Health Public-Private Partnerships

Public-Private Partnerships (PPPs) are defined as a partnership between private contractors and the government, in which the public sector contracts (usually on a long-term basis) with the private sector for the provision of a public service. A health Public-Private Partnership (PPP) can be described as a long-term contract (typically 15 to 30 years) between a public-sector authority and one or more private sector companies operating as a legal entity. The government provides the strength of its purchasing power, outlines goals for an optimal health system, and empowers private enterprise to innovate, build, maintain and/or manage delivery of agreed-upon services over the term of the contract. The private sector receives payment for its services and assumes substantial financial, technical and operational risk while benefitting from the upside potential of shared cost savings.
The private entity is comprised of any combination of participants who have a vested interested in working together to provide core competencies in operations, technology, funding and technical expertise. The opportunity for multi-sector market participants includes hospital providers and physician groups, technology companies, pharmaceutical and medical device companies, private health insurers, facilities managers and construction firms. Funding sources could include banks, private equity firms, philanthropists and pension fund managers.
For more than two decades public-private partnerships have been used to finance health infrastructure. Now governments are increasingly looking to the PPP-model to solve larger problems in healthcare delivery. There is not a country in the world where healthcare is financed entirely by the government. While the provision of health is widely recognized as the responsibility of government, private capital and expertise are increasingly viewed as welcome sources to induce efficiency and innovation. As PPPs move from financing infrastructure to managing care deliery, there is an opportunity to reduce overall cost of healthcare.
After the global recession and financial crisis, governments face gaping deficits, making private investment and expertise more important to address their health system needs. In OECD countries, government debt as a percentage of GDP averaged 66% in 2007, grew to an approximate average of 86% in 2010, and is predicted to exceed 100% of GDP in 2011, an unprecedented level in peacetime. Further, the Bank for International Settlements predicts that by 2020 debt/GDP ratios could rise to more than 300% in Japan, 200% in the United Kingdom; and 150% in Belgium, France, Ireland, Greece, Italy and the U.S. And, national governments are not the only ones suffering from budgetary challenges. The financial crunch has affected local governments as well, and this is where PPPs have found officials eager to hear more.
Market potential for health PPPs
The larger scope of Health PPPs to manage and finance care delivery and infrastructure means a much larger potential market for private organizations. Spending on healthcare among the Organisation for Economic Cooperation and Development (OECD) and BRIC nations of Brazil, Russia, India and China will grow by 51 percent between 2010 and 2020, amounting to a cumulative total of more than $71 trillion. Of this, $3.6 trillion is projected to be spent on health infrastructure and $68.1 trillion will be spent on non-infrastructure health spending cumulatively over the next decade. Annually, spending on health infrastructure among the OECD and BRIC nations will increase to $397 billion by 2020, up from $263 billion in 2010. The larger market for health PPPs will be in non-infrastructure spending, estimated to be more than $7.5 trillion annually, up from $5 trillion in 2010.
Health spending in the United States accounts for approximately half of all health spending among OECD nations, but the biggest growth will be outside of the U.S. According to PwC projections, the countries that are expected to have the highest health spending growth between 2010 and 2020 are China, where health spending is expected to increase by 166 percent, and India, which will see a 140 percent increase. As health spending increases it is putting pressure on governments and spurring them to look for private capital and expertise.
International examples
Hospital de Rivera, Valencia, Spain 1999-present
One of the most widely cited clinical services Health PPPs is known as “the Alzira model.” This PPP in Valencia Spain included a new hospital (University Hospital and Primary Care), in-patient clinical services and primary care services. Since the €75-million Alzira hospital opened, at least 20 other PPPs, a mixture of Infrastructure and Clinical service projects, have been completed in Spain. “Adjusting responsibilities to demand changes is not a question of infrastructure, but a cultural change, and the work system between the board of directors and the professional staff in hospital and primary care,” said Alzira director de Rosa. “A new culture among professionals was needed to become a ‘flat’ organization. The aim is granting the citizens the best healthcare service, best infrastructure, best quality, best equipment.”. Partnerships like Spain's Alzira project, have saved government 25% of the cost of providing care.”
Europe:
$4 billion in hospital PPP deals in Europe were announced during the first half of 2010, according to Infrastructure Journal. The biggest deal, €1.5 billion, 700-bed Karolinska in Stockholm, Sweden, is estimated to be the largest hospital PPP in the world. Another large project, New Hospital de Vigo, Galicia, Spain is a €375 million, 1,465-bed hospital.
North America:
British Columbia, Ontario, and Quebec have completed $10 billion in healthcare PPP projects in the last five years. In 2010, McGill University Hospital project in Montreal reached financial close. At $1.3 billion, it will be North America’s largest hospital PPP and is expected to open in 2014. In Mexico, 22 states now have PPP regulations in place, and the remainder are in the process of approving theirs.
Africa: The largest health PPP in Africa was announced -- the revitalization of what officials claim is the biggest hospital in the world, 2,964-bed Chris Hani Baragwanath Hospital, as the South African government announced a revitalization of PPPs..</ref>. Partnerships like Spain's Alzira project, have saved government 25% of the cost of providing care.”
Further reading
Public-private partnership
PricewaterhouseCoopers' Health Research Institute, [http://www.pwc.com/us/ppphealth Build and Beyond: The (r)evolution of healthcare PPPs] 2010

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