Ideas@TheCentre

Privatising public health services - sleeping giant of IR debate

Last year, The Centre for Independent Studies published a paper by David Gadiel and I which argued the case for privatising public hospital services to improve the financial performance of the NSW health system.

We argued that it was crucial for private operators of public hospitals to have control over the terms on which the clinical workforce was employed, because the industrial relations rigidities inherent in the existing public service monopoly model compromises efficiency.

Statewide nursing awards, combined with the freedom doctors have to determine their work practices under their contracts with NSW Health, are inimical to the cost-effective operation of public hospital facilities.

Microeconomic reform is essential in the public health sector to get more and better services for each health dollar spent. Health expenditure already accounts for a third of the NSW state budget, and if spending continues to grow at current rates, health is on track to consume the entire state budget by 2033.

The importance of boosting health labour productivity is reinforced by the findings of the NSW Intergenerational Report 2011-12.

The Intergenerational Report found that the cost of public health services will be the major driver of increased NSW government spending over next 40 years, and the major contributor to the creation of a ‘fiscal gap’ (the difference between revenue and expenditure) of 2.8% of Gross State Product (GSP) by 2050-51. If policy action is not taken to close the gap, state debt will by then have grown to an ‘unsustainable’ 119% of GSP.

However, the Intergenerational Report also found that if productivity in the NSW public sector could be increased by 0.5% a year, above the level achieved in the overall economy, this would entirely close the gap.

Approximately 30% of NSW public servants are employed by NSW Health. Achieving higher productivity in the public health sector, via privatisations that introduce more efficient private sector practices into public hospitals, could contribute significantly to improving the long-term solvency of the NSW government.

Outsourcing of public hospital services is increasingly common overseas. But locally, health remains the last great bastion quarantined from the microeconomic reform process begun in the 1980s.

Some argue that achieving reform in health is tough for politicians because of ‘public concerns about "greedy private companies" moving in on "our public hospitals".’

Noisy scare campaigns occur when privatisations are proposed. However, these campaigns are invariably mounted and sustained primarily by nursing and other public sector unions with a vested interest in maintaining the status quo and protecting their generous wages and conditions.

The implications are obvious for the contentious industrial relations debate, which at present is mainly focused on the need to boost productivity in the private sector. Improving workplace flexibility in key industries, especially in the mining sector, is of course critical to national prosperity.

But as the situation in NSW demonstrates, we cannot afford to overlook the importance of public sector workplace reform in key areas of government expenditure such as health. Genuine health reform that includes the privatising of public health service is therefore the sleeping giant of the IR debate.

Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.