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PPP as tool for improving health infrastructure

By Akin Osibogun
31 March 2016   |   12:01 am
Public Private Partnership is a concept that has been challenging the understanding of several health workers and some have expressed fears that if...


Public Private Partnership is a concept that has been challenging the understanding of several health workers and some have expressed fears that if government were to broadly adopt this concept, it will throw many health workers into the unemployment market. Others argue that the adoption of this concept by government will make health services totally inaccessible to the poor and under-privileged.

The argument that PPPs will create unemployment is a rather lazy one because for as long as health services are required by the citizens, staff will be required to provide the services. What will only change with the adoption of Public Private Partnership mechanisms or full privatization is that the employing agency may not be government but rather a private entity. On the contrary, if services are more reliably provided, patronage may actually increase with resultant requirement in increased staffing.

The second main argument that the adoption of PPP mechanisms will make health services unaffordable to the poor also does not stand to reason judging from the sources of expenditure on health in the country based on data generated by the National Health Accounts (Prof Soyibo et al). Currently, public health expenditure as a percentage of Total Health Expenditure in Nigeria is roughly 30 per cent. This implies that up to 70 per cent of the current Total Health Expenditure comes from private sources. Of the expenditures by the private sources, up to 65 per cent are out of pocket expenditures by individuals and families. Obviously, the bulk of the Health Expenditure in Nigeria is from private sources. What may be required is an improved coordination of the expenditure to assure value for money.

Current public expenditure on health goes into a general subsidy of publicly provided health services from which both the rich and the poor benefit. Some even argue that the rich benefit more from the current pattern of subsidy. The members of the upper socio-economic classes are better able, than the lower classes, to access the Teaching and Specialist Hospitals that consume a large percentage of public expenditure on health. The poor may not be able to afford the cost of transportation and even the time, to access services in Tertiary Hospitals until and unless their medical condition has taken a nose-dive. The rich can afford both the time and the cost of transportation.

Perhaps a more efficient use of public funds will be to keep purchasing certain goods in public interest (example Tuberculosis control) and make workable arrangements for the subsidy of personal health services for the poor (example through subsidized health insurance premiums). This will be a targeted subsidy that is most likely to yield greater impact on national health outcomes than the current generalized subsidy. After all, the poor are the most afflicted and therefore account for a larger portion of the national disease burden.
Public funds can also provide targeted subsidy for treatment modalities that would otherwise be unaffordable by the average Nigerian and for which insurance schemes would require exorbitant premiums in order to provide cover example cancer treatment and organ transplants.

Targeting the poor for a premium subsidy will in fact, improve access to health services for a far larger number of Nigerians and subsequently lead to rapid improvement in our national health indices. A proper determination of minimum benefit packages dependent on the leading causes of morbidity and mortality in the country coupled with increased emphasis on preventive strategies will help us in achieving success.

Late Margaret Thatcher, Prime Minister of United Kingdom between 1979 and 1990 was one of the strongest advocates and implementers of privatization. She was highly criticized by the opposition Labour Party and others but the truth remain that all governments after Margret Thatcher till today, have equally embraced the use of Private Finance Initiatives and broader Public Private Partnership strategies to ensure the provision of infrastructure and services.
It is instructive to note that despite the campaign criticisms of the Labour Party, within two months of its winning the General Elections of 1997 under Tony Blair, its Secretary for Health, Alan Milburn, announced that “when there is a limited amount of public-sector capital available, as there is, it’s PFI or bust”. (emphasis mine).

Apart from the paucity of capital, the other main reason why Public Private Partnerships are imperative is the argument of efficiency and competition. The bureaucracies in many public establishments all over the world have often rendered them inefficient and sluggish in response to the needs of client citizens. Adherence to rules that take ages to change in response to changing times is partly responsible for that inefficiency.

Imagine, for example, a travel allowance rules that pays a senior civil servant a sum of N10 per kilometer for a Journey from Lagos to Ibadan. For this journey of 120km, the official will be entitled to a transportation allowance of N2,400.00 for the return journey. We all know that a chartered taxi from Ikeja to-and-fro Ibadan will not charge less than N20,000.00. What that means is that the official will probably not make the required supervisory visit to Ibadan. If he does make the visit, then other mechanisms will be devised by him to recoup the losses he has sustained on behalf of government.

Managerial practices in the private sector, however, must be highly responsive to changing environments to enable a private organization is compete favourably with others in its line of business.

In advocating for PPP as a mechanism for improving health infrastructure and the quality of health services, it should be pointed out that in order to achieve excellent results, its implementation must be accompanied with simultaneous implementation of other reform strategies such as mandatory health insurance with subsidized premium for the poor and low-income earners; access to soft loans and tax holidays for investors in the health sector and improved regulatory mechanisms to ensure minimum quality standards by health care providers.

The biggest hospitals in India and the United States are not public hospitals. In the United Kingdom, although the National Health Service still exists and funds general provision of health services through tax generated revenue, hospitals have been banded into Health Trusts each with its management structures and accountable for managing its resources. Health Trusts decide locally what personnel to retain full time or part time depending on volume of patients. These Health Trusts operate under general guidelines and are monitored by an Inspector General. It is only when Health Trusts underperform that other actions are taken or that they are brought directly under the Secretary of Health as was the case recently when 14 out of the 152 Health Trusts were brought under the Secretary of Health. The 14 Health Trusts were reported to have excessive patient mortalities and other issues of quality of service and patient safety.

The other question that comes up during discussions on PPPs is that infrastructure costs in the private sector are usually higher than in the public sector. This has been used as a supposedly strong argument against PPP. However, this argument is based on incomplete and faulty analysis. Let us assume that the government estimate for the construction of a 100km road is X million Naira while the proposal from the private partner for the same road is 1.5X million Naira, the easiest conclusion by the lay person is that the private sector proposal is costlier than the public sector proposal. However, several risk elements have to be put into consideration in order to fully understand which of the two proposals is more expensive on the long run.

Firstly, the public sector proposal is relying on government-generated revenues that will not incorporate the cost of finance. The private sector proposal is relying on sourcing of funds from banks that will charge interests (cost of finance). The cost of finance has therefore been incorporated into the proposal from the private sector.

Secondly, the public sector proposal depending on government revenue, from experience never gets completed on time and the road construction initially estimated for completion in 2 years gets dragged on to 5 years with cost overruns. Inflation and losses to the citizens due to non-availability of the road for use thus makes the cost of the road to be far in excess of what the private sector proposal offered.

A Private sector proposal for construction time of two years is feasible because the private operator is eager to complete the road under the terms of engagement so that its financial obligations to its lenders can also be offset in timely fashion without penalties. The timely availability of the road for use by the citizens is an economic push and a lot of savings thus making the private sector proposal far cheaper than the public sector proposal. A simplified mathematical expression of costs factoring completion time will thus be as follows – government overall cost will be 5 x X million Naira (N5Xmillion) while the private sector cost will be 2 x 1.5X million Naira (N3X million) because time itself is money! This precisely is what we have been expressing with the Lagos-Ibadan Expressway and similar roads where government have not been able to come up with the bulk sums required for urgent and timely completion. Alan Milburn’s statement therefore comes back to memory – “when there is a limited amount of public-sector capital available, as there is, it’s PFI or bust”

Structuring and designing of Public-Private Partnerships however require diligence in the estimation and allocation of risks between engaging public and private partners so as to ensure value for money in the overall interest of the public. When properly structured, PPPs create more jobs, provide more infrastructures and make life better for the citizens while the investors also get reasonable returns on their investments. The profit motive drives productivity anywhere in the world and it does not make sense not to expect investors to make profit. Well-designed PPPs result in Win-Win situations. The alternative to PPPs when public capital and efficiency is limited, is to go bust!

*Akin Osibogun is a professor of Public Health at the College of Medicine, University of Lagos (CMUL)/Lagos University Teaching Hospital (LUTH) and Certified PPP Specialist