Thursday, August 27, 2009


Public Private Partnerships (PPP) in Healthcare will be discussed at the Medical Symposium starting on the 30th of August 2009. Is the Medical fraternity gearing up for the sale of healthcare?

Public Private Partnerships (PPPs) are inevitable in Healthcare Service Delivery and may probably redefine Human Health to include the concept that it is a commodity. Yes, there is a move towards officially recognizing health as a commodity if it hasn’t already been. Papua New Guineans are about to become clients of Private Healthcare Providers, both local and International, as they bid for PPP Health projects (worth K50 million and over) from the State as it is flooded with cash from LNG and mining projects.

Public Private Partnerships (PPP) is the theme for this year’s Medical Symposium which begins on the 30th of August 2009. It (PPP) is aimed at and improving health service delivery and boosting health indicators in Papua New Guinea (PNG). Indeed, its role as a health service delivery mechanism is to be dissected at the Medical Symposium and grafted into the National Health Plan 2010-2019.

Current Role of Private Sector

There have always been in existence certain forms of “Public-Private Relationships” in provision of healthcare. Because of the varied forms of healthcare services currently provided by private entities and not-for-profit organizations it is therefore important to define what constitutes a Public Private Partnership in healthcare. For instance, Church-run facilities provide much needed healthcare services in marginalized remote regions of the country neglected by successive governments. For years private health insurance providers have sold products to individual as well as corporate clients and many private companies provide healthcare benefits for employees. Logging and Mining Companies such as Wawoi Guavi Timber Company, Ok Tedi Mining Limited (OTML), and Pogera Joint Venture (PJV) provide primary healthcare at their operation sites as part of Tax Credit Schemes or as Community Service Obligations. Pharmaceuticals and equipment are donated by private companies and events like the Walk for Life, Health Expo and Operation Open Heart continue to receive backing from corporate entities. In recent times there has been growth of private health practitioners acting as individuals or in groups in both the formal and informal sectors..

Definition of PPP in the Health sector

Public Private Partnerships (not just in healthcare but other areas of government activity) are; according to the National Public Private Partnership Policy, commercial arrangements between the State and the Private Sector Investors to Fund, Build and Maintain infrastructure and services that the State is traditionally responsible for. The Policy states that these involve private sector investments in capital (≥ K 50 million) to fund assets that are used to deliver healthcare (and may involve recouping the investment from the public sector). The Draft PPP Bill sets the time frame as being “for a period of more than 5 years”.
Would any of the above activities qualify as Public Private Partnerships with-in the current Legal, Institutional and Policy frameworks? The legal definition differentiates Public Private Partnership projects from other forms of private sector involvement. Based on current Government Policy they would if they are involved in delivery of health services (valued at over K50 million) and were awarded concessions by the government.

PPP Policy in PNG

Currently, the Government provides goods and services directly via the public service, through privatization of State Owned Enterprises (SOEs) or by outsourcing.

Julianna Kubak, Chair of the PPP taskforce highlighted recently that in 2002 the National Executive Council (NEC) revisited the Privatization Policy and in 2003 it had considered Public Private Partnership (PPP) as a ‘method to procure and deliver infrastructure and other services through co-operation between institutions of the State and the Private Sector’. By 2007 a PPP Taskforce was formed and the National Public Private Partnership Policy that was being formulated based on three core principles of (1) Value for money, (2) Competitive Tension and (3) Transparency in procurement and service delivery.

Bruce Williamson, an Asian Development Bank (ADB) Institutional Specialist, is developing the PPP Institutional Framework based on the Victorian State Government model. The Institutional Framework involves setting up a PPP Forum, a PPP Steering Group and a PPP Centre [a Public Body as defined under the Public Finances Management Act]. The PPP Centre will operate as part of Treasury and will be headed by a Chief Executive. It will promote PPP initiatives, interface with all stakeholders in government and private sectors, and provide oversight of the implementation of PPP projects. The Centre as a Public Body will be subject to scrutiny by relevant government agencies such as the Auditor Generals Office and the Ombudsman Commission as well as its own Supervisory Committee.

The PPP projects have been categorized as (1) Economic infrastructures such as Seaports, Highways and Airports (2) Social Infrastructures such as Hospitals, Prisons and Housing and (3) Environmental infrastructures such as Landfills and Waste Treatment Plants, etc….

The National Public Private Partnership Policy document states that the policy will apply to projects valued at K 50 million and above. It states also that any project valued at K50 million and above will be processed for its suitability as PPP project but not all suitable projects will be implemented as PPPs. PPPs will be selected from existing projects in the National PPP Infrastructure Pipeline at the Department of Planning and Monitoring. It is then the role of the PPP Centre to prepare the project, get a partner from the private sector and award the contract, along with the necessary NEC approvals. PPP projects differ from current delivery mechanisms in that the nature of Partnership between the State and Private Enterprise means that risk is shared between the parties and payment is dependent on actual service delivery. The policy document states that PPP is not a panacea thus implying continuation of traditional methods of procuring infrastructure and services via the Central Supply and Tenders Board.

Models of PPP in Healthcare

Raj Kannan, an Asian Development Bank (ADB) Expert, presents existing PPP models as ranging from simple PPP projects such as providing services or management of existing [health] infrastructure to more complex partnerships involving infrastructure development, management and transfer. These include DBFO (design, build, finance, operate), BOO (build, own, operate), BOOT (build, own, operate, transfer), BOLB (buy, own, lease back) and the Alzira model (Private contractor has contract to provide care for a defined population).

The delivery of each project as layed out in the policy document involves Department of Treasury managing fiscal commitments of the State, the Contractor delivering the project an the Client (Government Agency) supervising the project. Philip Kelly notes that the PPP project is quite complex in its nature that the proposed PPP Bill will exempt the project from Part VII of the Public Finances (Management) Act. To give you an idea of its complexity, it takes about 18 months just to get a project from conception of project to the awarding of contracts.

According to Bruce Williamson, an Asian Development Bank (ADB) Institutional Specialist, choosing a PPP model for service delivery will depend very much upon how that service is defined. In terms of Health and access to Healthcare it should they be defined as commodities or as a human (perhaps constitutional) rights.

Advantages/Risks Involved

The main advantages of PPP is that it allows the Government to do what its best at i.e. regulation and land acquisition while the private partner does what its best at doing: project management and support. This ensures speedy delivery of the project. In addition, businesses bear the performance risk unlike current arrangements. Thus, Project nonperformance or defects lead to a loss on the part of the investor. What this means for healthcare is that projects are completed in a functional form and are maintained. While this may sound wonderful, it is important to note that investment risks associated with doing business Papua New Guinea may impede many Private Partners from directly financing or acquiring capital of the magnitude required to finance PPP projects. Thus investors may demand too many concessions from the Government.

Experts recognize that PPPs involve massive fiscal risk. In entering into an agreement with the investor, the government assumes long-term fiscal obligations. These may be in the form of direct debt obligations, fixed income guarantee or as seen recently in the US, bailouts. Critics argue that therefore funds could be used to prop-up existing delivery mechanism which have been chronically under-resourced. However, advocates argue that PPPs are catalysts for infrastructure and service delivery which would not otherwise occur.

Financial support for the project is especially critical in healthcare due to the fact that any interruption of service due to financial difficulties will definitely cost lives. Ultimately, the Government must guarantee to its people that they will consistently receive the health services they deserve even if the private provider goes bankrupt.

Fortunately for PNG, we are not inventing the wheel. PPP policies exist in over 100 countries worldwide for over a decade and the experiences of these countries provide us with tips on how not to do things. The current PPP frameworks are adapted from the Victorian Government in Australia.
The key term in PPP is partnership and it requires the state and its partners to be aiming to achieve the same goals not just in healthcare but elsewhere. It will be interesting to see how not-for-profit organizations and Church-run Health services respond to this policy.