Evidence Backing Health-Care P3s Lacking

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      The public-privatization of British Columbia hospital care has begun. Last month, the B.C. Liberals launched construction of the $95-million outpatient Academic Ambulatory Care Centre--a public-private partnership, or P3--at Oak Street and 12th Avenue. Meanwhile, negotiations for the Abbotsford Hospital and Cancer Centre are still under way with an international consortium called Access Health Abbotsford. The 300-bed P3 project is due for completion in 2008.

      As the Georgia Straight previously reported in "Invasion of the Hospital Snatchers" [June 26--July 3, 2003], these P3 deals involve a long-term lease with a private partner that will finance, design, and build the facility then deliver all of its nonclinical services. After 30 years, the province will own the Academic Ambulatory Care Centre.

      "We think that what we'll see from this is a test case," Vancouver Coastal Health spokesperson Clay Adams told the Straight. "If it does, in fact, deliver what we expect it to, then, yeah, there is certainly the possibility that we may see increased interest from the private sector to come into the health-care sector."

      Adams explained that Partnerships B.C., the provincial agency responsible for implementing P3s, would issue a "value for money" report by early November, showing why it serves the public interest to build and run the Academic Ambulatory Care Centre as a P3. According to Vancouver Coastal Health, the deal with the consortium Access Health Vancouver--three of whose four corporate members happen to comprise Access Health Abbotsford--will save the government $15 million.

      Officials say both projects will allow the Ministry of Health to focus on the delivery of high-quality clinical services. They also claim that P3s result in cost savings and "innovations" that are not available to traditional public hospitals. Partnerships B.C. supports this argument by citing the success of public-private hospitals in the U.K., where P3s have existed for more than a decade.

      The B.C. Liberals may be pushing ahead with health-care P3s, but the evidence in favour of them remains inconclusive. There's little proof that these projects result in savings and other benefits for taxpayers--so-called value for money--or transfer adequate financial risk to the private sector.

      Critics claim that besides higher costs, P3 hospitals lead to lower quality of care and lack public accountability due to confidential negotiations with private interests. And according to some trade lawyers, the province's P3 experiment could expose Canada to expensive lawsuits by foreign investors and threaten the public health-care system.

      Launched in the U.K. in the early 1990s, the Private Finance Initiative has produced a long list of failed P3-style privatizations that cost taxpayers billions of pounds, including British Energy, the national railway system, and the Criminal Records Bureau. Somewhat contritely, the U.K. Treasury now describes the PFI as a "small but important" part of its strategy for delivering public services.

      Still, the British government tenders all new hospital projects as P3s, despite warnings from a wide range of sources that this is a bad idea. Allyson Pollock, head of health policy at University College London, has argued in the British Medical Journal that, compared to their publicly financed counterparts, P3 hospitals offer almost no value for money, give governments less flexibility to adapt to future health-care needs, and dump most of the financial risk on the public sector. Former BMJ editor Richard Smith has charged that P3 consortia make their profits by building hospitals smaller than needed.

      In an October 2002 survey of some 200 public-sector accountants by the U.K.--based Association of Chartered Certified Accountants, just one percent of respondents strongly agreed that the PFI provided value for money. "Many finance professionals have real concerns over the cost, bureaucracy, time taken in progressing schemes and long term revenue commitments involved with PFI," Andy Wynne, the ACCA's head of public-sector technical issues, said in a statement.

      And last November, the Royal College of Nursing and the U.K. government's Commission for Architecture and the Built Environment released a report slamming the first wave of PFI hospitals for their poor building standards. The report expressed concern that the 140 new hospitals slated for construction will also be inferior.

      Another recurring feature of health-care P3s is ballooning costs leading up to the signing of the contract. Earlier this month, the Guardian newspaper reported that the price tag for London's Paddington Health Campus project, a PFI flagship, soared from í‚ £382 million to í‚ £800 million in 2003 after a series of planning errors. In Ontario, the capital cost of Brampton's William Osler Health Centre has jumped from $350 million to $536 million over the past two years, according to the Ontario Health Coalition.

      In B.C., the Hospital Employees' Union commissioned forensic auditor Ron Parks to review the Request for Proposals to private bidders for the Abbotsford Hospital and Cancer Centre. In his December 2003 report, Parks found that the public cost of the project had increased by 94 percent, to $1.4 billion.

      "It's a different hospital," Suromitra Sanatani, vice-president, corporate and government relations for Partnerships B.C., told the Straight. "It's now a hospital and cancer centre; it's different from what was contemplated back in the early days."

      Parks also predicted that the financing and ownership risks of the Abbotsford hospital would remain with the public. His report questioned chief project officer Mike Marasco's statement that the B.C. government would not reevaluate its decision to build the hospital as a P3, despite dramatic changes to the scope of the project.

      "If your assessment shows quite clearly that the P3 model is likely to end up with some cost savings and other advantages which may be sort of intangible or not quantifiable, then go that route," Parks told the Straight. "What I'm saying is, there's not a lot of evidence that that was clearly done."

      Clay Adams could not explain why no peer-reviewed journal has ever published a study favouring P3 health care. Sanatani cited a report from the U.K.'s Construction Industry Council that, according to her, found a median of 10-percent savings from 122 PFI projects. "The important thing that we always point out is that they're not a panacea," she added. "Not all projects should be P3s."

      (In its 2004/05--2006/07 Service Plan, Partnerships B.C. calls itself "a lean and efficient organization with 25 FTE's [full-time employees]." According to forecasts, in 2003/04 it spent $4.95 million on salaries and benefits, $10.7 million on "professional services", and $336,000 on travel.)

      Sanatani also cited the U.K. National Audit Office as having produced several reports showing the benefits of P3s. Last year, the Straight noted a February 2003 NAO survey of 37 PFI public building projects. Only 22 percent exceeded the cost promised in the contract, versus 71 percent of public buildings with cost overruns from a 1999 survey, most of them built using traditional procurement methods. However, the authors admitted that it was impossible to judge whether the government could have achieved the same results without going the PFI route.

      Last April, Unison, Britain's largest trade union, issued a report showing that with 563 PFI deals signed as of April 2003, the NAO had conducted eight inquiries into their financial operations. Only one of those examined risk transfer: it found that the risk assumed by the private partner did not justify shareholder earnings, which were 61-percent higher than expected.

      A November 2003 report published by the Canadian Centre for Policy Alternatives takes exception to Sanatani's 10-percent-savings figure. The five authors--who include Douglas D. Peters, former chief economist of the Toronto-Dominion Bank--wrote that "on the basis of the record of other P3s, it is reasonable to expect P3 hospitals to be at least 10% more costly than their public sector equivalents."

      Sanatani laughed when she was read part of a quote from U.K. assistant auditor general Jeremy Colman, describing the methods used to compare P3 and public-sector financing as "mumbo-jumbo where financial modelling takes over from thinking....no one, not even the experts, really understands what is going on."

      "I'm wondering how many disgruntled former employees you're talking to," Sanatani replied. Colman still works for the U.K. National Audit Office.

      Partnerships B.C. could not provide a list of traditionally financed public health-care projects that have been subject to significant cost overruns and scheduling delays.

      In an interview from Toronto, international-trade lawyer Steven Shrybman repeated his assertion to the Straight last year that P3 hospitals could lead to costly lawsuits under NAFTA and undermine public health care. He gave the example of Vivendi Universal's 1996 dispute with Argentina over water services. Rather than go through the courts, the multinational took Argentina before a tribunal of the World Bank.

      According to Shrybman, even if a P3 contract stipulates that disputes between the public and the private partner be resolved in B.C. or Canadian courts, NAFTA gives foreign investors the right to bypass our justice system and go straight to an international trade body. "So you are kind of casting your fate to the wind," he said. "Neither B.C. nor the hospital will have any right of standing before the tribunal. It will be a claim against Canada."

      Shrybman, who admitted he is speculating, raised the possibility that P3s are a platform for two-tier health care. "There's a million and one ways to gain the system once you control the institution," he said, suggesting that the private partner could pay doctors and nurses a premium to perform clinical services it deemed not medically necessary under the Canada Health Act.

      Clay Adams of Vancouver Coastal Health was unconvinced. "Nothing has come to our attention that I'm aware of that would cause any concern about a trade challenge," he said. With respect to the Canada Health Act, Adams noted that "we're talking here about private-sector construction of a building; we're not talking about private-sector provision of [medical] service."

      At Partnerships B.C., Sanatani also offered reassurances. "The worry or sometimes the criticism that these [P3] deals are secret is really not the case," she said, pointing out that many financial and planning documents are available on the Abbotsford Hospital and Cancer Centre Web site. "And it's certainly a commitment we've made, to demonstrate value and not just talk about it."

      Watch for full public disclosure, starting next month. You've got their word on it.