PB May-June 2023 May-June 2023 21
Research
shows that
dual practices
may incentivise
consultants
to curtail their
supply of public
care to stimulate
the demand for
private care
I
f you mix the profit-seeking private sector into the
public-interest-serving public sector you distort
risk, and create false incentives, and therefore
breed dysfunction.
Most obviously if the private-sector component
collapses, the risk cascades out of the private sector and
into the public which picks up the tab; and private-
sector investors are usually insulated from downsides
by the rules of limited liability companies and the veil of
incorporation.
It’s an iron law of the dierence between the sectors
that the private sector always serves itself, but more
dangerously it can, systemically and predictably,
incentivise its agents so they relentlessly outmanoeuvre
the typically underincentivised agents of the public
sector, subverting any claimed benefits for the mix. It
can pick agents to exploit lacunae. This has been found
in analysis after analysis even though you usually can’t
even see the terms of the collaboration, for reasons of
“commercial confidentiality”. A report by the UK’s
National Audit Oce in 2011 established that the use of
the best known type of collaboration, Public Private
Partnerhip (PPPs), which the UK called PFIs, “has the
eect of increasing the cost of finance for public
investments relative to what would be available to the
Public-
private
mix never
serves
public
By Michael Smith
government if it borrowed on its own account” and that
“the price of finance is significantly higher with a PFI”.
The PPP model has been largely discredited in Britain
and Ireland. But other equally unsustainable mixes of
public and private remain.
Healthcare and Housing in Irelandnd
The Irish Times’s Fintan O’Toole applied himself in
January to dysfunction in our herniated healthcare
system: he suggested three reasons for it — religious
influence, party-political patronage and “opacity”.
Disappointingly, he didn’t address ideology as a
driver of the dysfunction. And not just ideology but
ideological confusion. The same confidence from the
same source came in that paper’s article by Political
Editor, Pat Leahy, in February, but applied to the
housing-policy mess:
“I don’t think this is because – as some of their
opponents insist – the Coalition parties are wedded to
any particular ideology. The idea that Fianna Fáil and
Fine Gael don’t want to build social housing because
they are allergic to the State’s involvement in the sector
is fervently believed by many of their opponents but is
contradicted by the Coalition’s willingness to massively
Private intervention in public services like health and housing
diverts opportunities from public interest to profit. If services
are essential to wellbeing supply them in the best way: publicly!
POLITICS
22 May-June 2023 May-June 2023 23
In Vienna, even
higher income
earners are
entitled to
public housing
expand the State’s influence in all sorts of areas
and by its own desire to build public housing.
Look at it another way: do you think if the
Government believed it could solve the housing
crisis by spending a few billion euros on public
housing a few years ago, it would have
demurred because it thought the plan was a bit
socialist? The Government is desperately trying
to build public housing; it has just not been
very good at it”.
This article makes the case that in Ireland
healthcare and housing are basket cases
because confused ideology compromises public
policy and the welfare of citizens.
I’ll deal with them in sequence.
Healthcare
An insight into how the dysfunctional hybrid
works in health in practice came with the story in
this magazine in 2020 the blowing of the whistle
by health entrepreneur Chay Bowes (now
extraordinarily working for Russia Today) on
insiderism in the Health Services, leading to
exposure of Leo Varadkar’s leaking of a
confidential contract to a friend who was head of
the doctors’ representative organisation the
NAGP, into which Bowes had conducted an
investigation. From his professional assignment
lifting the lid on the NAGP Bowes says his worst
suspicions about the distortive dysfunctionality
of self-serving private medicine in Ireland were
confirmed.
Feeling confident about his idea for a not-for-
profit step-down hospital, Bowes had
approached the former head of the HSE, Tony
O’Brien, someone who might be expected to be
imbued with the public perspective, for advice.
O’Brien was markedly equivocal.
‘Vested interests would not like it as it
would show patients can leave hospital
safely’
Bowes claimed: “O’Brien advised us to get it
changed into a for-profit. In the interest of full
disclosure he told me he was advising somebody
who was looking to build a hospital but he didn’t
say who”. In other words vested interests
conspired against the public interest in the best
public healthcare. “I wanted to make a real
change in the health system but now I think we
can best get real change by exposing the
incestuousness”, Bowes had said forebodingly.
Publicly contracted consultants can treate
private patients
In the UK, the National Health Service (NHS) has
allowed publicly contracted consultants to treat
private patients since 1948 but their earnings
from it are limited to 10% of their NHS salary.
In Ireland, this has also been possible with no
percentage restriction since The 1997
Consultants’ Contract. That is now changing, but
only in part.
In public hospitals in Ireland patients can
choose to be treated either as public or private
patients.
Though it is rarely framed that way, the central
truth is that the private sector and its private
patients get to use subsidised public facilities.
Private patients have to bear some, but only
some, of the costs — accommodation and
consultancy fees. They sometimes do this
themselves but more often they have
tax-incentivised private insurance to cover those
costs. 46% of the total population have such
insurance so it has become normalised.
Because VHI, though not other insurers, is
State-owned, it is often forgotten that insurance
militates against public healthcare.
Phasing out private practice in public
hospitals
One of the recommendations included in the
2019 Sláintecare Report, which aimed to create a
consensual policy for healthcare in the State, was
to phase-out private practice in public hospitals
within five years. Key Recommendation 10
proposed to: “Disentangle public and private
health care financing in acute hospitals and
remove ability of private insurance to fund private
care in public hospitals”.
Consultants spending much less time in
the public sector than contractually
required
Perhaps a key reason for the sweeping
recommendation is implicit in a 2018 OECD report
which notes that “reports suggest compliance
with [consultants’ public] contracts is lacking
oversight with consultants spending much less
time in the public sector than contractually
required (RTÉ, 2017)”. Consultants do what
makes them the most money, to the detriment of
the public.
New contract bans public consultants
from private care in public hospitals but
allows it in private hospitals
Nevertheless, in January 2023 the government
agreed a new Sláintecare contract with
consultants which “will allow a transition away
from the provision of private care in public
hospitals and ensure state resources are
provided in accordance with need rather than
ability to pay”. The Report recommended that
private insurance coverage would continue to
exist but only for private hospitals.
As part of the complex extraction, the new
Sláintecare contract provides extraordinarily
generous basic pay of €209,915 - €252,150 for a
37-hour week. The small print allows this most
powerful group additional remuneration for
overtime and being on-call.
Latest Irish reform continues to allow
‘public’ consultants to engage in o-site
private practice
22 May-June 2023 May-June 2023 23
However, the sting for the public-minded is that
“consultants will be free, having met their
commitment to their public contract, to engage
in o-site private practice, in the same way as
allowed in the NHS”.
This sweetheart deal does nothing to advance
the ultimate goal of the Sláintecare strategy to
provide universal free healthcare at the point of
access, but substitutes the provision of private
services in public hospitals with provision of
private services in private settings.
Dicult to predict immediate eects of
banning some private practice
According to a report on Ireland by the OECD: the
success of a ban on private practice in public
hospitals “will depend on how this reform plays
out: if public hospitals are able to use the
‘freed-up’ capacity to reduce waiting times for
public patients then the demand for private
voluntary health insurance would decline.
However, these policies will remain in demand if
private activity shifts from the public to the
private facilities, such that private capacity can
absorb these new cases”.
The OECD report shows that the fine print of the
implementation measures would determine if a
clearer extraction of private healthcare from
public healthcare would lead to an overall
increase in capacity or merely redistribute the
existing cumulative total of patient capacity.
Whether private practice systematically
reduces waiting lists generally is debatable.
Iversen (1997) and Olivella (2002) show that
waiting lists can be adjusted to reduce health
care costs by inducing an optimal allocation of
patients betweenprivate hospitalsandpublic
hospitals which are typically capacity
constrained.
Crucially, dual practices may incentivise
consultants to curtail public care to
stimulate demand for private care…
However, crucially, Brekke and Sørgard (2007)
and Morris et al. (2008) show that dual practices
may incentivise consultants to curtail their supply
of public care to stimulate the demand for private
care.
…and to cream-skim by moving high-
paying patients to private care
Along the same lines, González (2005) and
Barros and Olivella (2005) show that it can lead
to some form of cream-skimming as specific
public patients are persuaded to opt for private
care.
Complexity requires clarity of purpose
In other words extracting the state from private
practice has complicated upshots. Certainly,
embedded longstanding practices create false
incentives and false economies.
The nub of this article is that such complexities
in extracting public from private account for a
wimpish and incremental report-commissioning
approach to reform when what is clearly needed
is brave and dramatic action. It also explains why
structural reform has been so slow to come and
is widely regarded as intractable.
More than just being clearer, public is
better
!
If the services are essential to wellbeing supply
them in the best way: publicly!
And do so even if it requires dramatic action
that inspires articulate vested resistance and
demonisation. The Irish media for example seem
characteristically to publish two opinions from
vested interests for every measured public-
interest-motivated perspective. Without new
firmness of purpose we will be lost.
In a better world, in a sensible world, in a world
where the private intervention had not festered,
free healthcare for all would be best provided by
the state. As a poor second best perhaps it would
be provided, directly and only, by the private
sector – ideally scrupulously regulated by the
Why Ireland and the UK favoured PPPs and PFI
In the 1980s and 1990s Ireland followed world trends led by Thatcher’s Britain and Reagan’s
America in letting the market rip. It was a farewell to public housing programmes and a
welcome mat to privatised state companies such as Aer Lingus and Eircom. In health policy
Ireland, under the FF/PD government (1997-2002), pioneered the building of private healthcare
facilities “co-located” on the grounds of public healthcare facilities.
Public Private Partnerships (PPPs) were made doubly attractive to governments because
they are the only o-balance sheet mechanism open to the Government for providing public
infrastructure that can comply with EU fiscal rules. The EU disgracefully contrived to make
PPPs an undesirably attractive option to governments since they allow delivery of additional
infrastructure and services that might otherwise be impossible.
The £7bn compulsory liquidation of Carillion focused attention on the widespread use of
PPPs in the UK - since it was was engaged in 450 of them. It led to the end of the ‘Private
Finance Initiative’ PPP programme in the UK. The use of PPPs in the UK far exceeded that of
Ireland. But they are still favoured in the Department of Transport: Coillte has just entered
a controversial one whereby it will manage forestry on behalf of a fund being set up Gresham
House: and it has recently been agreed that the first PPP for the delivery of social housing
will provide 534 social units.
Complexities in extracting
public from private
account for a wimpish
and incremental report-
commissioning approach
to reform when what is
clearly needed is brave and
dramatic action
Fmilir fces behind  genertion of the dysfunction
24 May-June 2023 May-June 2023 PB
Don’t rely on erratic private sector for essential services
We’re not dealing with sweet or jewellery shops: provision of healthcare and housing are
essential for any standard of welfare, any reasonable participation in the good. The interests
of those who use healthcare and housing (everybody, including the most vulnerable) are
far more important than the interests of those hoping to make a buck out of them.
They are human rights yet Ireland is not providing them.
Let’s keep it simple: the only way of guaranteeing these rights is to provide them through
the public system.
PPPs illustrated that public-private hybrids worked only to the advantage of the profit-
seeking private sector. The
lesson applies to all forms of
public-private hybrids.
Ireland’s health and housing
need to learn that lesson.
Let’s get on with the public
provision of essential public
services where the experience
of a public/private mix has
been dysfunctional. In the
public interest.
The £7bn compulsory
liquidation of Carillion
led to the end of PPPs in
the UK but they are still
quietly kicking in Ireland,
in Transportation and even
social housing
state in the public interest.
It’s the amalgam that’s the nightmare.
Second best is typical worldwide
According to a somewhat time-serving article, by
Guo and Parlane, in publicpolicy.ie:
“Most countries lack the resources and capital
needed to deliver a truly universal healthcare.
Thus, governments typically settle for ‘second
bests’ intending to supply a high quality of care
at the lowest possible cost. Within this context,
dual practice has often been justified as a mean
for public hospitals to attract and retain qualified
consultants”.
But dual practice is, as has been shown, not
second best but…worst.
Housing
There will always be ideologues desperate to
convince their public that there is no such thing
as ideology and that all views are equal, and that
we just need to be nice. On 5 April, the Irish Times
political podcast recorded Marian Finnegan,
Managing Director of Sherry FitzGerald estate
agents, stating as if it were some religious or
ethical injunction: “We need to stop demonising
institutional investors, stop calling them vulture
funds”. But they behave like demons and
vultures; and it’s impossible to be nice about it.
Non-market-led market
The supply of housing in Ireland is so ineptly
inadequate that it will be at least fifteen years
before the housing ‘market’ is normalised.
Ireland may need up to 62,000 houses annually
until the end of the decade but will only get
33,000, despite an appetite across the political
spectrum so strong that there will be an
ineectual referendum guaranteeing it as a right,
though meaninglessly. This screams
dysfunctionality.
Solutions ignored
In Ireland the Kenny Report in 1973 suggested
ways to reduce speculative profits for land
owners and worthy reports have been coming in
for decades advocating site-value taxes which
also reduce distortive profits. But no serious
action has ever been taken.
In Vienna, often rated as the city in the world
with the highest quality of life, most housing is
public housing or publicly subsidised. The Vienna
Model promotes a general needs approach to
housing provision and delivering secure, long
term and innovative public rental housing in well-
designed neighbourhoods. In Vienna, even
higher income earners are entitled to public
housing and up to two thirds of Vienna’s 1.9
million population live in public housing in each
one of the 23 city districts, though their income
spreads vary.
What happened in Ireland is that, in
unquestioning pursuit of trends established by
Thatcher in Britain and Reagan in the US, from the
1980s, Ireland abandoned its successful public
housing programme and local authorities sold o
much of the existing public housing stock.
Even now many of the major public housing
projects, such as O’Devaney Gardens and Oscar
Traynor Road, are carried out by the private
sector, on public lands, and including
components of private housing.
Subsidies
The current cost of building apartments allegedly
outstrips what developers can sell them for on
the market – the “viability gap”. Even hawkish
tax-indulged Real Estate Investment Trusts
(REITs) are now whining that they cannot make
apartments “stack up” financially. The
government’s inept Croí Cónaithe (Cities) scheme
subsidises the dierence.
A Housing Summit in Dublin in January hosted
by Leo Varadkar and Darragh O’Brien heard that
developers want the Government to give the
subsidies up front – retrospectively not being
enough for them. Why should developers who do
nothing for free get such subsidies?
Bailout
Moreover, the Government is now considering the
possibility of “advance purchasing” large
numbers of private-sector apartment blocks that
already have planning permission but haven’t yet
been built primarily because, though developers
lobbied for them, SHD-facilitated high-rise, high-
density apartments – predominantly for
exclusively build-to-rent (BTR) - have stopped
being cost-ecient to build as interest rates have
shot up.
Again, either — ideally — the public sector
should provide housing to defuse the greedy
distortion of the provision of housing as a human
right or the private sector should provide it with
tight regulation keeping prices down and
distributing it fairly.
Hybrid is lethal
It is the hybrid of public and private that has
collapsed the system leading to excessive prices
and inadequate supply, something that classical
economics says is not possible.
Make public provision ecient!
Ideology goes deep and we regularly read
propaganda that the public sector is doomed to
ineciency in the provision of housing, such as
recent reports that it may incur costs as much as
40% greater than the like-for-like private sector
costs in providing new housing.
If it’s inecient, make it more ecient. It
functioned well for fifty years after independence.
Revive it with lessons learnt. It will be better than
the current pervasive dysfunctionality which
leads to a situation where it is widely accepted
that one of the richest countries on earth cannot
house its population.
The only place for private housing should
be where it can be delivered, hermetically
sealed so it does not distort the provision
according to need of public housing. Look to
Vienna as a start.
Essentil public housing...should be built publicly s ws
successfully the cse for most of the history of the Stte

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