Transcript care - College bouw zorginstellingen

Public Private Partnerships
and the wider dimensions of
capital investment strategy
Barrie Dowdeswell
Executive Director EuHPN
PPP What the EU says
• DG Markets - current strategy for developing the internal market of
the EU prioritises public services as the next sectors for
liberalisation. Part of that strategy is
– To facilitate public-private partnerships
– That the private sector will play an increasingly important role in
financing infrastructure
• The Green Paper aims to
– ensure that such partnerships are compatible with public procurement
rules, and
– to clarify the relationship between PPPs and state aid rules
PPP EU cont’d
• “Central and Eastern Europe have a real opportunity to improve their
infrastructure at low cost by embracing Public Private Partnerships”
• Internal Market Commissioner Frits Bolkestein said: They can be
an important tool for improving the quality of public services and
supporting growth in Europe”.
• But DG Economy says – there is the risk that the recourse to PPPs is increasingly motivated by
the purpose of putting capital spending outside government budgets
– It may happen that PPPs are carried out even when they are more
costly than purely public investment.
PPP what the World Bank says
• “As governments struggle with rising health care costs, publicprivate partnerships in constructing and managing public hospitals
can provide innovative ways to control costs and improve service
– PPPs can be a powerful policy tool for improving the viability of public
hospitals and the quality of their services.
– they are often controversial
– getting them right requires careful attention to the critical policy issues”
• “The World Bank continues to experiment with new lending
instruments including:
–
–
–
–
–
Adaptable Program Loans,
Learning and Innovation Loans,
Sector Adjustment Loans—and
selectively incorporating health sector–related conditions into
macroeconomic adjustment loans”
What the UK (English NHS) is saying
official ?
• The Head of the NHS programme to accelerate patients' access to
treatment - raised fears about the inflexibility of the UK version of
PPP; the Private Finance Initiative (PFI). He said:
• hospitals could compete better with their private sector rivals if they
built cheap and cheerful premises to last five years
• I've seen some awfully grand PFI schemes that are starting to give
us a real problem in our capacity mapping
• We need a fundamental rethink about how much we invest in capital
rather than human resources
UK cont’d
And finally -
• “We do not need to be designing monuments with longterm leases. Some of the better players are recognising
that, and not getting into big capital investment. Build for
five years, possibly 10, and really focus on human
resources solutions.” Ricketts, DH, May 2005
What some of the figures say
•
National Audit Office report:
– Banks and property developers made windfall profits of £73m by refinancing, the
£229 million, 989-bed Norfolk and Norwich hospital
– The consortiums have made the windfalls by being able to remortgage the
properties with other financiers charging much lower interest rates - just as a
homeowner might switch mortgages to cut their monthly interest payments.
– The PFI consortium:
•
put up £33m in 1998
• borrowed £197m to build a hospital
•
was able to refinance the deal five years later, taking £115m out of the project.
• The group,shared £31.4m refinancing windfall with the health trust.
• The group will be paid £37.8m a year over a 39-year deal to run and maintain the
hospital.
• The National Audit Office estimates that investors will get a 60% return on their
investment, compared with an expected 18.9% return at the time the deal was signed.
– The NAO concludes that taxpayers will "continue to pay a premium" on the deal
for the next 32 years but got the new facilities for patients much earlier than if
it had been financed from general taxation.
Some observations
• European (and global) finance and market interests see PPP as the
primary means of financing health infrastructure
• Contestability is seen as a means of driving better value
• Health Ministries are increasingly re-active to Treasury financing models
• Treasury models have their roots in non-health infrastructure e.g. roads
• The principle value of PPP seems to be the accelerated provision of
hospitals and health infrastructure - with transfer of risk - on time, within
budget providing added benefit
• The risk transfer benefit is a commercial commodity for which there is a
charge:
– Some estimates suggest that in the UK the premium paid for risk transfer - principally
construction - is as high as 30%, CIPFA report
– The procurement value gain on health projects has been assessed as between 1% to
8% - but the benchmark model - the public sector comparator - is questionable
Observations cont’d
• Evidence is suggesting:
– Translation of PPP into the health environment is complex - too complex ?
– There is a continuing gulf between the business model of industry and the
welfare ethos of the Public sector
– There is a skills gap within the health sector in converting PPP principles for
application in healthcare
– PPPs introduced as a ‘one size fits all’ model may be a flawed strategy
– There is an underlying problem of capacity mapping - linked to lifecycle
investment strategies
But
• None of the headlines is particularly helpful - in abstract
• There is a need to understand context
• There is a need to understand the longer term operational dynamics of
PPP - as helping assess and measure value
• What is in any event meant by PPP
PPP the diversity of models
• The ‘public’ clinical service model
• Full operating licence
– Fixed tariff
– Competitive tariff
• Contracted services - short-term treatment - specific focus centres
• Outsourcing services
• Non-clinical
• Clinical, specialist e.g.
– Diagnostic ‘factories’
– Manufacturer franchises - neonatal care packages
• Co-locations with the private sector
• PFI - the infrastructure ‘lease’
• Joint stock equity (portfolio) ownership e.g. (LIFT)
Core / Non-core Services
a hypothesis
Community
Cost effectiveness
&
Operational relationships
Clinical
Integrated service
& building options
Diagnostic
UK PFI / boundary*
The ‘serviced’
building
Administration
ICT
Ancillary
Cost efficiency
&
Lifecycle durability
Maintenance
Low
Public Sensitivity / Complexity / Financial risk
High
What are the influences - macro
• Strategic policy shift - government devolution - reducing
direct government engagement and funding ? Evidence
suggests a European trend in this direction
• Ideology - the benefits of market enterprise
• Social need
• Economics
– Debt management
– Commission (and other) aid programmes
• Stimulating the economy
• Pension funds
What are the influences - micro
• Urgency over infrastructure replacement
– Performance commitments e.g.waiting times
– Poor condition of buildings - the quality dimension - and patient
mobility
– Workforce mobility
• Leverage for change
– Culture
– Professional performance
• Procurement value
• Whole life cost value - e.g. maintenance standards
European pressures, health – and health
facilities - the attraction of PPP
Expectation
Affordability
Policy aims
Cost
Social development needs
Unsustainable - social
Economic needs
Unsustainable - economic
The third age of healthcare – the new
context frame
Re-emergence
&
revitalisation
Public
Health
- 1950
Community,
Diversity
Lifestyle
Hospital
Hospital
Acute
Care
1950 2005
Chronic
Illness
2005 -
Morbidity
compression
but also
Comorbidities
Aged
Care
2010 -
The PPP environment - competition vs coherence
choice of episodes or pathways, the paradox
Commissioning agencies
Provider agencies
contestable choice
‘tariff’ based contracts
contracts
core
chronic
acute
networks
market
Multiple change / risk factors - the importance
of lifecycle investment planning
Volatility - demand
high
Functional - evolution
Stability - relative
Contract renewal - PPP
Probability
of change
growth
low
technology care
markets outcomes H&S&environment aged care
lifecycle
Cross matching the models if we have to adopt PPP
• Core services - sustainable non-contestable investment perhaps PFI?
• Chronic illness - portfolio ‘agile’ space and multi-sectoral
investment e.g. LIFT
• Care networks - coherence and compatability - and
adaptability factors. Possible franchise operation and
funding
• Market - full service PPP, license and contestable models
• Outsourced - flexible lease / operating licences
There are alternative ‘capital’ models
• Public procurement
– Government grants
– Bank lending
• EIB
• World bank
• Commercial banking Sector
– Direct bond issue
• Supply chain systems
• Property leasing
• Structural aid funding
Lifecycle economy - a framework for analysis
Lifecycle capacity
Adaptability value
Functional efficiency gap on commissioning
Concept planning phase;
Inputs - service model
change factors
finance
Ref: Multiconsult Norway
Functional
Decay vs
Outputs and
income
Adaptability costs
Lifecycle investment
high
probability
Issues
•Standard depreciation (25 to 40 yrs)
•Differential rates
•Procurement funding amortisation
•Design standards
•Service inhibition
•Tariffs
Hot floor
(clinical
diagnostic)
Ward
30.5%
(hotel)
32.2%
Office
23.5%
low
clinical operational cultural
Decay factor
building standards
Ref:bouwcollege
The EuHPN Lifecycle study - preliminary view
• application of lifecycle principles seems proportionate to
the nature of competition strategies
– Public procurement
• Government funding - weak application e.g. underinvestment in
maintenance, queuing for capital funds
• Private loans - debt management rigour; income as collateral - little
explicit incentive for lifecycle investment
– PFI, the lifecycle infrastructure lease
• ‘weak’ design in adaptability terms, uncertain lifecycle effectiveness
• Maintenance as a profit centre - for the operator
– PPP
• Fixed tariff - incentivises lifecycle economy strategies
• Competitive tariffs - the great unknown re lifecycle sustainability of
asset value and re-investment
Service conception of RHÖN-KLINIKUM AG
acute care hospital
1000
service in Euro / day
900
Acute care patient‘s real
average demand
800
700
Services offered by public
hospitals in the 90s
Costs per case: 3600 + 270 (Inv.)
= about 3870 €
600
500
Patient and process guided
flow principle of RKA costs/case /
Price 2.660 € incl. about 720 €
investments
400
300
200
duration
100
0
0
1
2
3
4
5
6
7
8
9
10
11
12
14
16
18
20
of stay
in days
Rhon-Klinikum - the workforce and infrastructure link
“Concept of treatment therapy (care-pathway)- as a design principle“
complete diagnosis
conservative
therapy
operation
outpatient
operation
oupatient
outpatient
therapy
?
yes
outpatient
yes ?
no
daycare
?
yes
no
inpatient
inpatient
operation
recovery room
day clinic
operation /
conservative
therapy
no
yes
inpatient clinic
ja
Intensive
care
intermediate
care
normal care
low care
discharge
yes
daycare
?
no
inpatient
PPP / Capital matrix analysis
Adaptability
&
effectiveness
PPP
licence
PPP
tariff
PPP
joint stock
PFI
infrastructure
Conventional
variants
Lifecycle
standards
Procurement
value
Risk transfer
value
Service
response
/ priority
Summary
• The EU seems to be moving from a neutral to advocacy stance
• The Treasuries (& finance markets) appear dominant in setting the
agenda - this is unsurprising
• The valuing systems tend towards speed of access to funds (and
infrastructure development) allied to short-term procurement gain
• Risk transfer is expensive - and may outweigh procurement gain
But
• So far it is clear that governments have been prepared to pay a premium
(substantial in some cases) for:
– speeding up hospital provision - transfer of construction risk included
– guaranteeing lifetime maintenance
• PPPs have been employed to stimulate culture and professional change
- this will continue
• In some instances PPPs are being used explicitly as a learning exercise
Summary
• PPPs may be increasingly the option of choice for governments
disengaging - distancing themselves from healthcare delivery
• The macro issue of ‘debt-management’ may leave some
governments little choice other than adopting PPPs
• The principle may be dominated by other factors, therefore it is:
–
–
–
–
The relevance and realities of markets in healthcare
Having sufficient understanding of the issues to moderate the approach
Having effective valuing systems to inform decisions
Having the skills to manage the policy
• There is sufficient diversity in the types of models to get a better fit
Conclusions
• PPPs may however simply be exposing deeper rooted problems that
have existed for some time
• The premiums paid - including some legacies - may represent a
necessary transitional stage in obtaining better value
• The culture and skills gap may yet represent the main obstacle to
change
• Macro-economics will remain the dominant determinant
• Some evidence seems to demonstrate the effectiveness of
competition in stimulating ‘better value’
Conclusions
• We are experiencing acute (and controversial) growing pains in
coping with deeply embedded (and possibly undeclared)
government shifts in healthcare strategy
• The ‘problem’ may be related as much to process and application as
principle
• We need better tools, skills and value systems to manage the
inevitable changes in health policy - and to generate better value
• The development and application of lifecycle economy principles
may offer a constructive way forward in meeting the investment
challenge for health infrastructure
Thank your for your attention
[email protected]
WWW.EUHPN.org