By Simona M. Lovin
Public-Private Partnerships (PPPs) are getting increased attention in all sectors of the economy in the United States. While still few states have offices dedicated to examining PPP deals,at the federal level agencies such as the Federal Highway Administration, USAID and the General Services Administration have emerged as outspoken supporters[ii]of public-private partnerships for infrastructure-building and, increasingly,service delivery initiatives. Still, as a study published as a result of the Brookings-Rockefeller Project on State and Metropolitan Innovation reports, “by any measure, the United States is a laggard in terms of PPP projects. Between 1985 and 2011,there were 377 PPP infrastructure projects funded in the United States, only 9percent of total nominal costs of infrastructure PPPs around the world. Europe leads the infrastructure PPP market, concentrating more than 45 percent of the nominal value of all PPPs.”
Why is the Health Sector interested in PPPs?
The U.S.continues to spend a greater percentage of its wealth on health care than any other industrialized nation. Since 2012, healthcare spending in the U.S. has exceeded 17 percent of GDP, and it is projected to rise to nearly 20% by year 2020[iii]due to a variety of factors, including increased demand for treatment, aging populations, higher prevalence of chronic diseases, and advances in medical technology which bring along more expensive equipment and tests. The government is bearing a large share of the total health care costs, through its funding of public health insurance programs such as Medicare and Medicaid, the delivery of health care services for its military personnel and veterans, and substantial investments in biomedical research.
With federal budgets under increased pressure, the question of what the government can do to curb the pace of its healthcare spending looms large.
Taking a leaf from agencies and organizations active in international development and in sectors such as transportation, healthcare federal agencies (the Department of Health and Human Services, the Food and Drug Administration (FDA), the National Institutes of Health (NIH), the Centers for Disease Control and Prevention(CDC), the Defense Health Organization (DHA), and others) have searched for creative ways to engage with the private sector outside of the confines of traditional outsourcing contracts, both for cost- and risk-containment purposes as much as to accelerate innovation and speed up the translation of research outcomes into practical applications. In doing so, these agencies have wielded a variety of market-making tools – including the creation of several PPPs.
How are PPPs different from traditional contracts?
PPPs offer a creative alternative to traditional government outsourcing contracts, as they help not only contain the cost curve but also instill a sense of urgency, increased operational efficiencies,and focus on measurable outcomes. Working together, the public and private sector (including non-profits) are often able to accomplish far more than each can do alone.Indeed, the amalgamation of differing perspectives and expertise is the added value which these partnerships bring, making them more than just the sum of their parts. PPPs provide governments with alternative methods of financing, healthcare infrastructure development, healthcare delivery, and research, and these methods lend them distinctive features:
- The legal agreement between parties tends to be long-term, and twenty-year contracts are not unusual;
- All parties to the contract contribute to the asset-base of the partnership, be it through funding,intellectual capital, facilities, expertise and other resources; and
- Some of the risk is transferred from the public to the private sector.
PPPs, by and large, tend to be complex instruments[iv]. A PPP requires a formal agreement between the public and private sector partners, with clearly defined roles and responsibilities for each with regards to their shared implementation of an activity designed to address a weakness or needs in the health system. Typically, the agreement specifies the investment from each partner and the conditions under which each will assume risks and derive benefits. As a study done by McKinsey & Company in 2009 shows, there are several variants (or“archetypes”) that PPPs can take, according to the private sector members’ operational contributions to the PPP. Thus, PPPs can range from professional associations/collaboratives organized around topics of interest to the community, at one end of the spectrum, to commercial arrangements where one party provides the other with services in exchange for a payment or a user fee,at the other end of the spectrum.
The National Council for Public-Private Partnerships – a non-profit, non-partisan organization founded in 1985 with the mission to advocate and facilitate the formation of public-private partnerships at the federal, state and local levels – has identified[v] several best practices for the creation and operation of a PPP:
- The existence of a recognized public sector champion to advocate for the use of a PPP
- The adoption of a statutory environment for the PPP characterized by transparency and by a competitive proposal process
- The existence of a governance body on the public sector side of the partnership, dedicated to managing the operation of the PPP. This governance body should be involved from conceptualization to negotiation, through final monitoring of the execution of the partnership.
- The PPP should be founded based on a detailed contract describing the responsibilities, risks and benefits of both the public and private partners
- The funding and the expected revenue streams for the PPP should be clearly defined at the outset, and it must be reasonably estimated for the length of the partnership’s investment period
- Communication with all stakeholders must be continuous and based on honesty and transparency
Currently there are no uniform cross-government practices for the management, internal controls and financial reporting required of a PPP. However, this situation may be slowly changing, as the Federal Accounting Standards Advisory Board – one of three accounting standards-setting organizations in the US – is in the process[vi]of distilling its findings into a set of recommendations regarding the definition of a PPP, risk-based characteristics for PPPs, and financial disclosure requirements.
How to find out more about PPPs in the U.S. Federal Health Sector
The Health Information Management Systems Society (HIMSS) National Capital Area (NCA) Chapter held a panel discussion on September 18th, 2014,dedicated to the impact PPPs have in creating a marketplace for innovations in healthcare and health IT. As the panelists at the event noted, no central organization currently exists that tracks and/or governs PPPs in the U.S.
To assist those who are interested in learning more about PPPs in the federal health sector, the following links provide information on several agency-specific initiatives, processes, and points of contact.
Food and Drugs Administration (FDA)
Centers for Disease for Control and Prevention (CDC)
National Institutes of Health (NIH)
Centers for Medicare & Medicaid Services (CMS)
Department of Defense, Defense Health Program
[i] PwC Health Research Institute. Build and Beyond: The (r)evolution of healthcare PPPs. December 2011. Web.
[ii] ExecutivGov. Rebecca Williams to Head Open Data Initiatives as GSA’s Data.gov Chief. September 26th, 2014. Web.
[iii] California Healthcare Foundation. Health Care Costs 101: Slow Growth Persists. July 2014. Web.
[iv] Barnes, Jeffrey. Designing Public-Private Partnerships in Health, Primer. Abt Associates. Bethesda, MD: SHOPS Project, 2011. Web.
[v] National Council for Public-Private Partnerships. 7 Keys to Success. Web.
[vi] Federal Accounting Standards Advisory Board. Briefing Materials, Exposure Draft: Public-Private Partnerships: Disclosure Requirements – Tab G. August 2014. Web.