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Lesotho hospital public private partnership: new model or false start?

A new $120m privately financed hospital in Lesotho capital Maseru, the first in Africa to be built through a “Public Private Investment Partnership” (PPIP), and claimed a “success” by the World Bank, is already mired in controversy.

Just days after finally opening its doors the showpiece 390 bed Queen ‘Mamohato Memorial Hospital, which replaced the crumbling 450 bed Queen Elizabeth II Hospital in central Maseru, hit the headlines when it turned away an expectant 24-year-old woman, Metsana Rapotsane.

The incident triggered an investigation by the Ministry of Health, amid public questions over arrangements for urgent care and emergencies at the new hospital – which according to the World Bank is supposed to “operate as the national referral hospital as well as the district hospital for the greater Maseru area”. 
 
From the outset this project has received significant backing from the World Bank. The private sector arm of the World Bank Group, the International Finance Corporation (IFC), which describes itself as “a pioneer in the implementation of public-private partnerships in health” has supplied technical assistance, and a World Bank International Development Assistance (IDA) grant of US$6.25 million was provided through the Global Partnership on Output-Based Aid. Since before the hospital was built the World Bank’s marketing machine has been in action, showcasing this ‘truly exciting’ partnership as a successful model to be replicated elsewhere in Africa. These claims seem dangerously premature.

The Queen ‘Mamohato Memorial Hospital is built and run by a consortium headed up by South African private medical giant Netcare. The company is struggling to free itself of the disgrace caused by its involvement in the sale of kidneys between 2001 and 2003 – a number of them purchased from children – for which Netcare was fined £700,000 last year, with the possibility of further court action.

The 18-year government contract with Netcare involves the building of the new 390-bed hospital to replace the 450 in the closed Queen Elizabeth II, the provision of clinical services at the hospital and three filter clinics, and the ongoing training of health staff. In addition to the new hospital the PPIP scheme also financed the construction of a deluxe 35-bed private patient unit to serve Lesotho’s wealthy elite. The private unit will be run separately by Netcare who will keep all of the profits.

In return, the Lesotho government will pay a US$32.6m index-linked annual “unitary charge” to Netcare for the hospital and services. Given that the annual budget for the QEII hospital and the filter clinics in 2007/08 was less than $17m this represents a massive 100% increase in costs and throws into doubt claims that the project is ‘cost neutral’. This is at a time of sharply falling government revenues and after the government has already invested $62m ($51m in capital up front and another $11m in infrastructure costs).

The Queen ‘Mamohato Memorial Hospital is “to treat all patients who present at the hospital” – up to “a maximum of 20,000 in-patient admissions and 310,000 outpatient attendances annually”. This seems a very low cap for the country’s main hospital when official figures show a national hospitalisation rate of 3.2% of the population each year, equivalent to 64,000 patients. Patients treated above this agreed maximum will presumably have to be paid for either by the government or patients themselves thus further adding to the cost of the deal. The annual charge for the hospital, soaking up a third of Lesotho’s recurrent health budget[1], also threatens to distort national health spending and likely put desperately needed expansion of primary health care for Lesotho’s majority rural population beyond reach.

The unfavourable terms of the contract can be traced back to a lack of relevant expertise among those in Lesotho negotiating the contract terms and an apparent failure of the IFC, who acted as consultants on the project, to provide sound advice. A “Baseline study” by the Lesotho-Boston Health Alliance warned in 2009 that: “At present, sufficient expertise in hospital operations, financial oversight and analysis and systems analysis to manage the PPP contract in the interests of the Government and people of Lesotho does not exist.”

This was very much to Netcare’s advantage and under the existing agreement its consortium members can profit in several ways:

  • a guaranteed profit on the capital investment,
  • plus a very healthy 10% guaranteed return on its operating budget,
  • plus payment for any additional patients treated above the contract maximum (with no information available to the fees Netcare will be able to charge).
  • an effective government subsidy for the building of a 35-bed private wing at the hospital – with all profits kept by the consortium.
  • Netcare as the largest operator of private hospitals in South Africa can make more money by sending patients for specialist treatment not covered by the PPIP contract, including  radiotherapy to its hospital in Bloemfontein or elsewhere. There appears to be no limit on numbers, or the prices that can be charged for these externally treated patients, and no incentive for Netcare to reduce referrals[2] 

The problems with the PPIP deal are not unique to Lesotho. In the UK, where 100 hospitals have been built through various “private finance initiatives”, £11 billion worth of new hospitals are set to cost UK taxpayers £65 billion – far more than just borrowing the capital. In August this year a UK House of Commons Select Committee report concluded that private financing is an ‘extremely inefficient method of financing projects’.

The new referral hospital is a good deal for Netcare but less good for Lesotho. It also appears inconsistent with the IFC’s commitment, as part of the World Bank Group, to wider values of equity and calls into question whether the World Bank really works in the interest of efficient and equitable public spending for health.

There is no question that a new hospital was urgently needed to replace the QEII. However, did anyone ask whether this could have been better financed through a low interest World Bank loan? The details of the Lesotho PPIP contract have so far been shrouded in secrecy but given that this is the first major hospital built in Africa through a “Public-Private Investment Partnership” a rigorous evaluation of the initiative – including complete transparency about the costs – will be essential.

As it stands it seems a sizeable and growing share of Lesotho’s health budget will be locked in to a scheme that guarantees payments and profits to Netcare and other shareholders at the expense of Basotho patients and taxpayers.

John Lister is a freelance journalist with over 27 years’ experience in analysing health policy for pressure group London Health Emergency, and now senior lecturer in Health Journalism at Coventry University. His PhD is in global health policy, and his books include Health Policy Reform, Driving the Wrong Way? (2005) and The NHS After 60, for patients or profits? (2008).

[1] The recurrent health sector budget in 2010/11 was just over $100 million. Budget Speech to Parliament for the 2010/11 fiscal year.
[2] In 2006/07 FY $24.8 million was spent on 3,281 external referrals, of which 55% were oncology cases. Lesotho Health Systems Assessment 2010, p.22

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9 Responses to “Lesotho hospital public private partnership: new model or false start?”

  1. Dr Jon Rohde says:

    The private sector is out for profit – full stop. they should stay out of health care which is a social responsibility. one only need look at the US system to see the huge costs and neglect of real need.

  2. Liz Clark says:

    Terribly frustrating. I worked on the national baseline assessment in 2006 as part of the Lesotho-Boston Health Alliance. While I agree the MOH needed to replace Queen 2, there are no financial incentives or controls in place to create specific outcomes at Queen Mamohato. Worst yet would be for this hospital to economically collapse leaving the Maseru catchment without any health services.

  3. Githinji Joseph says:

    This is a good case study on how to implement PPP as African governmnets move towards increasing access and equity in health care delivery. I do a agree it is easier for the government to take a loan to built a hospital and if possible just contract private hospitals to provide required servises.

  4. Dr Olayinka Ayankogbe says:

    This is not the way to fund a public private partnership for health in Africa. There are other more excellent ways promoted by IFC. I know because I have attended 3-4 webinars by PSP-1 supported by USAID. Please do not let us throw away the baby with the bath water. The health of Africa is so horrendous that we must continue to seek a workable public/private mix for health

  5. John Lister says:

    Dr Olayinka Ayankogbe is right in one respect: there are better ways to use private money to help improve health care in Africa.

    The question is whether the IFC, the explicitly pro-privatisation wing of the World Bank, is the right organisation to do it, or even looking for ways to use private money in a progressive way, rather than simply backing existing profitable businesses.

    It’s worth remembering that it’s nearly five years since the IFC itself held press conferences and waged a huge publicity campaign around the report drafted for them by McKinsey, Business of Health in Africa. The message was simple, if controversial and unconvincing: that the private sector was already playing a large, central role in delivering health care (although which “private sector” this referred to was a matter of debate), and that the prospects were rosy for private provision to expand profitably in an increasingly prosperous Africa. To kick start this the IFC proclaimed its ambition of launching a $1 billion investment fund for health in Africa.

    In the end two, similarly named, funds were launched with IFC support, both private equity funds, run from a tax haven, and each raising far less than planned – around $50m each.

    But $100m is a lot of money in Africa. It would have almost paid for the new Lesotho hospital. So how has it been spent?

    It hasn’t: just $2.6m has been invested in a private hospital in Nairobi. The rest of the money sits in bank accounts. It’s clear that there are no suitably profitable projects in health in Africa, so private equity will not invest.

    Nor will the IFC invest on its own account: its only recent health investments in the African continent have been in for-profit hospitals in Egypt. Less than 2% of its portfolio kis health-related.

    The World Bank however, which is not so obsessed with generating profit, could usefully lend governments like Lesotho the capital they require to build new hospitals and establish better health services.

    So why don’t they?

    It seems that PPP has bewitched the Bank, and diverted them from their real business, even though PPP/PFI has been a costly failure in England, and everywher is a high-cost gamble that is building up long-term problems in Turkey and elsewhere.

    It’s not consistent with the WB or IFC commitment to equity in health care. It should be dropped as a policy.

    And the IFC should either invest the money given years ago by donors to develop Africa’s health care, or give it to those who will.

  6. This is just the beginning of more revelations of how the project has failed both consumers and the government of Lesotho. The closure of the Queen II was not an optimal decision. When netcare is squeezed about its poor services at Queen Mamohato they claim to learning through experience.

    Patients, health professionals government officials are all worried about this initiative that was imposed by corrupt politicians.

    Shareholders of Tsepong are currently involved in legal battle on revenue sharing while Basotho are being denied an essential service.

    For those who are looking for more evidence just drop an email director@cpa.org.ls

  7. Lineo says:

    I am a Lesotho national. Its mind blowing to see it in print. The deal is useless and not beneficial to the average Mosotho (Lesotho citizen). Not only has the hospital been marred by controversies and ill-treatment of patients, a huge failure of our health system has started through this consortium. It is indeed sad that our government up to now still fails to make use of the expertise of its people in negotiating such deals. I refuse to believe that we do not have knowledgeable people who would have sort a better deal> The big question is who negotiates these deals? what level of understanding and comprehension of not only the results but also alternatives does he have. Sadly, you look at our current cabinet and we have got back 5 decades in terms of skills and knowledge. Thanks for a well written piece.

  8. Listers view is a very incomplete and one-sided analysis of the Lesotho PPIP. Please see the Endline Study just completed by Boston University on the results of the Lesotho PPP. http://www.linked in under Neelam Sekhri Feachem. Endline Study Lesotho PPP.

    Yes, costs increased but so did quality and access- significantly. That is a given. All those who are knowledgeable in health systems and health financing, understand the iron triangle of cost, quality and access. If you improve quality and access, costs WILL go up. No country has shown that it can be done any other way including the UK.

    Many countries in Africa and elsewhere need improved heath care quality, access and outcomes. Old approaches have not worked. New ones need to be tried, lessons learned and refinements made. Ideological stands in dealing with technical health systems issues are not productive. Lets learn from Lesotho and make improvements where needed. Lets not go back to higher mortality rates,, unacceptable quality, and inadequate access because it costs more to do it better!

  9. Saju says:

    Dear All
    it is interesting to read the Comments.
    what we need to understand is that Lesotho is a small country with No Medical school or doctors.

    if Govt build it through low interest loans who will hire the doctors, who will run the show, they dont have the expertise- from where will they get all these resources.

    The best way is to have a private player to man the show, that is what many govt too.

    I agree with the fact that they should have more transparent structure for treating patients above the contract.

    I hope things will improve as days go by

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Global Health Check was created by Anna Marriott and is currently edited by Mohga Kamal-Yanni