The Federal Health Minister, Nicola Roxon, says she’s agnostic and it doesn’t matter whether hospital services are provided by the public or private sectors. The Minister has also floated the idea of using hospital vouchers to give public patients a choice of providers.

This might be pre-COAG argy bargy designed to frighten recalcitrant States like NSW into line. But perhaps the next Australian Health Care Agreement will do more than plough billions more dollars into the public hospital sector which has had a 64% boost in real funding over the last decade.

To its credit, the Rudd Government is determined to introduce a rigorous national hospital performance reporting regime and wants funding increases tied to performance targets. The Minister has also offered to include private hospitals in the performance measuring system to help the private sector improve efficiency. Yet back in the real world, any private hospital operator who needed a government stats agency to tell them what’s going on in their business would have already gone broke.

The Minister’s wary attitude to private hospitals has even led her to suggest that “public hospitals are better and much more efficient in a range of areas”. That private hospitals must be less efficient because they are driven by the profit motive is a popular idea in the public sector. This is strange idea for a health minister to endorse and yet still support contracting out public care to private providers.

You can’t be agnostic when the whole point of contracting out public services is to gain the cost and productivity benefits of the more efficient private sector. Governments which doubt private contracts will deliver a better return to taxpayers may well have a self-fulfilling prophecy on their hands.

This week the South Australian government announced an agreement with a private medical company to fly-in surgical teams to perform 210 operations over the next four months at Queen Elizabeth public hospital. This will be funded using the money the Federal Government has provided to the States to blitz elective waiting lists. According to the story in The Australian, this will cost about $1 million, which is more than the public sector average.

Other State Governments appear to have used the money to buy care in private hospitals. The hospital cost weight data published by the Australian Institute of Health and Welfare is consistently and considerably higher for public than for private hospitals. An illuminating and therefore little referred to evidence-base demonstrates exactly why governments should have faith in the private sector and abandon the ideological prejudice that ‘public is best’.

The Department of Veterans Affairs purchases hospital services for the veterans community from both public and private hospitals by contract and tender. While the private sector is paid at close to market rates, the public sector is renumerated on a cost-recovery basis.

An analysis performed by the DVA comparing the cost differential for equivalent services and treatment was referred to during evidence before the House of Representatives Committee of Inquiry into Health Funding in 2006. It showed that the DVA paid “significantly lower prices in the private sector than in the public sector.” Given all this evidence, it is hard to remain a private health care agnostic.