Insights from Miami | Brief #3

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Designing a Successful Public-Private Partnership in Health Care

by Zeynep Kantur and Carina Fichard, Senior Investment Officers, IFC

Many emerging markets are considering developing Public-Private Partnerships (PPP) in health care as a path to achieving their universal health coverage goals. At a think-tank session held at IFC’s Global Health Conference in Miami, a group of health care providers and investors, many with hands-on experience of health care PPPs, identified key ingredients for success and pinpointed barriers.

An Evolving Instrument

A PPP can be defined as a form of long-term partnership where the private agent bears significant risk and takes on management responsibility for the life of the contract, and where its remuneration—either for putting in place the infrastructure, providing a service, or both―is linked to its performance. Originally, PPPs were used mainly in utilities sectors such as transportation, energy, and telecommunications. An early example of a PPP in health care was the United Kingdom’s Private Finance Initiative. Developed in the 1980s, this was an availability-based structure where the private sector financed, designed, constructed, and maintained hospital infrastructure. This structure allows governments to leverage the private sector for the upfront financing of large infrastructure investments and for managing and maintaining buildings. At the other end of the spectrum, some governments such as Spain developed fully integrated models that cover both building and maintaining the infrastructure and delivery of health services.

In emerging markets, more and more governments are adopting universal health coverage as a national goal. At the same time, there is a yawning gap between the infrastructure and service levels required to reach this goal and what exists on the ground in capabilities and available funding. That is why many countries as diverse as Kyrgyzstan, Lesotho, and Turkey are embracing PPPs, ranging from full infrastructure, to integrated infrastructure and services, to pure services depending on where the private sector can effectively intervene.

Key Messages

A key message coming out of the session was to recognize PPPs not as an end but rather a means to achieving the health sector goals. This will require the governments to define the main challenges―from funding to infrastructure to human resources―and determine if PPPs can help address these and if so, how best to structure them. Many projects fail due to a lack of clearly established goals at the outset and a coherent fit with the overall health systems.

Developing public capacity to manage PPP contracts is also a critical ingredient in their success. This goes all the way from designing PPPs to managing them throughout their lifespan. Experience shows that governments often struggle to accurately estimate the costs of a PPP in advance and to set measurable and appropriate performance benchmarks on expected output. Many have a subpar record notably for pricing projects that go beyond bricks-and-mortar—for example operating diagnostic services. The discussants emphasized that performance benchmarks should focus on patient outcomes rather than project costs.

In addition, many providers struggle to receive timely payment from the government they contracted with. One participant cited a case in India where it took 18-21 months to confirm which branch of the government would pay, with 65 officials having to sign off on invoices. However, a manufacturer involved in a Turkish health care PPP painted a more positive picture where the public hospitals knew how to set up a tender and how to arrange for swift payment. Creating a designated central governance unit to manage the PPP can be useful and effective. While this may take some time to set up, it can lead to a more satisfactory outcome both for the government and the participating company.

Engaging in public outreach and dialogue is advisable to win buy-in from stakeholders. Without such efforts, a PPP can trigger disputes with worker unions or other stakeholders leading to, in some cases, a complete project shutdown. Such efforts can also dispel the common misconception―and one that frequently triggers public hostility toward PPPs―that they are a form of privatization. In fact, PPPs are a long-term partnership between the public and private sectors where the public sector retains ownership.

Identifying the right partners from the get-go is another must. For example, governments may put out a tender to build and operate a new facility only to then receive bids exclusively from construction companies who cannot meet the service provision parts of the contract: diagnostic imaging, IT services, cleaning, and catering etc. To avoid this, organizing a pre-bid consultation with potential partners is recommended. This creates more realistic expectations and can help ensure that there are enough bidders as well as the right mix of bidders.

Finally, PPPs, even with all the right ingredients, may fail due to system deficiencies and external factors. In many emerging markets, for example, there is an acute shortage of doctors and nurses. This means that even if a PPP contract is devised smartly and well-executed, culminating in construction of a well-equipped hospital, if there is a major skills shortage in the country, it can result in poor quality of care.

Conclusions

The evidence suggests that there is no correlation between how wealthy a country is and how successful their PPP is. While the Spanish model is worthy of attention given its strong focus on disease prevention and community outreach, there is no one-size-fits-all PPP. Rather each country would be well advised to develop a model that aligns with the specificities of their market’s needs and capabilities.

Some overarching principles can be borne in mind. Governments should define the goal clearly in advance, show dynamic, visionary leadership that engages for the length of the project, and create the capacity to manage the project. Taking the time to identify a suitable partner is another vital, often-overlooked element. Finally, when it comes to getting value for taxpayer money, focusing on disease prevention and patient outcomes is key.

Published in September 2019