Public-Private Partnerships in Health Care in India

A. Venkat Raman, James Warner Björkman

• Publisher: Routledge
• Year: 2008
• ISBN:
  9781134035038
• Edition: 1
• Topic: Politik & Internationale Beziehungen
• Subtopic: Verträge

Public-private partnerships are increasingly advocated to alleviate deficiencies in the public health system as well as to reduce economic stress on those who seek services from an expensive, burgeoning and unregulated private health sector. Focusing on India, this book examines how the private sector in developing countries is tapped to deliver health care services to poor and under-served sections of society through collaborative arrangements with the government. Having emerged as a key reform initiative, aspects of public-private partnership are examined such as the genesis of private sector partnerships, the ways in which the private sector is encouraged to deliver public health services, and the models and formats that make such partnerships possible.

Based on in-depth case studies from different states of India and drawing on experiences in other countries, the authors analyse challenges, opportunities and benefits of implementing public-private partnerships and explore whether partnership with the private sector can be designed to deliver health care services to the poor as well as the consequences for beneficiaries.

This book will be of interest to scholars of public policy and development administration, health policy and development economics as well as South Asian Studies.

1 Concepts, theories and models

Public-private partnerships are increasingly popular in the field of development cooperation and sustainable development. Although not an altogether new phenomenon, the popularity of public-private partnerships in policy circles has grown steadily since the late 1980s to a point where their promotion seems to have become a dominant ‘development narrative’ (Entwistle and Martin 2005; Linder 1999; Roe 1991). Partnerships are promoted as the most logical solution to a variety of service delivery and development problems, and are often presented as ‘technical’, politically neutral solutions—a theme that parallels the Progressive Movement in the United States of America during the early twentieth century (Ferguson 1990).

Public-private partnerships reappeared after conservative governments in Europe and the US—notably the Thatcher regime and the Reagan Administration—introduced extensive privatization of government institutions. Partnerships were considered to be a ‘softer’ version of the same development strategy that would have less dramatic social consequences and therefore would be more palatable to the general public. In Britain the ‘New’ Labour Party stressed partnerships as a way to expand services without borrowing funds or raising taxes, a view welcomed by both civil society organizations and the corporate sector. Despite the debate over whether civil society is a counterweight to the market (Escobar 1995; Levine 2002), the promotion of partnerships is grounded on an acceptance of a neo-liberal growth strategy to economic development.

In the literature on public-private partnerships, two streams are notable. The first stream concerns prescriptive literature, often written with a public administration or management perspective that focuses on characteristics of partnerships and provides recommendations of how to establish them. This literature rarely addresses the ideological underpinnings of the approach nor does it question the concept itself with its inherent power relations. Much of this literature suggests that the public sector can learn from the private sector in terms of efficiency, results-orientation and flexibility (Batley 2004; Brunsson and Sahlin-Andersson 2000). The other stream concerns more critical studies, often empirically based, that document the behavior and frequent failure of many partnerships. These studies are more likely to address the ideological background of public-private initiatives and to criticize the—often implicit—assumption that all partners within partnerships are equal. Nevertheless, in-depth case studies of how power relations are shaped by and affect partnerships remain relatively rare (Laurie 2005; Mosse 2004).

Public-private partnerships have many precedents. Historical examples include the role of the church in social security and the mercantilist era of infrastructural development. The concept seems to be remarkably attractive because both governments and non-governmental organizations seize upon the idea. Part of the attraction stems from the general acceptance of economic development as the premise for development, and the widespread belief that markets are the most efficient tool to foster such growth. Private sector companies are regarded as efficient, proactive and flexible; they quickly adapt to changing situations in the market and, being results-oriented, they are held accountable. The private sector is thus seen to be more efficient in developing markets and in delivering services. But, little information exists on the costs and benefits of partnerships or how they contribute to poverty alleviation. There is lack of transparency about the distribution of results.

It is difficult to find recent literature that argues why public services should remain under the sole production of the government. Shleifer (1998) argues that the crucial issue concerns incentives to innovate and to reduce costs. Neoclassical economic theory holds that the efficiency of a sector is a function of incentive and market structures rather than ownership. As long as an enterprise operates in a competitive market without barrier to entry or exit, it doesn’t matter whether an enterprise is owned privately or by the state. The owner yields autonomy to the management, instructs it to follow the signals of the market and, based on performance, rewards or sanctions the management (Nellis 1994).

States can own enterprises by ensuring that the above conditions hold. In principle, it does not matter whether a service is provided by the state or contracted out. A contract with the private sector, or regulation of it, should be able to enforce specific services. There are, however, two problems with state enterprises. First, the above-mentioned conditions are often not met; second, when they are met, they are not sustained over the long term. At almost any time, politicians can impose social and commercial objectives on the state enterprise, which lead to the inefficient use of resources (Boycko et al. 1996).

Based on empirical evidence, private enterprises often outperform public enterprises. The World Bank found that rates of return on equity invested in public industrial enterprises are about one-third of those in a country’s industrial private sector (Nellis 1994). In this sense one can argue that ownership matters. Given the absence of explicit objectives focusing on efficiency and given organizational cultures and control systems to support these objectives, state enterprises are often less efficient than private enterprises (Wortzel and Wortzel 1989).

Despite the arguments in favor of shifting ownership away from the state, or suggesting that ownership doesn’t matter, there are political reasons such as electoral strategies for retaining a service within state ownership. State ownership can be, for instance, a good way to buy votes by not privatizing the enterprise and therefore keeping workers employed (Zahariadis 1999).

During the 1990s public-private partnerships (PPPs) emerged as a key tool of public policy across the world. PPPs refer to any form of agreement between public and private parties and can be defined as ‘the combination of a public need with private capability and resources to create a market opportunity through which the public need is met and profit is made’ (Heilman and Johnston 1992: 197).

Public-private partnerships present an alternative solution to full privatization. The concept comprises different types of contracts with the private sector, ranging from short-term contracts, involving only a part of the service provided (contracting out, operations, maintenance) to longer-term contacts that apply to an entire service (leasing, concession) (Edwards and Shaoul 2003). The partnerships can be with small-scale independent providers, non-governmental organizations or the private for-profit sector.

Private organizations and public sectors can realize mutual advantages from partnerships. The main rewards from partnering with the private sector for the public sector are improvements of program performance, cost-effectiveness, better service provisions and appropriate allocation of risk and responsibilities (Pongsiri 2002). On the other hand, the private sector strives to make a reasonable profit, obtain better investment potential, and have opportunities to expand its business interests (Scharle 2002). The involvement of the private sector in providing a service yields incentives that reduce costs (and prices, if competition exists), improve quality and stimulate innovation while reducing potential market failures that can occur under full privatization (Chong et al. 2006).

The total social benefit of public-private partnerships is affected by the degree to which risk is allocated among stakeholders so risk should be considered in the design of policies for a sector. Different types of partnerships correspond to different distributions of risks; therefore, an initial policy pertains to the choice of the type of public-private partnership. If the distribution of risks is not considered during political decisions about partnerships, it is possible that both the probability and the consequences of risks are aggravated (Luís-Manso 2005).

As a policy intervention public-private partnerships are increasingly adopted for critical urban infrastructure services where loss of control and outright privatization are considered unacceptable (Edwards and Shaoul 2003). They are perceived to remedy a persistent lack of dynamism in public service delivery. Regarding health care services, the role of partnerships lies in considering them as both economic and public goods that require a balance between social and economic considerations as well as returns generated to private shareholders.

For involving the private sector in delivering health care, a wide range of approaches exist. Some options keep the operations and ownership in public hands but involve the private sector in the construction and design of the infrastructure. Other possibilities are involving private actors in the management, operation and/or financing of assets. Hence, they involve different levels of public and private sector responsibilities for service delivery. In all these options, public authority remains responsible for overseeing the activity and for ultimately ensuring that public needs are met. For setting and enforcing performance standards, the government retains the final responsibility. A strong regulatory role is required to ensure that the interests of the consumers and the performance standards are protected. The key issue for partnerships is an adequate allocation of regulatory and managerial functions between private and public sectors in order to guarantee the resolution of conflicts between investment needs and consumer protection both in the short and long term (Luís-Manso 2005).

Partnership with the private sector

Reaching out to the private sector and fostering a collaborative relationship for providing services to the local community has been at the center of macro-economic policies of governments across the world (Mitchell-Weaver and Manning 1992). Partnership with the private sector has emerged as a policy option with the realization that, given respective strengths and weaknesses, neither the public sector nor private sector alone is in the best interest of the health system. Involvement of the private sector is, in part, linked to wider belief that public sector bureaucracies are inefficient and unresponsive while market mechanisms promote efficiency and ensure cost effective, good quality and responsive services (WHO 2001). According to Bloom et al. (2000), these beliefs are predicated on the following reasons.

• Government has failed to deliver quality health care. Poor control of government spending contributes to inefficiency. Government systems are accountable only indirectly at election time rather than being responsive to customer satisfaction. They suffer from low-levels of innovation, and supervisory systems are weak (Mitchell 1986).
• Despite the notion that government is best placed to provide health services for all, in many countries government-operated health programs fail to reach significant segments of the population. Factors causing this deficiency include inadequate training and deployment of medical personnel, insufficient supply of drugs, lack of equipment and supplies, poor systems for monitoring public health practitioners, and inability to hold staff accountable for their actions, indiscipline and absenteeism.
• Due to increasing resource constraints, many governments have been forced to reduce health spending. It is unlikely that public funds alone will, in the foreseeable future, be adequate to pay for essential health care needs.
• The private sector has a large proportion of doctors, health facilities and financial capabilities. However, the private sector is poorly placed to prevent and control infectious diseases or to provide services to the poor as well as those living in remote areas.
• Governments fail to regulate the private sector. While most governments have legislation and regulations, they are not enforced. Often regulations and laws are outdated or information necessary for enforcement is lacking. Corruption, too, is often a problem. Lack of knowledge by government officials is an especially pressing issue.

According to Agha et al. (2003), regulations regarding the operation of private health providers have not kept pace with the expansion of the private sector. This has caused opportunistic behavior by private providers, leading to variations in the price and quality of services (see also Hongoro and Kumaranayake 2000). Providing incentives could change these practices and improve the quality of care (Agha et al.1997; Foreit 1998).

The debate about public-private partnership emerged for several reasons (ADBI 2000). Apart from mounting evidence that health care in many countries is dominated by the private sector, even for the poor and the rural population, there are concerns about efficiency and the quality of care in the public health system. There is also realization that public and private sectors in health can potentially gain from one another. Apart from resource gains, there is a possibility to transfer technology, knowledge, skills and even the prestige associated with partnerships. Another critical reason for seeking public-private partnership is the rapid escalation of health care costs. Health care costs are likely to continue to rise and pose the greatest risk to the poor. It would be prudent for governments to manage resources and contain costs by improving efficiency.

Another perspective on partnership between the public and private sectors in health care assumes that the public sector must re-orient its role. Traditionally governments have both financed and delivered public services to all, whereas private spending has been on the delivery of individual services. While the private sector has rapidly increased its role in both financing and providing services, governments face challenges on both fronts due to resource constraints. There is an emerging trend in which governments are re-examining their roles in financing and delivering services. The critical distinction is between the financing and the provision of services. Mitchell (2000) generates four models to distinguish these functions in health services.

1. The conventional model is public financing and public delivery.
2. The second model is private funding and private delivery of services, in which public health services are rarely delivered. Private insurance, ambulances and specialty hospitals are examples of this model.
3. A third model is private financing and public delivery. Recent initiatives by global NGOs to implement disease control programs, reproductive health or other public health services are included in this category. Another form of private financing and public provision is the user-fee, when users pay out-of-pocket for public services.
4. The fourth model is public funding and private delivery. Argued to be the most effective model, it is believed that quality and efficiency will be better than through direct provision by government.

Two types of this fourth model are contracting and insurance programs, with contracting the most common form. Different options of contracting are possible too: pay for salary and drugs; pay per case as a reimbursement; or prepaid grant. In addition to contracting out the direct provision of service, other options include community-based health insurance programs; use of vouchers (wherein a specified amount per case, for a given period of time, for a given type of services is rendered); funding for supplies under priority programs (e.g. disease control programs in which private providers are supplied with drugs and supplies for their participation); and funding the private sector to set up private clinics in areas where no health services are available.

Combinations of financing and providing health services are provided in Table 1.1. Interaction between the public and private sectors lies on a continuum from no relationship at all to a very close interaction and synergistic relationship. The range of relationships includes (Ahmed 2000):

• Parallel activities: public and private activities are carried out without any contact with each other or acknowledgment of the existence of the other.
• Competitive activities: the activities in the public and the private sector are carried out with similar objectives, targeting common clientele and competing with each other, which may cause either wasteful duplication of activities or enlargement of choices for the beneficiaries.
• Complementary activities: activities or services from the public and the private sectors complement each other in terms of the nature and content of services or geographical and population coverage, either accidentally or by design.
• Contractual services: the government contracts the private sector to provide specified services for agreed fees, with the contractor being accountable to government authority.
• Cooperation and collaboration: collaborative relationships include elements based on ...