November 2001

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Quality of Care & Wages Both Increase with Swedish Health Care Privatization

by Peter Holle

With nurses’ unions becoming increasingly militant across Canada, it might be worthwhile to consider how Sweden’s nurses’ union benefited from an injection of competitive choices into that country’s publicly-funded health care model.

The militancy of nurses’ unions in Canada, which is mainly a byproduct of inept government management, is understandable. Pay in the public health care system is based more on political power—and the willingness to use it—than on the value of the jobs being performed. (See "Don’t Privatize Health Care" by Nadeem Esmail elsewhere in this issue.)

Similar problems plagued nursing and health care professionals in Sweden. Dramatic organizational changes were needed to satisfy and motivate employees, especially young people who sympathized with the ethos of public health care, but found the working conditions unattractive.

In Sweden, private health care entrepreneurs generally tend to treat their employees better. Many nurses, having lost their illusions about public employment, started their own enterprises. They benefited from public-private competition. Since private companies began competing with public units, nurses’ wages have risen at three times the earlier rate. Today, very few people— most notably trade unionists— believe public-sector monopolies pay higher salaries.

Sweden’s National Union of Nurses, with 120,000 members, actively supports nurses who want to leave public employment and emulate the success of their colleagues who started new careers as contractors in the early 1990s. The union runs a special company to promote new ideas and activities in this field.

Eval Fernvall, the chairwoman of the union, has become an articulate advocate of radical change. "Let the market take over health care!" one headline has quoted her as saying. She makes the case for more patient focus, flatter organizational structures, stronger incentives for workers, and increased numbers of producers and employers.

"Today, in many fields there are uncertain mechanisms for decision-making within sometimes conflicting hierarchies… The system suffers from petty political interference. Operations need to be led by professional, nonpolitical management."

Although she’s not an economist, Fernvall understands the problem of producing health services in an inflexible public monopoly. "In societies of today the old [healthcare] model no longer works," she says. "Now there is a need for flexibility, entrepreneurship and new channels to let loose the complexity of demand and supply, held back [for] decades…."

Looked at from the aspect of nurses’ salaries, Fernvall’s arguments are based on solid ground. Between 1995 and 1999, nurses increased their salaries by 26 percent, second only to civil engineers. This gain is three times greater than what was won during the previous period, when private alternatives were still weak.

The flexibility to reward individual performance was the key. Employers now have the freedom to compensate initiative and responsibility. This development becomes possible only when increasing numbers of employers compete for nurses and other staff.

Prior to the reforms during the old monopoly, it was impossible to raise salaries through central negotiations. How you performed was of no significance. In the competitive delivery model, providers are able to offer a wider salary range for differing skill levels. Even today, Ms. Fernvall maintains, the 20 percent spread between the highest and lowest nurses’ pay is still far too narrow. It must, she argues, grow to at least 50 percent to promote individual competence.

Does higher pay for health workers threaten to bankrupt the system? Not at all. The Swedes have allowed competition for a range of services—with impressive results:

The last figure refers to the most sweeping move made so far by the Greater Council of Stockholm. In 1999, the Council sold one of the city’s largest hospitals, St. George’s, to a private company. In its first year of private management, it beat the cost performance of the most efficient public hospital in Stockholm by 15 percent, and the rest by 20 percent. Nor have the cost reductions been achieved at the price of quality, which is also improving throughout the system as private competitors force the public system to sharpen its performance.

Johan Hjertqvist, a Swedish health care consultant, told me that he estimates that, when the current round of marketization is complete, fully 40 percent of the country’s medical services will be offered in the marketplace, mostly in the more sophisticated larger cities.

Hjertqvist believes that the Swedes’ long experience with the welfare state has soured them on the monopoly model. "People no longer accept being pushed back and forth or enduring delays in treatment for administrative reasons," he says. "Service entrepreneurs have the tools to solve these severe problems. Consumers want a customer focus, no waiting lists and highly motivated care providers. This type of service is best delivered by small, independently operated enterprises, particularly employee-owned firms."

It’s clear that competition from the independent contractors has simultaneously bid up nurses’ wages across the system and raised the quality of care. This explains the attraction markets exert on Sweden’s health care unions—even though they are opposed by virtually every union in the field in most Western countries.

References

Peter Holle is president of the Frontier Centre for Public Policy in Winnipeg.

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