Healthcare delivery: a multi-trillion dollar global market for public-private partnerships

Spending on healthcare among the OECD and BRIC nations will grow by 50% between 2010 and 2020, amounting to a cumulative total of more than $71 trillion, according to estimates from PwC's Health Research Institute. Health spending is rising faster than GDP, magnifying gaps in budget deficits and spurring governments to look to the private sector to get better value for taxpayers’ money.

In South Africa, the Government has committed to reform health care services delivery, in preparation for the national healthcare insurance scheme, through the revitalisation of infrastructure to deliver increased capacity, modernise clinical services and improve facilities for citizens. As part of this commitment, government ministries, provincial health authorities and development finance institutions have come together to collaborate on fast-tracking five flagship hospital revitalisation projects. These five projects include the renowned Chris Hani Baragwanath Central Hospital in Soweto, where PwC is government’s lead transaction advisor investigating whether public private partnerships is a viable model for fast-tracking the project and improving service delivery.

PwC’s new report, Build and Beyond: The (r)evolution of healthcare PPPs, suggests that public and private sector partnerships are emerging as a model for financing and managing healthcare delivery globally. These partnerships could create a multi-trillion global market for private companies and investors, relieve the burden on taxpayers and offer better quality health systems.

Build and Beyond tracks the evolution of public-private partnerships (PPPs) from a mechanism used largely for infrastructure finance to a modern solution for the larger problems in healthcare service delivery and wellness.

“PPPs enable public health authorities to maintain oversight and standards of health services while opening the door to an infusion of private sector competition, new innovation and investment in efficiencies, driven by incentives to generate long-term cost savings and improve the quality of public health,” says Dr. David Levy, Global Health Leader, PwC.

The PPP market has traditionally been measured by deal size of funding raised for a new facility. By that measure, PPPs are expanding their footprint. 2010 witnessed record-setting PPP deals across three continents. This indicates a strong appetite for financing the hospitals of the future with private capital.

Sizing the global market for healthcare PPPs

In 2010, a number of record-setting PPPs formed across three continents as a way to finance hospital infrastructure, including a new 700-bed Karolinska Solna University Hospital in Stockholm, Sweden, which is estimated to be the largest hospital PPP in the world. Other deals were announced or reached financial close in Canada, Mexico, Africa and Spain.

The South African government’s recently announced programme of hospital revitalisation, involving the revitalisation of Chris Hani Baragwanath Hospital, one of the largest hospitals in the world, as well as Nelson Mandela Academic Hospital, Limpopo Academic Hospital, Dr George Makari Hospital, and King Edward VIII Hospital; will be the largest programme of PPP in Africa. The programme is very ambitious, with Government aspiring to prepare the business cases and conclude the procurement of private sector partner in the foreseeable future.

Although landmark deals such as this remain largely dominated by infrastructure projects, it is becoming clear that infrastructure PPPs are rapidly expanding the market for private capital and expertise in health.

As the scope of the partnership projects in healthcare grows, so does the size of the potential market for private organisations.

Based on an in-depth country-by-country analysis of health spending trends and projections, PwC has determined the following:

• By 2020, spending on health infrastructure among the OECD countries and BRIC nations of Brazil, Russia, India and China will increase to $397 billion annually, up from $263 billion today. However, the larger market for health PPPs will be in non-infrastructure spending, estimated to be more than $7.5 trillion annually, up from $5 trillion in 2010.
• Between 2010 and 2020, the OECD and BRIC nations will spend cumulatively $3.6 trillion on health infrastructure and $68.1 trillion on non-infrastructure health spending.
• Health spending in the United States accounts for approximately half of all health spending among OECD nations, but the biggest growth will be outside of the U.S. According to PwC projections, the countries that are expected to have the highest health spending growth between 2010 and 2020 are China, where health spending is expected to increase by 166%, and India, which will see a 140% increase.
• Among OECD countries, health spending as a percent of GDP will increase to 14.4%by 2020, up from 9.9% in 2010. Among BRIC nations, health spending as a percent of GDP is expected to increase to 6.2% in 2020, up from 5.4%in 2010 as their economies grow and they build out their health systems. In actual spending, this amounts to a 117 % increase in spending over the decade, with China leading the way in spending increases.

“There is no country in the world where healthcare is financed entirely by government. Each territory is looking for the appropriate balance of public and private resources and has different motivation for looking at PPP solutions; whether it is to share risk, expand capacity and access, increase efficiency, or accelerate innovation.PwC’s experience is that health PPPs are a model with an equally compelling business case from New York to New Delhi, from Spain to Singapore and from Montreal to Munich,” concludes Levy.