Public Traps for the Naive and the Unwary; Grattan Institute Health Program Director Stephen Duckett* Writes about Public-Private Partnerships

Article excerpt

PUBLIC-private partnerships for new hospital developments are again in vogue in Australia, with recent announcements that Sydney's new northern beaches hospital and the new Sunshine Coast University Hospital will be developed under those arrangements.

Such partnerships can have a variety of forms. One model is for a private company to take responsibility for both building a new hospital and maintaining the building for a 20- or 50-year period.

The costs of the building and the maintenance are paid through regular facility payments over the life of the building.

This means the state government doesn't have to pay the full capital costs up front and it reduces the immediate debt burden on the state's balance sheet.

The proposed Sunshine Coast University Hospital goes further, with private-sector management to take responsibility for all aspects of service provision, including clinical care.

Ostensibly, private management will drive efficiency more rigorously than public management because of the desire to generate profits, potentially leading to cost savings to the state government.

This "transfers the risk" of aspects of system performance, including failure of management to achieve efficiency targets, from the public sector to private sector managers.

In announcing the complete outsourcing of services at the Coast hospital, Health Minister Lawrence Springborg also released an assessment by consulting firm KPMG of the various outsourcing options.

KPMG gave the "full outsourcing" model five out of five for the ability to transfer risk, noting that:

Significant transferred risks include operating cost risk, performance risk, industrial relations risk, and compliance with laws and standards. In addition, (the government) should be able to transfer a degree of demand risk through annual purchasing agreements.

But public-private partnerships are far from risk-free for governments.

Chequered past

Public-private partnerships or private contracting in Australia have a chequered history and many such arrangements have collapsed.

The Queensland government's announcement it would outsource the Coast university hospital, for instance, was made in the same week the Victorian government decided to buy back the buildings of the privatised Mildura Hospital to facilitate a much-needed expansion.

Public-private partnerships for private hospitals are typically long term.

This carries democratic risks, as the South Australian Auditor-General pointed out, because the contracts "can extend for periods in excess of the life of a particular parliament and, on the basis of historical experience, the government of the day".

A former Commonwealth Auditor-General, Pat Barrett, has also raised the issue of accountability in public-private partnerships, suggesting that:

Commercialisation and privatisation can strain the thread of accountability between executive government and the elected representatives of the people in parliament.

Public-private partnerships mean state governments don't have to pay the full capital costs up front.

These democratic risks are not mentioned in the KPMG appraisal, and apart from noting their materiality, nor are the potential future costs to a government that may wish to renegotiate a contract to take account of changing demographic, disease or clinical practice patterns.

Obviously a government's ability to accrue risk-transfer benefits crucially depends on the nature of the contract between government and the private sector "partner".

Such contracts are difficult to write, and many public-private partnerships are "asymmetrical" in the sense that risks are not evenly shared or appropriately transferred, with the private partner gaining more than the public funder.

Contracts for hospital services face added complications. …