STEPHEN LEEDER. Private-public partnerships – the good, the bad and the ugly.

Dec 7, 2018

Partnerships between public agencies and private providers demand unusual degrees of vigilance of both parties to ensure that the contract between them explicitly states – in great detail – their individual expectations and accountabilities.  Values will differ.  The agreement should, if possible, be tested component by component before “going live.”

The opening of the new Northern Beaches Hospital has been marred by reports of inadequate clinical resources and dissatisfaction among staff.  These are said to be teething problems and both the NSW Health Ministry and the auspicing partner Healthscope express confidence about the quality of service in future.  Critics are concerned that the tensions are due in part to a conflict in values between public and private health providers, and that the motives of the latter have more to do with profits than patient care.  How real are these problems and how soluble?  Three principles to guide future action emerge from the Northern Beaches experience to guide future ventures.

Spend time on the contract – lots of it!

The first relates to the contract between the two principal partners.  It can never be too detailed.  I recall a conversation five or more years ago with Robert Rust who was at that time NSW Health’s point person in negotiating PPP agreements.  He made this point.  You need to obsess about the detail, he said. Everything has to be documented and nothing left to chance.  

Recently I saw the outline of the process used by NASA to establish private-public partnerships (PPP) in relation to future lunar missions.

Even at the commissioning of the components of this enterprise the amount of detail required looks forbidding.  Performance is staged and the partners each have ‘skin in the game’ so that risk is distributed.  Perhaps a similar detailed process informed the PPP contract for Northern Beaches exists and the problems lie elsewhere.  But in an environment where values conflict (profit for the private sector, equity for the public – each legitimate) the details of the agreement struck between them matter intensely.  Expectations cannot be retrofitted to the contract once signed.  

As Rust told me, you cannot successfully economise on time spent to get the contract absolutely watertight. This includes details about the long-term and how the service might be operating in ten or 15 years’ time.  I expect that scenarios have indeed been built and tested for the Northern Beaches Hospital and their adequacy will become apparent with time.

Test the components

Second, to take another feature of the NASA approach, perhaps reflecting lessons learned when it entered PPP for supply to the space shuttle in 2012, breaking the PPP into components that can be tested ahead of the ‘launch’ makes eminent sense. 

Again, I do not know to what extent component testing was part of the run-up to the opening of the Northern Beaches Hospital.  But it’s a good idea to know how each component – the equivalent of vital parts of a space flight – will perform, tested both in isolation and then as part of the system.  It should be possible – though by no means easy – to test and open elements of a new hospital without opening it all.  This is tricky, because of the interdependence of say intensive care and the emergency department, but it may be possible.

How sound are your foundations?  The third aspect of a PPP that deserves attention is to ask whether the underpinning assumptions are sound.  In 2012 when capital for public works was constrained, the thought that private capital could fill that void was very attractive in redeveloping Sydney’s Royal North Shore Hospital.  In 2018 that is no longer the case.  

Ideological beliefs that somehow the private sector will be far more efficient than the public agencies in building and running a hospital should be challenged. I would be surprised if evidence could be adduced for these views.  

Likewise the view that only public agencies can provide high-quality care is contestable. Public discussion may be helpful in clarifying possibilities not, at this moment, on anyone’s radar in Australia.  For example, the privately capitalised an operated Kaiser Permanente managed care system in California has been shown repeatedly to offer care at competitive rates and of high quality.  It can stand alongside publicly-funded systems in all respects.  Horses for courses.

Stephen Leeder is Emeritus Professor of Public and Community Medicine at University of Sydney. 

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