A public-private approach to healthcare

While the debate about South Africa’s proposed national health insurance scheme has taxpayers turning pale, neighbouring Lesotho is partnering with private sector players to help rebuild one of its largest hospitals.

The project is an example of how a developing country can address service delivery in the health sector.

The project involves the overhaul of Lesotho’s Queen Elizabeth II Hospital, something the tiny mountain country, burdened by limited capacity and resources, could not fund through its fiscus.

Advised by the International Finance Corporation, a member of the World Bank Group, the government opted for a public-private partnership (PPP).

A consortium, Tsepong Limited, led by private healthcare giant Netcare but with 40% local Lesotho ownership, successfully tendered in September 2008 for the deal to replace the 100-year-old hospital and three local clinics.

“What makes this project unique is that we are not just expected to build, develop and equip the hospital, but we will provide both non-clinical and clinical services,” said Dr Victor Litlhakanyane, Executive Director for Stakeholder Relations at Netcare.

In South Africa it is far more common for the private sector to provide non-clinical services such as catering and facilities management, than direct medical care.

“The government in Lesotho becomes the primary purchaser of healthcare,” said Litlhakanyane. “It is a very bold step and shows a great deal of government faith in the private sector.”

The government of Lesotho has, however, had to put very clear outcomes in place and should Tsepong not meet them, the company will be penalised.

According to Litlhakanyane the project is intended to be “cost neutral” for patients, who will pay the same minimal costs that they do for public healthcare in Lesotho.

The upfront cost will be about R1-billion, says Litlhakanyane, and is being project financed, with 15% equity supplied by Netcare and fellow shareholders in Tsepong and the other 85% supplied through a loan from the Development Bank of South Africa.

The fees charged to the Lesotho government will go towards the loan repayment.

The project has been costed in such a way that the operational costs are no more expensive to fund than would have been the case had the Lesotho government been able to finance it themselves for this level of quality healthcare, says Litlhakanyane. In addition, he says, the company has been required to reveal its expected rate of return on the project.

The deal runs for 18 years, including two and a half years of construction, after which the keys to the hospital and the clinics will be handed over to the Lesotho government. The running costs of the hospital will also form part of the package, but Litlhakanyane could not comment on this.

Netcare will be running the hospital, including employing nurses and doctors as well as providing additional training for health professionals in the country.

Tsepong has commenced recruiting staff at the hospital and is required to pay them similar or better salaries than they currently earn. Tsepong is aiming to match payments at least to those in South Africa’s public sector, since the country has lost many of its health professionals to South Africa.

Nevertheless, it is expected that there will still be a shortfall. And such Netcare is joining with Lesotho to train more nurses in the country.

In addition, it is working with the University of the Free State’s medical school providing training on a rotation basis, whereby medical students and doctors will travel to Lesotho to provide care.

About 1% of payroll will be set aside for training, said Litlhakanyane.

The new institution is set to open its doors in July 2011 and, barring any major hiccups, looks to be an excellent example of how PPPs can stimulate a developing country’s heath sector.

South Africa, despite having more resources than its neighbour, has a relatively small number of successful examples of PPPs in the health sector. Litlhakanyane puts this down to a number of factors.

“PPPs have not taken off firstly due to a conflict of ideology between the private sector and the state. Secondly, trust has been a major issue in the past, with the private sector deemed to only be in it for the money,” he said.

But PPPs, as with any partnership, require a great deal of political will, trust between parties and a willingness to learn from each other, he says.

“The private sector has a great deal of expertise to offer and are eager to work with the state,” he says.

“Ultimately, this is about service delivery and we can assist the state in supplying better healthcare to people.”

While the possibilities of PPPs could arguably do with greater exploration, experts are cautious about what they can achieve.

Diane McIntyre, health economist at the University of Cape Town, says that while PPPs can address some healthcare issues, such as capacity and skills shortages, government needs to have the capacity to contract with the private sector, as well as the ability to monitor the quality of care provided.

McIntyre also warns that unchecked private sector projects, run solely for profit, become extremely costly for the state, as has happened in the UK.

Private finance initiatives have seen private companies build and redevelop hospitals that are then leased back by the country’s National Health Service (NHS).

The Guardian reported earlier this month that £2.4-billion (about R36-billion) could be saved if the NHS bought out the private finance contracts signed by the government to build new hospitals.

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