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Is There a Doctor in the House?

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What is the most efficient type of healthcare system? This question resonates globally, as governments seek to ensure that their citizens are provided with adequate care while simultaneously attempting to control costs. A vast literature addresses the various advantages and disadvantages of private versus public systems in meeting these two goals. Summers (1989) suggests that an optimal system would combine a public system—to ensure universal coverage—with some private alterative, so that those who were willing and able to pay for extra services would be able to use their resources to provide a better fit to their wants and needs. Appealing to the benefits of a simple economic model, and using the case of Finland as an example, our paper examines this option.


  • Private Sector
  • Public Sector
  • Private Care
  • Public Firm
  • Public System

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  1. 1.

    All relevant information provided in Finnish has been translated into English by the authors.

  2. 2.

    Note that in these utility functions, an individual is assumed to consume healthcare only when un-healthy. Thus, the consumption of any healthcare q or Q is left out of the utility function when healthy.

  3. 3.

    Here, following Besley et al. and others in the healthcare literature, quality of care is vaguely defined and is most visible in terms of waiting times.

  4. 4.

    Note that the number k is used instead of m from the Poutanen, Sieberg and Kettunen paper, because, given the private sector’s option to exclude costly patients, k can be smaller than m.

  5. 5.

    The number z is kept the same for simplicity.

  6. 6.

    Here, treatment costs involve the cost of treating patients and include input and other capital costs.

  7. 7.

    The treatment cost function depends on the number of patients, where we assume that a patient with greater medical needs will have more treatments than a healthier patient.

  8. 8.

    Given that, rather than profit maximization, our focus is on a balanced budget, and a situation in which sectors compete using relative levels of doctors, we do not include labor costs in a total cost function, but rather leave them as distinct.

  9. 9.

    We do not claim that the level of unemployment for physicians in Finland is non-existent, but THL reports that it has been relatively small for a long time—approximately 0.7 % of the total labor pool. The persisting economic crisis has, however, the potential to affect that situation, mostly through layoffs in the public sector.

  10. 10.

    Note here how the geographical variable of undesirability in terms of employment can play a role. When this problem confronts the public sector, which is less flexible in terms of wages. Mikkola (2009) notes a discernible preference on the part of the doctors to exact more control over their working conditions, when the labor market allows for it.

  11. 11.

    Changes in quality are likely to have an effect on the labor costs and on the treatment cost functions in a variety of ways. At a minimum, a decrease in quality, indicated by a decrease in labor, will decrease labor costs, which could leave some additional resources to cover treatment costs. If, however, we maintain the assumption that doctors can see a maximum of b(n) patients per day, then the extra treatment resources may not be able to be used. Additionally, as discussed below, a decrease in quality will incentivize some of the z low-cost people that have stayed in the public sector to switch to the private sector, taking their subsidies with them. This change in patient base can have differential effects.

  12. 12.

    This assumption and the ones that follow ignore the very real fact that there are doctors who see public service as “a calling” and are thus willing to sacrifice some increase in wages for the utility of providing work to the public sector. However, as data, below, shows, this number is not sufficient to slow the trend towards private employment.

  13. 13.

    GPs tend to remain in the public sector, the private sector provides specialists. Alternatively, if the public sector cannot acquire GPs, they will have to be purchased as a service from the private sector (Mikkola 2009).

  14. 14.

    The data has also been made fully available through a Creative Commons license at

  15. 15.

    An injection of non-Finnish physicians to the labor pool is also modest according to THL and FMA statistics.

  16. 16.

    Light (1995: 147–148) notes that often mergers to “increase competitiveness” in actual fact achieve, from the social perspective, exactly the opposite.

  17. 17.

    We should also note that this is not merely a Finnish issue, but a global one. Indeed, one might hypothesize that globalized financial services that have spearheaded successful tax planning systems are at an advantage when implementing these systems into new markets. Their existing capital and financial know-how tilt the market in their favor. In Finland many other companies have engaged in this sort of action than just the health care sector, but the type of business the health care sector engages in makes it very susceptible to perceptions of unethical conduct. See e.g., Finnwatch report (Ylönen 2014: 21–24) on the dialogue between the organization and Terveystalo, the largest Finnish private health care provider.

  18. 18.

    Raphael (2014) sees economic globalization as a considerable threat for the economic sustainability of the welfare state. The permeation of this new line of thinking is statistically visible in the Nordic countries: increases in income inequality and poverty rates—that coincide with the ramping down of (some aspects) of previously all-encompassing welfare policy—occur across virtually all nations, but these effects are most visible in Finland, Norway, and Sweden, where the relatively large size of the welfare state is decreasing (OECD 2011). The increased division of the health care sector into public and private in Finland is actually undermining the welfare state’s raison d’etre as it is seen more as a potential burden to well-being (through high taxation), rather than enabling it universally (Raphael 2014). For companies this undermining means effectually increased business, so it tax planning would also from this perspective be in their best interests.

  19. 19.

    While physicians working in the public sector can also set up their holding companies, this would require the public provider to outsource the care from this new private provider representing their doctors. In municipalities where there is a lack of physicians this might be an increasingly successful strategy.

  20. 20.

    We also note that according to FMA statistics (FMA 2014), young physicians (44 years old or younger) tend to work predominantly in the public sector. We can assume that only after they reach a certain level of seniority do they transfer to private practice; both the pushing and pulling elements can be seen to work here over time.

  21. 21.

    We are grateful to Theis Theisen for reminding us of this potential.

  22. 22.

    Fredriksson and Martikainen (2008) find that young urbanites view market-centered reforms and privatized services much more favorably than other demographics. Hypothetically this is so because the larger customer pool allows for a richer variety of this services to be present in their area.

  23. 23.

    Reports from Finnish health and social services sector have suggested that efficiency principles are poorly applicable, given that both the vehicle and target for treatment are human subjects. When pressed for time, professionals especially in the public sector feel they’re not providing the best care they feel they could (Rönneberg 2013). Given that such statements are often publically reported, it is no wonder that both professionals not wishing to be rushed in an ethically unsustainable way or customers fearing they won’t receive optimal care, have reservations about the public sector.

  24. 24.

    Both private care providers and customers seem to find the subsidy too small: for care providers it is represented as too small to truly change the business environment (Hiltunen et al. 2015) while similarly customers feel they are too small to make a difference in the choose for care provision (when the compensation rate reaches 50 %, approximately doubling the current effective rate, it would, according to surveys, become a conscious factor in solicit care: Jäntti 2008).


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Correspondence to Katri Sieberg .

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Laamanen, JP., Poutanen, M., Sieberg, K. (2017). Is There a Doctor in the House?. In: Schofield, N., Caballero, G. (eds) State, Institutions and Democracy. Studies in Political Economy. Springer, Cham.

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