Purchaser, Decentralizer or something else? This is how 309 municipalities in Finland have organised their social and health care services

A recent research shows that the tight polarization between public and private service provision does not match practice and privatisation of services does not automatically bring cost savings. Centralisation is worthwhile, however: Large municipalities and municipalities providing services through joint municipal authorities often have lower costs.

The research results and the practical experience of the costs of privatisation of social and health care services are contradictory.

For this reason, Aalto University School of Business professor Katri Kauppi and postdoctoral researcher Suvituulia Taponen from the University of Helsinki wanted to thoroughly examine how social and health care services are organised in practice in Finnish municipalities and how the costs differ between the production methods of different services. For the purposes of the research, they analysed how the production of ten different social and health care services had been organised in the 309 municipalities of Finland in 2016-2019 and whether the production method had a connection to the size of the municipality, population density and population structure or the costs of the services.

‘The research shows that no municipality relies on purely public or private provision of social and health care services. Instead, methods are combined and the same service can be produced in different ways,’ says Katri Kauppi.

Cost differences smaller than expected

With the exception of Privatizers, service production in almost all municipalities relies on a combination of production methods. Municipalities flexibly combine public and private production, co-operate with other municipalities and purchase services from host municipalities.

Statistically significant differences in service production costs were found. However, the differences were not as significant as could be expected based on the contradictions in the public debate. In many services, Supplementers and Collaborators were able to show lower costs than others, but not in all services. In 2019, for example, the average cost per inhabitant of outpatient health care services was EUR 461 for Supplementers and EUR 486 for Collaborators, compared to EUR 569 for Decentralizers. The reason is likely to be the on average larger size of the Supplementer municipalities and the cost benefits of collaboration.

In addition to the production model, the differences in costs are also explained by age structure: On average, the population of Supplementers is younger than that of other municipalities. The most significant social welfare and health care costs were incurred by the Decentralizer municipalities, which can be explained by the possible costs and overlapping functions related to the transition phase of the service production.

‘The research results support the idea of cost-effectiveness of centralised services. When we compared the costs per citizen of different services, statistically most of the lower costs were found in Supplementers i.e. large municipalities, and in collaborators that had brought together the population volumes of several municipalities in a joint municipal authority. The cost-effectiveness of centralised services is one of the objectives of the wellbeing services counties starting on 1 January 2023,’ says Suvituulia Taponen.

The researchers emphasise that the new wellbeing services counties, especially those that do not have a joint municipal authority, will start operating in a transition phase. In this situation, service production may be at its most expensive. From the point of view of production costs, efforts should be made to move forward quickly towards an operating model of Supplementers or Collaborators.

Link to the research: https://www.tandfonline.com/doi/full/10.1080/14719037.2022.2150882

Further information:
Katri Kauppi
Professor
Aalto University School of Business
Department of Information and Service Management
Telephone +358 50 401 7112
[email protected]

Suvituulia Taponen
Postdoctoral researcher
University of Helsinki
Faculty of Medicine
and Hankkinen Oy's founding partner
Telephone +358 40 762 9508
[email protected]