New generation PPPs. What they need to deliver to meet the emerging healthcare challenges

Transcription

1 New generation PPPs. What they need to deliver to meet the emerging healthcare challenges James Barlow, Steve Wright, Jens Roehrich 15 th European Health Forum Gastein W11 Public procurement from the private sector: austerity, PPP and health service innovation 6 October

2 Outline What is a PPP and what are the perceived advantages and disadvantages? What should new PPP models be able to deliver? What should new models look like? Challenges in developing new PPP models Conclusions

3 What is a public-private partnership? A risk-sharing relationship based upon a shared aspiration between the publicsector and one or more partners from the privateand/or voluntary sectors to deliver a publicly agreed outcome and/or service (Grimsey & Lewis 2004) The standard definitions don t recognise the diversity of PPP models

4 There are four activities in any infrastructure investment project Design, Build, Finance and Maintain A PPP always has M bundled with some or all of the others And sometimes also the O as in the Operate aspects of infrastructure investment

5 Four distinguishing features in PPPs (compared to pure public or private provision) Private finance Bundling especially of project phases ( DBFM or DBFMO ) Pay for performancevia an output (not input) specification Long-term contracts (25-50 years)

6 PPP has potential advantages for Management of risk transfer to party best able to bear it Incentivisation of long-term performance and quality cost control captured and flows immediately to consortium Minimisation of transaction costs widening the project / contractual envelope ( bundling ) internalises transaction costs

7 but there are trade-offs Extending the project scope by bundling can concentrate control inside the project entity and lessen overall public control Increasing the completeness of contract specifications (specifying every contingency and detailed disputes resolution procedures) can be expensive

8 Advantages and disadvantages of healthcare PPP from the voluminous research Advantages / disadvantages Brief description Solution for public-sector capital shortage (+) Reduces cost of capital (+) or higher capital costs (-) Introducing private sector efficiency (+) Risk allocation (+/-) Higher transaction, monitoring and set-up costs (-) Healthcare providers can concentrate on clinical services (+) Adoption of new technology and management (+) or stifle innovation (-) Lack of integration between clinical models and infrastructure design (-) Difficult relationship management over extended periods of time (-) Public-private partnership arrangements may deliver an asset which might be difficult to finance Mixed results from prior studies Project delivery on time and price; most contracts are fixed price; ongoing maintenance and transparent life-cycle costs Allocation of risks to party best able to manage them; ultimate risk lies with public sector; increased commercial risks due to long-term and high contract value Complex, long-term contracts and inter-organizational relationships need to be set up and managed; reduced contract flexibility as contracts are difficult to change and monitor Non-clinical services (e.g. maintenance and security) is left with the private contractor Incentivizing performance by specifying service levels; innovation and good design through output specifications Responsibility for infrastructure and clinical services mostly not provided by one organization so important to align incentives Need to manage a wide network (including banks, suppliers, consultants) over long time periods of up to 30 years

9 The UK s version of PPP the Private Finance Initiative has been criticized for all of the disadvantages in the previous table

10 And there are now concerns over the high cost of the debt incurred when compared to government borrowing and inability of NHS hospital trusts to service the debt

11 But PPP is still on the agenda in the UK

12 Around the world Transport and social (e.g. health) infrastructure need large amounts of capital investment Insurance companies, pension funds, sovereign wealth funds need to invest in assets generating stable long-term income to match their predictable liabilities For governments PPP potentially offers desirable public policy outcomes(sharing & management of risk, dedicated & comprehensible debt structures for raising capital etc) so PPP seems here to stay

13 What should new PPP models be able to deliver?

14 Healthcare trends 1: integration of services Integration (i.e. coordinated health service delivery) seen as the way forward for health systems faced by rising chronic disease and need for efficiency savings Many concepts of integration : 1. Healthcare + social care 2. Primary/community + secondary/hospital care 3. Commissioning + provision 4. Clinical models of care + financial/business models 5. Clinical services + support services 6. Support services + asset provision 7.

15 Healthcare trends 2: remodelling services around the community Tertiary care Traditional in-patient hospital care Community care Home and family

16 So PPPs need to cope with flexibility

17 And they need to be able to embrace (and stimulate) innovation UK experience Early aspirations for the PFI programme were that whole life costing would stimulate innovative thinking in design and quality But experience from PFI schemes suggests that design and construction innovation was not achieved

18 Risk and incentive mechanisms were insufficiently developed to encourage innovative solutions Adaptability / flexibility was often a sales factor during bidding but... Hospital trusts aimed to transfer all risk to the private sector Design carried out concurrently with tendering, so open discussion of new ideas constrained Final risk allocation occurred too early in project bidding process, limiting opportunities for innovative thinking as the project unfolded No incentives for consortium to consider clinical operations or outcomes: the focus was on narrow maintenance and FM performance targets Private sector aimed to protect its financial interests contractors played safe and offered designs which they could guarantee to deliver PFI stifles innovative solutions. Investors and financers are not interested in innovation; they do not want to take risk. (Project Director, SPV B) We achieved a reasonable design with regard to flexibility. This was probably more despite PFI since there is a strong focus on initial capital cost. The SPV takes the view: Why spend the money if we cannot recoup this investment. (Director, Architect A)

19 What should new models look like?

20 It s all about risk Efficient allocation of risk between private and public organizations is a fundamental principle of PPP: Risk should be allocated to the party best able to control it or which requires the minimum risk premium This should help to drive innovation to achieve cost efficiencies and greater certainty of success, because the parties bearing the risk have an incentive to manage it more efficiently

21 and contract completeness Bundling infrastructure and maintenance should incentivize the private sector to deliver reduced whole-life costing and performance improvements in infrastructure Would bundling operational activities (i.e. care services) address risks arising from unidentified future healthcare needs or delivery models?

22 PPPs sit somewhere between fully complete and fully incomplete contracts on a spectrum Contract completeness (Specification of contingencies in contract) Incomplete Complete PPPs Cooperation, collaboration, partnering (cuddly, but not replicable or scaleable ) Full outsourcing (probably politically unfeasible in a European health system)

23 A range of PPP models is now emerging in Europe Some of these are experimentingwith extending the scope of bundling

24 Different hospital PPP models in Europe Franchising (Germany, Finland) Population full service PPP Alzira model (Spain) Traditional public sector e.g. UK pre-pfi Increasing private sector role and scope of bundled services Public- Public Partnership - certain Spanish projects Infrastructure hospital JV (Portugal wave 2) Accommodation-only (UK, Portugal wave 1, France, Italy, Spain, Sweden)

25 Franchising: Coxa Hospital, Tampere, Finland Existing elective orthopedic services consolidated into a new focus hospital sharing common services with the university hospital PPP involves a private company owned by municipalities, with yearly contracts via the local university hospital Embraces both physical infrastructure and clinical services(surgical replacement of upper and lower limb joints) Local health planning district now exploring this model for other clinical-specific facilities (e.g. cardiology and ophthalmology)

26 Evaluation.? No independent research as yet but significant process and safety improvements reported: reduced time to prepare operating theaters lower infection rates lower lengths of stay in hospital beds fewer readmissions Also making a modest profit for the public sector owners of the project equity

27 Population full service: Alzira model II, Valencia, Spain Management of secondary and primary care in the Valencia Health Area Concession for 15 years, extendable to 20 Agreed investment mostly in community facilities during the contract period Capitationmodel: 610 per head + % yearly increase based on region s health budget Capitation payment level is lowerthan previously incurred under pure public sector provision, or in other comparable areas Contract encourages consortium to maintain service quality costs incurred by patients travelling outside the concession charged to La Ribera Integrated primary/secondary + capitation model now being used in 4 other Spanish health areas

28 Evaluation.? Outcomes certainly look impressive

29 Even though there has only been limited evaluation, we can draw some theoretical conclusions on the role of new PPP models in meeting healthcare challenges

30 Hospital PPP models in Europe: pros and cons summary Model Advantages Disadvantages 1. Public-public Point responsibility (E) Easy to renegotiate building provision Artificial separation of public entities 2. Accommodation-only PFI Point responsibility Rigid contracts (UK, E, P, F, I...) Very well developed Many variants Minimal innovation 3. Hospital infra-clinical JV Point responsibility Contractual complexity (P) Alignment of building & services 4. Franchising Off state balance sheet Loss of public control (D, F, FL...) Efficiency/quality gains 5. Population full service Integration of primary & hospital Loss of transparency, cost info, control (E) Cost certainty

31 PPP models and health service integration PFI Infra/clinical JV Franchised hospital Franchised full-service Healthcare + social care Primary + secondary Commissioning + provision [X] X X Clinical + financial models [X] X X Clinical + support services X X X Support services + assets X X X X

32 Challenges in developing new PPP models

33 Extension of the PPP envelope is by no means straightforward Need to develop contracts which more explicitly allow for service model flexibility, with recourse to arbitration rather than litigation for disputes Need to re-orient the contractual culture so that partnership is real rather than rhetorical, and it incentivises outcomes Aligning incentives across private and public boundaries and over extended periods increasingly hard as the envelope and complexity expands

34 Conclusions Emerging European PPP models have the potential to deliver high quality and cost control Bundling services with infrastructure provides greater incentives to PPP consortium to continuously seek performance improvements New PPP models also potentially support care service integration But: New payment models need to be developed (e.g. capitation) How contractible is desired performance (can it be measured, captured in a contract)? What kinds of incentive structures need to be developed? What governance models are best able to provide degree of control over PPP structure

35 Finally, the research gap Proliferation of PPP approaches decision-makers require better understanding on elements of effective PPP design but little systematic in-depth comparative research More robust analysis is needed in order to understand why certain impacts occur and not just what impacts occur

36 Thank you James Barlow Imperial College Business School, HaCIRIC and ECHAA Steve Wright London School of Hygiene and Tropical Medicine and ECHAA Jens Roehrich University of Bath