P3s-Public/Private Partnerships
Now it is an interesting scenario to observe what is happening in Brampton from a distance. Not so interesting if you happen to be a patient or a patient's family or even medical staff caught in cross-fire from people angry that things aren't different.
I don't want to belabor the issues but Brampton Civic and Peel Memorial stand out as an example of what is happening or will be happening around the country.
Fact is, health care infrastructure is coming due for renewal all over the province. The problems in Brampton are likely to be seen over and over as Ontario grapples with an aging infrastructure that it can't afford to replace all at once and a human resource shortage that is only just showing its ugly head.
Behind the issue of hospital renewal, there must be an understanding in the public arena, that private donations and private money is already involved in maintaining hospitals. Private money is even essential to maintaining older hospitals and building new ones with state-of-the-art facilities. This should not come as a surpise to anyone.
The construction costs should also not be a surprise. The dancing around portraying private involvement in hospital construction is one of the contributors to mounting costs. A hospital built 4 years ago would certainly have cost less than a hospital built in 2007. Cost of steel and lumber and labor has all risen not to mention new technologies that become "must haves" in the span of a year or two and that require the plan and construction schedule to be tweaked.
Coming to a contract deal on a P3 project can take years and during this time, costs rise. One could argue that this is good reason to use public financing only, but then it is quite likely that many new facilities would not even get built.
Keeping older inefficient infrastructure and hospitals lacking in modern necessities for infection control and surgical techniques and nursing and medical care is not the way to go. Retrofitting buildings to accommodate new IT and new diagnostics etc. is no small feat and in some cases completely impossible or ends in second rate results.
It may be hard to believe, but bulldozing decrepit infrastructure and building new can be cheaper in the long run. But how to convince an angry group that is incited by groups with their own agenda of "anti-private" involvement that this is a better approach?
The public must be informed that there are insufficient public funds to cover off the cost of replacing and renewing the majority of hospitals in Ontario. The public must be informed that the government cannot create enough doctors and nurses in its monopoly program to cover off the need to run aging hospitals and new hospitals simultaneously.
The concept is supposed to be that using health care workers more efficiently and effectively in a modern facility with hi-tech gadgetry and all the bells and whistles will ultimately mean we can get by with our health care provider numbers.
I'm not sure this is going to happen but new facilities across Canada are costing more than budgeted for. The P3 is not at fault and publicly financed construction has its own set of strange little financial issues.
Every system of financing these new projects will have its pluses and minuses. The main thing is we need to get aging infrastructure renewed...and its going to cost lots.
Merrilee Fullerton
65 Comments
Reader Comments (65)
Canadians are not against privatization. Indeed every other avenue in our lives is free enterprise except medicine. There is choice in every other aspect of our lives, except medicine. Even outside traditional medical practice there is choice with naturopaths, chiropractors, holistic practicioners of all sorts. Just listen to the radio in the morning going to work and I'll bet you'll hear some ad that is slamming traditional medicine. The enemy is not privatization, the enemy is doctors.
The relative invisibility of the local LHIN in this whole episode is interesting.
I will not attempt to move people from their comfortable pulpits but do have to point out that such thinking promises to serve patients no better than the current situation does unless agreed controls are applied to change projects. And change projects (financing infrastruture included).
Doctors are well aware of the risks to well being that can arise when certain prescription drugs are taken in too high a dose too quickly. The titration techniques are applied to manage this risk.
I am suggesting that the same type of thinking and apprach is needed when we suggest expanding solution choice toward market force type options. The reasons are the same.
Identify the risks openly, agree to the standards needed and negotiate based on the findings. Pretending one philosophy or the other holds the promise continues to be a waste of time. Strident voices on all sides need to be silenced somehow. Labour, irrate doctors, pundits...all of us as Pogo would point out.
The reality is that it looks more and more like gov't cannot hold the line against the pressure put on it from a number of fronts.
If you want to get hospitals built, embrace P3s. If you want to stagnate with old infrastructure and a few plum publicly built hospitals then join the Brampton hysteria.
And remember that private money already keeps hospitals able to provide some new diagnostics and state of the art technology in some places.
Yes, where do LHINs stand amongst the accountability issues?
If HH doesn't believe that the free market leads to 'salvation' [I don't happen to believe in such mystical concepts]...does he really believe that the opposite would?
Certainly the millennial mystics of the far Right and far Left socialist movements did..."The thousand year Reich.."True Communism in a thousand years"...is he a believer of either of them?
Partly has to do with upbringing and how much time one spends around universities collecting degrees....
......snide of me eh?
I think HH has many valid points and keeps me on my toes. Thanks HH and thanks Andris.
Close down independant operators to control their capacity to function independant of regional budgets,draw new providers into alphabet teams, merged teams budgets into regional planning boards (LHINs), "high risk" cases into EDs and regional hospitals with salaried hospitalists and speciality clinics, all becomes regionally budgetable.
Clients with "issues" take issue to LHIN - LHIN finds responsible admistrator whom resolves issues with appropriate action against "disruptive" staff members.
Voila - Ontario Health Care Lite - The place to be.
LETTER TO THE EDITOR
TheStar.com
Are P3s the way to go?
Jan 11, 2008 04:30 AM
Chaos erupts over hospital
Jan. 10
The problems surrounding the Brampton Civic Hospital and Peel Memorial Hospital are a reflection of the sorry state of Ontario's health-care infrastructure. The majority of hospitals in Ontario are more than 40 years old. They are coming due for replacement for a variety of reasons, including requirements for new high-tech machinery and information technology, new diagnostic equipment and even the need for improved infection control and surgical techniques.
Older hospitals do not necessarily adapt to retrofits for new technologies or new diagnostics or even new requirements for nursing or medical care. I know this may be hard to believe, but it will be cheaper in some cases to bulldoze an outdated and crumbling facility and start from scratch in order to accommodate modern requirements than to try to piece together and repair existing infrastructure.
Staffing of new hospitals alongside existing hospitals is also a complicated problem. In the midst of a partially government-created physician and nursing shortage, it is difficult to comprehend how Brampton Civic's staffing issues could have been addressed while maintaining Peel Memorial Hospital at full function. There simply are not enough doctors or nurses or even technologists to provide this.
As much as there is significant finger pointing at private involvement in the construction of Brampton Civic, it likely would not have been built without it. Having a modern facility provided through some kind of private-public co-operation is better than having an aging facility that cannot meet expectations.
Dr. Merrilee Fullerton, Kanata, Ont.
Brampton case shows P3s work
– just not for the public
Column, Jan. 10
While we concur with Thomas Walkom's conclusions, I'd like to clarify a few facts.
From beginning to end, the history of Brampton's privatized P3 deal is the history of the negotiations of amendments to the same base project agreement Tony Clement spearheaded starting in 2001. This is now proven irrefutably in internal government documents made public only after a four-year court battle. This means the P3 deal is one contract with the same consortium and the same funders (us), regardless of changing governments.
As we released in a report on the cost overruns and reductions in capacity at Brampton's P3 hospital, that finalist bidder was selected to build a $350-million, 608-bed hospital. On Nov. 21, 2003, the McGuinty government announced that the hospital would cost $430 million. In March 2004, the government released the severely redacted project agreement, which revealed the hospital would cost $536 million. In the summer of 2004, a leaked hospital board document revealed the consortium was demanding another $22 million before it would begin construction. In May 2007, Health Minister George Smitherman announced another $100 million in capital costs for the new hospital and a bed total of 479.
That is four sets of cost increases under the McGuinty government, five from the outset of the negotiations with the for-profit consortium under the Harris/Eves government. Add them up and you get $650 million in capital costs for a hospital with 129 fewer beds. It is a contortion indeed to continue to claim that this hospital was either "on time" or "on budget."
Natalie Mehra, Director,
Ontario Health Coalition, Toronto
- A 608 bed Hospital is needed.
- Government needs to pay for it as donors are scant
- Govt can budget expense from revenues over multiple years, or borrow via bond over multiple years or borrow from private lenders partnered in a P3 deal
-Govt opts for 3rd option on this one.
First point of confusion.
In each case the govt pays the entire capital cost. Choice $ is between borrowing and/or use of available revenue. I assume the preservation of revenue makes borrowing the only viable path. So then what analysed factors arrived at the conclusion borrowing from the P3 partner would be cheaper than a debenture approach?
- Govt (Tories) enter P3 deal and costs immediately begin to increase.
-Govt (Liberals) and P3 folks start early to blame each other as others join the bun-fight. Time =$. More borrowing is the bottom line.
Second point of confusion.
Private sector folks cannot maximize profit unless they first get the business opportunity nailed down. Obvious. In order to do so they like to offer the best end result (offer/quote) while hiding project duration cost escalation potential as they can get away with? This can only mean an inevitable series of meetings about cost escalations with the contracted partner.
Big projects are prone to cost variance (stray cows). It's a given. Having to keep the cows penned would be part of a P3 or straight publicly financed project. Thing is the govt likely has more control over its employees (no contract clauses in play) than it does faced on the issues (cows) by the horde of lawyers, accountants and engineers sitting in the P3 partners pasture waiting to be summoned to the inevitable game.
So, if the govt (the people) pays whatever total costs are when the final bill is received and they know the first cost is not the last cost how is P3 a plus?
Lastly, did the last publicly funded/built hospital in this province (whenever that was) turn out to cost $500,000 per bed. Did the last privately funded/built hospital in this province (whenever that was) turn out to cost $500,000 per bed.
Adjust for inflation as you wish but the key to resolving my personal confusion on the big question (P3 value) lies under all the crap dished todate.
Your post "The plan is the plan" leaves out one little detail...the vessel in which the alphabet groups will be contained is pocked with aneurysms and is set to explode.
What is Central's current range of available options to solve this?
As always, we agree. Give the facts and cut out the speculation. Hide the facts and the media frenzy continues until it is no longer newsworthy. Sunshine remains the best disinfectant.
First, This form of financing is called "off-balance sheet financing". You may all have known this since birth but this has been a gradual learning process for me over the past 30 years.
It is more favorable for government to use a private company who will access funding for the costs of the construction through a financial institution (who would in turn sell the project to investors like pension funds who like this sort of thing because gov't is a good risk) because it enables gov't to keep these very large costs off their liabilities section of the balance sheet.
If gov't were funding this through its own debt, many projects running concurrently (ie several hospitals being built simultaneously or other infrastructure improvements) has the potential to add up and cause concern for credit rating agencies who would in turn increase the cost for governments to borrow and make it even more expensive to run our country in the end.
The private companies DO NOT end up making more money in the end through cost escalation. Their deal with gov't in P3s is usually to build the building for X dollars....but contractors are not stupid enough to agree to a deal where costs are incurred through measures beyond their control...ie costs of steel rising because of China's surge or the costs of lumber increasing because of Hurricane Katrina.
So they go back to government when these costs of supplies increase and part of the deal is that gov't agrees to pay for these increases.
This is certainly better than asking for tenders on a project that could take years to complete and would have potential for many, many overruns and where private construction companies would be asked for a tender to cover off all these eventualities up front....BECAUSE...you can be sure that the tenders for this type of scenario would be sky-high...perhaps there wouldn't be any tenders at all with a risk so high...
So the P3s meet gov't need to keep costly ongoing projects off their balance sheet to keep their credit rating and in the end the private contractor gets paid what was in the contract... that steel that increased in cost or other changes added to the cost of the project are paid for by the client (the gov't).
When costs go up, the financial institution goes back to the pension funds to see if it can drum up more investors who are happy to invest because they are always looking for somewhere to put their money...Money...it makes the world go'round.
So the anti-P3 rhetoric is misplaced in my opinion.
As you know, the issues that break out will be solved with the usual solution - short term cash coverage from existing contigency funds set up to cover up these issues.
I agree with your understanding of the construction of the P3 facility.
The part that often goes undiscussed is the operations part that is handed over to the private sector.
The structure of the operations side of the contract is similar to the bricks and mortar.The parties agree to certain service levels for a price and escalators.
However, there are clauses that work similar to change orders on the bricks and mortar side.
If the operations require a significant change from the agreed to contract, it is like a change order, and you pay through the nose.
The private operator could charge astromomical rates for addition of new services or enhancing the existing support services to meeet future requirements.
That is the ongoing operational costs that have not yet seen the light of day.
R says, the cost of current borrowed money for the government is kept low by offloading the upfront capital cost to private companies that, in turn, raise funding guaranteed by future payments for the "25 year mortgage" and services paid by the government. And the bill to pay cost overruns remains the government's problem?
Is that about it?
If so, the government is either a chump patently for being unable to manage its own projects, or anticipates future willing tax payers will increase in number to pay off previous taxpyers' debt.
Any plan of having later entrants pay for up front benefits of earlier entrants is a vaariation of a Ponzi scheme. It collapses when there is not enough new money coming in to cover debts that come due as well as ongoing costs to maintain the scheme.
Or do we just mortgage and remortgage forever like the US subprime market?
Do we have a reason to be concerned?
Family Practice is not exactly an enticing profession and the younger generation of indebted FPs have no intention of getting themselves tied down by 10 year leases, the costs of building offices and staffing them...indeed there has never been an era where FPs/GPs have been so mobile and so willing to go to wherever they are appreciated in every sense of the term...government created shortages of FPs have caused them to become very much in demand and if the Democrats win in the USA and introduce their reforms which would require 200,000 more FPs, the haemorrhage from Canada would quickly make the 12,000 Canadian doctors in the USA seem paltry...doors would open in States that presently are closed...older Canadian FPs would be an even more desirable commodity having decades of experience and knowledge under their belts...perhaps they would be quite happy to settle in Florida/Arizona/Texas/Virginia and work out of Democrat created clinics in partial retirement...I know of one colleague who has done so...has slashed the hours he worked in Canada by 2/3 rds yet still taking home more pay than he did here...living in semi retirement.
Canada/Ontario will have the number of doctors that they deserve...they will enjoy the health care system that they deserve and are willing to pay for...they will discover however that no amount of substitute doctors will compensate for having the real thing....just as no amount of artificial coffee, ersatz coffee, can compensate for the real coffee...no matter how loudly the political/bureaucratic and ivory towered proclaim the superiority of the artificial stuff.
Our local FHT is becoming very adept at taking the phone off the hook and only taking healthy patients. One patient I have who is 50 years old, and whose only health problem was using a cane while awaiting a knee replacement, was told on her intake interview she was "too sick" to become a member of the family health team roster. Several weeks later the patient brought me the letter sent to her from the FHT doctor claiming her practice was full, and yet two weeks later a young family was accepted into this same doctor's practice. Cherry picking of patients is alive and well in the budgetable primary care models.
We just had a FHG doctor in the area close up shop after 25 years in practice in order to join a FHN about 7 km away which has left a large proportion of elderly patients high and dry. His new clinic is just far enough away with a difficult drive such that it should keep most of the elderly complex patients from following him there. One patient told me the reason he left is he could no longer handle the volume of patients in the FHG, and was concerned about burning out which was likely the case since the doc is in his late sixties working six days a week 9 to 6 pm. The budgetable models do look like a good option for one near retirement age to park and get off the FFS treadmill, thereby preventing death by karoshi.
The Plan may be good but it is shifting the young and healthy patients into the more expensive and inefficent, but budgetable primary care models (FHT/FHO/FHN). The old or complex patients are shunted into the FHG clinics if they are lucky to find one, but more often they become orphans who must rely on the urgent care,WIC,and ED clinics.
The number of docs following the King's money may be impressive, but what is more impressive is how fast they take on the King's work habits.
They will be assigned "personal care workers" who will keep them at home until they get sick - at which point they will be assigned to the local speciality hospital based geriatricians.
All controlled through budgetable salaried positions
Geriatricians!!.....do you know how many geriatricians we have in Ontario Health Care Lite? That's my biggest laugh for the day before it's off to work. hehehe
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Number of physicians by specialty in Canada, 2007
General Internal Medicine 2440
Cardiology 1025
Clinical Immunology/Allergy 141
Endocrinology/Metabolism 380
Gastroenterology 511
Geriatric Medicine 211
Haematology 297
Infectious Diseases 200
Medical Oncology 364
Nephrology 464
Respiratory Medicine 568
Rheumatology 321
Neurology 743
Mfo our local geriatrician has a six month waiting list to be seen, but if you don't have a family doctor it is tough to get a referral.
So the PSWs will be able to refer directly to the geriatricians in the future? That will go over well I am sure with the overbooked specialist docs.
Geriatrics much like family medicine and psychiatry is at the bottom of the list for students to choose as a career. Offering these positions to IMGs who are not interested in the specialty won't work either.
In 2005-2006 there were thought to be 90 Geriatricians (Section of geriatric and Long term care) in Ontario, (versus 10,641 GP/FPs).
The Ministry of Health and Long-Term Care says "There are 211 hospital sites...."
2006 stats Canada says 1,649,180 people were over the age of 64, 442,080 were over the age of 79 in the province of Ontario.
Let's assume for discussion purposes that it is not unreasonable for a full-time GP/FP working flat out to carry about 1,500 active charts in the practice, (some I know are double this)
I would suggest, therefore, it would be impossible for the existing geriatric manpower to attend to more than a fraction of those over 79 in this province, were they to require their attention.
Tier 1:
Self care and self control of medications/therapy
Tier 2: Alphabet groups/Pharmacist Cooperatives with Personal Care Home Assistants
Tier 3: (where available) Personal Physicians (non team)
Tier 4 - Speciality Geriatrics MD care - consult and release
Tier 5 - Hospital Admission - Hospitalists and Hospital Based Speciality services..
Tier 6 - Long Term Care admission
Tier 7 - Death
The plan is good.
http://www.health.gov.on.ca/english/public/updates/archives/hu_08/hu_child_08.html
Given about 15,000 consults per year is the maximum for the existing human resources in geriatrics, this might better be termed "catch and release".
There will be no long term care by Geriatricians if the plan is to have them see more patients.
Is this correct?? Do these Ontarians even know that they are rostered?
Anyway, thanks for these most excellent posts in my absence.
eklimek posts:
R says, the cost of current borrowed money for the government is kept low by offloading the upfront capital cost to private companies that, in turn, raise funding guaranteed by future payments for the "25 year mortgage" and services paid by the government. And the bill to pay cost overruns remains the government's problem?
Is that about it?
If so, the government is either a chump patently for being unable to manage its own projects, or anticipates future willing tax payers will increase in number to pay off previous taxpyers' debt.
********************
I believe that gov't is counting on future taxpayers to help pay these things off..as it is for everything. But the real benefit as far as I can understand is that it keeps governments generally paying smaller amounts of interests on loans.....ie keeps the province with a good credit rating. If the province's debt is such that incurring more debt gives it a worse credit rating then the economics of P3s likely make sense.
I certainly don't want to portray myself as an expert on P3s...which of course I'm not, but merely to share what I know regarding the general concept....I have no specific knowledge of this particular Brampton Civic P3 contract.
I thoroughly enjoy your posts. I'm torn between thinking you really believe everything you write and thinking you just do it to inform us about the plans from the bunker. Please don't tell us. I always want to maintain that suspense.
And the baby picture. Too cruel.
There is no free ride. If we can't afford it we should 'fess up and put it to the electorate.
I think that's (assigned patients) the minority now, as there is an incentive (comprehensive care capitation) for all FHG/CCM physicians to sign them up.
I'm sure I can find the breakdown somewhere.
But the ongoing problem, from an MOHLTC perspective, is that there are still way too many physicians in the FFS-based alphabet models. Whether they are forced to the capitation funded ones, as time goes on, is the subject of debate.
I sense they won't go easily.
Wassup?
Their performance to date varies anywhere from "never heard of them, what are they?" to "yeah, I think I heard of them, what are they supposed to do again?" Somewhat of a concern to Central, I imagine as one of their subtle roles was to lift some heat off the Minister.
I hear it is not working as well as planned.
The picture of a masked Minister (sounds like a perennially losing WWF character) at BCH with the supervisor, parent and newborn is hysterical!
By the way, I suspect the infection control folks across the province are somewhat displeased with the message the picture sends. Here we have the Minister putting a silly photo op ahead of keeping people with simple infections out of a hospital filled with immune compromised people (i.e., if you are sick, don't come visit).
A balance between the constant desire to show how caring and in charge the MOHLTC is, particulrly in tough times; against the "don't do anything, "it will go away philosophy" - in this case most within central think it missed but the political advisors thought it would be of value.
LHINs - were/are first designed to keep heat off the Minister - are working well in that role.
With four more years, we really can't concentrate on much.
Finally you're shedding "tiers" for the Health Care system.
The picture. It speaks for itself.
Well, it's off to work again. In Ontario Health Care Lite. The other provinces are breaking down the doors to get what only we have.
It is really interesting how "the picture" is viewed at central.
One group supports that it is a clear and good poltical response to the issue in western GTA area for strong response to community concerns. Maybe 20%.
40% don't care they are so fed up.
40% view it as a sad reflection on how bad it has become, that a response to "issues" in a community, is felt to be "dealt" with by "that" picture.
Central isn't going to change if that "picture" can make it out into the public realm. Geeez, it is discouraging.
and I hear that various health regions across the nation are running nasty deficits
As Tragically an OHIPster reminded us, the MOHLTC believes that there are are too many in the ranks of the productive and effective FFS/FHGs and not enough in the ranks of the shirking, unproductive and ineffective FHNOTs.
Our health care system resembles a three legged stool, with the MOHLTC sawing away at the sturdiest of the legs, which it intends to nail to the to the termite infested least sturdy with only one possible conclusion...the two legged stool will topple over.