Healthcare spending represents about 10 percent of GDP globally, and in the U.S. that number reaches nearly 20 percent, or $7,000 per person per year. This figure is rising faster than any other expense due to a variety of factors, including economic growth (which increases demand for treatment), changing demographics and epidemiological trends (aging populations and more chronic diseases), and advances in medical technology (leading to more expensive equipment and tests). Governments worldwide are struggling to meet these demands and challenges within their limited fiscal space, but simply lack the resources to provide healthcare to their citizens. This issue of Handshake explores innovative and successful approaches by governments that are tapping the private sector for healthcare infrastructure, service delivery, and insurance to meet these pressing demands.

PPPs for healthcare infrastructure and services

Many governments are turning to public-private partnerships (PPPs) to provide healthcare services and/or infrastructure for their citizens. Several OECD and middle income countries have used the PFI model to finance, build, and maintain new health infrastructure, especially hospitals, while leaving the core health services within the public sector. At the same time, we see governments in emerging economies adopt PPPs involving full service delivery by the private sector. This approach is particularly important because in many emerging markets, the problem isn’t simply the lack of modern equipment or facilities, it is the lack of sufficient medical staff and hospital managers.

Handshake’s article on Brazil’s new Hospital do Subúrbio depicts the progression of a PPP that will maximize the benefits from private sector delivery of core health services.

But transferring responsibility and risk to the private sector creates new challenges within contract management. Most governments have experience managing infrastructure PPPs and concessions, often through independent regulators. There is no ready equivalent in health, even though health PPPs, like all PPPs, inevitably face challenges during implementation—challenges often related to unforeseen increases in demand as well as cost-shifting (where the provider shifts higher-cost patients to other facilities). Rui Monteiro’s article outlines how governments can convert challenges in PPP contract management into opportunities for improving policymaking and healthcare delivery.

In some cases, governments can mitigate risks in contract design by bundling a PPP to cover a network, rather than single facility, thereby encouraging the provider to manage treatment and referrals at the most cost-effective level. Handshake’s interviews with Lesotho’s Minister of Finance and with the COO of Netcare (the provider awarded the Lesotho PPP contract) shed light on the process from two different, though complementary, points of view.

Innovative healthcare PPPs can play a vital role in quickly upgrading health infrastructure and services in regions scarred by natural disasters or wars.

Innovative healthcare PPPs can play a particularly vital role in quickly upgrading health infrastructure and services in regions scarred by natural disasters or wars. Naoko Ohno’s article on the revitalization of Pakistan’s primary healthcare services following the 2005 earthquake describes how a district government successfully contracted with an NGO to deliver basic
healthcare to the affected population. Also of great relevance to the region, Tekabe Belay and his Kabul-based colleagues explain how Afghanistan implemented country-wide contracting of NGOs for delivery of primary and secondary care.

The Fiscal Challenge

Affordability and sustainability remain the major hurdles for governments. After all, PPPs cost money in the form of availability and/or service payments by governments or public insurers. The incremental cost may be minimal if the PPP involves replacement of an older, outdated, and costly public facility with a modern, more efficient (and often smaller) PPP facility. Typically, a modern hospital of 300 beds can treat more patients than an outdated hospital of 600 beds through a more efficient layout, much greater use of outpatient care and day surgery, and more efficient hospital management.

But new services and facilities for underserved areas or populations will have a fiscal cost and governments should not embark on PPP projects without a good idea in advance of the fiscal impact. To aid this process, this issue includes “PPP basics,” an affordability analysis intended to guide government officials who are considering partnerships.

One way for governments to maximize value is to select projects with the greatest reach for the money and to allow the private sector to be creative and flexible in providing solutions. In many countries, improved primary and outpatient care may be what is most needed, but this is often overlooked as governments focus PPPs on more costly tertiary care.

Growing global demand for more and improved healthcare…will require governments to tap the private sector for healthcare financing and delivery.

In most countries, sustainable and adequate funding will need to be developed through a broad national insurance program (with employer/ employee contributions), combined with patient deductibles and copayments where feasible. A rapid increase of population coverage under national insurance plans has been achieved in several countries, highlighted here in the article by Nathaniel Otoo, Ghana’s Director of Administration and General Counsel of the National Health Insurance Authority, and in Claudia Macias’ snapshot of Mexico’s Seguro Popular.

Another remarkable example is Andhra Pradesh in India, where the state government introduced a low-cost catastrophic health insurance plan that now covers 80 million poor people. Srikant Nagulapalli, CEO of Aarogyasri Health Care Trust, the government body in charge of implementing the insurance program in Andhra Pradesh, speaks candidly to Handshake about his company’s outreach to the poorest populations in India through village-wide health “camps.”

Meng Kin Lim of the National University of Singapore also shares lessons on how to customize outreach and implementation to a specific population and culture. In “Singapore’s secret to healthcare,” he describes that country’s unique healthcare system and how it achieves enviably high health outcomes at a fraction of the cost of most developed economies.

Transforming governments

PPPs are a transitional step in the transformation of government from provider to purchaser. This shift involves three major elements:

  • Definition of standard services or packages of services.
  • Setting of standard reimbursement rates, regardless of provider (public or private).
  • An accreditation mechanism allowing only accredited providers to be eligible for contracts.

Under this system, all accredited providers would be treated equally and be eligible for reimbursement by the government or public insurer. Providers would be free to choose their location, which market forces would dictate, and facility size, which is subject to accreditation requirements. Reimbursement would in principle be sufficient to amortize capital costs, so that a separate PPP payment would not be necessary.

In lower-income countries, however, it will be difficult to immediately establish fully cost-reflective rates. Some reimbursement premium may also be needed to attract providers to more remote and rural areas.

Growing global demand for more and improved healthcare, coupled with ever-increasing cost pressures, will require governments to tap the private sector to a much greater degree for healthcare financing and delivery. Countries which effectively integrate their systems through large-scale contracting will provide their citizens with the greatest choice and quality standards.