15 minute read
PPPs in good health By Jeff Hutton
PPPs in good health
BELOW: Patient room at Joondalup Health Campus
Australia was an early adopter of public private partnerships (PPPs) in the health space, and it’s largely been a positive experience, in spite of some difficulties with the very early model. But times are changing, and Australia is heading back to the future – this time backed with global expertise and a much more mature and experienced public and private sector.
Australia was one of the first countries in the world to trial PPPs in the healthcare sector. Between 1992 and 2000, state governments in New South Wales, Victoria, Queensland and Western Australia signed seven first-generation PPP agreements, including Port Macquarie Hospital in New South Wales, which was the first health PPP to be developed in Australia.
The early health PPPs bundled core clinical services in with the hospital’s finance, construction, and maintenance and operation.
Known as full-service PPPs, they came to prominence as state governments turned to the private sector in a bid to bring down the escalating and inefficient costs of public healthcare.
There were the inevitable teething problems. Operators had trouble agreeing on budgets, calculating price increases and assessing how much risk the private sector would need to accept.
Three of the projects, including Port Macquarie Base Hospital, reverted back to the government well ahead of their contracts, which saw governments
retreat to a more straightforward model, with the PPP used for the asset, and the public sector delivering core services.
PwC Infrastructure Partner, Martin Locke, says that the experience at Port Macquarie and LaTrobe Regional Hospitals in Victoria soured the appetite for full-service health sector PPPs in the eastern states.
This trend has been reflected in recent major health projects – such as Sydney’s Royal North Shore and Melbourne’s Royal Children’s and Royal Women’s Hospitals – with Australia’s governments mostly limiting the scope of hospital PPPs to exclude clinical and core ancillary services.
PPPs in good health
Western Australia is the exception to this trend.
Joondalup Health Campus in Perth’s northern suburbs is a full-service PPP, and is widely considered to be one of the nation’s best examples of a successful healthcare PPP.
The Western Australian Government pays private operator Ramsay Health to maintain and run the facility, which was initially administered under a ‘design, build, finance and operate’ model.
Joondalup sees the government pay availability charges to the private operator, in return for the delivery of all health services over the 20-year concession.
The operator provides emergency and all other healthcare services, and assumes the risk associated with the provision of complex health outcomes.
Since opening in 1998, Joondalup has consistently delivered excellent outcomes for patients – and at a substantially lower cost than comparable publicly managed hospitals.
The success of Joondalup has seen a renewed focus on full-service PPPs in Western Australia, with the Midland Health Campus – a new hospital to replace the ageing Swan District hospital – recently awarded under a full-service PPP contract to a consortium led by St John of God.
Dr David Russell-Weisz, Chief Executive Officer of Western Australia’s North Metropolitan Area Health Service, says the reason PPPs are popular is because of the strong outcomes they produce for patients and taxpayers.
‘PPPs are offering good value for money at least at the same level if not a better level for patients in the community,’ Russell-Weisz says.
A 2007 study undertaken by Infrastructure Partnerships Australia on the comparative outcomes of PPPs versus traditionally delivered projects found that Australia’s governments can expect to save around 30 per cent when they use a PPP compared to traditional procurement models, because of the competitive tension and risk transfer imparted by the PPP process.
With maintenance and renewal locked in for the economic life of the hospital, health administrators, doctors and nurses are free to focus on clinical care and better health outcomes, while the private sector is responsible for complex asset management and ancillary services that support clinicians.
Involving the long-term service providers in the early stages of the project, including through the competitive bid process, helps to ensure a focus on the asset’s whole of life, and results in a facility that is more fit for purpose.
Russell-Weisz says full-service PPPs have been shown to drive cost efficiencies and better patient outcomes. The solution, he says, is attention to detail, good communication and transparency.
‘There is no reason it can’t work in eastern states,’ he says.
‘We’ve pursued full-service PPPs dating back to 1998. Western Australia has had significant experience with PPPs.’
Russell-Weisz said contracts were finalised with St John of God for the Midland Health Campus on 14 June.
The North Metropolitan Area Health Service established several specification project teams to establish performance benchmarks and appropriate risk transfers.
These included a pricing team and an infrastructure team, as well as legal and communications teams, Russell-Weisz says.
‘You need to get the right procurement analysis and get the right project teams in advance,’ he says.
‘These projects take time.’
The key to success, according to Russell-Weisz, is to agree to a contract early in the life of the project, with an administrator overseeing both maintenance and clinical service. That provides the incentive to find cost efficiencies and improved service for patients.
‘A full-service PPP is easier to contract and manage than one that’s half and half,’ Russell-Weisz says.
ABOVE: Joondalup Health Campus Façade BELOW: Joondalup Health Campus, June 2011
PPPs in good health
TOP RIGHT: Joondalup Health Campus Emergency Department
‘I want skin in the game. Once you put an operator in after the fact, you’ve lost significant advantage.
‘It’s primarily a service delivery focus, not an infrastructure focus.’
Western Australia has continued to explore innovative ways to involve the private sector in delivery of major health projects.
The $1.76 billion Fiona Stanley Hospital in Perth’s southern metropolitan area, while not a PPP, will see 30 service lines of non-clinical services delivered by private operator Serco when it opens in 2014.
‘We have a number of models that the Eastern States could look at,’ Russell-Weisz says.
The case for the eastern states to sit up and pay attention is pretty clear-cut.
Total health spending in Australia has ballooned as a proportion of gross domestic product to roughly 9.4 per cent during the year ending June 2010 – just less than the OECD average of about 9.9 per cent, according to a report from the Australian Institute of Health and Welfare. A decade ago, it was less than eight per cent of GDP.
A recent report by PwC found that healthcare spending across OECD countries is expected to climb to more than 14 per cent of GDP by 2020.
With an ageing population and escalating healthcare costs placing strain on already tight budgets, governments are increasingly engaging the private sector to help deliver their operating expenditure programs.
In May, New South Wales said its healthcare spending would rise 5.4 per cent to a record $18.6 billion, which included just $1.16 billion in capital works. An ageing population, rising equipment costs and escalating labour costs are the main factors behind the increases.
New South Wales Health Minister Jillian Skinner says she’s confident that the private sector has a bigger role to play in delivering healthcare. The nongovernment sector is committed to providing better patient care and driving value for money, she says.
‘Private sector involvement can help enormously with the early development of a hospital. It can provide additional services that may not be available or affordable if relying on the public purse,’ she says.
‘These industries have a genuine desire to do right on the part of their patients.’
Even so, politicians will need to work hard to communicate the importance to the public, she says.
‘If we can demonstrate that the models we come up with will help us get better results, then we’ll get there.’
New South Wales, which is building the new Royal North Shore Hospital as a PPP, has indicated that it will also deliver the new Northern Beaches Hospital as a PPP.
‘With a very tight budget,’ Minister Skinner explains, ‘and an obligation to meet increasing demand within a budget that cannot grow as much as some would like, we need to be looking at new models of care that involve the not-for-profit and the non-government sector.’
While noting the success of full-service PPPs in Western Australia, Skinner said New South Wales is unlikely to pursue a similar full-service model.
‘There is an element of needing to be conscious of industrial issues here, where there really aren’t the experiences that people can look to,’ Skinner says.
‘It’s working well for Western Australia because they are in a different stage than we are. I don’t think it’s going to happen in the near future,’ the Minister says.
‘Western Australia has a longer history of private sector involvement. It’ll happen here, I have no doubt,
PPPs in good health
but we aren’t there yet. We have to demonstrate to people their value.’
Skinner says as many as 40 private sector organisations have pitched ideas to offer services at the Northern Beaches Hospital, including parking, hotel services and security, as well as energy purchasing.
‘We have gone to market for market sounding and we’ve found a number of interesting proposals for the Northern Beaches hospital, including co-located public and private facilities,’ Skinner says.
‘Northern Beaches will be an absolutely fantastic hospital. It can be a role model for future developments.’
Skinner says the private sector’s involvement could expand further to include a ‘hospitals in the home’ style model where private companies bring services to patients, avoiding costly hospital stays.
‘You will see more purchasing of services from the private sector. The interest is very strong,’ Skinner says.
Minister Skinner, an unabashed fan of Western Australia’s commitment to healthcare PPPs, says the most important lesson to learn from Western Australia is the importance of robust negotiations that get the contract right.
‘Two years of strong discussion, where you make sure all the parties are clear about their obligations, to make sure it’s fair and sustainable, [ensures that] you get a much better blend in the long run for all parties,’ she says.
Russell-Weisz says the operator and the contract manager need to have a proactive and interdependent relationship.
‘The structure is not one that simply relies on financial contract management,’ Russell-Weisz says.
‘They need a significant interpersonal relationship right down to the contract manager level.’
Joondalup has an extensive reporting auditing dispute mechanism. The North Metropolitan Area Health Service provides an annual notice outlining service changes, which sets out the case mixes and pricing.
Pricing is set in part by comparing the cost of services at similar benchmark hospitals. That list is reviewed every few years.
As PwC’s Locke explains: ‘Healthcare PPP arrangements rely on specialised expertise in both the negotiation and management of contracts.’
As health PPPs continue to evolve from infrastructure and facilities management services to a broader range of services, new structures around funding and contractual arrangements will be inevitable, according to experts.
Lessons learned from Joondalup will be applied to the Midland contract, Russell-Weisz says.
‘We’ve learned from that and delivered a more robust Midland contract,’ he says.
Even so, government is ultimately responsible should private operators fail. And PPPs do not necessarily always make sense. Specialised pediatric care, for example, may not fit the model, RussellWeisz says.
‘It’s not all plain sailing,’ he says.
He dismisses claims, however, that private sector PPPs pay doctors and nurses less than the public service. Long waiting times can also be addressed in operating contracts, Russell-Weisz says.
‘PPPs are political. We have objections from some unions.
‘Private operators can’t be paying exquisitely less than the state or else they wouldn’t attract staff.
‘If they don’t deliver the service they don’t get paid; unlike a public hospital.’
It’s those strong incentives that are at the heart of any successful healthcare PPP, because greater incentives lead to better outcomes for patients, clinicians and taxpayers.
ABOVE: Joondalup Health Campus façade
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