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IFC’s ‘model’ health public private partnership threatens to swamp country’s health budget

Lesotho has a new hospital – built and operated under the first public-private partnership (PPP) of its kind in any low-income country. The IFC advice and promise was that it would cost the same as the public hospital it replaced. Instead the PPP hospital is costing the government 51% of their total health budget while providing 25% returns to the private partner and a success fee of $723,000 for the IFC.

In a report released today, ‘A Dangerous Diversion’, Oxfam and the Consumer Protection Association (Lesotho) explain how the Lesotho health PPP was developed under the advice of the International Finance Corporation (IFC – the private sector investment arm of the World Bank) and now costs the government $67 million per year, or at least three times the cost of the old public hospital. The hospital is reported by the IFC to be delivering better outcomes in some areas. But the biggest concern is that as costs escalate for the PPP hospital in the capital, fewer and fewer resources will be available to tackle serious and increasing health problems in rural areas where three quarters of the population live.

A consortium called Tsepong Ltd – among whose shareholders are South African healthcare giant Netcare – won an 18-year contract to build and run the new 425-bed hospital. Its return on investment is 25%. The PPP is the first of its kind in a low-income country and more ambitious and complex than the majority of PPPs attempted in high-income contexts. Not only is the private consortium responsible for designing, building, maintaining and partly financing the hospital, it also provides all clinical services for the contract period.

Since well before the PPP contract was even signed (in 2009) the IFC was busy marketing it a major success, proposing it as a model for other countries to replicate. In 2007, Bernard Sheahan, the IFC‘s Director of Advisory Services, said:

‘This project provides a new model for governments and the private sector in providing health services for sub-Saharan Africa and other regions. The PPP structure enables the government to offer high-quality services more efficiently and within budget, while the private sector is presented with a new and robust market opportunity in health services.’

And despite a significant body of evidence highlighting the high risks and costs associated with health PPPs in rich and poor countries alike, similar IFC-supported health PPPs are now well advanced in Nigeria, and in the pipeline in Benin. The IFC’s health PPP advisory facility has financial backing from the governments of the UK, the Netherlands, South Africa and Japan.

So why is the PPP so expensive? There are multiple and wide-ranging reasons outlined in the new report and in a previous blog authored by Dr John Lister on this site. Some of these seem inherent to health PPPs and raise serious questions about why the model was pursued in a low-income, low-capacity context. Other cost increases appear to be a result of bad advice given by the IFC.

It is accepted that borrowing capital via the private sector will always be more expensive than governments borrowing on their own account. The theoretical cost saving and value for money potential of PPP financing and delivery therefore lies in effective risk transfer to the private sector and, in turn, the effective management of that risk by the private sector in the form of improved performance and greater cost efficiency in its operations. In the case of Lesotho, this potential benefit has not been realised, and the costs are already escalating to unsustainable levels. As savings on clinical services have not been delivered, it is even more important to raise serious questions about why cheaper public financing options were not pursued.

The biggest losers of the Lesotho health PPP are the majority of Basotho people who live below the poverty line in poor rural areas, who have little or no access to decent healthcare and where mortality rates are high and rising. Amongst the most severe challenges facing the health system is the shortage of health workers. Yet while the budget line covering the health PPP will see a 116% rise in the next 3 years, the health worker budget will see below inflation annual increases of just 4.7%.

As the country‘s health financing crisis escalates, the option of reintroducing and increasing user fees at primary and secondary level facilities has already been tabled for debate. Such a devastating and retrograde move in Lesotho would further exacerbate inequality and increase rather than reduce access to healthcare for the majority of the population. World Bank President, Jim Yong Kim, recently stated that user fees for healthcare are both unjust and unnecessary. In an interview just last week in the UK’s Guardian newspaper Kim said:

“There’s now just overwhelming evidence that those user fees actually worsened health outcomes. There’s no question about it. So did the bank get it wrong before? Yeah. I think the bank was ideological.”

To ensure ideology rather than evidence is not driving the IFC’s continuing promotion of health PPPs in poor countries, our report calls for a fully independent review using peer reviewed evidence to question the appropriateness, cost-effectiveness and equity impact of this model. Oxfam and the Consumer Protection Association (Lesotho) also say that the IFC’s role in exposing Lesotho to such a high-risk, high-cost long-term contract should be investigated and, until then, the World Bank should stop all IFC advisory work in support of health PPPs.

 

Anna Marriott is the author of A Dangerous Diversion’ and editor of Global Health Check.

 

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2 Responses to “IFC’s ‘model’ health public private partnership threatens to swamp country’s health budget”

  1. David Rowe says:

    Lesotho is one of the really poor countries of the world. I fully support the proposal for a fully independent review. Also there is need to consider what resource (if any) can be tapped to relieve Lesotho of the extra costs with which it is apparently loaded.

  2. Nyananso Ekanem says:

    This should be a note of warning to all Governments, especially in developing countries, entering into PPP transactions without a firm grip and understanding of the fiscal (and other) medium to long term liabilities to Government. In reality, there are medium to long term commitments in PPP transactions that will need thorough appreciation and preparedness for successful implementation. The IFC, working with Governments in developing Countries, has delivered a number of very successful PPP transactions. I strongly recommend that Governments should strengthen their in-house PPP teams with experienced and independent minded advisors that can present the reality of things to come in a transaction before contract close.

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Global Health Check is edited by Anna Marriott, Health Policy Advisor for Oxfam GB, and welcomes contributions from different authors. If you would like to write an article for this site or if you have any queries please contact: amarriott@oxfam.org.uk.