EuHPN WORKSHOPJUNE 2005 OULU

1. EuHPN WORKSHOPJUNE 2005 OULU AUSTRALIAN EXPERIENCES IN PPP AND PFI ANNETTE SCHMIEDE

2. World Bank Study • World Bank commissioned study of hospital conversions in late 2003.Focus was on lessons learned for developing countries. • Germany, Sweden and Australia. • Experience of hospital conversions “conversion of public hospitals to privately owned and operated hospitals that provide services back to the government, under contract, for public patients.’ • Today will look at the Australian experience of PFI.

3. WB Terms of Reference • It is unlikely that we will see this form of contract in Australia again. • Governments now turning slowly to the more traditional form of PFI. Build and operate, no clinical services. • World Bank wanted a case study approach examining the political economy of reform; the tender process;goverance arrangements;allocative and technical efficiency;implementation; success and factors militating against success;community involvement and reaction;lessons learned dfor developing countries. • Study relied on available official reports, usually govt audits, original research and personal experience. Budget was limited.

4. Australia’s Health System • Australia’s health system including hospitals is a mix of public and private. • Under Australia’s national health insurance system all residents have access to hospital services through public hospitals. These public hospitals provide the bulk of services and undertake teaching and research.

5. Australia’s Health System • Private hospitals are an essential component of the health system. They do almost half of all surgical episodes, the fee for service reimbursement system for doctors and medical services is partly driving this. • Private hospitals owned by charitable groups (mainly religious) and investor companies. • Total health expenditure $60bill 9% gdp. National govt funds services, state govts provide and regulate.

6. History • In the 90’s Australia adopted entrepreneurial strategies to stimulate improvement in public services and infrastructure. • These began in the UK with Thatcher • The creation of market pressures, contestability and innovation. • Purchaser provider splits

7. History • The Australian PFI experience began in early 1990’s. It was a radical policy move as the contract included both the provision to build own and operate all services including clinical services. Contract for 20 years, called BOOT’s, build own operate and transfer. • There have been seven of these projects across four Australian states, the last one opened in 2000 in Queensland.

8. Economic Drivers • The driver of much of this reform in Australia was the poor economic situation of many state govts. • Early nineties Australia like much of the rest of the world was emerging from a severe recession. • State revenues were static, govt. debt was high and demand for services was growing. • State govts. were restricted in being able to raise loan funds. Off balance sheet transactions involving the private sector were seen as a way around these constraints.

9. Economic Policy • A main driver of health system reform of which the hospital conversions were part, came out of macroeconomic policy reform NOT health policy reform. • Treasury was setting health policy not Health Ministries.

10. PFI Objectives Stated objectives were; • Accelerate the upgrade of health services infrastructure by gaining access to private funds • Optimise efficiency and effectiveness of services delivery through introducing a measure of competition between service operators and enabling greater flexibility in operational management • Improve accountability for the delivery of health services by separating the role of service operator from those of purchaser and regulator, specifying the nature and quantity of services and the criteria for assessment of quality and introducing guarantees of access and sanctions for non performance.

11. PFI PROJECTS

12. Results • Australian experience includes successes as well as failures. Three out of the 7 projects have reverted to govt ownership well before the end of the contracts, which were usually 20 years. • No systematic evaluation of each project against stated objectives and actual outcomes. • No evaluation to determine if they are delivering quality services at a comparable or lower cost than the govt.sector. Contracts required services to be discounted to govt. benchmarks. • The rest of the presentation will look at some of the findings of the study that may be of interest to EuHPN.

13. Contract issues • These have included ideological opposition to the projects following changes in state governments. • Failure to negotiate acceptable annual operating budgets. • Disputes over the methodology for covering price increases, CPI versus real cost increases.

14. Findings • Risk exposure for operators around open ended demand, particularly with A&E services. • Some projects have subsidised A&E services by up to $1mill per annum. • Growth assumptions in tender documents not reflected in annual operating budgets. • Bureaucratic opposition, proposals mainly came from asset management and capital works branches. Service and policy areas were often opposed. Once facilities completed responsibility passed to these areas. • Relationships often adversarial.

15. Benefits • The major demonstrated benefit has consistently been health facilities delivered at a reduced initial capital cost over what govt’s could deliver. • Shorter delivery time frames mainly due to the streamlining of the planning, design and building process. • Space used more efficiently by private operators. • Lifecycle maintenance built into the pricing, allowing generous maintenance and replacement over the contract period, usually 20 years.

16. Process Issues • All of the conversion projects were initiated by conservative governments. Supportive of economic rationalism, small government and private sector investment. • First project unleashed significant opposition in political and health policy circles. • To overcome some of this opposition some projects were only open to charitable private health operators.

17. Process Issues • Competition was fierce in finance and legal circles to advise govt and operators and earn the lucrative fees. • Financing and ownership structures were complex. • No standardised approach across the country each state and almost each project differed in approach contract fundamentals and project structure.

18. Process Issues • Public servants lacked experience and knowledge. The private operators were building skill and expertise. • Methodologies used by government to set ongoing prices has not always been transparent consistent or logical. • Pricing methodologies were complex and not easily benchmarked to govt. services.

19. Process Issues • Probity requirements were onerous and did not always lead to sensible processes. • Naïve view that the private sector had the skills and experience to deliver projects. One failure due to the inexperience of the operator.

20. Lessons • Policy intent should be overt, not policy change by stealth. • The community must be supportive. • Process must be understood and driven by health not treasury. • Health policy implications need to be clearly understood. • Clarity about the role of the private sector in the overall health system. • Understand the real costs of providing govt services, capital and operating. • Accurate awareness of the capacity of the private sector to participate. • Risk allocation must be equitable. • Goodwill and commonsense.

21. Where to from here • Most states moving cautiously. • Largest project just announced in Victoria. Major hospital project. • One other acute hospital project completed in Victoria. • Some non acute facility partnerships completed, community health, aged care in NSW. • No proposals for public clinical services to be contracted.