Public-private partnerships in healthcare worldwide worth US$70 trillion up to 2020

6 Jan 2011

The rapidly increasing costs of healthcare worldwide will spur governments to use public-private partnerships to improve efficiencies, according to PwC's Health Research Institute.

It estimates that spending on healthcare among the OECD countries and BRIC nations (Brazil, Russia, India and China) will grow by 51% between 2010 and 2020, amounting to a cumulative total of more than US$71 trillion.

Health spending in these areas is rising faster than gross domestic product, magnifying gaps in budget deficits and spurring governments to look to the private sector for ways to get a better value for taxpayers' money.

One trend that is emerging globally is the use of public-private partnerships (PPPs) to finance and manage health infrastructure and delivery, and, according to PwC, growth in this area could create a multi-trillion global market opportunity for private companies and investors, implement a more efficient use of taxpayer dollars, and offer better quality health systems.

In a report it published last month titled, Build and Beyond: The (R)evolution of healthcare PPPs, PwC says that public health authorities around the world are increasingly contracting with private entities to manage healthcare services for defined populations or markets.

These PPPs, which have largely been used for infrastructure finance, are evolving as a way to slow the rising cost of healthcare and address larger problems in health systems. PPPs enable public health authorities to maintain oversight of standards while injecting private sector efficiency, fiscal discipline, new innovation and investment in efficiencies, driven by incentives to generate long-term cost savings and improve the quality of public health, says PwC.

PwC, which has worked on over 100 health PPPs in 15 countries, sees the market growing substantially over the next five years, and says that the model has proven to save healthcare costs.

For example, partnerships like Spain's Alzira project, which includes hospital and primary care services, have saved government 25% of the cost of providing care, according to project partners interviewed for the PwC report.

Already, competition for private capital has prompted governments in Europe, Asia, Africa and southeast Asia to establish PPP agencies that are charged with developing PPP policy recommendations, streamlining procurement and contracting for services.

"The public finance of private innovation and efficiency is a win-win-win for governments, private industry and patients," said David Levy, MD, global health leader, PwC. "Public-private partnerships offer the opportunity to increase access and quality of care, bend the cost curve on health spending and create accountability for health systems among groups that previously haven't had appropriate incentives to work together."

Kelly Barnes, US Health Industries Leader, PwC, added, "The keys to the success of PPPs as they move beyond building infrastructure to long-term delivery of clinical services will be in contracts that clearly establish performance goals around quality and health outcomes."

Sizing the global market for healthcare PPPs

In 2010, a number of record-setting PPPs formed across three continents as a way to finance hospital infrastructure, including a new 700-bed Karolinska Solna University Hospital in Stockholm, Sweden, which is estimated to be the largest hospital PPP in the world. Other deals were announced or reached in Canada, Mexico, Africa and Spain.

While these landmark deals remain largely dominated by infrastructure projects, they are also expanding the market for private capital and expertise in health services. As the scope of the partnership projects in healthcare grows, so does the size of the potential market for private organizations.

Based on a country by country analysis of health spending trends and projections, PwC has estimated the following:

  • By 2020, spending on health infrastructure among the OECD countries and BRIC nations will increase to $397 billion annually, up from $263 billion today. However, the larger market for health PPPs will be in non-infrastructure spending, estimated to be more than $7.5 trillion annually, up from $5 trillion in 2010.
  • Between 2010 and 2020, the OECD and BRIC nations will spend cumulatively $3.6 trillion on health infrastructure and $68.1 trillion on non-infrastructure health spending.
  • Health spending in the United States accounts for approximately half of all health spending among OECD nations, but the biggest growth will be outside of the US. According to PwC projections, the countries that are expected to have the highest health spending growth between 2010 and 2020 are China, where health spending is expected to increase by 166%, and India, which will see a 140% increase.
  • Among OECD countries, health spending as a percent of GDP will increase to 14.4% by 2020, up from 9.9 percent in 2010. Among BRIC nations, health spending as a percent of GDP is expected to increase to 6.2 percent in 2020, up from 5.4 percent in 2010 as their economies grow and they build out their health systems. In actual spending, this amounts to a 117% increase in spending over the decade, with China leading the way in spending increases.

The PPP Health Model

A health services PPP can be described as a long-term contract (typically 15 to 30 years) between a public-sector authority and one or more private sector companies operating as a legal entity. The government provides the strength of its purchasing power, outlines goals for an optimal health system, and empowers private enterprise to innovate, build, maintain and/or manage delivery of agreed-upon services over the term of the contract. The private sector receives payment for its services and assumes substantial financial, technical and operational risk while benefitting from the upside potential of shared cost savings.

The private entity is comprised of any combination of participants who have a vested interest in working together to provide core competencies in operations, technology, funding and technical expertise. The opportunity for multi-sector market participants includes hospital providers and physician groups, technology companies, pharmaceutical and medical device companies, private health insurers, facilities managers and construction firms. Funding sources could include banks, private equity firms, philanthropists and pension fund managers.

PPPs are increasingly being developed by local governments that are closest to local health needs, rather than by national governments. The arrangement is especially attractive to public authorities responsible for the provision of care to groups of people with especially costly or unmet medical needs such as the Medicaid population in the United States, people living in areas with a shortage of primary medical care and patients with specific diseases such as HIV-AIDS or cancer.

"There is no country in the world where healthcare is financed entirely by government," added Levy. "Each territory is looking for the appropriate balance of public and private resources and has different motivation for looking at PPP solutions whether it is to share risk, expand capacity and access, increase efficiency, or accelerate innovation. PwC's experience is that health PPPs are a model that is equally compelling from New York to New Delhi, from Spain to Singapore and from Montreal to Munich."


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