Evidence shows health PPPs provide infrastructure value

Media Release
19 March 2012

International evidence shows health PPPs provide value for money in the provision of health infrastructure

"Evidence from the UK, Australia and Canada shows that public-private partnerships in healthcare can provide superior value for money and should be considered alongside other procurement routes in the delivery of health infrastructure", says Stephen Selwood, CEO of the New Zealand Council for Infrastructure Development.

"NZCID has published a report on the cost and performance of PPPs delivered in three comparable health systems over the last two decades. The findings are interesting because they demonstrate a clear difference in performance between what may be considered first and second generation PPPs.

"Early PPPs - generally those completed before the turn of the century - were successful only in as much as they delivered a needed service. Large capital costs were shifted off the government balance sheet and onto private sector balance sheets in order to deliver an asset in a constrained capital funding environment, sometimes at the expense of full term value for money.

"PPPs completed in the last decade are different. These later-model projects are focused not on providing a service in spite of the cost, but on ascertaining the best value option for servicing an identified need and then delivering that service accordingly. That is, a fundamental shift in approach took place around 2000 which turned PPPs from a funding tool into a procurement option.

"A lot of the debate on PPPs today is still focused on the pre-2000 paradigm. This is not appropriate given Treasury's consistent requirement that PPPs are not and will not be used as a funding mechanism.

"The decision to progress with a PPP today reflects a careful analysis of risk and whole of life cost. In health, a large part of the value is derived from bundling non-clinical services, such as catering and laundry, into the wider infrastructure build. Clinical services have not been included in recent PPPs in the UK, Australia or Canada.

"Where risk transfer and the leveraging of private sector expertise can be shown to exceed the higher cost of private finance, PPPs have been and continue to be employed to good effect. Where risk in particular cannot be transferred effectively, then PPPs are no longer used. Evidence shows that this approach is lowering the cost to health providers and lifting service performance.

"Late-model health PPPs have helped provide much improved value for money to health systems and have provided the investment needed to get projects underway in constrained capital funding environments. The situation New Zealand now finds itself in, with a major hospital in Canterbury in need of redevelopment and growing population pressures in the upper North Island, is exactly the kind which can be improved with rigorously assessed PPPs.

"In addition to looking at alternative ways to deliver new hospitals, health authorities need to review how best to utilise all health infrastructure in New Zealand including existing private healthcare capacity. There are areas in New Zealand where existing private facilities might obviate the need for any large capital investment at all, which in the current funding environment is an ideal outcome. But where there is a demonstrated need for new hospitals or other health facilities, PPPs can push payments into the future and allow projects to start today without compromising levels of service - that's the message from overseas", says Selwood.

A copy of the NZCID report on health PPPs is available at: NZCID Research

ENDS

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