Reason Foundation

Reason Foundation

Privatizing Public Hospitals

Strategic Options in an Era of Industry-Wide Consolidation

Richard Tradewell
April 1, 1998

Executive Summary

A veritable revolution is occurring in the way that health care is provided to the indigent and uninsured. Because of industry-wide consolidation pressures, it is unlikely that 10 years from now governments will find it strategically desirable to directly operate their own public hospitals and clinics⎯ more cost-effective choices are becoming available.

Besides dwindling public resources, the main force driving this change is vigorous competition for treating the poor from private for-profit and nonprofit hospitals. In most communities, even those on public assistance now have a choice of providers. The advent of HMOs is leading to a fundamental restructuring of the whole health care system. One offshoot of this is a declining need for hospital beds.

In response to these developments, more and more governments are exploring privatization options for public hospitals and clinics. Depending on the nature of a jurisdiction’s present system and the external market in the area, there are several options for governments exploring privatization of hospitals and health clinics.

Privatization can raise cash, reduce debt, and create a better system for serving indigents. But transitioning from operating the public hospital to a privatized system means crossing a mine field of regulations, selecting the best structural arrangement to meet local goals, negotiating the best deal possible, and handling union and public opposition.

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