THE GROWTH OF PRIVATE HOSPITALS AND PUBLIC- PRIVATE PARTNERSHIPS IN ASIA: GOOD OR BAD FOR HEALTH?

Transcription

1 THE GROWTH OF PRIVATE HOSPITALS AND PUBLIC- PRIVATE PARTNERSHIPS IN ASIA: GOOD OR BAD FOR HEALTH? Dominic Montagu Global Health Group, UCSF Shorenstein APARC Seminar February 13, 2012

2 Your advice requested Your Health Minister just came back from a meeting with potential international hospital investors. They have expressed interest in investing in existing and new private hospitals in your country. Your minister asks you: what should we do?

3 Your advice requested

4 Outline Private Hospitals in Asia What does private mean? What is a PPP? Trends, good, bad?

5 Drivers of Growth

6 Drivers of Growth

7 Medical Tourism

8 Does Growth = Private Growth

9 The situation today

10 What is so special about hospitals? Time Capital Complexity Non-profits

11 Large role of private sector: outpatient vs. inpatient People Use the Private Sector for Services (India 95-96) Immunizations Antenatal Care Institutional Deliveries Hospitalization Outpatient Care 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Public-Private Sector Shares Public Private

12 Private sector can play critical role.. 12 In achieving priority objectives..even for the poor With respect to child health, TB, malaria, or maternal and child health Place of birth, by wealth quintile: South Asia Place of birth, by wealth quintile: SEAsia

13 Private Hospital Share Private Medium-Low Medium-High High Public Low

14 Example: Singapore 10 Gvt Hospitals 13 Pvt Hospitals Patients can go to either Mix of Private (employer) and Gvt (medical savings acct) payments Strong Gvt regulation and mandatory cost history disclosure The Straight Times, 4 January 2011

15 Example India Private sector contributes 70% of all facilities; but only 40% of beds 1983 Apollo opens first private for-profit hospital Today: 7500 beds in 25 cities and expansion overseas 100% tax exemption for 5 yrs if >100 beds and outside of 8 largest cities

16 Many Ways to Run a Health System

17 Private hospitals potential? More capital (which is often in very short supply) Better maintenance of capital investments

18 Private hospitals potential? More capital (which is often in very short supply) Better maintenance of capital investments Better Management

19 There is a strong relationship between management practices and outcomes Source: LSE CEP and McKinsey cross country hospital study

20 Private hospitals tend to have higher management scores Source: LSE CEP and McKinsey cross country hospital study

21 Private hospitals..pitfalls But challenges: Even if private hospitals are more productive, could: cause cost escalation; distortion/inequality; still have poor quality What would you advise the minister to: obtain the good, while containing the bad?

22 Stepping Back: International models for private hospitals Segmented Edge Integrated

23 Health system with private hospitals segmented: UK, Vietnam, Malaysia Regional health authority Public sector Regional health authority Regional health authority Regional health authority Public financing organizations Private sector OOPs Private insurers Public hospitals Private hospitals Little or no linkage between public sector and private hospitals

24 Health system with private hospitals Integrated: Germany, Thailand Public sector stewardship domain OOPs Social health insurers OOPs Public sector Public hospitals Private sector Private hospitals Government exercises stewardship over both public and private hospitals, especially through the funding arrangements

25 Health system with private hospital services purchased at the edge : UK independent treatment centers; Indonesia Public sector Public financing organizations Private sector OOPs Private insurers Public hospitals Private companies temporarily provide services Private hospitals Temporary public purchasing from private providers to fill immediate shortfalls in capacity

26 Experience from Europe Hospitals PHC Specialists Dental Ownership Financing Ownership Financing Ownership Financing Ownership France Germany Netherlands UK Pub. & Priv. Public Private Public Private Public Adult: Child: Public Pub. & Priv. Public Private Public Private Public Adult: Child: Public Private (non-profit) Public Private Public Private Public Adult: Child: Public Public Public Private Public Pub. & Priv. Public Adult: Child: Public Financing Adult: Pub&Prv Child: Public Adult: Private Child: Public Adult: Private Child: Public Adult:Pub. & Priv Child: Public Drug access Ownership Financing Private Pub. & Priv. Private Pub. & Priv. Private Pub. & Priv. Private Pub. & Priv. Ambulance Ownership Financing Private Public Private (& P) Public Private (& P) Public Public Public Source: Maynard 2005

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28 OWNERSHIP AND TAXATION

29 Patient expectations for public and private hospital care service quality David Camilleri, Mark O Callaghan, (1998) "Comparing public and private hospital care service quality", International Journal of Health Care Quality Assurance, 11(4), pp DOI /

30 "The line between public and private in the health sector is extremely blurry"

31 Public - Private Source of funding Ownership of business or activity Ownership of premise Employment Ownership of residual

32 For-Profit Non-Profit Non-Profits Non-distribution constraint

33 For-Profit Non-Profit Non-Profits Non-distribution constraint For-Profits Investor owned Small business

34 Public / Government - Owned Retention of residual Profits owned by treasury, public purse or the organization for internal use

35 Origins of not-for-profit and for-profit ownership models Health care as a social good Health care as a commodity Kidcyber.com.au Trafficology.com

36 Ownership Theory For profits: competition leads to price/quality improvements Non-profits: social goal and decreased profitmotivation provides better care with less oversight

37 Ownership Theory 2 For profits: efficient, responsive to market demands Non-profits: constrained by Poor access to finance Inefficient or ineffective board structure

38 Literature Reviews Sloan, F., Picone, G., Taylor, D. & Chou, S. (2001). Hospital ownership and cost and quality of care: is there a dime s worth of difference? Journal of Health Economics, 20:1-21. payments made on behalf of patients admitted to for-profit hospitals were higher than for patients admitted to not-forprofit hospitals but that there was no significant difference in mortality or health outcomes by ownership model. Sloan, Frank A. (2000). Not-for-profit ownership and hospital behavior. In Culyer, A.J. & Newhouse, J.P. (Eds.), Handbook of Health Economics (pp ). Elsevier Science B.V. private for-profit and private not-for-profit hospitals are actually similar in most aspects Devereaux, P.J., Choi, P., Lacchetti, C. et al. (May 28, 2002). A systematic review and metaanalysis of studies comparing mortality rates of private for-profit and private not-for-profit hospitals. Canadian Medical Association, 166(11): increased relative risk of mortality in private for-profit hospitals of (confidence interval ) Devereaux, P.J., Heels-Ansdell, D., Lacchetti, C., et al. (2004). Payments for care at private forprofit and private not-for-profit hospitals: a systematic review and meta-analysis. CMAJ, 170(12): Payments for care were 19% higher in private for-profit hospitals

39 Literature Reviews Schneider, E., Zaslavski, A., & Epstein, A. (2005). Quality of care in for-profit and not-for-profit health plans enrolling Medicare beneficiaries. The American Journal of Medicine, 18: quality of care in not-for-profit hospitals is higher Eggleston, K., Shen, Y., Lau, J. et al. (Jan. 2008). Hospital Ownership and Quality of Care: What Explains the Different Results in the Literature? Health Economics, 17: DOI: /hec This meta-analysis of 31 observational studies reveals no systematic difference in quality between private for-profit, private not-for-profit and government controlled hospitals Azhary, Emil. (Dec. 2009). The portrait of Indonesian hospital business. Economic Review, 218 private hospitals provide better care but are also more expensive Leng, C.H. (2008). Ownership, control, and contention: Challenges for the future of healthcare in Malaysia. Social Science & Medicine 66: Possible equity challenges from private provision Tangcharoensathien, V., Bennett, S., Khongswatt, S., Supacutikul, A, & Mills, A. (1999). Patient satisfaction in Bangkok: the impact of hospital ownership and patient payment status. International Journal for Quality in Health Care, 11(4): private not-for-profit hospitals were rated the highest for both inpatient and outpatient care

40 Literature Reviews Schneider, E., Zaslavski, A., & Epstein, A. (2005). Quality of care in for-profit and not-for-profit health plans enrolling Medicare beneficiaries. The American Journal of Medicine, 18: quality of care in not-for-profit hospitals is higher Eggleston, K., Shen, Y., Lau, J. et al. (Jan. 2008). Hospital Ownership and Quality of Care: What Explains the Different Results in the Literature? Health Economics, 17: DOI: /hec This meta-analysis of 31 observational studies reveals no systematic difference in quality between private for-profit, private not-for-profit and government controlled hospitals Evidence from Asia Azhary, Emil. (Dec. 2009). The portrait of Indonesian hospital business. Economic Review, 218 private hospitals provide better care but are also more expensive Leng, C.H. (2008). Ownership, control, and contention: Challenges for the future of healthcare in Malaysia. Social Science & Medicine 66: Possible equity challenges from private provision Tangcharoensathien, V., Bennett, S., Khongswatt, S., Supacutikul, A, & Mills, A. (1999). Patient satisfaction in Bangkok: the impact of hospital ownership and patient payment status. International Journal for Quality in Health Care, 11(4): private not-for-profit hospitals were rated the highest for both inpatient and outpatient care

41 Summary of Evidence For-Profits compared to Non-Profits Area For Profit Efficiency + - Quality - Cost - - Outcomes - - Staffing -

42 Explanation 3 rd party payers Low responsiveness to cost / quality High information asymmetry Patients don t know what they re getting For-profits can overprovide Low risk of penalty for cutting corners

43 Issues Trust In situation of poor regulatory oversight, being able to assume intentions becomes increasingly significant Capital Mobilization In situation of rapidly expanding provision, for-profits are able to raise funds more rapidly and more efficiently than either non-profits or government.

44 Conclusions NP vs FP For-Profits seem to expand faster than than non-profits Non-Profits in OECD countries seem to have better quality, lower costs, and achieve more equitable coverage The Tax Law and Corporate Law structure that defines non-profit status may not be sophisticated enough to assure non-profits operate for charitable purposes Government or SOE-owned hospitals that function like private, fee-charging, entities are likely to be the worst possible option from a regulatory perspective falling under no clear jurisdiction, unable to control quality through employment changes.

45 Public-Private-Partnerships

46 Adapted from Taylor

47 47

48 48

49 definition Private Finance Initiative (PFI) hospital contracts Private Finance Initiative (PFI) hospital contracts are are awarded awarded and and managed managed by local by local Trusts. Trusts. The The contracts use private funding to build and maintain hospital hospital buildings. buildings. The contractor The contractor often provides often provides support support services, services, typically typically including including cleaning, cleaning, catering catering and portering, and portering, often referred often referred to as hotel to as hotel services. contracts use private funding to build and maintain services. -The performance and management of hospital PFI contracts. British National Audit Office The performance and management of hospital PFI contracts. British National Audit Office 2010

50 definition PFI Origins Origins in the UK and Australia 1992 under John Major Continued under Tony Blair Started with non-health infrastructure Highways Offices, Schools, Embassies 1993 began Hospital PFIs PFI obligatory for major projects after 1994 NHS (Residual Liabilities) Act 1996 NHS (Private Finance) Act 1997

51 Source of Capital Investment in UK Hospitals 3,500 3,000 2,500 2,000 million 1,500 1, / / / / / / / / / /00e 2000/01p 2001/02p 2002/03p 2003/04p Net government Asset sales PFI Sources: Department of Health 1997, 1998, 1999, 2000; John Sussex, Office of Health Economics

52 definition A Typical PFI Private Healthcare Providers Contract State Department of Health Assets (facility, skills, etc) New Healthcare Facility Assets ($$, land, facility, etc) Adapted from: Health Research Institute. (Dec. 2010). Build and Beyond: The (R)evolution of Healthcare PPPs. PwC pg. 7.

53 definition Funding PFIs are initially funded by the private partner The facility and facility management is then paid back over a 30 year period* by local government Private funding usually from three sources Banks Bonds Senior Debt In recent years public financing institutions have also funded PFIs EIB; SADB; IFC * years is the norm. In rare instances contracts are as low as 15 or high as 40

54 definition Funding Continued Risk of PFI is highest during construction Post-construction refinancing is common Refinancing often with (lower costing) bonds Government often obligated to buy-out project if continuation halted partway through

55 goals Goals of a PFI 1. Encourage private investment 2. Transfer risk 3. Decrease government borrowing 4. Increase efficiency

56 goals Goals of a PFI 1. Encourage private investment Effective mobilization of capital Private participation in public goods

57 goals Goals of a PFI 2. Risk Transfer Risk should be allocated to the entity most able to manage that risk Linking finance, construction, and facility management Allocation of Risk to Private and Public private partner risk: Construction delay Facility quality Partner / subcontractor coordination Public partner risk: Annual payments Oversight Utilization forecasting

58 goals Goals of a PFI 3. Decrease government borrowing Government borrowing is zero short term goals met Government obligations are fixed long term budget impact possible

59 goals Goals of a PFI 4. Increase efficiency Theory - Efficiency will be driven by: Competition Private sector profit-driven innovation Efficiency gains due to linked construction/maintenance Challenges - Efficiency undermined by: Low government capacity to write contracts Rent-seeking behavior by private partners Contract duration reduces flexibility

60 Evidence: UK PFI operations good Evidence most contracts are performing satisfactorily or better and meeting the expectations of Trusts there is strong enough evidence to say that most contracts are delivering the value for money expected of them. Available information shows the cost and performance of PFI hotel services are similar to those services in non-pfi hospitals. cleaning, laundry and portering costs are about the same whether delivered through PFI or not; catering is on average slightly cheaper in PFI hospitals; and hospitals with PFI buildings spend more on maintenance annually, because the contracts require them to be maintained to a specified high standard. UK National Audit Office Report on PFIs, 2010

61 Evidence: UK PFI construction Evidence unclear The value for money of the whole PFI contract, however, depends upon wider factors outside the scope of this report, such as potential benefits from the construction and design of the buildings, risk transfer during the construction phase or having fixed whole life costs, all set against the higher costs of private finance UK National Audit Office Report on PFIs, 2010

62 Documented Quality Problems Evidence Mkee et al.. Public-private partnerships for hospitals. WHO Bulletin 2006

63 Conclusions High Cost of Capital Public Finance Government borrows Government cost of capital paid (future taxpayers bear risk) Private Finance Borrow from banks, bond, equity markets Private capital costs more than public capital

64 Conclusions PFI vs Publicly Financed Higher transaction costs External advisors Tendering and contract negotiations Commitment risk In UK some established hospitals closed when usage declined because PFIs could not be shut down

65 Conclusions PFI vs Publicly Financed Private financing offers: Slightly lower construction costs? Fewer construction time overruns Slightly better/cheaper support services Better maintained hospitals? Higher transactions costs Higher costs of borrowing

66 Conclusions PFI vs Publicly Financed Private financing offers: Rapid mobilization of capital Rapid construction Potentially more access to skilled project management

67 Key Messages 1. PFI allows the government to build new hospitals without raising taxes or borrowing heavily (in the short term). 2. The PFI model does not provide, in most cases, high value for money. It is more expensive, and in the long run, taxpayers must shoulder this burden.

68 Other types of PPPs

69 69

70 Example: Indonesia The Hospital Act (2009) distinguished for-profit and NFP hospitals for the first time acknowledged the rights to tax incentives for the NFP hospitals Challenges: need to develop regulations to give effect to this provision. MOH should define specific criteria of NFP hospital Ministry of Finance should regulate the tax incentives

71 Example: Indonesia Indicator Indonesia Philippines Thailand Malaysia C hina C ambodia Viet N am Private ex penditure on health as % of TH E Out-of-pocket expenditure as % of private ex penditure on health H ealth Status Life expectancy at birth (years) Infant mortality rate (per 1,000 live births) U nder-5 mortality rate (per 1,000 live births) Maternal mortality ratio (per f 230 f 110 f 62 f 45 f 540 f 150 f 100,000 live births) Births attended by skilled 66 d 60 d f f 88 personnel (%) C ontraceptive prevalence (%) d e 40 f 79 c H ospital beds (per 10,000 population) H ealth System s 2.5 f a b 26 f Physician density (per 100, d 58 a 37 a 70 a 106 b 16 a 53 b population) N ursing density (per 100, d 169 a 28 a 135 a 105 b 61 a 56 b population) Midwife density (per 100,000) 20 d 45 a 1 a 34 a 3 b 23 a 19 b Key : a ) 2000 ; b) 200 1; c) ; d) ; e ) ; f) Sour ce s: W HO ( c) an d W HO SIS a cce sse d at htt p:// www. wh o.in t/wh os is/e n/in de x.h tml. Return to hospital autonomization, with PPPs encouraged

72 Conclusion Private hospitals and PPPs in Asia Growing demand / need Responsiveness to / of market Uncertainty about regulatory capacity Partnerships: Known risks and inefficiencies Potential to bypass limitations of gvt procurement Spread of government pre-eminence in finance High degree of success in mixed delivery