A means to an end

Public-private partnership (PPP) is a system in which a government service or private business venture is funded and operated through a partnership of government and one or more private sector companies. These schemes are sometimes referred to as PPP or P3. The key-word in the partnership being co-operation, inter-reliance, dependence and mutual benefit. In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract. In other types (notably the Private Finance Initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to build and maintain the asset. The consortium is usually made up of a building contractor, a maintenance company and a bank lender. It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. A typical PPP example would be a hospital building financed and constructed by a private developer and then leased to the hospital authority. The private developer then acts as landlord, providing housekeeping and other non medical services while the hospital itself provides medical services. The delivery of health care in almost every country involves some form of public-private partnership. In countries where care is delivered mainly through the public system, many inputs, such as pharmaceuticals and support services, are sourced from the private sector. In countries with predominantly privately owned facilities, the state influences their configuration through regulations and financial incentives. In hospitals, the situation is further complicated because of the many functions provided by such institutions: the training of health professionals and research and development, for example, are activities that are publicly funded to varying degrees.1 Some international health care programs may be considered public-private partnerships: ■ The Global Alliance for Vaccines and Immunization is financed per 75% (750 Mio.US$) by the Bill and Melinda Gates Foundation, which has a permanent seat in the supervisory board of GAVI. ■ As a UN agency, the WHO is financed through the UN system by contributions from member states. In recent years, the WHO's work has involved more collaboration with NGOs and the pharmaceutical industry, as well as with foundations such as the Bill and Melinda Gates Foundation and the Rockefeller Foundation. Some of these collaborations may be considered global public-private partnerships (GPPPs); half the WHO budget is financed by private foundations. ■ The Global Fund to Fight AIDS, Tuberculosis & Malaria and a Geneva based UN connected organization, established in 2002 to dramatically upscale global financing of interventions against the three pandemics. ■ The TB Alliance is financed by public agencies and private foundations, and partners with research institutes and private pharmaceutical companies to develop faster-acting, novel treatments for Tuberculosis that are affordable and accessible to the developing world. ■ DNDi, the Drugs for Neglected Diseases Initiative was founded in 2003 as a not-for-profit drug development organization focused on developing novel treatments for patients suffering from neglected diseases. Various models The model in which a public authority contracts with a private company to build or run a hospital is, inevitably, seen mainly in countries with national health services. Various models have been developed. Models of public-private partnership in hospital provision Australia has the most diverse range of models, with differing versions in several states. The Private Finance Initiative (PFI) in the United Kingdom is a design, build, finance and operate (DBFO) model. It has been the primary means of financing major capital investments in the health, education and prison sectors during the past two decades. While this arrangement provided a source of much needed new finance, a great deal of this funding was "off-balance-sheet" financing and did not appear in the government books as new borrowing. This arrangement enabled the government to remain within targets set for public sector borrowing. In the British model, a company - usually in the construction sector - will create a "special purpose vehicle" to bid for a contract with a health authority to build and provide non-clinical services to a hospital. The successful contractor will enter into three types of subcontract: one with banks to finance the project; one with a construction company to build the hospital; and one with a facilities management company to manage it over the lifetime of the contract, typically 30 years. Over the lifetime of the contract, the health-care provider undertakes to pay a defined amount from its revenues and the contractor undertakes to maintain the fabric of the hospital in good order and (depending on the agreement) manage facilities. Similar models have been adopted, although on a very much smaller scale, in Canada, Portugal and Spain. It is also being introduced in Ireland and, while not yet used to finance hospitals, is used for procurement of other infrastructure in Greece. Franchising is an alternative model, where a private company takes over management of an existing public hospital. This approach has been tried in Sweden (including the sale of a public hospital to a private company) and in Italy. A unique model has been developed in the Alzira Hospital, in Valencia, Spain, which is managed by a private consortium that accepts responsibility for the health care for a defined population in return for an annual per capita payment. There is still relatively little experience with these models of hospital provision, and governments have yet to undertake rigorous evaluations. Thus the merits of these models compared with the traditional model of provision remain highly contentious but it is already possible to identify several key issues that have emerged. These are cost, quality, flexibility and complexity. Singapore's experience exemplifies an evolving public private partnership in health care financing and provision. In the 1980s, the Singapore government reexamined from first principles the role of the state in health care financing and provision, and concluded that a British-style National Health Service was neither a viable nor a sustainable option. It decided that while the government would continue to subsidise health care (along with other important social areas like housing and education) to bring prices down to an affordable level, the people would have to share in the costs of the services they consume. The "3M" system - Medisave (1984), Medishield (1990) and Medifund (1993) - which forms the centerpiece of Singapore's health care financing system, was therefore premised on the philosophy of shared responsibility, and the economic principle that health care services should not be supplied freely on demand without reference to price. In persuading the people to accept this hard-nosed policy, the government reasoned that the question "who pays?" was not the right question to ask, for "whether it is the government, Medisave, employers, or insurance, it is ultimately Singaporeans themselves who must bear the burden" - since insurance premiums are ultimately paid by the people, employee medical benefits form part of wage costs, and taxes are paid by taxpayers. Over the years, the demand for health care has increased in tandem with the key drivers of health care costs, such as the rapid ageing of the population, advancing medical technology resulting in the increased range and number of possible interventions, and rising public expectations. Singapore's innovative 3M system of health care financing has proven to be very effective in mobilising private financial resources. Medisave, the state-run medical savings accounts, which is compulsory for the working population, today stands at a staggering S$30 billion, an amount that can underwrite Singapore's total health care expenditure for the next 5 years. A most remarkable achievement has been the gradual shift of the financial burden from the government to the private sector. Since access to needed care is explicitly guaranteed for the poor, and the state-run Medishield insurance scheme protects against financial ruin from catastrophic illness, the system is on the whole no less humane than a state-funded one. The successful corporatisation of Singapore's health care institutions between 1985 and 2002 has resulted in better efficiency and improved service levels. Market mechanisms and structures have replaced old bureaucratic ones. Presumably, better and more informed decisions are being made at the local level, compared to central planning by the Ministry of Health (MOH). The India story There is growing confidence in the power and attributes of Public-Private Partnerships to narrow the development gap and usher in such practices to meet the needs of the people, especially poor communities. PPP is an initiative to implement the health sector reforms in a manner in which private sector complements and supplements the inadequacies of the public health sector. The Government is also of the view that PPP is an indispensable strategy, given the performance of the health sector in the last decade under the aegis of the health sector reforms. During the last five decades the Government, at the Centre and the State, has built up a vast health infrastructure throughout the country. A large number of well-equipped hospitals, medical research centers, both in the private and public sectors, maternity homes located mostly in the urban areas and a network of rural dispensaries and Public Health Centers (PHCs) have been set-up to meet the health needs of the people. Despite this progress, coverage in terms of health services availability to the needy is well below expectations. The delivery of health services in the rural, remote and backward areas, by and large, is still inadequate and therefore requires a new thrust and momentum. In order to improve the outreach of health services in these remote and backward areas, new initiatives have to be developed, implemented and sustained. The National Rural Health Mission (NRHM) is the latest in the series of Government's action programs to reach these areas with new frameworks which would improve the situation in the health sector and bring in incremental benefits to the larger population. In this initiative, the proposal of establishing systems for working with the private sector hold lot of promise since it would allow government to plug gaps of accessibility and availability of services for the under-served and un-served sections of the society. India has shown some progress in basic health indices today but as compared to other developing countries it is very slow. There is huge scope and need for improvement. One of the biggest benefits of PPP is the economies of scale associated with it and added values of efficiency and effectiveness. The fact that over 56 per cent of the rural medical needs are met by the private sector points to the need of creating synergies between the public and the private partners. Flexibility in action is the new mantra. There is no fixed definition of how PPPs can be established but some factors need to be kept in mind. These are clearly identified aims and objectives to be met. A well-defined partnership structure is crucial for a successful partnership. Exchange of skills, better management and wider range of services are some of the benefits associated with PPPs which would work as one of the important components of strategies to achieve NRHM goals. Case Study I: PPPs in health sector: Karnataka state Objectives ■ Developing and testing a model of community health financing for rural poor. ■ Increasing access to public health care by rural poor. ■ Ensuring equitable distribution of health care through social insurance. ■ Empowering rural poor for better health The Narasipur Model This model is based on the scheme of Community Health Insurance. The scheme provides for NGO and Government collaboration at three levels; it envisions developing Community Herbal gardens for common ailments. Creation of Self Help Groups, as part of this model, and to encourage the community to explore alternative sources of financing that would further assist in establishing micro-credit for out-patient care. The model provides for pre-paid insurance for in-patient care, and hospitalization expenses. This scheme will cover 100,000 SC/ STs population and 20,000 people living below poverty line. Bailhongal model This scheme will be implemented by Zila Parishad with the aim of covering one lakh SC/STs population and 30,000 people living below poverty line. However, it does not cover private health services. The Insurance cover is Rs. 22 per person per year with costs shared by the community, milk cooperatives, SHGs and UNDP. This model provides Rs. 50 to the patient for daily wages lost and Rs.50 to the hospital for extra drugs per day of hospitalization. Case Study II: PPP initiatives: Privatization at Navi Mumbai Municipal Corporation. The Navi Mumbai Municipal Corporation's initiatives have had a successful run despite the risks involved in a new working system based on partnership. NMMC has outsourced the Departments of Sonography and Radiology, housekeeping, ward-assistance and procuring linen on rental basis. NMMC also leases out part premises for multi-specialty Private Hospital and Specialty Diagnostic Services to Hiranandani Healthcare Private Limited. The reasons for outsourcing sonography and radiology departments are enumerated here: ● Inefficient sonography and X-ray services at First Referral Unit. ● Failed and defunct MCH USG section. ● Recurrent maintenance costs. ● Lack of responsibility by user. ● Requirement of sonography services at the MCH centers. ● Need for upgrading the technology. The salient points of the PPP initiatives are transparency and competitiveness; one of the mechanisms utilised is the use of tender for the selection of the contractor and an agreement copy is given prior as part of the tender document. All NMMC radiology staff from the MCH is absorbed at FRU for better efficiency and utilising the existing capacity. Payments are made to the contractor for free patients also and NMMC is free to decide its own rates to be taken from patients. It is a long-term contract and patients have to come only through the NMMC cash counter. The rates availed in this contract are 7 to 10 times less than the market rates. The operator gets higher rates outside working hours for emergency services and penalty is imposed on the operator for uptime less than 98 per cent. Contactors get compensation for lower turnout and NMMC gets incentive for higher turnout. The contractor breaks-even within 2 years and the onus of errors is on the contractor. The SOP sets out demarcation of responsibilities for smooth functioning of all the terms and conditions. The benefits of this PPP are: ● Higher turnout of patients. ● Zero investment and generation of income. ● Fulfilment of service commitment. ● Availability of services within the hospital. ● No recurrent costs and affordability of services. ● Self-sustaining system. Challenges faced in this PPP scheme cover a wide range of issues like, convincing the corporate body of the prospects of partnership as a business proposition, co-opting of earlier contractual staff becomes a compulsion, pressure of labour union on the professional agency and NMMC. For quality control, continuous feedbacks from referring consultants and audit by the external radiologists and imposition of penalty clauses on errors in reporting must be ensured to make the partnership run successfully. Issues ● At times inadequate Government-NGO interface breeds discontent and creates skepticism about the motives of the private sector. Often the nodal officer does not have a copy of the scheme and is not clear about the working guidelines which prove a hindrance for the private partners and NGOs. ● There should be sharing of the risks and liabilities between the public and private partners. For example there might be reluctance on the part of the Government to hand over to NGOs movable property like ambulances as it might lead to litigation later. In West Bengal this contentious issue was solved by allowing the NGO to operate the ambulance though it was owned and registered in the name of the Government. ● There is lack of proper classification in PPPs especially with regard to those Below Poverty Line (BPL) and Above Poverty Line (APL). Cross subsidizing would prevent BPL patients from being excluded from receiving health care. ● There is need for social auditing and a system of monitoring. At present there is no mechanism to monitor quality. The poor have high physical and social access to the non qualified providers. Any successful course of action will have to address the realities of the political economy of rural villages. ● Challenges relating to fund flow, logistic management, mutual trust, transparency, licensing and sustainability of PPP initiatives, if managed with dexterity, can ensure an easy run for the PPPs. Inadequate and unqualified manpower are the perennial problems that characterize the public sector with lack of motivation proving to be the 'proverbial death knell'. In conclusion, PPP has to be understood as a means to an end. The main purpose is to deliver quality health service to one and all. The normative needs of professionals should overlap as much as possible with the felt needs of the people, especially for those who have less or no access to health services. Therefore, one has to look beyond PPPs in the long run with the ultimate aim of providing better health services to all. This would also mean democratizing the process of rendering services, since the target population will be no longer recipients merely, but participants in the process of service creation, functioning and access. Besides, active people participation would help to overcome and minimize red-tape, an issue which the private sector holds against the Government. (The author is partner, Ernst & Young, India and industry leader -Health Sciences)