The risks of outsourcing hospital building

Opinion: This country has a real problem with infrastructure. Not just the obvious problem of deficit and decay but an evident inability to think about it in a sensible manner. There are many illustrations of this, but I will pick just one.

Last week a debate broke out about hospital infrastructure. It is an important conversation sparked by suggestions the coalition is planning to use Public Private Partnerships to progress a backlog of hospital building projects.

No doubt they are. The previous government was certainly encouraging thinking about it, though they preferred the term “alternative financing arrangements” and had a major accounting firm canvassing the market about it. This latter effort reached the conclusion there was private money available for appropriately profitable investment opportunities – one of the most underwhelming discoveries of the century.

What disturbs me is the base of comprehension of these matters. It is not surprising that we reach poor conclusions and implement them poorly given that base.

Let’s clear up some important but simple things. First, importantly, we do not currently have a mainly public health system. A very large proportion of health services at all levels are delivered by private sector organisations and individuals. True, many of these services are publicly funded but that is a quite separate process and set of issues.

A very large number of health services are delivered from properties which are privately owned and financed. You might like that or regret it, but it remains a fact. It does not much help that the delivery of some services and the funding of others goes through one organisation, but don’t get me started on that.

Second, and in common with most other public agencies, the actual building of the infrastructure is already done by the private sector. Not only that but design and significant parts of contracting is also done by the private sector – professional firms. Even operationally many property services are contracted out. Again you might like all this or regret it. It does not change the fact.

We created, or without very clear intention evolved, this private system of physical infrastructure pretty much everywhere in health services except in hospitals, though even here many private hospitals have been created.

This private hospital infrastructure delivers privately financed and publicly financed health services. You might, like me, think it would be preferable to have more public investment in health services infrastructure but it is what it is and insofar as it comes to buildings it is hard to avoid the conclusion that the trend is well established.

This trend is also, of course, well established across public services as a whole. From ministries to delivery agencies across the country it’s much more likely there is a private owner than a public one where you get your public service. Public hospitals are more an exception than the rule, along with educational services, but it is far from universal there. Private capital seeks out new opportunities constantly, and governments of all stripes have been supplying those opportunities with enthusiasm.

In health services the encroachment of private provision into services themselves, based on deliberate exit or simply lack of service by successive governments, has been and remains more a contributor to public health service inequity and stress than the buildings as such. This does not make physical health infrastructure/property development, ownership, operation and maintenance unimportant.

The “withering away of the state” which was once an expectation of communism has hit us rather earlier in history and well before capitalism has gone. Progressively the state has become a funder not a provider across a wide range of services. Big chunks of private capital are now devoted to the opportunities that provides. The ideology has built up around this that it is always and everywhere more cost efficient.

That is not always true, and even where it is true it is as much because of public leadership inadequacies rather than ownership structure superiority as such. If you look at past and current hospital building proposal, planning, designing and contacting process, it is more of a wonder that any get built at all than it is that the ones that do are slow and expensive.

It is quite possible for any agency, public or private, to see advantage in contracting out the design, planning, building and operation of buildings within which it delivers its products or services. As many private as public agencies do this. It can be a matter of skills, focus, time scale, financing or other legitimate choice. The big danger is that in doing so there can be great asymmetry of understanding and risk. Put simply: if you are contracting out anything to someone more knowledgeable or incentivised than you, they are likely to eat your lunch.

I think that is the biggest risk with outsourcing hospital building. Without a highly skilled agency focused on the best process and outcomes, the asymmetry of capability will become asymmetry of risk and then asymmetry of reward very effectively. That is why so many Public Private Partnerships have failed around the world, under whatever fancy name they have. And it is the real risk here.

The vital thing for those running the public health sector is to get that focus, skill, incentive and therefore capability in place. Whatever finance structure is used to get in place the facilities we so badly need. As usual, politicians seem to miss this vital point.