P3s turn to P4s very fast

Hi everyone,

My apologies for the delay in writing I can’t believe its taken me this long to write – Oh my last posting was in August. Nonetheless the masalaman is back to add spice to your lives!

Today’s topic: Public Private Partnerships – first part in a mini-series on health care.

Public Private Partnerships (P3s in Canada, Private Funding Initiatives – PFIs in the UK).

This has been the new wave of health care reform, since governments aren’t willing to spend the time to find about the real problems in the health care system, they look to the private sector to find short term easy fixes. In the short-term having P3s may seem to be effective as private companies bring money, expertise and resources to the table. However, the return on investment for the government, taxpayers and society overall is dismal – actually negative in the long run as much money is lost to these companies who are only in the business to increase their share of the pie. Governments should learn from the mistakes made by the NHS (UK Health System) regarding these PFIs and not move forward in this path.

As we all know from a Business 101 type course – that the bottom line for any business is to make a profit. Not only is it to make a profit, but if it wants to continue to grow and become a larger player it needs to make more and more profit. Companies are only accountable to their shareholders, not the public. Shareholders only want to see increasing profits otherwise they will not invest in the company. So where does this profit come from in the case of P3s? That’s right you and me, the ordinary citizen has to pay unnecessarily to make shareholders and these companies profitable. If this profit was taken for some other commodity (e.g., cars) then the case could be made that it would be okay to take the money (as it is out-of-pocket expenses using health care terms). But this is for an essential human right and profit, particularly a supplier surplus, should not be made from it – unless the profit is defined as a consumer surplus whereby all of society would benefit not a handful of corporatites.

While companies are making larger and larger profits at the expense of taxpayers, governments will try to manage the costs in other methods:
a) either redistribute their expenditures (i.e., cut other departments monies like education and childcare to pay for P3s),
b) raise funds through additional taxation - not a public favourite, or
c) cut essential health services - most likely solution.

Here’s a highly probable scenario if P3 occurs: Government signs a 30 year contract with ABC company to provide laundry, food, management of the building and maintenance of the buildings, and many other non-essential services. At first much money it seems will be saved as the company will hire cheap labour to do this work versus government/union paid employees. The building quality and all services once it is built will be substandard as it is will be done by cheap unskilled labour. Yet as it is a 30 year monopoly style contract, company ABC can charge almost what ever it likes for their services throughout the contract. So if in year one of operation they ask for X, and then in year two they ask for X+10%, year 3 X+20% and so on. But the governments will not be able to do anything as they are tied down to the contract. And they are not able to terminate one of the contracted services (say food, if its costs go up as they have signed a contract that incorporates all contracts). So if they did try to terminate one specific service, they would have to terminate all of the services provided by company ABC. Since they can not terminate or control costs for these services they will have to cut from somewhere else or try to raise more funds to cover these unneeded rising costs. Essential services like nursing or other health-related staff could be cut or the hiring of unskilled and cheaper labour could be a result, jeopardizing the health of patients.

The Bottom line is a simple one: P3s lead very quickly to P4s, that is, never ending Public-Private Partnership Problems.

If governments are mislead into pushing forward with P3s (a business strategy) by increasing private/public pressure then they should definitely make decisions based off of other business principles. They should do the following for their own and the public’s safety:

(1) Ensure that the contract they sign for this P3 allows them to terminate the specific services if the quality is poor or costs are needlessly too much. If one service is poor, then the government can terminate it and look for other better and cheaper alternatives. This is a business concept of an open market where all businesses compete openly with each other for the contract. The one that provides the best service as the cheapest cost will win the contract. As a P3 is like a Monopoly, where only one company is allowed to provide the service there is no accountability. Only competition in this framework would ensure a healthy service being provided.

(2) Contracts need to be shorter in duration and should favor the government not the businesses. Long contracts tie governments in for unnecessarily lengthy periods of time. 30-year contracts are no good without adequate evaluation and review. Accountability is key and having a 30-year contract leaves none. Have year to year review of the services and if service level do not meet required level, then look for other companies to provide it.