It may seem a little strange to be writing about private practice in a periodical which is as committed to neutrality as is implied by the title pH7. Nevertheless the view is growing that the private sector has something to teach the public sector when it comes to running health services. From my point of view, with a foot in both camps, the obvious difference between the two is that the private sector sends out bills.

An organisation which seeks to provide private medical services looks at the potential market and invests in facilities with the assurance that the people who use its services will pay as they use them, or will have an insurer or employer pay for them on their behalf. These monies will service the debt incurred in providing the facility, meet the salaries and fees of the professional staff involved, pay for administrative support and maintenance and meet the costs of consumables including, of course, drugs. That organisation has to ensure that enough money comes in to meet those costs and it does so by levying a realistic charge and making sure that the service is attractive and available so that more people come and use the service and more bills can be sent out.

On the other hand, in the public sector new services are provided grudgingly. Because bills are not sent out to National Health Service patients, income is not generated by providing the service but costs are incurred in exactly the same way. There is therefore a marked disincentive to developing the service and the emphasis of management is to minimise the costs. The target is to have the smallest possible facility to meet established demand. There can be no speculative investment and there can be no pursuit of maximal market penetration.

So it is that in the National Health Service assets are sweated. Bed occupancies exceed 90 per cent much of the time which means that frequently patients cannot have the intended service at the intended time which leads to the accumulation of waiting lists. Private sector hospitals work on a bed occupancy of 45 per cent. This means that when a patient requires a bed the timing can be determined on clinical grounds and the patient's personal preferences. There is no restriction on the use of the asset and the organisation has a positive incentive to develop its services and to penetrate its market to increase the return on its investment. Currently this includes selling capacity to the National Health Service.

Enoch Powell approved of sweating assets. He viewed long queues of outpatients with favour because they guaranteed that the doctors' time was always fully occupied.

From the point of view of those who pay for the service, the philosophy is very different. A private sector payer who receives the bill pays for the services as rendered. An insurer will always seek to restrict its liabilities by specifying which costs it will reimburse but it is required to explain clearly to its customer, the patient - or whoever pays the premium on behalf of the patient - just what those restrictions are and will compete with other insurers in the costs and breadth of cover. The source of money in the public sector, the Treasury, is very much more restrictive. It hands out predetermined amounts of money and requires restrictions on how that money is used which detract from the quality of the service and which can themselves be counter productive.

An example of this is the concept of the drugs budget. A certain amount of money is specified to be spent on drugs irrespective of what patients are seen and what the optimal requirements are. The National Health Service Trust, be it hospital or primary care, is required to determine this amount from its allocation based on previous demand and therefore cannot cope with developments such as new drugs which do an existing job better or which open up new opportunities for the treatment of the patient. Drugs are costly to develop and the manufacturer has a limited time to recoup the investment and to make a profit on the drug before the patent expires, so the new, more effective drugs will always be the most expensive. The perversity of the drug budget is clearly shown when the introduction of a new drug means the patient can be managed as a day case or as an outpatient, whereas previously admission to hospital would be necessary. The cost of the drug is offset by avoiding the cost of an overnight stay. The unit costs of treating the patient are reduced which does result in a smaller bill being sent out in the private sector but the facility is available for treatment of another patient who will incur further charges to the benefit of the organisation. In the National Health Service, the drug budget does not extend to the new drug, therefore the patient has to be admitted. At worst this means that another day is added to the waiting time of patients who are queuing for that bed, but from the financial point of view of the hospital the reduction in the unit costs of treatment is irrelevant because that bed would only be used for the treatment of yet another patient. Yet more costs are incurred which have to be met within the money allocated by the Treasury to the commissioners.

This is the fundamental difference between the private and the public sectors of health care provision. The private sector can increase its income by doing more work and has a clear incentive to do so. From the patient's point of view, services are offered promptly and standards are not restricted. This is what the patient calls efficiency. In the public sector funds are constrained and controlled and assets are driven to their maximum. This is what the Treasury calls efficiency.

Health care services that are wholly delivered in the private sector amount to people and organisations trading with each other. This is economic activity which adds to the national prosperity. The disadvantage is in terms of equity. If a citizen of a country is deprived of appropriate health care because he cannot afford it, he may lose his life or his quality of life will be impaired and his ability to earn his living is compromised. His wealthy fellow-citizen has no such restrictions. The more medicine is able to achieve the greater that discrepancy is and the purpose of a publicly funded Health Service is to overcome that inequity. Furthermore, an insurer will only carry risks; it will write exclusion clauses for pre-existing and chronic conditions. This is the reason why every nation has significant public funding of their Health Service, but it is the National Health Service model of limiting the money available that provides the cheapest health care.When, as in continental Europe and especially the United States of America, the provision of health care is mainly private and the state funded element is met by reimbursement - by pay