As governments seek to improve affordable access to health care, many turn to private providers to expand the range of services, stimulate choice and competition, and harness the disciplines of private ownership and management. However, integrating private providers into publicly funded health-care networks carries risks, including less public control over quality, costs and equity. A new publication from the WHO Barcelona Office for Health Systems Financing provides governments with a guide on how to effectively navigate these challenges.
Drawing on research, data from national authorities and country experiences, the report “Purchasing health care from the private sector: a primer for middle-income countries in the WHO European Region” explores how governments can strategically purchase services from the private sector while maintaining service quality, equitable access and financial protection.
“This new research highlights that engaging private providers in publicly financed health care requires a careful balance between leveraging private sector capacity and maintaining strong public oversight,” said Dr Tamás Evetovits, Head of the WHO Barcelona Office for Health Systems Financing. “Clear and strong regulations, strategic purchasing and public accountability all work to ensure that profit maximization does not overshadow quality of health care and overall health outcomes.”
Maximizing health benefits while managing risks
Many countries engage private providers to promote investment, innovation and efficiency in the delivery of health services. However, evidence suggests that the profit motive can also lead private providers to prioritize commercial interests over health goals, especially in the absence of robust regulations and purchasing mechanisms.
The risks of engaging private providers in publicly financed health care include:
- Compromised quality of health care – If not carefully regulated, private providers may prioritize cost-cutting, leading to lower service standards.
- Unequal access – Private providers tend to focus on the most profitable patients, services and geographical areas, potentially compromising access to essential services, especially for poorer or sicker patients or those resident in poorer, often more rural, areas.
- Financial inefficiencies – Without a strategic approach, governments may purchase too many privately delivered services or at too high a price, diverting public funds from essential health system priorities.
- Service fragmentation – Without careful oversight, the proliferation of uncoordinated private providers can weaken efforts to build an efficient, integrated, people-centred health system.
“Private sector engagement in health care can expand access and bring benefits but only if the combination of regulations and purchasing policies effectively safeguard equity of access, financial protection and quality of care," said Dr Mark Hellowell, Associate Professor at the University of Edinburgh and author of the report. “Once private providers become part of the publicly financed health-care network, they may also exert political influence, creating risks of state capture, bias or corruption – especially in countries where governance structures lack transparency and safeguards against conflicts of interest.”
The growing influence of private equity in health care
One emerging challenge in private sector engagement is the increasing role of novel forms of ownership, especially private equity ownership, in health care.
“Private equity ownership of health-care providers magnifies the risks of private sector engagement and also adds some additional risks,” Dr Hellowell explains. “Private equity funds are strongly motivated to generate very high profits over a short period of time and are skilled in exploiting gaps in regulations and purchasing arrangements for this purpose.”
Key concerns related to private equity ownership include:
- Aggressive cost-cutting – Private equity backed providers may reduce staffing, limit services or cut corners on quality to maximize returns.
- Market concentration – Large private equity firms may acquire multiple providers, reducing competition and limiting government bargaining power.
- Short-term investment cycles – Private equity firms typically aim for high returns within a few years, and this, in addition to high levels of debt, can undermine long-term health system planning and stability.
- Lack of transparency – Many private equity transactions involve complex financial structures, making it difficult for regulators to track ownership and ensure accountability.
Key actions for governments
In order to ensure that the inclusion of private providers in publicly funded health-care networks strengthens, rather than weakens, health systems, WHO/Europe recommends the following key actions for governments:
- defining clear purchasing rules
- ensuring private providers comply with national health information systems
- adopting strategic purchasing by shifting from passive contracting to targeted procurement
- ensuring public accountability
- establishing robust and unified monitoring mechanisms.
The report also advises policy-makers to take a prudent approach to managing ownership of private providers in the state-financed network, for example:
- adjusting contractual eligibility criteria to prohibit private equity owned providers from entering the network; and
- modifying contractual specifications to ensure that private providers, particularly those performing systemically important functions or holding spatial monopolies, are not sold to such investors.
Country experiences offer valuable lessons
Several countries have successfully leveraged private sector capacity while maintaining government oversight, offering valuable insights for policy-makers.
- In Estonia, selective purchasing ensures that private providers complement rather than compete with public providers and are focused on filling gaps in specialized care while keeping costs under control.
- Croatia’s earlier 2-contract model in primary care encouraged small private practices to form larger networks, helping to improve coordination and service continuity. Although Croatia no longer uses this model, it could serve as an example for other countries to follow.
- Bulgaria has introduced new contracting and quality control measures to improve oversight of private hospitals, ensuring they provide efficient and high-quality services within the publicly funded system.
A step-by-step approach to reform
For countries still developing their purchasing policies, the report recommends a gradual, evidence-based approach to engaging the private sector. Governments are encouraged to start with targeted contracts for specific services for which there is unmet need, building regulatory capacity and continuously refining policies based on experience and outcomes.
Ultimately, a well-governed approach to private sector engagement can complement public services, but only when governments remain in the driver’s seat, ensuring that financial resources serve public objectives rather than private profit.
About this report
The report was prepared as part of the WHO technical support to countries engaging private sector provision in their publicly funded health system. It was co-funded by the Universal Health Coverage Partnership and the Government of the Autonomous Community of Catalonia, Spain. Explore more data and analysis on “UHC watch” – a digital platform tracking progress on affordable access to health care in Europe and central Asia.