Executive Summary

Public Health Foundation
Washington, DC

September 1997

Research and Writing Supported by
The Annie E. Casey Foundation
Baltimore, Maryland

Market forces that affect the delivery of health care are significantly changing the financial base and functional role of public health departments. With the emergence of managed care, the trend toward downsizing governmental agencies, and overall declines in public health funding, health departments have increasingly turned toward developing leaner, more efficient delivery systems. As such, health departments have begun exploring "privatization" as a potential community-based approach for assuring delivery of necessary public health services.

The Annie E. Casey Foundation commissioned the Public Health Foundation to explore this issue by collecting information through a three-tiered study of local health departments. Study findings indicate that an entire range of public health services have been privatized. However, the decision to privatize often depends more on a community’s unique characteristics and the service delivery style than a specific type of service.

Based upon the study findings, the reasons local health departments have begun contracting out public health services vary but can be grouped into four general areas:

• Medicaid managed care: Implementation of state Medicaid waivers has prompted many local public health departments to move toward privatization.
• Cost savings and other fiscal concerns: While many health departments have hoped to reduce costs by outsourcing services, results indicate that cost savings are an exception, not the rule.
• Improving quality and efficiency of services: Although not a major reason for privatization, a few sites realized that outsourcing to private providers, who often had more comprehensive clinical capacity, could improve quality and efficiency.
• Reorganization of state and/or local health departments: Downsizing and governmental reorganization, often prompted by budgetary cuts, was also cited as a reason for privatization.

Individuals interviewed often cited some common barriers as the main stumbling blocks in the privatization process. These obstacles were specifically related to: personnel issues; philosophical differences between health department administrations, staffs, and private partners; and difficulty in finding able or willing partners in the private sector. Conversely, study participants acknowledged that several factors facilitated the privatization process including: an involved community; a partnering history with the private sector; and a local health official with a strong vision of the role of public health.

Study sites reported that privatization has impacted many factors related to the provision of public health services, including:

• Accountability: With very few exceptions, most health departments have maintained the service delivery components related to assurance, and accordingly, maintained ultimate accountability.
• Quality: Regardless of pre-implementa-tion fears, several survey participants reported that the quality of care has remained the same or improved.
• Access: While several sites indicated that privatization has improved access to clinical services, many also stated that access to accompanying psychosocial services and health education has decreased.
• Fiscal issues: Health departments have needed to evaluate and redirect both revenues and expenditures, regardless of the service privatized or the funding mechanisms involved.
• Focus on essential public health services: Virtually all respondents indicated that privatization initiatives have freed scarce resources to better provide essential public health services.
• Community relationships: Privatization has usually strengthened, but in a few cases weakened, relationships between health departments and their private and public partners.

The lessons learned listed below, derived from information and analysis of this study, are relevant to public health departments looking to better understand how privatization affects services provided and populations served:

• Provide strong leadership: A successful privatization effort needs to be championed by a local leader who possesses the vision and forethought to guide the process from conception through implementation.
• Monitor services and retain public health department identity: The health department must continue to fulfill its assessment, policy development, and assurance roles through monitoring and close communication with the private sector. Once services are privatized, health departments must continue to maintain a strong community presence.
• Ensure quality of care: Public health departments must ensure quality is not sacrificed for cost containment and be available as the provider of last resort.
• Prepare internally: It is critical for the health department to take into account the time, effort, and information needed to successfully privatize. Staff concerns are important and need to be addressed early in the process.
• Increase knowledge in corporate skills: To successfully navigate the privatization process, public health departments need to have staff knowledgeable in contracting and other business-related skills.
• Build collaboration: Educating and involving the community, not only in implementation, but in goal setting and planning, contributes greatly to the success of the privatization effort.
• Understand and accept divergent philosophies: Often a difficult initial hurdle, incorporating divergent philosophies into the process of privatization can foster the success of an initiative.

While the study provides useful background information on privatization activities in selected localities, more research is needed to adequately understand this trend and its impact on the public’s health and the public health system. A basic first step is to develop a universal definition of privatization to assist future, more comprehensive, and possibly service-specific studies. Specifically, the field could benefit from more detailed answers to questions related to costs, health outcomes, and long-term impacts of privatization. Answers to these questions can guide the public health system in making informed choices about the proper role of government in managing and providing the public health services necessary for the entire population.

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Comments, questions, and request for reprints or copies of the full report and/or appendices should be directed to Ron Bialek at the Public Health Foundation, 1220 L Street, NW, Suite 350, Washington, DC 20005; phone: 202-898-5600, ext. 3005; fax: 202-898-5609; e-mail: rbialek@phf.org.