Photo: Pexels / cottonbro studio
Walk into a grocery store and markets behave as textbooks predict prices signal value; consumers compare options, competition rewards efficiency. Now we swap groceries for cancer treatment, maternal care, or emergency surgery. Healthcare is different.
As Nobel Laureate Kenneth Arrow argued six decades ago—and global practice confirms—healthcare systematically violates key assumptions for well-functioning markets. Left to market forces alone, health systems struggle to deliver what societies value most: equitable access, high-quality care, and financial protection. The policy question isn’t whether markets should exist in healthcare—they already do. It’s how governments steward health markets, so they serve public objectives rather than undermine them.
Why healthcare defies market logic
Healthcare markets face persistent failures:
Information asymmetry: Patients cannot reliably judge quality or necessity and depend on providers, often when vulnerable. Price doesn’t signal value; choice doesn’t guarantee quality.
Inelastic, unpredictable demand: No one shops during a stroke. Urgent, unavoidable demand can expose patients to exploitation.
Positive externalities: Vaccination, mental health care, and surveillance benefit society, yet providers aren’t rewarded for preventing crises—so markets underprovide these public goods.
Equity gaps and missing markets: Poor, rural, and high-risk populations are often unprofitable. Without public financing and regulations, many are excluded.
Market concentration: Hospitals, pharma, and digital health require to scale and operate under heavy regulation, creating high barriers to entry. Without oversight, market power can limit competition and sub-optimal outcomes for the end-users...
Result: health markets don’t self-correct; they must be well-governed.
Mixed health systems are the reality
Most countries have mixed systems: public and private financing; public and private delivery. Governments not only provide services but also contract, regulate, and subsidize private goods and services.
In Latin America, roughly 37% of outpatient care and 31% of inpatient care is delivered by private providers (excluding NGOs and informal providers). In many OECD countries, inpatient care is predominantly public; primary care is largely private; and outpatient specialist care is mixed. Private actors—providers, manufacturers, insurers, innovators—expand capacity, improve productivity, drive innovation, mobilize financing, and create jobs.
Problems arise when market mechanisms outpace public stewardship. Poorly governed markets encourage cream-skimming, over-treatment of profitable services, under-investment in prevention, and fragmentation. In health, introducing market tools increases —not reduces—the need for capable government oversight.
The role of the state: smart stewardship
Effective governments do more than intervene; they steward the market. That means:
Setting clear rules of the game
Aligning incentives with outcomes rather than volumes
Regulating quality and, where appropriate, prices
Using strategic purchasing to shape provider behavior and complement public delivery capacity
Here, the state acts not as a passive payer but as market organizer—ensuring private initiative contributes to public goals and expands access with quality. Smart stewardship doesn’t crowd out markets; it makes them work better.
Chile: public–private collaboration in practice
These principles guided a recent World Bank Group event in Santiago with Chile’s Ministry of Health and the National Health Fund (FONASA). On January 26, more than 120 participants, authorities, private sector, academia, civil society, parliamentarians, and development partners—gathered to discuss how to align incentives around shared objectives. The event also created a bridge between outgoing and incoming administrations, including the first public appearance of Chile’s incoming Minister of Health.
Chile’s long-standing mixed system shows how stewardship can channel private participation toward public goals. The country has used public–private partnerships—especially hospital concessions—to modernize and expand facilities. It has shortened waiting times by strengthening public contracting of private services, including extensive use of Diagnosis Related Groups (DRGs) to pay private hospitals based on case-mix and efficiency rather than volume.
Most recently, progress is being made in designing a new complementary health insurance option that would allow FONASA beneficiaries, about 85% of the population— to pay a flat premium for access to private clinics and providers. This is stewardship in action: transparent dialogue, evidence-based policy, and clear public objectives guiding private participation.
Health, jobs, and growth
Health is a human right and an end in itself. It is also an economic engine. Healthy populations learn more, work better, and earn more. The health sector is a major employer—around 11% of total employment in advanced economies, and with substantial room to grow in many developing regions.
Public stewardship is decisive for mobilizing investment and jobs. Predictable regulation of crowds in private capital across health value chains. Strategic purchasing creates stable demand and bankable revenue streams—supporting investments in primary care, diagnostics, digital health, pharmaceuticals, logistics, and long-term care. These are labor-intensive activities that generate good local jobs.
By correcting market failures —underinvestment in prevention, exclusion of high-risk groups—and ensuring quality, governments also strengthen the workforce: higher participation, lower absenteeism, and greater productivity.
That is why the World Bank Group sees health not only as a social sector but as a contributor to growth and employment. Supporting countries to create more and better jobs while expanding affordable, high-quality care requires markets that are inclusive, disciplined, and aligned with public purposes.
Chile again provides a tangible link: public stewardship has enabled private participation that expands capacity, modernizes infrastructure, and improves service delivery—while keeping equity, quality, and waiting time reduction at the center. When public objectives guide private engagement, health systems deliver better outcomes and broader economic value.
The bottom line
Healthcare is different; lives are at stake. Markets alone cannot deliver what societies expect. But with capable stewardship —including public financing to ensure universal coverage— markets can be harnessed to serve public goals. The choice isn’t public versus private; it’s well-governed mixed systems versus poorly governed ones. Chile shows that when governments lead with clarity, evidence, and openness, public–private collaboration can power access, quality, and growth. In healthcare, the invisible hand needs a steady public guide.