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Health care: trying out the mechanisms of public-private partnership

Claudia Pavlyuk
Doctor of Economics


National health care system is characterized with existence of serious problem and requires deep institutional, structural and functional reform. However, the possibility of change in this area is substantially limited with available financial resources of the state. The need to find new tools, methods and mechanisms of health care that can help deal with problems was discussed by Doctor of economics Claudia Pavluk

Deficiencies of existing health system revolve losses for budget. Experience shows that it is necessary to review policy in this area. Where to find a solution?

- Development of new sound management decisions, implementing new quality tools for their functioning, particular mechanisms, including public-private partnerships in health sector, will help reaching long-term development priorities of the state, create necessary conditions for increase in growth rate of national economy. Cooperation development of public and private sector in health care will provide an opportunity to improve situation by optimizing spending, investing efficiency, resource use and management, creation of conditions for sustainable improvement of health services, stability of entire system.

In health Ukraine now made first steps to implement public-private partnership. Specifically, in 2011, the Concept of national program "Health 2020: Ukrainian Dimension" was approved, which indicates need for interaction between public and private sectors. Program of Economic Reforms for 2012-2014 indicates on feasibility of public-private partnership. However, specific projects with use of such mechanism in Ukraine is very small, so study of public-private partnership, its specific forms, patterns and possibilities of their application in Ukraine on basis of international experience is highly relevant.

Development of public-private partnerships in health care provides substantial benefits for state, business and population (Table 1).

Table 1. Benefits of implementing PPPs in health system in Ukraine




- Increasing efficiency of budget spending on health care financing;
- Reduction in state funding the construction and operation of health care and other industry functions, for which private sector will be involved;
- Attracting private financial, intellectual and human resources to development of the entire system as well as individual health care institutions, and use of management practices and innovative capacity of private sector;
- Introduction of innovative forms of health care, medical equipment and instruments, drugs and medicines through implementation of public-private partnerships;
- Improving efficiency of state property management in health care;
- Development of competition principles in quasi competitive marketplace health and creating competitive markets in certain segments of health care that can not be privatized;
- Implementation of effective risk-sharing projects with business;
- Elimination of structural imbalances in health system;
- Providing partner interaction between state and private sector in accordance with priorities of health care reform in Ukraine.

- Private sector is able to increase economic potential activities on basis of access to new markets and expand existing business segments and possibility of long-term management and use of public health facilities;
- If investing in real state property entrepreneur obtains guarantees of profitability, because state as his partner carries certain risks to ensure minimum level of profitability;
- Using government guarantees and with economic freedom, private company may to increase the overall business profitability by improving productivity, innovation during term of contract with state without extracting excess profits to budget;
- Risk allocation function of public-private partnership with state;
- Government support and guarantees;
- Positive social advertising and reputation of private operator.

- Improving quality and accessibility of health services;
- New form of health care, diagnostic equipment, drugs and medicines;
- Increasing rate of socially important sector, provision of technical and technological upgrading;
- Increasing efficiency of public resources of society involved in reproductive process in health care;
- Creation of conditions and prerequisites for effective functioning of health facilities that are state owned, optimal management and rational use;
- Choice between public and private health facilities;
- Improving level and quality of human development in country, region, city, village etc.
- Ensuring multiplier effect in other sectors due to increasing human capacity in health sector.

Promoting dialogue between government, business and society

Source: Composed using data from

Varnavskiy V.G. Public-private partnerships in health care: international experience / V.G. Varnavskiy / / Health Care Management. - 2010. - № 1. - P. 9 - 16.; Zhilinskiy E.V. Public-private partnerships in health care / E.V. Zhilinskiy / / scientific papers of Round Table "Reform of Russian Health in times of global economic crisis, burden of performing" / Ed. by prof. Shevyakova A.Y. - Moscow: Russian Academy of Sciences ISESP. - 2009. - P. 47-52.; Valesyan A.A. Prospects for use of public-private partnership (PPP) in development of public health in Russia / A.A. Valesyan // dissertation for PhD in economic sciences degree. - M. - 2009. - P. 5.

Where can we use PPP in health care?

- Analyzing international experience, it is clear that scope of PPP projects can be quite broad. This includes design, construction, operation and infrastructure management of medical institutions, medical services, development, production and dissemination of new medical products (drugs, vaccines, etc.), new medical equipment, and instruments.

It is appropriate to apply this approach in provision of health services research (laboratory tests, MRI, ultrasound, etc.), non-medical services such as protection of health facilities, municipal and commercial services, catering in hospitals, transport services, collection, disposal, transportation and placement of medical waste. On such basis organization and accounting, maintenance of medical equipment and information systems (tele-medicine, e-registry, medical records, etc.), laundry can be built.

World practice of public-private partnership makes it possible to draw conclusion about uniqueness of their application process, due to characteristics of model construction and financing of health care, economic development trends, structure and organization of legal system in country, level of decentralization and autonomy of medical institutions management.

Thus, there is an urgent need to develop and implement institutional instruments, regulatory and methodological support for potential of public-private partnerships. In particular, in my opinion, it is appropriate to develop and implement concept of PPP projects in health care, analysis of structural features of its functioning and to identify those sectors that have the highest potential to implement projects, and most in need of innovation and investment resources.

In legal field of Ukraine we should implement category "public health service" and "low cost medical service", and to develop appropriate lists of medical services required to implement by various medical institutions (especially for vulnerable population groups). Separately we should also develop a list of services that can be transferred to external control and private sector, where is the possible use of public-private partnership.

That is, focus is on implementation of legislation regulating public-private partnership in medical care area?

- Amendments to legal acts regulating activities of public-private partnerships are necessary, with ability to create not only agreed, but also institutional public-private partnerships and partnerships of public interaction in health care. To take account the features of different types of health care in Ukraine and use of various forms of PPP there can be offered several kinds of standard contracts (including current): standard (model) cooperation agreements, contracts for public-private partnerships, concessions and contracts lease. This requires amending the Law of Ukraine "On Public-Private Partnership" to provisions of typical (model) of public-private partnerships, and development and adoption of this Agreement and forms of health care by the Cabinet of Ministers.

Monitoring and inventory procedure regulations of public-private partnership require development and its approval by the Decree of the Ministry of Economic Development and Trade of Ukraine, necessary legal regulation of land use and land allocation in process of creating public-private partnerships. It is necessary to amend the Law of Ukraine "On Public-Private Partnership" on status of target company, its functions, creation, liquidation, organizational and economic relations with other public-private partnerships, and align term of existing concepts with legal framework of Ukraine .

It is necessary to develop several legal documents to implement idea of public-private partnerships. These include guidelines for selection and use the financial models of public-private partnerships, affordable health system, introduction of specific guidelines (guidelines) for most typical of public-private partnerships in different types of health and pilot projects.

Which of the world models might be acceptable in Ukraine?

- In my opinion, a complete duplication of global models, forms of public-private partnerships in health care in our country can not give required results. However, functioning of health system is associated with excessively high social as well as commercial and political risks. Therefore, I believe that hasty, irregular implementation of PPP projects in this area now in Ukraine may lead to economic losses for government and private sector, as well as welfare loss to society.

Need to improve methods of implementation of public-private partnership in Ukraine requires development and implementation of appropriate models, their objective and standardized evaluation and selection based on risk indicators and efficiency of PPP projects in health sector. This model, which became known as the "comparator" (from English «to compare»), was first introduced in the UK. Then improved versions of comparator PPPs in health sector have been used in other countries, including the Netherlands, Spain, Italy, Australia, Canada, India, Singapore, and USA.

The main purpose of implementing this comparator model is to enable an objective quantitative comparison of PPP projects to the same public sector that would provide same set of services. Comparator helps identify indicators for evaluating results according to funding. Use of this comparator allows the state to distribute and optimize budget for public projects.

Studies of successful experience in development of Dutch PPP suggests effectiveness of particular model. It involves three stages. First - scanning the market to determine economic and social needs and feasibility of PPP projects. The second provides using PPP comparator (public-private comparator (PPC) to compare performance and risk of traditional investment contracts project with potential of its implementation on basis of PPP (PPP comparator is required for Netherlands on contracts worth over 60 million euro) and the third stage is applied using public sector comparator (public sector comparator (PSC), which makes it possible, after decision on project based on PPP, to select the best private partner to implement it, based on comparative analysis of relevant indicators.



Figure 1. Models for filtration of public-private partnerships projects in health sector (based on experience of the Netherlands)

The main reason to use a comparator in the Netherlands is belief that public sector capital and operating costs in practice are significantly higher than their estimated value, determined at project appraisal stage. Methodology comparator in the Netherlands is established to align these imbalances by identifying total expenditure on project just as a public organization. The main aspect of its quantitative analysis is to use a common discount rate to reflect certain general and specific risks associated with this project, future costs throughout project life cycle and ultimately determine its present value.

What elements should be included in methods of PPP comparator in health care?

- This procedure must include two components: an analysis of performance indicators (cost method for determining benefits and added value (economic, medical, and social), assessment and allocation of risk (loss of inventory and (or) specific health services for residential, construction, commercial and operational risks, as well as lost profits).

In the Netherlands, before deployment of financial crisis all PPP projects that have been implemented at state and regional level could be added to integrated budget model. However, recent PPP projects initiated by local authorities are difficult to be included in this program and get guaranteed by state support for duration of project.

The whole process including PPP projects to integrated model budget model has several phases. They are - starting (analysis of current situation and problems, lasts four months), analytical (analysis of project, eight months), estimated phase (eight months) and coordination phase with all concerned authorities and parties, and this decision (four months). Maximum duration of this process in the Netherlands, regulated by law, is two years. Government reports annually to Parliament on program results, as well as inclusion of perspectives of potential PPP projects.

However, technical complexity of comparator to use public-private partnerships in health care goes beyond conventional economic analysis and evaluation, which necessitates careful attention to selection of appropriate algorithms, parameters and procedures for its implementation.

 What should be done to implement this or similar model in Ukraine?

- I think it would be appropriate to develop and implement standardized procedures PPP comparator and public sector health care in Ukraine, as well as mechanisms for sectoral detail and features of PPP comparator use, public sector comparator for relevant sectors and types of medical and non-medical services health care. It will be necessary to define criteria by which applications will be determined by binding comparators for projects (for example, total cost or social significance of project).

Development of public-private partnerships in the world is treated fairly and is used as an important tool to improve efficiency of public spending, such as during financial crisis, and during post-crisis recovery. Underestimating impact of state institutions and mechanisms for PPP efficiency and effectiveness of budgetary resources allocated to provision of public (local) services and implementation of budget investments in real state and municipal property indicates need for systematic work to improve interoperability and institutional government, business and civil society. For budget process it is important to recognize that PPP methodology is not only as important as methodology of program-based approach, based on result, but is one of its essential elements.

What are measures to implement potential of PPPs we can offer to improve efficiency of budget expenditures?

- Positive result can bring implementation in practice of budgeting evaluation perspective costs of public-private partnerships and imposing these costs both within medium-term, and long-term budgetary projections for key spending units. Introduction of long-term economic and budgetary projections will be appropriate for performance of public obligations of PPP projects and replacement budget allocations from private investment in financing PPP projects. Fixation of PPP contracts in long-term budget commitments to private investors, along with obligations of private investors and operators in state will create an atmosphere of trust in relation to implementation and success of project as a whole.

When deciding on implementation of PPPs we need to make a calculation of total expenditures and revenues of state for the entire period of project life cycle, to limit maximum amount of annual payments for PPP projects as a percentage of total government costs, to develop an independent from budget process of verifying appropriateness of budget resources on PPP projects.

We develop procedure for registration of objects that are implemented on basis of PPP in the Register of capital investment and government contracts. the Treasury of Ukraine can perform these registers establishing as part of a single integrated public financial management system that will provide accounting and monitoring of expenditure on projects and PPP contracts.

For transparency of projects in budget documents and reports there will be required to disclose future payments and receipts of state that are associated with provision of services specified in contracts and PPP in coming years, detailed information on status of contracts as basis for contingent payments or revenues (warranty, hidden fees, profit sharing mechanisms and events leading to revision of contracts with value estimated payments and receipts), amount and terms of financing and other support for PPP financing provided by state or through state-owned financial institutions, amounts state guarantees for PPP projects.

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