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Privatise hospitals

By David Leyonhjelm - posted Monday, 8 February 2016

Imagine if a libertarian like me had his way with health policy and nobody died. It would be a disaster. Not for the public, but for the thousands of public servants and lobbyists who would be out of a job.

The Commonwealth Government employs more than 5,000 public servants in the Health portfolio, yet it runs no hospitals and employs no doctors or nurses who care for the sick. Under a Liberal Democrats government, the Commonwealth Government would employ a few hundred health officials to coordinate health service standards, health statistics, immunisation, and biosecurity. That's it.

For the dozens of interest groups that hang around health issues, this would be catastrophic. Almost all of them oppose change of any sort, not because the status quo is the best approach, but because they are experts at negotiating the existing bureaucratic maze. Defending this maze keeps them in their well-paid jobs.


Any whiff of change would prompt a huge scare campaign from the Pharmacy Guild, which represents the owners of pharmacies, the Australian Medical Association, which represents a minority of doctors, and the Health Services Union, which represents a minority of other health professionals.

But it is easy to conceive how change would make individual pharmacists, doctors and nurses better off. Currently, governments regulate numerous healthcare decisions, commonly via the Medicare Benefits Schedule, so that notionally private-sector operators make the 'right' decision. It controls what services GPs provide, what they can charge patients, and how often they refer patients to specialists.

When a patient needs a prescription, governments regulate how far they must walk to the nearest pharmacy. By owning public hospitals, governments regulate the procedures that hospitals may provide and how long the wait will be. Governments subsidise insurance for certain health services but not others. And they limit the private health insurance market by preventing insurers from covering gaps between actual and scheduled fees and offering lower premiums to low-risk people like non‑smokers.

If we did away with this hands-‘on intervention and redirected just half of current government spending on health into a medical expenses subsidy for individual Australians, the average subsidy would exceed $2,000. If we then allocated this subsidy according to need, taxpayer‑funded support for the poor and chronically ill would exceed support provided under current arrangements. This subsidy could also be used to pay private health insurance premiums for the poor and chronically ill, offering the peace of mind that comes with such cover.

Everyday Australians could be encouraged to save for their own future healthcare needs in accounts similar to superannuation accounts, except that they would be tax free and withdrawals would be allowed to cover the costs of medical emergencies and health insurance premiums.

Subsidising individual Australians directly, and helping them save for themselves, would then allow public hospitals be transferred into non-government ownership and compete for patients on the basis of quality and price.


Getting the government out of hospital ownership would improve healthcare. Private hospitals have repeatedly proven themselves to be overall safer, more effective and more efficient than public hospitals. As the regulator of health service standards, the government would no longer be regulating itself. And the restrictions and burdens of red tape - which hinder doctors and nurses helping their patients - would be slashed.

These measures would not solve all problems in healthcare. For instance, doctors would continue to know more than patients about which expensive procedures are really necessary, so the risk of over‑medicalisation would remain. But this risk exists under the current system, where patients pay nothing for expensive procedures and bureaucrats tasked with restraining money-hungry doctors have no expertise or motivation to do so. At least under a privatised system, agents for patients like private health insurers have a better chance of taking the fight to doctors.

For those who see socialised medicine as an article of faith, the arguments for privatising healthcare are probably not convincing. They typically rely on the private sector to maintain their houses, pets, computers and cars, but see the maintenance of their bodies as somehow different. And while they maintain their bodies with private sector food, and exercise at private sector gyms, relying on private sector health services is a bridge too far.

That is a shame, because healthcare is better when it is between a doctor and a patient, rather than between a doctor, patient, and bureaucrat.

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This article was first published in the Australian Financial Review.

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About the Author

David Leyonhjelm is a former Senator for the Liberal Democrats.

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