Hospitals

In recent years, a number of countries have aggressively moved to diversify the sources of health care funding by using PPP arrangements to meet the growing demand for health care infrastructure. Typically, a private consortium designs, builds, owns, and operates a hospital and leases it back to the relevant government entity-such as a hospital board-for a period of 20 to 60 years.

Since 1997, 85 percent of funds for major UK National Health Service projects have come under the PFI scheme.54 The total number of PFI hospital projects, 130, dwarfs the 12 publicly funded hospital projects developed during that time. Clinical services and some cleaning and catering-type functions usually remain the responsibility of the public sector, while the private sector builds and operates the facilities. Contract terms are generally 30 to 35 years.

In Portugal, 31 hospitals will be built using PPPs. The entire program, at an estimated cost of $37 billion, should be complete by 2014, with 10 new hospitals launched in 2006.55 The contract covers the design, construction, financing, maintenance, and operation of the facilities as well as hospital management and some clinical services.56 Meanwhile, in Ireland, a survey in 2005 of private infrastructure providers identified hospitals as the sector with the most potential for PPP development: 79 percent of respondents ranked it first on their preference order for PPP development.57

Hospital PPPs:

Challenges and Solutions

Challenges

Uncertainty around future public health care needs. The ever changing nature of both health care demands and medical practice introduces uncertainty into the procurement decision. Aging populations, for example, exhibit different health care needs than previous populations. As such, health and hospital procurement strategies must be flexible enough to meet changing demands.

High procurement costs. Hospital PPPs often face high procurement costs, given the modest scale of most projects. Individual hospitals require substantial investment but may offer relatively small returns compared with the expense of procurement.

Politics of private ownership. The politically sensitive nature of health care implies that models where the public sector retains ownership and operation are sometimes most appropriate.

Who provides the clinical services. This is the most costly element of healthcare. Value for money can be achieved by transferring clinical care, however, doing so is often complicated and politically difficult.

Solutions

Health technology advances at an astonishing rate. Existing hospitals must be flexible enough to accommodate new technology and willing to invest continually in new medical services. This requires PPPs to pay careful attention to lifecycle issues such as goal alignment, trust, and flexible governance structures that can accommodate change.

The choice of a financing and delivery model is also critical. The integrator model allows the public sector to introduce the disciplines of private finance, while retaining the required level of flexibility over project design. This might be particularly suitable for a program of upgrade and refurbishment.

The political sensitivity of private ownership can be ameliorated through a clear separation between core hospital services (medical services), which remain in public control, and ancillary ones (such as cleaning and maintenance), which may be outsourced as part of the arrangement.