4410118

Issues in Health: Public-Private PartnershipAuthor(s): Ramesh BhatSource: Economic and Political Weekly, Vol. 35, No. 52/53 (Dec. 30, 2000 - Jan. 5, 2001), pp.4706-4716Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4410118 .

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Issues in Health

Public-Private Partnership

Public-private partnerships in the health sector can bring needed resources while also taking care that the vulnerable groups - the poor and rural populations - have access

to health facilities. The government must clarify its policy towards the private sector and ensure that public spending on health does not decline. It must also determine

a structure of subsidies and incentives for such partnerships.

RAMESH BHAT

ith shrinking budgetary support and fiscal problems, most state governments are finding it dif-

ficult to expand their public facilities to cater to the growing health care needs of their populations. In terms of resource allocation, the areas which have suffered most are secondary and tertiary care. The difficulties experienced in providing health care specifically in these areas have compel led many state governments to explore alternative options. Having experienced significant growth in private sector at curative primary and secondary care, some of the state governments are exploring the options of promoting public-private partnerships (PPPs) in health sector. Most of these options are in curative, tertiary care and in the provision of services in remote areas.

The objective of this paper is to discuss and analyse the policy initiatives of selected state governments and the ministry of health and family welfare of the central government. Section I describes the policy context and discusses health financing scenario in India. In Section II, various initiatives of state and central governments have been described in brief. The cases discussed in this paper do not constitute an exhaustive list of all PPPs. Cases, primarily selected based on the availability of data have been used to describe the broad nature of the PPPs initiated by government agencies. The last section discusses the implications and summarises the key issues and prospects of developing such public-private partnerships in India.

I

Policy Context The health financing situation in India

is not very encouraging. In 1993-94 health expenditure as per cent of GSDP of 14 major states in India was around 1.1 per

cent [World Bank 1997b]. No doubt the government budgetary allocations to health are low. The health delivery system having components of primary, secondary and tertiary levels need adequate resources to maintain an appropriate balance at various levels to meet the health care requirements of the population. The low budgetary allocations in recent times have created serious imbalances at various levels and has affected certain aspects of a good delivery system. The areas of health care delivery system which have been seriously affected are curative and super-speciality care in the government sector on the one hand, and the ability of government facilities to provide basic health care facilities in remote areas, on the other. One of the important aspects missed in planning the curative health delivery' system has been geographic spread of various types of health facilities within states.

The ground level situation has taken further serious turn because of the rapidly changing health needs of the community. India is going through the health transition. The number of deaths due to non- communicable diseases has increased and are likely to increase disproportionately in future. The health infrastructure at present is not geared to handle this changing disease pattern load. The gains made in controlling communicable diseases are likely to be completely offset by this change [Reddy 1993]. With this health transition taking place, there is and will be considerable demand on the government to expand and upgrade its facilities to meet the growing health care requirements in curative and tertiary areas. Moreover the unintended consequences of private sector growth are becoming evident, as many people from lower income strata are not in a position to use these facilities; The limited insurance facilities are making it difficult to cope with the increasing finan-

cial burden arising out of the changing scenario. There is pressure on state governments to consider instituting some protection mechanisms for these groups. For example, Goa and Maharashtra have already initiated schemes to protect lower income groups [Whyatt and Bhat 1997]. Other state governments such as of West Bengal are also considering using a state sickness fund to protect the poor from catastrophic financial burdens arising out of illness.

The expansion of tertiary and modern curative facilities need considerable resources. Most state government budgets show that a major component of budgetary allocations go to meet the recurrent costs to maintain existing levels of public health care delivery system. In most states salaries and wages account for about 70 per cent of the total health budget. Ema- nating from the financial crunch and fiscal problems, many states have experienced and continue to experience a reduction in allocation of resources to health sector. The net effect of this has been a reduction in non-salary component of health expenditures. These financial and fiscal pres- sures have also put considerable pressure on capital expenditure. This is evidenced by the fact that the growth rate of capital expenditure of government on social sectors overall has shown a declining trend during the recent periods. For example, during the period 1986-87 and 1990-91 this rate has been -3.5 per cent [Rao and Sen 1993]. During the same period, the revenue expenditure has exhibited a posi- tive growth of 5.4 per cent. The share of capital expenditure in total health budget has remained low and the data suggest a declining trend during recent years. Analy- sis of two states, Punjab and Rajasthan indicates that the average capital expenditure on health has been around 5.5 and 2.5 per cent of the total health sector

4706 Economic and Political Weekly December 30, 2000



budget, respectively (Table 1). The overall impact of these financial constraints is that quality as well as quantity of curative health care has suffered. Most states in India are under pressure to find alternative mechanisms to provide better curative services to their populations and to develop mechanisms to reach the poor in remote areas.

There have been attempts to augment the resources of health facilities through the introduction of user fees. These attempts have not produced any significant result. The all-India figures suggest that during 1992-93 the average hospital re- ceipts amounted to about 1.4 per cent of the total hospitl expenditure incurred by the hospitals [NIPFP 1994]. For 15 major states in India the average cost recovery is about 3.8 per cent. Punjab tops the list with cost recovery of 7.7 per cent and Rajasthan averages at 2.8 per cent [World Bank 1997b]. In most cases the state government treasury rules do not permit the facilities to retain the funds. This defeats the main purpose of implementing the user fees policy in public facilities as the system does not facilitate the use of these funds to improve the quality standards of health facility. There are also various other management issues such as lack of proper guidelines; lack of appropriate management systems such as accounting, report- ing, monitoring, etc; effective exemption policy, etc, in implementing the user fee policy [Bhat and Sharma 1997].

The involvement of the private sector in health care is another option being explored by a number of states in India to augment resources in the health sector. The severity of financial crunch in health facilities, particularly in super-specialty care, was recognised in 1982 in the Na- tional Health Policy (NHP) of the government of India (GoI). The policy recognised that the state and central governments responsible for maintaining public health face many financial constraints in their objective of providing effective and effi- cient health care services. To mitigate the problem of resource crunch, the policy document had recommended that the states should design processes which encourage the establishment of practice by private medical professionals and investment by non-government agencies in establishing curative centres. The policy statement had also recommended "...planned attention would also require to be devoted to the establishment of centres equipped to provide specialty and super-specialty services, through a well dispersed network of centres, to ensure that the present and future

requirements of specialist treatment are adequately available within the country." The policy document of the Gol also suggested a reduction of government expenditures involved in the establishment of such centres and proposed a planned effort to encourage private investments in such fields so that the majority of such centres within the government set-up, could provide adequate care.

Towards implementing this policy the government evolved a policy of providing duty exemption on import of medical equipment. One of the problems in expanding the super-specialties care in the early 1980s was the almost non-existent manufacturing base for producing such technologies. A large number of equipment and machines needed to be imported. The duties for importing such equipment were significantly high in the range of 150 to 300 per cent. To promote growth in investment in health and super-specialty care, the government of India provided duty exemption for the import of medical technology to the health care institutions in non-government sector having the sta- tus of charitable institution. This policy of the government has gone through a number of changes over the period, and also, the overall duty structure has been sub- stantially reduced in recent budget an- nouncements following the liberalisation programme of the government of India in 1991. By mid-1990s the domestic industry for medical technologies had also grown. For example, in the 1994-95 budget, the following policy change was made regard- ing the import of medical equipment "...the present import duty structure for medical equipments is complex and involves in some cases time consuming administra- tive procedure. The domestic industry is also not able to compete with imported equipment because it is now available duty- free to hospitals on production of certifi- cates by designated authorities." The budget then proposed abolishing the system of certification for charitable hospitals and allowed import of specified medical equipment at 15 per cent. Import at zero rate for government hospitals and for all specified life saving equipment, however, continued to exist. Overall, the import duty on various other medical equipment which was 85 per cent was reduced to 40 per cent. Components for their manufacture were allowed to be imported at 15 per cent customs duty.

Over the period private health sector growth has been considerable in both provision and financing side. The recent health financing pattern suggests that out-

of-pocket cost on health accounts for about 78 per cent of the total expenditure on health in the country. [World Bank 1997b]. Private health expenditure in India is estimated to be about 4.25 per cent of the GDP. Insurance coverage mechanisms are negligible and most of this expenditure is out-of-pocket. Private health care expenditure in India has grown at the rate of 12.5 per cent per annum. For each 1 per cent increase in per capita income private health care expenditure has increased by about 1.47 per cent [Bhat 1996]. The share of private sector in health infrastructure is also quite significant. About 57 per cent of hospitals and 32 per cent of hospital beds are in the private sector. The share of private sector investment in total health infrastructure, e g, hospitals, investment in medical equipment and technology, etc, is also quite significant. Most qualified doctors work in private sector. The data suggest that at present about 80 per cent of 3,90,000 qualified allopathic doctors registered with medical councils in India and 6,50,000 providers from other systems of medicine are working in the private sector. No doubt the dependence on private sector is considerable. Utilisation studies also show that a third of in-patient and three-fourths of out-patients utilise private health care facilities [Duggal and Amin 1989; Yesudian 1990; Visaria and Gumber 1994].

Given the role of the private sector in health, various state governments are exploring the options of involving the private sector in meeting growing health care needs. Private-public partnerships have emerged as one of the options to direct the growth of private sector towards public goals. Developing incentives system to influence the desired geographic distribution of health facilities, and in specified areas, involving qualified providers through contract mechanisms in rural areas to improve the health delivery care system are some of the options being explored.

In general, the focus of various private- public collaborations has been on: developing strategies to utilise untapped resources and strengths of the private sector; enhancing the capacity to meet growing health needs; reducing a financial burden of government expenditure on specialty and super-specialty care; reducing regional and geographic disparity in health care provision and ensuring access; Reaching remote areas or targeting specific groups of population; and improving efficiency through evolving new management structures.

Economic and Political Weekly December 30, 2000 4707



Table 2: Public-Private Partnerships In Health Sector - Comparison of Policy Initiatives of Three State Governments In India

Characteristics Rajasthan Punjab Delhi

Year of policy implementation End of 1996 End of 1995 and renewed in 1997 May 1997

Policy statement Explicit policy document publicly available No policy document available No policy of document available

Implementing agency within the Medical and Health Department (MHD) Punjab Urban Development Agency Directorate of Health Services (DHS) government (PUDA)

Information to prospective bidders Detailed brochure containing No information available to prospective General one-page guidelines for information and guidelines provided bidders except advertisement potential bidders besides advertisement

Proposed form of participation 100 per cent ownership basis to * Preferred - JV with government JV (government equity limited to * Institutions * Open to participation on ownership 26 per cent) * Hospitals basis (individuals, corporates or * Diagnostic centres charitable organisations) * Charitable institutions

Eligible requirement * Charitable institutions setting health 1995 policy: Professional qualification Open to all facility as per government plan must

* All other charitable institutions 1997 policy: Minimum experience of * Institutions setting-up specialty 10 years running a specialty hospital;

hospital as per government plan * Hospital should have affiliation with * Profit-making institutions not exiting centre;

covered above * Minimum earnest money Rs 35,000

Condition for making facility Construction should be complete in Within three years the facility should No condition specified for operation operational two years and hospital should start start operating of the facility

functioning

Participation in management No participation from government in No participation except in case of JV 1/3 nominees on the board from management government of Delhi

Location specification and availability * Choice of locations (urban and rural); * Choice available from six specified * Specified urban locations in Delhi * Exact location to be identified based urban centres; * Readily available and in possession

on the request made by applicant * To be decided by the bidder of government

Free care to poor and other price * 10 per cent free IPD and free OPD * No free care condition * Free care to proposed percentage specification for one hour in morning and one hour * No other price specificiations of patients in OPD and IPD (to be

in evening for first two categories proposed by bidding institution) * No price specifications for last two * Selection of patients for free care

categories to be decided by the government

Minimum investment requirement Not specified Minimum capital cost of Rs 50 crore Not specified Incentives * Subsidised land Subsidised land (offering below Land and selected valuable equipment

* Sa!es-tax exemption on equipment market price) as equity from the state government * iNo octori * Other benefits from financial

institutions

Amendments in.laws enabling policy * Exemption order for sales tax No information available The guidelines did not contain any implementation already issued information on this. However, the

* Amendment in Rajasthan Land document indicated taking over of health Revenue Act facilities from municipal corporation.

Inter-departmental coordination Departments of Health and Family PUDA administration involved in Authorised tender committee of the Welfare, Finance. Industry, Revenue, implementation government, no mention of BIP inter-department coordination

Response and follow-up 14 applications received * Applications received ir 1995 were * More than 30 applications received approved but rejected later; * Stay order brought through public

* Fresh set of applications have been litigation invited in 1997 through advertisement

Other initiatives in the state having More than 50-bed hospitals have World Bank health systems development Apollo Hospital was started as a JV implications for private-public been converted into registered societies project to strengthen the secondary collaboration (autonomy to take decision; life line level hospitals (created Punjab Health

medical stores) Systems Corporation)

Public image Hospital society concept is being Trying to strengthen and keeping image Apollo Hospital viewed as hi-tech implemented no information on of not privatising the health sector and high priced corporate hospital and performance not as JV with government

Implementation problems Attempt to have single window concept Capacity within the PUDA to handle NA health project; Clarity about the process and technical issues

Availability of qualified personnel Government has set up one more Paramedical staff is considered as a Adequate supply of trained medical medical collage and is establishing major issue and training facilities need staff paramedical centre augmentation




II Government Initiatives

Table 2 summarises the characteristics of three important policy initiatives of state governments of Punjab, Rajasthan and Delhi in developing these partnerships. The other initiatives discussed are the involvement of NGOs and industry in managing public health facilities and involving qualified doctors in provision of health care in rural areas. Some of these initiatives also describe the reasons for initiating such private-public partnerships.

Punjab The government of Punjab evolved an

initiative in public-private partnership by offering subsidised land to private sector to set up tertiary and super-specialty health facilities. Punjab Urban Development Authority (PUDA) through advertisement in November 1995 invited bids for the allotment of sites for setting up specialised hospitals in urban estate of SAS Nagar area adjoining (the capital city, Chandi- garh). Bids were invited for six locations having land area of five acres and 10 acres. The eligibility conditions suggested that doctors having MBBS degree or a group of professionals or any institution having requisite experience in the field of health care could apply. Financial capability in setting up a hospital was one of the important requirements. In response to the advertisement, PUDA received 20 bids out of which 12 were short-listed for further discussion. Large corporate houses and a well known pharmaceutical company were among the applicants.

This initiative did not result in any workable arrangement or collaboration with the private sector. The preference for a particular location by all bidding institutions was cited as the reason for non- acceptance of offers. The government also found that a number of shortlisted organisations did not have adequate experience in health and therefore the government was reluctant to offer land at subsidised prices to these organisations. In a few cases land was allotted, but the offer was cancelled later.

In 1997, the government revived the proposal and issued another advertisement for inviting applications for super-specialty hospitals in five specified urban locations in the state (Ludhiana, Jalandhar, Amritsar, Bhatinda and Patiala). This time the previous locations were not included in the list. Most of these locations were in areas earmarked for institutional purposes.

However, PUDA this time did not provide detailed information on these locations in terms of number and size of available land areas as was done in the previous offer. This step was guided by the number of problems faced in implementing the previous initiative. No policy document was available on the present initiative. How- ever, the advertisement suggested that final allotment of land area would be based on an applicant's requirements and preferences.

In the revived initiative private participation was invited for 13 super-specialty services from institutions in India or non- resident Indians. The total capital cost was envisaged to be about Rs 500 million or more. This did not include the cost of land. The conditions for applying this time were stringent. Only those having. relevant experience in super-specialty areas could set up the facility. The government this time also laid down a condition of having at least 10 years of experience in the relevant field and the applicant should have estab- lished super-specialty/multi super-specialty hospital of international repute. Any applicant interested in setting up health facility but not having past experience in health was directed to seek collaboration or affiliation with a recognised medical centre or hospital. The government agreed to offer land for this project at rates ranging from Rs 1,350 to Rs 2,060 per square yard depending on the urban estate, involving subsidies ranging from 40 to 60 per cent. The cost of land was to be paid either in lump-sum or instalments.

Proposals to consider setting up super-

specialty centres by entering into joint venture with the government also featured one of the options in collaboration. In such cases the cost of land was proposed to form the government's contribution towards equity capital in the JV. The condition was to set up the super-specialty centre within three years and that the allotted land could not be used for any other purpose than for which it was allotted to the institution.

Due to high minimum investment requirements, the response to this initiative was very poor, receiving only five applications. Interestingly, this time two re- sponses were from non-resident Indian doctors who formed separate consortiums abroad and submitted bid applications. The other applicants were big business houses, one of them proposing collaboration with the well known Apollo group having a hospital chain in the country.

The department, however, did not issue any guidelines to interested institutions describing the process and did not provide any opportunity to clarify any questions arising in the process of submitting the bids. While implementing the private participation policy, it was not clear from the advertisement whether PUDA did involve other departments such as finance, health, Punjab health systems corporation and ministry of urban development, etc. The advertisement did not describe the process of short-listing of the institutions and criteria for allotting the land sites.

The revised schemes like previous one did not propose providing any other benefits such as taxes, levies, octroi and providing subsidised finance and other infra-

Table 1: Medical and Public Health: Capital and Revenue Expenditures

Punjab Rajasthan Year Revenue Capital Total Capital Revenue Capital Total Capital

to Total to Total (Per Cent) (Per Cent)

1974-75 1437.96 82.86 1520.82 5.45 2209.12 70.31 2279.43 3.08 1975-76 1717.88 94.84 1812.72 5.23 2630.54 69.95. 2700.49 2.59 1976-77 1787.37 120.03 1907.40 6.29 2911.86 56.43 2968.29 1.90 1977-78 2116.37 143.30 2259.67 6.34 3523.51 40.63 3564.14 1.14 1978-79 2353.87 156.84 2510.71 6.25 3950.37 101.13 4051.50 2.50 1979-80 2533.45 241.52 2774.97 8.70 4311.23 155.16 4466.39 3.47 1980-81 3530.97 296.00 3826.97 7.73 4968.07 162.29 5130.36 3.16 1981-82 4020.73 248.83 4269.56 5.83 5312.94 184.30 5497.24 3.35 1982-83 4223.92 197.46 4421.38 4.47 6863.33 181.68 7045.01 2.58 1983-84 5223.15 322.54 5545.69 5.82 7452.67 120.14 7572.81 1.59 1984-85 5860.51 247.84 6108.35 4.06 8798.21 177.43, 8975.64 1.98 1985-86 7180.39 350.64 7531.03 4.66 9623.15 316.99 9940.14 3.19 1986-87 7628.47 478.92 8107.39 5.91 11212.23 425.86 11638.09 3.66 1987-88 9205.92 516.46 9722.38 5.31 13223.90 506.85 13730.75 3.69 1988-89 10942.12 491.53 11433.65 4.30 14722.60 458.58 15181.18 3.02 1989-90 14023.79 395.59 14419.38 2.74 17473.45 406.79 17880.24 2.28 1990-91 14675.01 328.46 15003.47 2.19 20421.59 448.40 20869.99 2.15 1991-92 16032.89 1430.73 17463.62 8.19 22565.74 1634.35 24200.09 6.75 1992-93 17200.92 994.24 18195.16 5.46 26893.22 ' 1221.04 28114.26 4.34 1993-94 18927.16 670.73 19597.89 3.42 30793..35 756.58 31549.93 2.40 Average 5.42 2.94




structure facilities. None of the organisations, which had

participated in the previous bid, responded to the revived initiative of the government. Besides the stringent conditions of the department for bidding under the new proposed arrangement, respondents to previous advertisement did not find any major perceptible shift in the policy and process of implementing the proposed initiative. The experience also suggests that the earlier invitation had attracted more of local institutions having specific preference for a particular region. The entire process of the revived initiative has taken more than a year and the selection has yet to be finalised.

Delhi

With a view to attract private investment in health sector, directorate of health services (DHS), government of Delhi in May 1997 proposed setting up 10 hospitals as joint ventures on some of the sites available with the government. Out of these 10 locations, seven were government hospitals. These hospitals were proposed to be acquired from municipal corporation of Delhi. Others were earmarked sites of Delhi masterplan. Most of these facilities were at commercial and busy locations.

In the proposed JV, government's contribution was to come in the form of cost of land and it was supposed to form a part of equity capital of the proposed organisation. The proposal indicated that government's contribution in any case would not exceed 26 per cent of the total share capital, the government had proposed to contribute additional resources to meet the requirement of minimum capital contribution from government. In forming these joint ventures the government also made it a condition that up to a third of the board nominees will be from the government.

The applicants were given the option for either setting up of a general hospital or superspecialty facility. Each a facility was expected to offer free care to a certain percentage of OPD and IPD patients. The bidding institutions were required to specify the percentage of free OPD and IPD care they proposed to provide. No specific guidelines were provided for identifying the poor patients but the government re- tained the right to refer eligible patients for free care. Each facility was expected to participate in public health programmes of the government.

As compared to the Punjab initiative, the government in Delhi provided a set of

general guidelines for participating in this venture. As per instructions provided, applicants had to submit two separate bids: one technical and the other financial. Very broad details were provided about the process of selection. More than 30 applications were received by the DHS in response to their advertisement.

The location of proposed facilities being at prime commercial and busy places, attracted considerable attention from public and others. Public litigation case on social security grounds was filed in the high court of Delhi and a stay order was issued halting the entire process of forming joint ventures. A number of other cases were also filed on the ground that sufficient time was not provided for submitting bids.

Rajasthan The policy document on PPPs in

Rajasthan is the most comprehensive of any state government policy statement in India. In order to encourage private investment in hospitals, diagnostic centres and

nursing homes, medical and health department of government of Rajasthan (GoR) announced a detailed policy in 1996. The state has 218 hospitals having a bed capacity of 35,665. Of these, only six hospitals provide specialty care in areas such as cardiology, neurology, nephrology, gastro-entrology, etc. The policy document indicates that while the government is focusing more on increasing access to primary care, the growing incidence of chronic diseases have made it imperative to develop an effective secondary and tertiary care system. It acknowledges that' the ability of the government to expand in these areas was significantly constrained by availability of funds. The need to increase the access to and quality of services and better clientele relationship as the reason for involving private sector in. providing health services was also emphasised.

In order to attract investment from private providers in specialty services and curative care, GoR categorised bidding institutions into four categories. These were:

Table 3: Subsidies to Different Categories of Providers

Category/ Rural Area Urban Area Base Price Market Price of Agriculture Land (MPAL) Revenue Residential Price (RRP)

Category A 25 per cent of MPAL (no ceiling on area) < 2000 sq yd 50 per cent of RRP > 2000 sq yd 25 per cent of RRP

Category B 25 per cent of MPAL (no ceiling on area) < J 000 sq yd 50 per cent of RRF 1000-2000 sq yd Twice RRP > 2000 sq yd RRP

Category C 50 per cent of MPAL (no ceiling on area) < 200 sq yd RRP > 200 sq yd Twice RRP

Category D MPAL < 100 sq yd Thrice RRP 100-2000 sq yd Twice RRP

Table 4: Policy Issues and Policy Measures for PPPs

Issues/Concern Unintended Effects Policy Measures

Expanding hi-tech super- Cost * Protecting poor from catastrophic specialty services Quality financial burden

Demand inducement * Protecting and increasing government Unethical practices budgetary allocation to public sector

* Development of monitoring mechanism and appropriate regulations Rate regulation (change provider payment system)

* Continuing medical education programmes Geographic distribution Equity: access for rural Regulatory interventions such as of facilities areas ? Licensing

? Creating health map ? Various types of incentives ? Channelling money ? Remote area subsidy programmes to allocate

Financing of new investments Cost Creating specialised financial channels within quality the existing set-up of financial institutions to

provide funds to private health care sector for financing their new investments in appropriate technologies after examining its cost-effectiveness

Utilisation patterns Equity: access for the poor * Developingappropriatefinancial mechanisms * Protecting poor




Category A: Charitable medical institutions (non-profit organisation) willing to set up at least one advanced diagnostic or curative services by acquiring medical equipment from approved list of state government or offer specialty services as per the plan approved by the state government.

Category B: Charitable medical institutions having their own plan to set up health facilities.

Category C: Institutions (registered firms, societies, trusts) interested in setting up specialty hospital in specialities approved by the state government and in particular geographic region.

Category D: For-profit organisations (nursing homes providing maternity and child care facilities having at least 10 beds and OPD facilities, hospitals having at least 50 beds and OPD facilities, diagnostic centres).

One of the areas to facilitate the setting up of private facility was subsidising initial set up costs of establishing health care facility. As seen in the previous two cases the governments used subsidised land as one of the mechanisms to attract private sector. These subsidies are generally provided by offering land at reduced prices. Other forms of subsidy constitute the cost of medical equipments by lower or zero duties and exemption from various fiscal requirements or providing finances at subsidised rates.

The GoR announced policy of providing land at subsidised rates and also included other fiscal benefits to institutions interested in setting up health facilities. The subsidy was not uniform across all organisations but varied according to categorisation as defined above and whether the facility was to be set up in rural or urban area. The details of subsidy on account of concessions in land prices are provided in Table 3. A time frame of two years from the date of allotment was laid for the use of allotted land.

GoR also provided fiscal incentives on all purchases of medical equipments, plants and machinery under this policy, provided they are from approved list of DoHFW and facilities are set up before March 31, 1999. These incentives were as follows:

- exemption from payment of sales tax on purchases of medical equipment, plant and machinery;

- exemption from payment of octroi on medical equipment, plants and machinery whether imported or from other state.

- other fiscal benefits from state level and other financial institutions as per the provisions of those institutions.

The government constituted a broad- based empowered committee responsible for screening all bidding proposals, short- listing and final selection of institutions. Most of the related department secretaries were members of this committee (for example, secretaries from the department of finance, health, industry, revenue, urban development and housing and bureau of industrial promotion).

The response to the policy initiative of GoR was reasonable. In all 14 proposals were received. Each bidding institution was required to submit an application along with project feasibility report and proof of sources of funding to set up the project.

Despite having a comprehensive policy on private participation, the final clearances and allotment decisions have faced a number of procedural difficulty. Since no locations were identified before the start of the process, the implementation of policy had to work out the details of available locations. For this purpose, the preferences from each bidding institution were collated first. The committee for- warded this information to respective development authority or municipal corporation. Since the number of development authorities and municipalities involved were too many, it became difficult to co-ordinate the process. Each agency was required to come up with detailed information about possible sites of required sizes. This resulted in an applicant getting number of options of land locations for his proposed project. This created confusion and delays in decision-making. The government also experienced delays in implementing the policy because of the problems faced in getting clearances from various departments. Since the land was going to be provided at subsidised rates it would have resulted in a loss to the development authority. A number of authorities were not prepared to implement the scheme and give clearances because there was no agreement on how the losses will be shared across the departments. It also created procedural difficulties in implementing the policy because most of the developmental authorities were selling these properties through auction. This was seen as a major departure from set procedures and there was reluctance to depart from existing practices.

Industry and NGOs

Primary health care (PHC) forms the backbone of the health delivery system in each state. Surveys have shown that PHCs do not have adequate facilities to provide

health services effectively and utilisation of these facilities is very low [Rao 1997]. Very little attention is paid to improve the performance of PHCs and their utilisation. There are no effective mechanisms to evaluate and monitor performance of PHCs. Monitoring systems are weak. A number of surveys have highlighted that many PHCs are without doctors, and where there are doctors, they do not attend the facilities regularly. Under this scenario, harnessing local level support and private initiatives is emerging as an important option to improve the performance of the PHCs in various states. The cases of Tamil Nadu and Gujarat highlight the nature of these initiatives.

Tainil Nadu: In Tamil Nadu the state government has involved industry in improving the performance of PHCs. The primary role of industry was envisioned to adopt a local PHC, health sub-centre or district hospital. They had the responsibility of building, maintaining and equipping the facility. Under this collaborative arrangement the state government continued to provide staff and medicine. Initially, industry anticipated poor flexibility in operations as it was going to be manned by governm-ent personnel. The state government agreed to draw a flexible MOU where corporates had flexibility to increase or reduce their involvement depending on the performance of the scheme. Most of the industry houses choose the PHCs around their plants. Of the total budget of Rs 10,450 million, Rs 250 million are allocated to maintenance of PHCs. Indus- try has committed to spend up to Rs 13 million. The collaboration also provides opportunity to the state government to get feedback from industry on various management issues of the PHCs [Shoney 1998].

Gujarat: In Gujarat, SEWA-Rural was given the entire primary health care services in one district by the state government. Under the agreement, the government agreed to 'finance the entire PHC services in SEWA-Rural's project area. These services were planned to be run on the same pattern as that in the government, but managed wholly by SEWA- Rural. As per the MOU, SEWA-Rural was required to fulfil the same targets in various health schemes which the government fixed from time to time. While SEWA-Rural was free to recruit its own workers, the criteria for their recruit- ment remained the same as in the government, with some exceptions. However, SEWA-Rural could retain flexibility in providing the necessary training to all its health workers.




Reproductive and child health (RCH): The MoHFW, government of India has recently announced schemes for implementing the RCH programme. The programme in the past has experienced a number of implementation constraints in the area of emergency obstetric care (EOC), MTP, etc. Inter alia, the schemes of implementation include the involvement of the private sector in programme implementation. For example, one of the areas identified is shortage of anaesthetists in meeting the needs of EOC. The RCH implementation scheme now provides that the states can engage the services of anaesthetists on a payment of Rs 500 per case at the sub-district and CHC level for EOC. Similarly in the area of MTP, the districts can engage private doctors trained in MTP to the PHCs once in a week or once in a fortnight for performing MTPs and these doctors will be paid Rs 500 per day or visit. The schemes for implementation also include a number of other measures such as involving NGOs through state level registered societies (SCOVAs) for various components of RCH programme.

Contract services Another way in which public-private

partnership develops is through contracting out clinical and non-clinical services. Many states in India and several health projects of the government of India do have components which are contracted to outside agencies. Some of the cases of contracting-out are illustrated below: - The state of West Bengal has been facing problems of manning the PHCs. At district level the government of West Bengal has constituted district health committees (DHCs) which would have responsibility for planning and managing health programmes and services. As one of the steps to ensure that PHCs are manned, the DoHFW allowed the DHCs to hire the services of private doctors on contract basis. During the recent budget, the GoWB has also proposed to bring 341 PHCs under the supervision ofpanchayat samitis. These samitis would have the power to appoint doctors on contract basis. - The health facilities in West Bengal have also started hiring vehicles as ambu- lances and proposes to charge users per km basis with a cap on the total amount. - The contracting of services in the area of diet and catering, laundry, security and IEC programmes is being implemented in many states in India (eg, Maharashtra, Tamil Nadu and West Bengal). Bhatia and Mills

(1997) discuss the case of eight Mumbai hospitals and evaluate efficiency of con- tractual arrangements for non-clinical services. - The areas with good potential for con- tracts include clinical and other non-clinical services. In Tamil Nadu contracting out for high technology services in major teaching hospitals has been identified as one important area [Bennett and Muraleedharan 1998]. - The other area for contracting out services is the maintenance of equipment and facilities. No data or information is available on contracting out such services.

Ill Issues and Prospects

Public-private partnerships in health sector form an important part of many health sector reform strategies nowadays. The scope of these partnerships on the clinical side include specialty care (eg, in tertiary and hi-tech curative care), reaching vulnerable and target groups of population (eg, in STD, HIV/AIDS, TB) and addressing problems of access in remote areas where public services cannot reach (eg, RCH ). On non-clinical side there are areas such as diet and catering, laundry, security, etc, where private providers can work on contract basis. The involvement of the private sector is considered important from the viewpoint of improving the efficiency of limited resources available with the governments. However, not much attention has been paid to management and other implementation issues in initiating these partnerships.

The interaction between private and public providers in health care assumes several forms: - form of the partnership: joint venture, providing subsidies and various fiscal incentives, having informal understanding about the provision of services, 100 per cent privatisation; - focus: clinical or non-clinical services, other provisions such as handling management aspects, etc; and - flexibility: in terms of having their own fee structure or personnel policy or training structure and flexibility in time-frame.

The experiments in PPPs are still new. Some of the experiences are emerging as important pointers of the direction in which government is proposing to proceed with these initiatives. The previous section has described some of these arrangements that have been initiated by the state and central governments. The policy implications of these experiences are yet to be ascertained.

Some of the initiatives have run into problems and raise a number of management and policy questions.

The PPPs process starts with a policy statement from the government to define the scope and nature of partnership. The policy statement is a tool to provide all possible information on proposed collaborations and relationship. Two state governments (Delhi and Punjab) provided brief policy statements in the form of advertise- ments in national dailies. Rajasthan had an elaborate policy statement describing the need for PPPs and all other necessary information related to the proposed form of partnership, eligibility requirements, time-frame, location specification and other conditions, minimum investment requirements, etc, in detail. The limited experience in PPPs process suggests a need for considerable inter-departmental coordination of activities. The experience suggests that inter-departmental policies such as making amendments to certain statutes and co-ordination with various implementing agencies also need to be addressed. This process needs to be defined in advance. Table 2 provides details of PPPs initiatives in three states and examine these initiatives on various dimensions. However, these do not assure us of success of these partnerships.

The collaboration between private-public organisations is based on certain critical assumptions. The policy context and the ongoing debate on private sector provide critical insights. The development of these collaborations cannot work in a vacuum and in isolation. It has to work within the framework of the exiting role of the private sector.

It is important to consider the ongoing debate in the country on the role of the private sector and implications of its growth. Most of this debate has focused on issues of cost and quality. Studies indicate that private health care does significantly affect both the cost and quality of available health care services in India -[Uplekar 1989a, 1989b; Duggal and Amin 1989; Vishwanathan and Rohde 1990; Yesudian 1990; Nandraj 1994]. Cases of superfluous and expensive services ren- dered by private physicians and hospitals have also been reported [Uplekar 1989a; Duggal and Amin 1989]. Recently the issue of consumer protection and effectiveness of legislation in this area have also been discussed [Tulsidhar 1994; Bhat 1996]. The lack of monitoring mechanisms and absence of appropriate regulatory instruments raise doubts about the effectiveness of these public-private part-




nership approaches. For example, the duty exemptions granted to health care institutions in the 1980s were on condition that the organisations availing such benefits would provide a certain percentage (in most cases 30 per cent) of health care free to poor patients. It is now evident that many of these facilities did not meet these obligations. No monitoring systems were in place to identify or forewarn of defi- ciencies.

The present review of PPPs also suggests that there is no attempt by the government to address these issues and institute a proper monitoring system to ensure that the obligations are adequately met. For example, there is no policy frame of linking proposed facilities with the already existing government referral chain. This would have been one attempt to strengthen the government referral system. In the absence of an appropriate monitoring system, the system of protecting the poor through the PPPs will remain ad hoc and there is no guarantee that this objective can be achieved: In the past, to meet the desired obligation of PPPs, many of these facilities ventured into designing the mechanisms of having either fake registration of poor patients or establishing substandard health facilities in remote areas for the poor. Recently, through public interest litigation, the judiciary has intervened to inves- tigate lapses in monitoring and in fulfilment of these obligations. One important lesson from this experience is that the success of any PPP critically hinges on having an adequate monitoring system in place to meet the public policy goals of these initiatives. The departments of health at the centre or at the state developing or proposing PPPs need to address this issue. It is also important to examine the question of public policy goals of these PPPs. Should the objective be to protect the poor through the PPPs? Experiences in programme implementation suggest that it has always been a problem to target the poor. For example, the experiences of implementing user fees policy in various states and in other countries suggest how difficult it is to identify poor.

The important policy question therefore is whether the governments should focus on equity as a public policy goal in the PPP initiatives. As discussed above experiences so far suggest that it is difficult to address the equity issue and protect the poor through PPP initiatives. Many PPPs propose providing free care to popupations belonging to lower income groups. Experience suggests that it has not worked. The targeting is difficult in the absence of effective

monitoring mechanisms. At the same time if the government gets out of super-specialty care or provides limited options to its population, the catastrophic financial burden of the poor would become a major concern. It would therefore be important to evolve policy to strengthen the public facilities along with the development of PPPs or else develop a mechanism to protect the poor from high financial burden. For example, Goa has started catastrophic illness insurance for populations belonging to lower income groups. Maharashtra, where public facilities are not sufficient to meet growing demands, has also initiated a similar scheme. Other state governments such as West Bengal are examining strategies to link the use of state sickness fund for meeting high financial burden of poor people.

The need for having appropriate monitoring system also arises because of other reasons. It is important to recognise that all public-private partnerships would be required to go through public scrutiny at some time. There is strong need to ensure that all process steps are followed and there is complete transparency. Putting adequate monitoring mechanisms in place would ensure such transparency. It is also important that each partnership is evalu- ated at regular intervals.

Policy-makers need to ask whether subsidising the inputs on condition of providing free care to poor patients is an appropriate mechanism to attract private investment in health. There has been no debate on whether subsidising inputs or providing direct subsidy to the poor is more effective. The latter can be effectively implemented by the government by becoming a purchaser of services from private sector and making those services available to the poor. Which one would address the equity question better?

Trade-offs in policy decisions in private- public interaction, are: equity and protecting poor patients, efficiency (technical and allocational), and quality of services. For example, if there are areas where it is not possible to promote equity, should the government focus on improving efficiency. The policy needs to determine the basic objectives of private-public interaction and the public goals these initiatives should achieve.

In order to strengthen public-private partnerships and in general the role of the private sector, it is important to identify areas of intervention to make it more responsive towards public goals and to minimise the unintended consequences of private sector growth (Table 4). Signifi-

cantly, despite the problems resulting from the growth of the private sector, little is known about these.markets and viewpoints of various stakeholders. For example, as discussed in the previous section, it seems that many such proposals have not taken into account stakeholder views. The development of these approaches looks very much top-down. There seems less interaction and involvement of concerned departments in promoting such initiatives on the one hand and less consideration of public viewpoint on the other.

The basic assumption that setting up of private partnerships with public health facilities is in the public interest and therefore these initiatives will not face any public scrutiny, has turned out to be wrong. The case of Delhi shows how public litigation can be used to halt the process of handing over public hospitals to private providers. There is also a danger that if the process of creating partnerships is not steered properly, the entire initiative may be perceived as an extreme form of privatisation of public facilities. The extreme form of privatisation of public health facilities or creation of such impressions would attract lot of attention and may be ultimately abandoned. This would halt the process of implementing PPPs. The policy intent of having these initiatives may have well defined objectives which meet the criteria of efficiency and partly or indi- rectly equity concerns. These may fail because the process did not involve all concerned and did not evolve appropriate monitoring systems.

It has become evident that the involvement of the community through some process is critical. The recent West Bengal initiative of involving panchayats in contracting services of qualified doctors in remote areas is one attempt in India to involve a community in PPPs. However, the panchayats would also need appropriate monitoring mechanism to ensure that contracted doctors do provide services in remote areas. In case some of these aspect are not given adequate attention, the chances of success of these interactions would be very low. There is a great deal of evidence that governments need to steer the process of nurturing these collaborations in an appropriate manner.

Another important issue in these partnerships has been the absence of appropriate mechanisms of sharing information and transparency in the process. One of the ways in which thes-e can be done is through the involvement of all stakeholders and prospective private sector partners. Information and transparency are




critical components of the entire PPPs process. On information side adequate care is required to be taken to have appropriate information on private sector role and possibilities of partnerships. The form of partnership through subsidising the inputs, particularly land, would per- haps remain an important form of collaboration, it is important to create a master plan or mapping of delivery points. This would require developing links at the service delivery points. Any changes made in the plan should be updated and need to be communicated properly. One must recognise that in any public-private partnership which goes through a bidding process or would have the option to go through public scrutiny at some point of time, has costs associated with it. The prospective partners would be required to go through the process of search for information. To ensure that they do not incur high transaction costs in searching for information, appropriate mechanisms need to be instituted to ensure that information is available to all. This would reduce the overall costs of such partnerships.

Public-private partnerships in health in India are at very early stages. Most of these initiatives will need significant institutional development work. Developing capacities to handle these initiatives focusing on financial analysis capabilities, monitoring and evaluations systems, etc, are just a few examples of the tasks involved.

With public-private partnerships .which are going to be developed on exiti i'ti '-)i ic health facilities set-up, there would be questions of deployment of personnel and who controls them. Most of these initiatives also propose some type of governance mechanism. Government would continue to play a key role in the strategic process of these facilities but would have limitations in getting involved in operations aspects. This also highlights the .,eed for overall monitoring mechanisms to keep track of operations of these facilities. There is likely to be considerable amount of interaction across various departments within the government.

One major concern about the PPPs would be their policy perspective. These initiatives are being evolved when we have not yet evolved a consensus on what should be the private-public mix of health care and what is the public policy towards private sector. For example, an important policy concern would be whether, along with the promotion of these initiatives, government funding to public facilities will be protected. The policy frame of the govern-

ment on health does not have a sector side view. The roles and contributions of public and private sectors are not appropriately defined. Questions such as what should be the appropriate form and scope of these initiatives need to be debated and appropriate policy frame needs to be evolved. The present policy frame of various state governments and of the GoI primarily focus on public health programmes. No policy frame has been evolved which takes a sectorwide view, clarifying the role of public and private appropriately. The experience suggests that not having a sectorwide policy on health has resulted in lop-sided development in this sector with too much dependence on private sector. The implications of this are quite serious. It is evident that one of the areas where public-private partnerships are being suggested is curative super-specialty care. These areas require huge investments in medical equipment and health care infrastructure. In the absence of any explicit policy of regional distribution of these facilities, excessive investments in medical technology and infrastructure may lead to overcapitalisation resulting in demand inducement, cost escalation and unethical use of facilities. As experienced in the past, curative and tertiary services get concentrated in urban areas. The private sector would have a tendency to grow in urban areas. Overcapitalisation in this sector would lead to inefficiencies. These inefficiencies arise because of market imperfections and market distortions which have a significant effect on the behavioural characteristics of the physicians recom- mending the use of various procedures. In private sector, the providers of these facilities operate in a business like environ- ment, having many obligations for example to repay the instalments of the loan, working capital requirements and the urge for growth. Even without profit motive, investment in new technology gives rise to financial problems leading to demand inducement conditions. The private sector operates in an unregulated setting with no price controls and most of the patients having limited insurance coverage. Under these conditions the investment in the technologies and private-public partnerships in hi-tech super-speciality care raise questions about equity. For example, Yang (1990) has examined the question of equity and shows that in Korea only people belonging to high-income classes use the MRI facility. Since the use of this facility is not covered under insurance, the use of MRI puts a greater burden on low-income families than on high-income families.

One of the factors affecting the price charged from the patient for the use of these facilities is the investment in these equipments. Some of these technologies such as CT scan, MRI, ESWL, etc, are very expensive technologies and have significant recurring costs. In the absence of proper regulation on prices and distribution of facilities, the present system of reimbursement in private sector is likely to fuel the proliferation of medical procedures and technology. The undesirable consequence of this development would be situation of overcapitalisation. Many urban areas in India have started experi- encing this trend. The unintended consequences of such a trend is demand inducement, increase in prices and unethical use (Appendix 1).

Most PPPs are likely to redefine the roles of various constituencies in the health sector. There would be constituencies which would have a prime role in financing and others which would have a role only in provision of services. The success of PPPs will critically hinge on the clarity in relationships between these constituencies. In one sense the constituencies which have financing role become purchasers of services. This split, if not clearly under- stood, can lead to many complications. The health reform strategies proposed by the World Bank and other agencies suggest that government should move away from provision and should assume the role of financier. This role can be achieved through handing over the provision to the private sector and government becoming purchaser of services. The premise is that in the role of purchaser of services, the government will be able to encourage competition among the providers and this will help efficiency in the system. How- ever, the achievability of these results critically depends on number of conditions. One of the conditions would be having appropriate regulation in the system. As explained in Appendix 1, free-for- all competition would result in unethical practices, demand inducement and cost escalation. Many developed countries which have promoted competition as means pf achieving efficiency do experience such problems. In India, promoting PPPs therefore will require appropriate regulations to mitigate the unintended outcomes of private sector growth in health.

Information dissemination would play a critical role in ensuring that the private sector does not behave opportunistically. For example, in states where private nursing home or clinical establishment legislation are in place, there are no mecha-




nisms in place to publicise the information about facilities that are registered with the government. The governments need to evolve appropriate mechanisms to provide this information to the public.

Encouraging investment in the public sector by the private sector also has implications for allocating adequate resources to public facilities. In 1992, the UK government announced new provisions of allowing private sector investment in the national health service (NHS) and this was done without reduction in public funding (Appendix 2). All PPPs should ensure that government spending on public facilities would not decline. It is important for effective PPPs that public facilities are strengthened simultaneously.

We must recognise the fact that private- public collaborations are possible if there are adequate incentive structures in place. The public policy towards private sector needs to adequately address this question. The subsidising of various inputs in these partnerships try to create such incentives. The public policy towards private sector needs to spell out the mechanisms of providing incentives to the private sector.

There is also a potential danger of PPPs leading to unequal standards of clinical care across public and private sectors. Having more and more of PPPs will create two different systems of health care delivery systems, public and private, providing different quality of care to different clientele. This problem would worsen as a result of lower allocation of government resources to public facilities. In the process, the poor will suffer. This problem arises because policies do not take a sectorwide view focusing on and ensuring appropriate roles of private and public in the health sector. Disparity in the availability of medical technologies and of skills the two sectors would be an area of concern. The private sector would have significant attractions and there would be movement of personnel from public to private, further aggravating the problem in the public sector.

Ensuring appropriate quality standards has become a major issue in health delivery system, both private and public. It would be important that the regulatory frame also focuses on ensuring adequate standards of care. The two areas which would need attention are institutionalising the process of standard setting and con- tinuous medical education and training in clinical areas. The medical councils at the centre and at state levels have not assumed adequate interest in developing appropri-

ate mechanisms for continuing medical education (CME) programmes and standard setting. One of the problems is the lack of infrastructure and capacity within these institutions to undertake this work.

Given the experiences in PPPs so far, management structure has now assumed critical importance in implementing the new partnerships. Developing these structures is difficult and takes considerable time. However, once developed these structures ensure that various management system and process aspects of these partnerships are adequately addressed. If steered and directed carefully, these structures would also provide an appropriate mechanism to monitor the performance of the PPPs. The recent experiences in PPPs (for example, cases of Delhi and Punjab) suggest that governments would be vulnerable in proposing and handling the PPPs directly by themselves. Taking on a new task such as managing PPPs mean a big leap forward for the government departments under the present circumstances when governments are facing a number of human resource issues. Some of the recent experiences in implementing PPPs through the district health committees (for example in West Bengal) and through creation of registered societies in various states are an attempt in this direction. However, it is important that these agencies are provided opportunities of training and time to develop capacities and appropriate systems to handle these tasks better.

In conclusion, the paper discussed selected cases of private-public partnerships and suggests the following. First, it has argued that we need to have a 'public policy towards private sector' and the policy framework should have sectorwide (addressing both public and private sector roles together) focus. The policy document, inter alia, should address the question of public-private mix in health sector, scope of private-public partnerships, role of subsidies and incentives in promoting these partnerships, the issue of protecting the public sector from any reduction in

budgetary allocations. There is need to have explicit and adequately described statement on PPPs, planned coordination across various departments within the government and various implementing agencies, ensuring availability of critical resource such as qualified manpower. The need to have appropriate monitoring arid governance system, provision of adequate information to all participants and transparency, institutionalising appropriate managementstucturetohandlenew tasks and

strengthening public systems were discussed as necessary pre-requisites for evolving effective PPPs. The role of regulatory mechanisms to ensure proper standards of care is also considered important.

Appendix 1: Implications of Competition in Health Sector

We use the demand for health care framework to explain the implication of encouraging competition in health sector. As- sume that the aggregate demand curves of poor people and rich people have different elasticities (for the poor the elasticity is higher than for the rich). The existing medical technology is priced at P0 for which the demand is Q for poor and Qr for rich. The rich people can afford more care and therefore the quantity demanded by them is higher than the poor people. Suppose more competition is introduced and number of hi-tech super- specialty technologies are introduced. Because of its high investment requirements, it is priced higher than the existing procedure. We expect the demand for care from poor people significantly lower at P1 price. The poor people will still utilise the existing facility. The higher the price differential, the lower are the chances that poor people will shift to the new technology. Equity implications are that fewer poor people will be able to use the new technology. As the competition in health care (because of the use of this new technology) intensifies more and more providers invest in this facility as there is assured demand from the rich people. There are also other reasons like improving the image of the private health facility which affect the investment behaviour of many providers. As competition intensifies and other providers decide.to install this new piece of equipment, the total demand will get divided resulting into a downward shift in the demand curve for a single provider (e g, for rich to Dr). Under the changed circumstances, providing the services at the existing prices will generate less revenue and as a result many providers will experience a deficit. In order to cover the deficits, the provider must push up the demand curve through demand inducement behaviour (such as fee-splitting practice, etc). If it is not possible to shift the demand up, the provider would reduce costs by sacrificing overall quality of car, (e g, promoting unethical use or sacrificing quality standards). The last option available to him would be to increase the price for the use of this facility.




Dr Price Dr

P2 -

0 D

P0

Qp Qrn Qr" Qp Qr' Qr Quantity

Appendix 2: Investment in Public Sector by Private Sector

In 1992, the chancellor of the exchequer in the UK announced new provisions which allowed private sector investment in the national health service (NHS) without the reduction of public funding. This has become known as the private finance initiative (PFI) which has the objectives of: (i) enabling public and private sectors to work more closely encouraging joint ventures, leasing of assets and the private provision of services in order to help finance capital intensive projects; (ii) providing the means by which the private sector can genuinely assume some of the risk; and (iii) ensuring that projects deliver value for money.

The importance of the PFI in the NHS only gradually became clear. By 1994-95 NHS managers realised that conventional sources of funding for major building schemes had virtually disappeared and that all schemes had to be tested to see whether there was likely to be funding from the private sector. PFI moved from being an add-on to being considered a major source of capital investment in the NHS.

In 1996, there were some 50 schemes between ?1 million-?50 million in the pipeline. The range featured MRI scan- ners, primary care centres, care parks and waste management as well as the provision of whole hospitals. By 1997, 14 PFI schemes have been given the go-ahead by the new Labour government and there are many more ready to start.

Experience of the first five years of the PFIin the UK has been mixed and there are many lessons that have emerged from the process. Private sector investment to

support public sector services is accepted politically as the only realistic way to achieve the scale of investment in its asset base that the NHS needs over the next decade. London and other cities in the UK remain overprovided with worn-out assets and face huge backlog maintenance bills which they cannot afford. Almost the entire service rationalisation agenda in London now hangs on the success of about half a dozen capital schemes that are being pursued through the PFI process. lI1

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