Public private partnerships (PPPs or P3s) are increasingly presented as a solution to funding issues in health care. PPPs are relatively new to the health care sector in Canada. However, they are not that new to other segments of the Canadian public sector and there is considerable experience with health care PPPs in the U.K. We can learn a lot from these experiences.
In 1999 CUPE commissioned Professor John Loxley of the University of Manitoba to coordinate a series of studies on existing PPPs. Professor Loxley was instructed to be rigorous in his examination of the economic underpinnings and outcomes in public private partnerships.1 The results are stunning. None of the PPPs lived up to their promises. Rather, the studies identified a lengthy list of problems.2 The shortcomings include:
- Governments exaggerated the savings on both capital and operating costs.
- The cost of private sector borrowing was well in excess of the government’s costs.
- Governments accepted almost all of the risks leaving the private sector with little or none. This is in spite of private sector claims that one of the benefits to government is the shift of risk to the private sector.
- PPPs offer no evidence of improved service levels.
- Private sector involvement leads to information being classified as sensitive to business interests resulting in a loss of accountability to taxpayers.
- There is a high probability that the service or building will have foreign ownership. Even if the ownership is domestic in the first instance it can easily be shifted off shore as corporate interests are sold or merged. 3
- If user fees are to be charged there likely will be no limit in the amount of the fees or the profits made by the private sector player. Toll roads are a primary example of this but there is no reason to assume that the same principle won’t apply in health care.
- A major motivation for government is to shift the debt of these projects off their books through lease back arrangements. It doesn’t work. The liability still belongs to the government.
- Potential liability for performance problems by the private sector partner may become the responsibility of government as was the case in an environmental spill in Hamilton Wentworth.
- Senior government personnel can be drained away by the private sector partner diminishing the capacity of government. Often these senior managers were part of the group awarding the contract to the private sector in the first place. This raises significant accountability problems. Information and decision making must be transparent.
- Fragility of the private sector company in a volatile market can result in meaningless performance guarantees.
- Workers pay a price in PPPs as wages, benefits and pension funds can be sacrificed in a PPP agreement over which they have no control. Workloads are often increased significantly placing workers under tremendous pressure to meet service guarantees.
This list is not an exhaustive one.
The PPPs in these case studies were all public sector capital projects and services. None were in health care, but there is no reason to believe the situation would be any different if they were.
In fact, a similar type of arrangement was attempted in Manitoba with the creation of a centralized hospital food system through the Urban Shared Services Corporation (USSC). To say that the system was a disaster is almost an understatement. The USSC went grotesquely over budget. There were massive complaints about the quality of the food that was prepared in the facility using the “cook-chill” method. There were serious supply problems where the demands of facilities could not be met. In fact, the two major hospitals in Winnipeg were not receiving food from the USSC even though they were partner members of the new corporation.
Ultimately, a new plan had to be developed (after a change in government) and kitchen facilities had to be upgraded in the major hospitals to meet food service demands.
Nova Scotia experimented with PPPs in their school system. The provincial government withdrew from these projects after it was revealed that there were no cost savings to be had - in fact the costs may even have been greater over the long run. In Finance Minister Neil LeBlanc’s own words, “The former government tried to use accounting to push the costs of new schools off-book, but they didn’t fool our lenders or taxpayers. Debt is debt is debt, and we must account for it.”4
In Prince Edward Island the government pulled out of a PPP hospital in Prince Edward County after it determined that the cost of building it would be higher than if the government built it itself.
International experience with PPPs is far more extensive and damning. In the UK “Private Finance Initiatives or PFIs” have been studied extensively. 5 A British Medical Journal editorial called PFIs “perfidious financial idiocy.”6 Not only are they not cost effective, they have an adverse effect on the number of beds available to the community. The Trusts set up to build new facilities could not afford to build enough beds to meet the health care demands in the community.
Allyson Pollock of London University reports that PFIs have been accompanied by “major reductions in quality and access, growing waiting lists and a two-tier system. Those who can afford to are paying privately for care.” 7 Further she reports that PFI hospitals have resulted in a 30 per cent reduction in beds and a 25 per cent reduction in staff budgets. Quality of health care cannot help but suffer under these conditions.
PPPs in primary care are also under scrutiny in the UK. A recent study conducted by the independent King’s Fund and the NHS Alliance warns against pursuing partnerships with the private sector for primary care services unless there are guarantees that staff and health services will not be jeopardized.8
The study issues three warnings about private sector involvement: 1) Using private facilities for services previously provided by NHS hospitals may result in extra costs and threaten specialist services. 2) Private sector providers do not have the same quality control systems as the NHS. 3) Using public private partnerships may simply be an exercise in cutting costs at the expense of staff pay and working conditions.
In a separate paper the King’s Fund points out that even if one were to accept that public private partnerships could work, it would require significant government regulation9 - regulation which governments are not prepared to provide and private interests doubtless will not be prepared to accept. As a result the cost of regulation and enforcement will likely outweigh any competitive advantage the private sector may claim.
Almost every PPP is sold to the public on the basis that it will be cheaper The major motivating factor for governments is that somehow this will take them off the hook for health expenditures for services and for infrastructure. The fact is that few ever meet this standard and in the process health services suffer.
And unfortunately, such a policy ignores the motivation that is most germane to health care - that citizens are entitled to health care irrespective of their human, social or economic condition. Health policy should not be formulated in the rarified atmosphere of economic theory that has as its single-minded mantra ’the private sector can always do it better.’
The claim that we cannot afford health care without private capital and private delivery systems needs to be re-examined in light of the growing body of evidence that PPPs are not cost-effective and that the quality of services they deliver are sacrificed for profits.
1 Salim J. Loxley, An Analysis of a Public Private Partnership: The Evergreen Park School, Moncton, New Brunswick, CUPE, March 30, 1999; Salim J. Loxley, An Analysis of a Public Private Partnership: The Confederation Bridge, CUPE May 15, 1999; Salim J. Loxley, An Analysis of a Public Private Partnership: The Hamilton Wentworth Phillips Utilities Management Corporation PPP, CUPE September 1999; Shaunna MacKinnon, An Analysis of a Public Private Partnership: Business Transformation Project, Government of Ontario, Ministry of Community and Social Services and Andersen Consulting, CUPE October 6, 1999.
2 These problems are common to most of the cases examined although some are more pronounced in some instances than in others. Each of these shortcomings is a real criticism drawn from the four case studies undertaken by Prof. Loxley.
3 This is exactly what happened in the Hamilton Wentworth water treatment plant as Phillips was sold to Azurix - a large foreign controlled multinational.
4 Nova Scotia Department of Education News Release, “New Plan for School Construction,” June 21, 2000.
5 See Allyson Pollock et al. A Response to the IPPR Commission on Public Private Private Partnerships, The Catalyst Trust, June 26, 2001. The British Medical Journal has also published extensively on the subject. See Gaffney et al. “NHS capital expenditure and private finance initiative,” British Medical Journal, 319: July 3, 1999; Gaffney et al. “PFI in the NHS - is there an economic case?, British Medical Journal, 319, July 10, 1999: Pollock et al. “Planning the ’new” NHS: downsizing for the 21st century,” British Medical Journal, 319: July 17, 1999; Gaffney et al. “The politics of the private finance initiative and the new NHS,” British Medical Journal, 319, July 24, 1999.
6 “PFI: perfidious financial idiocy,” British Medical Journal, 319: 2-3, July 3, 1999.
7 Edmonton Journal, October 24, 2001
8 Michael Dixon and Steve Gillam, Public Private Partnerships and Primary Care, King’s Fund and NHS Alliance, October 2001. 9 Anthony Harrison, Developing the Public Role in a Mixed Economy, King’s Fund, November 2001.