Why is the World Bank Group dragging its feet over its disastrous PPP policy on funding healthcare?

November 20, 2015

     By Duncan Green     

Oxfam health policy lead Anna Marriott gets back from maternity leave to find that the World Bank Group is Anna Marriottdragging its feet over a disastrous health contract in Lesotho

Back in April 2014, World Bank Group President Jim Kim said in a televised interview (19 ½ minutes in) that his organisation would be ‘the’ go-to group to understand how health sector public private partnerships (PPPs) have worked out all over the world. He was responding to a report by Oxfam and the Lesotho Consumer Protection Association (LCPA), which showed how the IFC’s flagship health PPP in Lesotho was now swallowing over half the national health budget in that country and diverting urgently needed resources from the rest of the health system (see Duncan’s blog on our report). Kim said that he was personally looking into the Lesotho case very carefully to see if ‘tweaks’ needed to be made.

The interview was a high moment for the Oxfam and LCPA teams. It had not been an easy task to produce and verify our findings on Lesotho. It was particularly rewarding for me – I could start my maternity leave a week later knowing that our case was being taken up at the highest level and most importantly that action would be taken to mitigate at least the most damaging features of the Lesotho hospital PPP.

White Elephant?

White Elephant or financial Black Hole?

Fast forward 18 months. My baby is now a happy toddler. And developments on the IFC and health PPPs?  A few developments (not necessarily correlated with our work on Lesotho) – the UK government stopped funding the IFC’s health PPP advisory facility, a planned IFC health PPP in Benin seems to have been canned, and in a Lancet article this week that follows up on the Lesotho case, the IFC head of health PPPs Paul da Rita is quoted as saying health PPPs ‘don’t always work’.

But how much has been learnt? The IFC still has 17 ongoing and 13 ‘closed’ health PPPs across Africa, Asia, Latin America and the Caribbean that we know next to nothing about.  When the IFC says that health PPPs don’t always work, which cases or models are they referring to? Why don’t they work? In which contexts do they work?

In England, which is the largest testing ground for health PPPs, the House of Commons Treasury Select Committee said PPPs (or private finance initiatives (PFI)) should be used as sparingly as possible due the higher cost of capital, the lack of savings and benefits, complex and costly procurement procedures as well as inflexibility. Is the IFC applying such lessons when it advises on similar PPPs in Lesotho, Nigeria, India and Bangladesh? Did it share lessons of failures at the 7th annual Africa PPPs conference held in London last week? Maybe they did, I didn’t get an invite. Lesotho?

The Lesotho case is critical in the broader international health PPP debate. The IFC has consistently marketed it (and

Cuckoo in the Nest

Cuckoo in the Nest

still does) as opening a new era for private sector involvement in health care in Africa and a model (the first of its kind in any low-income country) to replicate. The explicit promise made by the IFC as ‘transaction advisor’ was that the new PPP hospital, headed up by South Africa’s Netcare, would provide vastly improved, high quality health services for the same annual cost as the old, widely condemned public hospital it was to replace.

Not so. Our report found that the PPP hospital was costing at least 3 times what the old public hospital would have cost today and was sucking up over half the national health budget. Based on the financial model underpinning the PPP (something we were never supposed to see) the private sector consortium shareholders were expecting to receive a 25% return on equity and a total projected cash income 7.6 times higher than their original investment.

This week’s Lancet article provides an important update, reporting that World Bank-commissioned studies show significant improvements in both clinical services and health outcomes at the PPP hospital. It suggests quality improvements at the facility might help entice desperately needed health workers back to the country. All such developments are very welcome – countries like Lesotho need good health facilities that make workers proud and happy to work in them and that provide quality services to all.

The big downside is that the article finds that the PPP remains an unsustainable drain on the Ministry of Health’s budget and while quality might be improving in this one particular hospital, more serious gaps are appearing in the rest of the health system because of it. The head of the Lesotho Ministry of Health’s PPP co-ordination unit said: “The rate of payment increase [on the PPP] is scary. ” She cited a rise of almost 80% since the original contract was signed.

Despite Jim Kim’s aspirations, the IFC response to the Lesotho case both publicly (including in the Lancet) and privately suggests that learning and, more importantly action, has remained disappointingly shallow. A quick check this week of the IFC website shows no response even to the Lesotho Consumer Protection Association’s most basic request to remove misleading marketing materials on the Lesotho case that encourage other countries to follow suit (see box).

In the Lancet, IFC’s Paul de Rita points to three main lessons: 1. The need for sustained efforts to build PPP contract management capacity at the local level 2. The need to engage in broad primary health systems strengthening when delivering a secondary and tertiary high quality facility [to avoid excessive demand at the top of the system] and 3. In reference to the improved clinical performance at the facility, that it’s possible to deliver good results even in difficult contexts.

Is that it? Is everything else OK with the PPP then? No flaws in the financial model underpinning it? No imbalance in IFC boxthe way risks and benefits are divided up between public and private partners? No problematic loopholes in the contract? And what about government capacity – should a high level of capacity have been in place before negotiations for the PPP even began or is it OK to try and step up contract management capacity after the deal has already been done and the government is locked in for 18 years?

We at Oxfam have been surprised and disappointed by the lack of any substantive comment or action from the IFC on the devastating financial impact of this PPP for the Government of Lesotho. There was a half hearted (and evidence-free) effort back in April 2014 to challenge our figures, but the IFC have limited wriggle room here as their own figures the year before showed the PPP was already costing 41% of the health budget and between two and three times that of the old hospital.

Otherwise the IFC have attempted to claim that higher than expected costs can be attributed to higher than expected demand by patients – the hospital is a ‘victim of its own success’ and an ‘island of excellence’ in an otherwise poorly performing health system. That could be good news. But the numbers don’t add up – payments for ‘excess patients’ only account for 9.6% of the total PPP cost in 2012/13 and 14% in 2013/14.

I’m labouring the point because it’s crucial. The international experience on health PPPs suggests that escalating costs are a common feature of the model itself – some inherent and some due to serious oversights in the contracts underpinning them (also arguably inherent because the contracts are so hideously complex).

This is where we would like the IFC to get ‘nerdy’ as well as go public with their learning, as Jim Kim suggested. They could start by directly responding to the list of specific problems we identified in our report about Lesotho, including cost escalation at the preferred bidder stage; poor projections of patient demand; flawed indexation of the PPP unitary fee; an increase, rather than decrease in costly patient referrals to South Africa; late payment and loan default interest charges; and the very high weighted average cost of capital (that nerdy enough for you?)  Beyond these problems, were alternative options genuinely explored during the design phase – for example, the feasibility and cost of managing the project through the public sector?

But the problems in Lesotho require a much bigger and more urgent response. The IFC as the transaction advisor surely can’t keep brushing aside the enormous financial implications of this PPP for the nation’s health sector as if people won’t notice. 18 months ago Oxfam and the Lesotho Consumer Protection Association called for the World Bank Group to finance and publish a fully independent and transparent expert financial audit and broader review of the Lesotho health PPP in partnership with the Government of Lesotho. This should include an evaluation of the IFC’s role to date and a presentation of the full range of options available to remedy the negative impact of the partnership. We have heard the Government is making a start by developing a terms of reference…

Here’s a 5m Oxfam video on the Lesotho project

November 20, 2015
Duncan Green