Public-Private Partnerships
in Healthcare

By Emma Thomas
and
Matthew Hensley

About the Authors...

Emma Thomas recently joined the IP3 intern program from a background of working in the Public-Private Partnership market in the UK. For the previous four years, she has worked for private sector Facilities Management contractors participating in the UK government's Private Finance Initiative (PFI). Emma managed the bidding and proposal development process for PFI projects, which includes design, build, finance and operation, in hospitals, schools, leisure centers and Ministry of Defence facilities. In the health care sector, Emma has worked on diverse projects, from small-scale secure mental health units to multi-million pound city center acute hospitals. Matthew Hensley is President of IP3 and a regulation expert. Mr. Hensley is also a frequent contributor to the newsletter on PSP issues.

Foreword

Four thousand people stood in line waiting to receive diagnosis and treatment for basic eye complaints from the volunteer staff aboard a hospital ship, docked in a Central American port a few months ago. With scenes like this, the scale of the challenge developing countries face in providing equal access to healthcare for their populations can seem overwhelming. Shrinking public budgets and increasing healthcare costs make a wholly public sector approach to achieving universal healthcare access unsustainable. New approaches must be implemented and public-private partnership innovations in the structure of health systems and infrastructure are developing across the globe. Combining public and private sector strengths is increasingly seen as an important tool in finding solutions to the challenge of universal healthcare provision.

Healthcare provision in developing countries is characterized by three key challenges:

• Large numbers of people have little or no access to healthcare
• Current resources are poorly targeted and inefficiently deployed
• Steep increases in the variety and impacts of infectious diseases

Healthcare spending, around 8% of GDP in most countries, is targeted at urban areas, and towards secondary care in large hospital facilities, leaving many people completely lacking in basic health services. So the urban populations benefit disproportionately and the wealthy elite tend to be best served by public facilities. Primary health care infrastructure, aimed at preventive care and broader public health initiatives could potentially have a huge impact on the general health of a population and avoid unnecessary use of more expensive curative care. This is often entirely lacking. In countries where it is in place, they have suffered from a lack of resources to maintain quality standards and continue to expand services.

Public sector health service provision has been dogged by inefficient practices that have prevented the best use of the resources that are available. The expertise to manage resources effectively is often lacking, as clinicians, trained for a very different role, are asked to manage complex hospital services. When budgets are overstretched, funds get prioritized for urgent, short term needs, maintenance of infrastructure suffers and the condition of assets spins into a downward spiral. The result: public health facilities in a poor structural condition, making quality health care difficult, despite the best efforts of the clinical staff.

There is an unprecedented demand for health services in developing countries with the AIDS epidemic, TB and malaria causing 300 million illnesses worldwide. Initiatives like The Global Fund for HIV, TB and Malaria will help in combating these infectious diseases, but never before has there been a more urgent need for a sustainable health system that serves the whole population.

The enormity of the task and the complex nature of healthcare services demand an approach that mobilizes expertise, resources and efficiencies from both private and public sectors. Whilst governments play a vital strategic role in healthcare delivery, the private sector can be used in a variety of creative ways to meet investment and operational needs. Using the private sector can allow governments to free up their own resources to effectively concentrate on their policy and coordinating role: particularly critical as improving the health of a nation requires the cooperation so many different sectors. Many different models for public-private partnerships in health are being developed, so select examples are used below to illustrate solutions in three broad areas: infrastructure, clinical care and financing.

Public-Private Partnership Models and Options

Financing

Social insurance has been identified as a potential '"middle-way" between financing through private insurance and tax-based National Health service-type systems" . Formal insurance markets are lacking in most developing countries and a trend in response to this has been the creation of 'social health insurance' or SI. SI finances medical care predominantly through a compulsory payment by employer and employee, collected through payroll taxes. Some degree of government subsidy is normally present, for example for the unemployed. Patients can then chose where to purchase care, stimulating the private sector to respond to demand and expand service provision. This is a growing model in developing countries, with the objective of reducing the financial cost of healthcare provision and shifting the burden of the day-to-day provision of health services from public to the private sector. This has the added value of transferring much of the operational risk, such as recruitment of medical personnel, to the private sector. Social insurance represents a potentially sustainable means of financing growing healthcare costs whilst meeting the objective of universal healthcare access.

Infrastructure:

Models for injecting private investment to renew the infrastructure of healthcare systems are well-developed and should be urgently considered by developing country governments. Private sector consortia contract with governments to design, build, finance and operate hospital facilities. The operational element may or may not extend to private sector management of the clinical services. The Inkosi Albert Luthuli Central Hospital in South Africa, is described in detail elsewhere in this newsletter and follows the UK model of privately financing hospitals in which support services such as laundry, security and catering are provided by the private sector, with clinical and care services provided by the public sector. A key advantage of this approach is that the private sector takes the risk of maintaining the property for the life of the contract, usually 25 years, ensuring the quality of the asset in the long term. The next few years will surely see developing countries taking this to the next stage and including clinical care in the package of services passed to the private sector, as has been the case in Australia.

Clinical services:

Governments are using a variety of contractual methods to harness the efficiency gains of using the private sector to provide services. Clinical services have been formally contracted to the private sector extensively in Latin America, under various forms of contract. The crucial difference between them is the payment mechanism, which establishes the private sector incentives and is therefore critical in determining the overall success of the service in promoting equitable universal healthcare access. For example, under the population based/historical payment model, the private sector manage and provide the healthcare services in return for a previously agreed amount of funds, based on the population to be served and their historic health needs, for a specified contract period. The provider bears the risk of deficits but keeps any surplus. The government is protected from cost increases but the private sector is also dis-incentivized to provide 'too much' care when inappropriate. An alternative model is service-based allocation, where the public sector reimburses the private sector for actual care provided, either with or without a volume cap. The former arrangement is used in various forms in Colombia; for example, to provide reproductive health services, a provider is paid 50% of the anticipated volume of service, then the remaining services are directly reimbursed. This provides a balanced incentive to the private sector to extend services, with the pre-payment acting as a counter balance and incentivizing cost efficiency.

Overview of Options

A general theme in healthcare reform is the formalization of contractual arrangements with the not-for-profit sector, who traditionally have worked on 'understandings' without a contractual obligation to provide services. One of many examples is in Costa Rica, where the Government has contracted with the National Health Foundation to construct and manage the Hospital de la Imaculada Concepcion in Heredia. This is a welcome trend as it enables governments to monitor the quality of service provision under agreed contractual criteria.

The most important lesson learned from countries where these models have been adopted, is that the government in question needs to have sufficient skills and capacity to deal effectively with the private sector. Badly structured contracts can result in the opposite effects to those intended. Governments must be equipped with the knowledge to extract maximum benefits from these arrangements, in key areas such as project design, procurement, negotiation and monitoring.

Public-private partnerships should be actively considered by developing country governments as one tool to use in meeting the objective of expanding health services and making resources work more effectively. Different solutions will of course be appropriate for different countries, depending on the current infrastructure and health system arrangements. Public-private partnerships offer governments the opportunity to benefit from private sector efficiency and access to investment, whilst retaining an overall strategic responsibility for healthcare systems. In the challenge of improving the health of all people in developing countries, governments must look to all sectors for assistance and public-private partnerships can offer viable and sustainable solutions.

Conclusions

Making public-private partnerships in health care a reality requires political commitment and a clear understanding of how they can be best implemented in a particular country. The first step is for health professionals to establish a dialog with finance officials and agree on a strategy to engage private sector investment and commitment. Health policy officials should take advantage of the variety of experience in carrying out PPP health projects by conducting site visits and talking to other officials and private sector providers who have been through the process and are in operation. Expert advice should be sought in order to have the best chance of selecting the right approach and then implementing it effectively through the development of the legal and regulatory framework, institutional arrangements, and the development of success-oriented pilot projects. For those interested in learning more about PPP applications and potential initiatives in health please contact Emma Thomas for more information about IP3 training programs, research, and technical assistance.