twitterlinkedinfacebookemailaddarrow-downarrow-outlinearrow-outline-downarrow-outline-leftarrow-outline-uparrow-upclosedownloadformat-pdfhelpinfoinfo-outlinelink-external-outlinemenusearchsource-handshakesource-klsource-web

Health

Access to affordable, quality healthcare is a key driver of economic growth and development. However, persistent epidemics, a rising incidence of non-communicable disease, increasing cost and complexity of diagnosis and treatment, along with growing global demand for more and improved healthcare come together to create a complicated and costly challenge.

As these needs and expectations grow for more and better health care services, most countries face serious resource constraints. The public sector is often constrained by lack of: funding; access to innovation and technology; and efficient and experienced healthcare management. Public-private partnerships (PPPs) can help expand key health services and improve quality, complementing the traditional public-sector approach with various forms of private-sector participation.

Specifically, well-structured PPPs can help improve the delivery of service by:

  • facilitating the development of new/refurbished primary, secondary and tertiary health facility infrastructure;
  • increasing quality by delivering services to contractually defined standards;
  • expanding access to scarce clinical skills by employing and training staff that would not have been attracted to a traditional public facility; and
  • increasing the quality of care by ensuring regular maintenance and technology upgrades

In developed countries, PPPs have been used develop and maintain healthcare infrastructure, mostly leaving service provision in the public domain. This mechanism, also known as a “private finance initiative” (PFI), introduces predictability into government payments for creating and operating healthcare facilities as a result of bundling the design, construction and maintenance of the facility into the same contract. Doing this incentivizes the private operator in ways that can lead to better quality and more efficient hospital design, management and maintenance.  

In addition to PFIs, healthcare PPPs have been used for the delivery of health services:

  • through management contracts for the provision of care in government constructed and maintained facilities;
  • delivery, ongoing maintenance and replacement of medical equipment;
  • contracts for components of the range of services, such as non-clinical services, clinical support services (such as laboratories, diagnostic services), or specialized clinical services (such as dialysis or radiotherapy); and in some instances,
  • for full PPPs where the private party is responsible for the infrastructure and service delivery.

PPPs in health, as with PPPs in education, present a set of challenges that distinguish them from traditional infrastructure. They rely heavily on political support and require a great deal of interdependence between the government and private operator.

Issues

  • Role of government

    Even though until 100 years ago, health – like education – was largely privately operated, it is now in most countries deemed a responsibility of the state to ensure a minimum level of quality and access as a basic human right.

    This...

    Even though until 100 years ago, health – like education – was largely privately operated, it is now in most countries deemed a responsibility of the state to ensure a minimum level of quality and access as a basic human right.

    This responsibility often becomes an argument for the government not only to ensure (which should include setting standards, strategy and funding in large part), but also to deliver healthcare. In many emerging markets however, public delivery continues to face many challenges and much of the service delivery is de facto carried out by the (sometimes unregulated) private sector. What PPPs allow government to do, is maintain strategic and regulatory control over public healthcare, continue to fund it, while stepping back from the day-to-day delivery and management of the service and accessing skills and resources to which it may not otherwise have access. The private sector, through contracts, can be appropriately incentivized and remunerated to do this in many cases, more effectively that government alone.  

  • Performance measurement

    The performance based nature of PPP contracts is what binds the private operator to satisfy the government’s objectives for the project and more broadly the sector. Performance measurement is normally done through a set of measurable...

    The performance based nature of PPP contracts is what binds the private operator to satisfy the government’s objectives for the project and more broadly the sector. Performance measurement is normally done through a set of measurable indicators, referred to as key performance indicators (KPIs). KPIs can be more difficult to set and measure in social sector PPPs in which the delivery of services is included. Ideally, measurement reflects the private operator’s ability to achieve the core government policy objectives for the sector, and must be built around health outcomes that are measurable and attributable—not an easy task. For PFIs the matter is somewhat easier, as the KPIs are for more easy-to-measure contractual obligations related to building facilities and maintenance that the private operator must perform. 

  • Budget predictability

    A typical healthcare investment cycle, like any other infrastructure investment, comes with relatively large upfront capital costs, followed by a stream of predictable operating expenses (with varying predictability) and capital maintenance...

    A typical healthcare investment cycle, like any other infrastructure investment, comes with relatively large upfront capital costs, followed by a stream of predictable operating expenses (with varying predictability) and capital maintenance costs. Governments can be poor at overseeing on-time, on-budget capital works projects and at planning for ongoing maintenance and refreshment. This results in higher-than-expected capital costs and unpredictable maintenance expenses throughout the life cycle of the asset.

    Bringing in the private sector through PPPs removes the upfront cost for the public sector and creates a predictable and smooth flow of government expenditure over the life of the project. The overall cost may or may not be lower under a PPP model but it does introduce predictability, allowing the government to plan longer term, therefore creating certainty and resulting in better planned infrastructure and services. 

    Note, that in more complex service-led contracts, it is important that measures to control the demand for services are considered and put in place to minimize any risk of excess demand impacting on the government budgets.

  • Affordability

    Early and thorough understanding of the cost of any new project, followed by credible funding commitments (irrespective of the source) is necessary for the long-term success of any project, PPP or otherwise. This is particularly important for...

    Early and thorough understanding of the cost of any new project, followed by credible funding commitments (irrespective of the source) is necessary for the long-term success of any project, PPP or otherwise. This is particularly important for healthcare PPPs for which the government is likely to bear most of the funding responsibility. Assessment of project affordability by predicting the annual availability payment due to the private operator under the contract can be done through early financial modeling using a set of estimations of key capital cost, operating expense and revenue drivers, benchmarked against similar projects. Specifically,

    • estimated capital expenditures: number of beds, gross area per bed, construction and equipment costs
    • estimated operating expenses: salary costs, maintenance costs, supplies and utilities
    • revenue drivers: estimated demand, public funding, copayments, and other private revenue opportunities

    An early estimation of the project costs allows government to consider financial viability, key priorities, and project scoping options. 

  • Regulatory certainty

    PPPs are most likely to be successful in countries where the health sector is well regulated (or moving in that direction) and where the private sector is already accepted and active in a regulated environment. 

    PPPs are most likely to be successful in countries where the health sector is well regulated (or moving in that direction) and where the private sector is already accepted and active in a regulated environment. 

Resources

    • 2010
    • World Bank Group (WBG), International Finance Corporation (IFC)

    IFC Advisory Services in PPPs: SmartLessons

    Lessons from Our Work in Infrastructure, Health and Education

    This publication highlights some of IFC's PPP experience and lessons learned in working on more than 277 projects in 88 countries over 21 years. Includes lessons in power, water, transport, and health and education.  Mission Difficult, but Not Impossible… Making Public-Private Partnerships Work for the Poor - Robert Taylor The Value of the “Value for Money” Approach When There’s No Money - Juan Luis Flores Delivering the Goods: Multi-Donor Approaches to Project Development and Funding - John Hodges Bringing Reliable Electricity to Rural Areas of the Philippines - William Trant Beloe, Art Cariaga, Marianna Fernando-Pacua and Jed A. Sevilla Five Keys to Powering Up a Private-Sector Participation Transaction: The Albanian Experience...

    • 2011
    • International Finance Corporation (IFC)

    Handshake Issue #3: Health & PPPs

    Handshake Issue #3, Health & PPPs, explores innovative and successful approaches by governments that are tapping the private sector for healthcare infrastructure, service delivery, and insurance.

    • 2006
    • Nazmul Chaudhury, Jeffrey Hammer, Michael Kremer, Karthik Muralidharan and F. Halsey Rogers

    Missing in Action

    Teacher and health worker absence in developing countries

    In this paper, the authors report results from surveys in which enumerators made unannounced visits to primary schools and health clinics in Bangladesh, Ecuador, India, Indonesia, Peru and Uganda and recorded whether they found teachers and health workers in the facilities. Averaging across the countries, about 19 percent of teachers and 35 percent of health workers were absent.  The authors find, among other things, that: 

    • absence rates are generally higher in poorer regions
    • absence is typically fairly widespread, rather than being concentrated on a small number of “ghost” workers
    • higher-ranking and more powerful providers, such as headmasters and doctors, are absent more often than lower-ranking ones
    • men are absent more...

    • 2010
    • National Audit Office, United Kingdom

    The Performance and Management of Hospital PFI Contracts

    This report, which focuses on the stage of the contract once buildings are opened for use, not on the decision to use PFI as a procurement route, suggests that most contracts are performing satisfactorily or better and meeting the expectations of Trusts. However, risks remain and, while many Trusts have recently increased the resources they dedicate to managing PFI contracts, some Trusts are not devoting enough resources. Twelve per cent (9 of the 76) operational PFI contracts have no-one from the public sector assigned to contract management. It is likely that Trusts will be expected to make efficiency savings over the next few years, but their ability to make savings from their PFI contracts is very limited. Because Trusts pay an...

    • 2012
    • Dominic Montagu and April Harding
    • University of California San Francisco, World Bank Group (WBG)

    A Zebra or a Painted Horse?

    Are hospital PPPs infrastructure partnerships with stripes or a separate species?

    Public-private partnerships have been common in infrastructure for many years and are increasingly being considered as a means to finance, build, and manage hospitals. However, the growth of hospital PPPs in the past two decades has led to confusion about what sorts of contractual arrangements between public and private partners consititute a PPP, and what key differences distinguish public private partnership for hospitals from PPPs for infrastructure. Based on experiences from around the world we indentify six key areas where hospital PPPs differ from infrastructure partnerships. We draw upon the hospital partnerships that have been documented in OECD countries and a growing number of middle-income countries to identify four distinct...

Explore Sectors