presented here is for all hospitals regardless of ownership type. This shows that there is an increasing inability of people to pay for their health services. If for profit hospitals have bad debts or pro-bono services, they can almost always find ways to alleviate their resources. Their services need not suffer because they have no funds to use. For profit hospitals does not equate with no funds because they are meant to generate funds in one way or another. In this way, they can assure their patients/clients that even when they have pro-bono services they can still maintain their state of the art delivery of medical services. Not for profit hospitals cannot afford to have uncompensations because they rely on the funding of the government for them to be able to provide services. For profit hospitals are mostly small organizations compared to government hospitals which are more often than not huge organizations. As a result, mortality rate in the large hospitals is higher than in small ones (Eggleston, et al., 2010). So according to this point, in large hospitals, especially government hospitals, they have the tendency to be out of control in some aspects like the absence of monitoring on the work. For example, in Saudi Arabia, the government hospitals have a weak monitoring system unlike with the private hospitals which have good monitoring systems and are under control because they are able to invest in monitoring systems and training of their staff for these. In fact, the small hospitals could produce good levels of services than huge ones which is specifically government sector. For profit hospitals have market power. These hospitals can use the market power share to increase and expand their business. Within the market power, private hospital can manage their policies with the level of prices that the market provides. On the other hand, public hospitals could not change the level of prices for their services (Zaleski, Alfredo, 2007). Since the public hospitals could not increase their market power share this which would definitely affect their budgets. The effect will occur by the nominal increase in the government expenditure. This is because there is no real increase but there is a certain amount that government should pay to cover the increase in material prices and keep prices for basic fundamental services unchanged. That’s why public hospitals offer low prices and private hospitals give prices depending on the time and situation. This can also be termed socialized fees because those who cannot pay can be given charity but those who can afford to pay and those who choose to be in de luxe rooms should be charged more not only for the rooms that they stay in but even for the services that they avail. According to Schumacher (2009), public sector workers are earning lower wage compared to what other workers earn with the private sector. It is approximated in the study that public sector workers earn 2% lesser than what their counterparts in the private sector earn.. This percentage differs from one country to another. The 2% was in the study that has made in the US and some people might ask if it is significant or not. Obviously, this increasing is relatively important for some employees in general whether if in or out of the US. If people in the private sector, and with this private hospitals included, are paid better then they are more satisfied as workers. If they are satisfied as workers then they can better service their patients. They can work efficiently and effectively. Patients can thus feel happy when they are treated well by nurses in the private sector. In Saudi Arabia, most of the hospitals that get financed by the government show low levels of service to patients. In fact, lower quality of workers (i.e. doctors and nurses) usually go to the public sector either because they can tolerate low pay or they have nowhere else to go because their skills could not pass the requirements of the private hospitals. However, it could not be discounted that there are those who are really there on a mission to serve their fellowmen. Although that is the case, most of what I have observed is that either the rookies or those who have not practiced for a long time or those whose skills are not excellent are the ones serving in the public sector, unfortunate but true. As such many of the patients would rather go to private hospitals because they want to be assured that they will get satisfactory service and that they will be diagnsosed properly and also because of their own satisfaction in terms of facilities and skilled health workers. According to the World Bank, the US government spent 15.4% of its GDP on the healthcare system while Saudi Arabia spent just 3.4% of its GDP. This reflects that the US government focuses on the healthcare system and how to improve it by time. Yet, even when the US spends this much on their healthcare system, there are still uncompensated and undercompensated hospitals which shows that their expenditures on the healthcare system is not enough. This would somehow leads to the argument that the government should re-think about their expenditures on not for profit hospitals. Its either they need to increase their expenditures on these or enable these hospitals to go for profit so that they can be empowered to stand on their feet and finance their own. The expenditures can thus be re-directed instead to preventions, health information, research and development and the like instead of spending so much on Medicare and Medicaid and yet not being able to reimburse. Public hospitals differ with private hospitals in terms ofaccumulating income and spending it for operations. This is completely the opposite of what Plante (2009) said in his article For Profit Hospitals Spend Money Quicker than they collect it, which puts them in a potential negative cash flow position. I disagree with him because private hospitals have trained employees and they know what to do and how to deal with money and challenges that they might encounter in the future. Obviously, private hospitals are making money and accumulating the income and use it for operations, then use it to gain profit again and again to provide more appropriate services while there is a competition market. That is what is it about, making money and providing a good quality of service for patient. On the other hand, public hospitals are still making money and accumulating it even if they are not for profit. The only difference is that the amount of money they are making is just enough to cover their operation processes. In the rural areas, there are only a few if not no complete hospitals at all. The best point about government hospitals is that these can be found all over the country This expansion path costs the government big expenditures which can be inefficient. Even when the hospitals are there, there may not be enough resources to treat advanced illnesses or rare diseases. However, it is not acceptable that the government should abandon this quest because the people still need medical treatment and it is the responsibility of the government to provide such. All the above situations lead to the argument on whether hospitals should be privatized or not. This paper would maintain that hospitals are better off privatized and that the government would be able to reduce its expenditures on hospitals and re-direct these to other healthcare services or to other sectors badly in need of funding. Taylor’s study in 2002 compared the Canadian with US healthcare system. About 95% of the hospitals in Canada are for profit but in the US only 10% are for profit. Assuming that there is an increasing rate of hospitals converting from not for profit to for profit, this give great motivations for private institutions to get into the hospital market. However, the history of Canadian hospitals may be different from that of the US hospitals which were charity based to start with. In Canada, they may have started off already as private hospitals that is why they have this great number of private hospitals in their country. The role of government then is to facilitate the conversion from public to private hospitals in order for them to reduce their expenditures in the future. But according to this Chart 5, the US government has been increasing its expenditures over the years regardless of the fact that there is an increase in the number of private hospitals. This simple calculation can further drive the point that this paper is supporting: If there are 50 hospitals and all of them financed by the government and each one costs about 1,000,000 per year. 50*1,000,000 = $50,000,000 Therefore, if the government allowed private institutions to invest in this market, that would save the government $50 million every year. This $50M could help the residents with other things like insurance cards or something else. Government could subsidize lands where the private sector to build hospitals on and that would be greatly useful for residents to receive health care and be treated of their illnesses with low prices. The given land will let private to reduce their prices on medical services like surgeries, check-ups, and the like. This is like an exchange deal between the government and the hospitals. The government needs to provide health care services but has limited facilities and finances but they have the land for this. So, they can ask the private investors to go and have a look into a partnership where the government provides the land either with a minimum lease or no lease at all. This is provided that the hospital takes into account that they could not increase their fees to account for land or building lease because they already have this at a minimum cost or better yet, for free. As such the government is still able to address the need for medical and health needs just that they are not alone in the provision of these services. Other options for the government could be help by subsidizing with a part of the insurance cost that its residents pay for. If in the first place, the government has Medicare and Medicaid, this could be expanded to cover all citizens so that they are able to go to these types of hospitals. However, this is not to say that the government should abandon all efforts to supporting government or not for profit hospitals but that the government should make wise decisions to these issues. Should they continue to put up new not for profit hospitals that could not be run efficiently? Or should they look the other way and come up with other ways to support the healthcare needs of their citizens? Another option of the government is to adopt a fully subsidized medical treatment system where those with very high income should be charged with higher medical bills for services and room facilities. Such that they can cover the expenses of those who are charged with less or with no fees at all. Of course, it should be ingrained in them that this is all for the betterment of the whole country and it is in a way of helping other people. Another way where the government can reduce its expenditures on hospitals is to encourage the whole country to have a lifestyle change. This is very ideal but if people are not hooked on drugs, have healthy lifestyle, careful in the roads, avoid drinking and the like, there would be lesser need of hospitals for cure. This is already prevention in the most ideal sense. If there is a lifestyle change and people are not abusive of themselves then they have lesser need for the government to spend so much on medical needs. In short, we would say that government does have the responsibility to establish a great health care for its citizens. However, the great healthcare system would be better if the government give private hospitals the possibility to expand and spread all over the country to get services provided. Therefore, we are going to see these benefits that we have mentioned before such a high level of quality within a small hospitals that can be monitored, advanced technologies, the power market share and the main point of this research which is reducing the government expenditures by letting private take this responsibility and government would use than money in another aspect that could help its citizens to raise the quality of healthcare service. References: American Hospitals Association (2010a). Fast facts on US hospitals. Retrieved 3 December 2010 from http://www.aha.org/aha/resource-center/Statistics-and-Studies/fast-facts.html American Hospitals Association (2010b). Underpayment by Medicare and Medicaid Fact Sheet. Retrieved 3 December 2010 from http://www.aha.org American Hospitals Association (2010c). Uncompensated Hospital Care Cost Fact Sheet. Retrieved 3 December 2010 from http://www.aha.org Bruning, E., & Register, C. (1989). 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The Response to Market Power: Non-Profit Hospitals versus For-Profit Hospitals. Atlantic Economic Journal, 35(3), 315-325. doi:10.1007/s11293-007-9072-z. Read More