Europe Sees Mixed Results From Public-Private Partnerships For Building And Managing Health Care Facilities And Services

Abstract

Prompted in part by constrained national budgets, European governments are increasingly partnering with the private sector to underwrite the costs of constructing and operating public hospitals and other health care facilities and delivering services. Through such public-private partnerships, governments hope to avoid up-front capital expenditure and to harness private-sector efficiencies, while private-sector partners aim for a return on investment. Our research indicates that to date, experience with these partnerships has been mixed. Early models of these partnerships-for example, in which a private firm builds a hospital and carries out building maintenance, which we term an "accommodation-only" model-arguably have not met expectations for achieving greater efficiencies at lower costs. Newer models described in this article offer greater opportunities for efficiency gains but are administratively harder to set up and manage. Given the shortages in public capital for new infrastructure, it seems likely that the attractiveness of these partnerships to European governments will grow.

Full text

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Please find more of my publications on Academia.edu,
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Full citation to this publication is as follows:
Barlow, J.; Roehrich, J.K. and Wright, S. (2013). Europe sees mixed results
from public-private partnerships for building and managing health care
facilities and services. Health Affairs, Vol. 32 No. 1, pp. 146-154. (doi)

Europe Sees Mixed Results From Public-Private Partnerships For
Building And Managing Health Care Facilities And Services
James Barlow*a, Jens K. Roehrich** and Steve Wright***
* Imperial College Business School, South Kensington Campus,
London SW7 2AZ, UK, and HaCIRIC – Health & Care Infrastructure
Research & Innovation Centre.
** University of Bath, School of Management, Claverton Down,
Bath BA2 7AY, UK
*** European Centre for Health Assets and Architecture (ECHAA),
Churchilllaan 11, 3527 GV Utrecht, The Netherlands
a Author for correspondence. James Barlow: phone: +44 (0)20 7594
5936; fax: +44 (0)20 7594 5915; email: j.barlow@imperial.ac.uk

Abstract
Prompted in part by constrained national budgets, European
governments are increasingly partnering with the private sector
to underwrite the costs of constructing and operating public
hospitals and other health care facilities and delivering
services. Through such public-private partnerships, governments
aspire to avoid up-front capital expenditure and to harness
private-sector efficiencies, while private-sector partners aim
for a return on investment. Our research indicates that to date,
experience with these partnerships has been mixed. Early models
of these partnerships – for example, in which a private firm
builds a hospital and carries out building maintenance, which we
term an “accommodation-only” model – arguably have not met
expectations for achieving greater efficiencies at lower costs.
Newer models described in this article offer greater
opportunities for efficiency gains, but are administratively
harder to set up and manage. Given the shortages in public
capital for new infrastructure, it seems likely that the
attractiveness of these partnerships to European governments
will grow.

The use of private finance for key public infrastructure
projects, especially in transportation and utilities, grew
almost fourfold globally from the early to the late 2000s.(1–3)
These partnerships have also been a growing part of health care
infrastructure investment, particularly across Europe.(5,6)
Different variants of public-private partnerships have involved
the use of private finance and for-profit organizations to
design, finance, build, and maintain hospitals and other
infrastructure, and occasionally to provide operational
services.(4) A typical project might be the reconstruction of an
outdated public hospital by a private company and with private
funding. In the United Kingdom alone there have been more than
100 such projects, ranging from a private finance commitment for
US$15 million for a small community hospital to more than US$2
billion for the redevelopment of the Royal London and St
Bartholomew’s Hospitals in London.
In this article we discuss lessons for policy makers and health
care providers from the use of public-private partnerships in
Europe to develop and deliver health care infrastructure--
buildings, large technology systems, and associated services. We
suggest that the continuing economic crisis, with its consequent

fiscal constraints, is likely to stimulate European countries to
increase the use of these partnerships.(7)
Major investment in Europe’s health care infrastructure is
needed, particularly in European Union member states and
especially in European Union candidate states with health
infrastructure inherited from the former Soviet era. Typical of
this situation is Slovakia, where an analysis indicates that
hospitals are “unsatisfactory and old fashioned, which leads to
their ineffective management.”(8) Similarly, Western European
countries with more modern infrastructure need to redevelop
hospitals as health care service models change and the need for
inpatient beds declines.(9,10)
The construction and maintenance of European health care
facilities have generally been paid for by the state or by
state-controlled entities. However, several European countries,
such as France and Spain, have long experience of public-private
partnership arrangements for major transportation
infrastructure, and in recent years there has been an extension
of these partnerships to health care (Exhibit 1). In 2010 health
care partnership deals worth US$3.6 billion were signed,
representing 16 percent of the value of all new public-private
partnership contracts.(11)
Variety In Public-Private Partnership Models

The public-private partnership approach covers a wide range
of models, from outsourcing to nearly full privatization.
Broadly, it involves a “risk-sharing relationship between the
public and private sectors with the objective of bringing about
a desired public policy outcome.”(5) In essence, public-private
partnerships are just another form of raising funds. In
principle, the public-sector entity, such as a hospital or
health authority, could borrow to undertake capital investment
on its own account. In partnership arrangements, the private-
sector partner is typically responsible for arranging financing.
Either way, the reimbursement of the debt falls on the public
purse.
Many combinations of public-private mix are possible for
health care assets, with considerable diversity in the way risk
management, financing, and payment mechanisms are structured
(Exhibit 2). Partnership variants exist along a spectrum,
determined by the degree to which various services and
facilities are “bundled” within the contract.
At one end, an “accommodation-only” model embraces only the
building and related services--for example, a hospital facility,
the associated “hard” facilities management (building
maintenance), and sometimes “soft” facilities management
(nonclinical services such as cleaning and catering).

This accommodation-only model has been followed in the United
Kingdom, where it is known as the Private Finance Initiative,
and also in Italy, France, Spain, Portugal, Sweden, Canada, and
Australia. The model largely takes the form of an integrated
contract covering design, construction, and finance for the
infrastructure and related services such as maintenance for the
life of the building. The financial structure is based on long-
term payments, typically over thirty years, by the public
hospital authority to the private partner.
A second model, which is in effect an extension of the
accommodation model, is used in Portugal. It involves twin
“special purpose vehicles,” or dedicated companies. One, dubbed
the InfraCo, is responsible for development and management of
the buildings, and the other, the ClinCo, is responsible for
clinical services. The key contractual relationships are between
the Ministry of Health, the hospital authority, and the InfraCo,
with which there is a thirty-year contract, and the ClinCo, with
which there as a seven- or ten-year contract.
A third model takes the form of a franchise issued to a
private for-profit entity, but with strict control by a Ministry
of Health or other public authority. The levels of financial
reimbursement for medical procedures received by a franchisee
are the same as for public or other nonprofit hospitals also in
the system. Furthermore, there is no “cream-skimming” of

profitable patients; any member of the population must be
accepted for any health care intervention offered by the
hospital concerned.(5)
Germany, Finland, and other European countries are
experimenting with this fourth model. In Germany, private
companies--notably, Helios Kliniken and Rhön Klinikum--are
buying financially stressed municipal hospitals and occasionally
university hospitals and are running them under such a franchise
from the regional states. Each of these companies partly or
fully own and manage more than fifty hospitals spread across
Germany; other franchisees are smaller.
Finally, in a fifth model, public-private partnerships can
involve full-service provision, in which a private company--via
franchise--delivers both the hospital services and the primary
care for a geographical area from its own facilities. The
company can try to direct patients to whichever level of care--
primary or secondary--is cheapest, with regulatory and payment
mechanisms in place to maintain quality (see the example from
Spain discussed below).
Advantages And Disadvantages Of Public-Private Partnerships
There is both support for and substantial criticism of the
use of these partnerships in health care. Exhibit 3 summarizes
the generally recognized advantages and disadvantages.

Potential benefits are said to include the ability to allow
health care providers to concentrate on clinical services,
instead of managing infrastructure, and increased efficiency in
project delivery. For both governments and health care
organizations, public-private partnerships also are seen as a
potential solution for funding shortages due to budget
constraints or other factors.
There are, however, concerns that public-private
partnerships may restrict competitive behavior for various
reasons. Even in large countries with an active public-private
partnership market, projects can be so large that only a few
organizations may be able to bid on them and manage subsequent
service delivery over extended periods of time. Transaction
costs are high during setup and the operational life of the
facility which only a few organizations are able to bear.
Similarly, there is also a possible lack of integration between
the clinical models of care and the infrastructure and equipment
that should support the clinical models.Thus, private-sector
organizations need to carefully manage and integrate both
clinical models and infrastructure and service delivery models
to realize optimal healthcare outcomes.
The United Kingdom’s version of public-private
partnerships--the Private Finance Initiative--is the classic
example of an “accommodation-only” model, providing the

buildings, perhaps some medical equipment, and the long-term
maintenance of the financed items. It has been criticized on all
of the counts above, as well as over the high cost of the debt
incurred when compared to government borrowing or bond
issues.(12,13)
Although there have been well-publicized public-private
partnership failures, such as the Latrobe Regional Hospital in
Australia, no public-private partnership hospitals have become
bankrupt so far in Europe because of problems faced by health
care organizations in servicing the debt.(14) However, several of
the United Kingdom’s Private Finance Initiative hospitals are
currently reporting serious financial stress.(15)
Lessons From Public-Private Partnerships Experience
Most of the more extensive public-private partnership
models entering into the operation phase are too recent for
detailed longer-term evaluation and their success or failure
will only be determined in future evaluations. However, the UK
experience of accommodation-only partnerships, covering
buildings and related services, provides pointers to discuss
performance in four broad areas: modernizing and creating health
care infrastructure; improving the efficiency and quality of
care; sharing risk to stimulate innovation and performance
improvement; and stimulating innovation.(16)
Modernizing And Creating Infrastructure

The United Kingdom initiated the trend toward use of
public-private partnerships in health care. The Private Finance
Initiative, established in the mid 1990s in health (later than
other sectors), was partly about modernizing outmoded hospital
facilities more quickly than would have been feasible under
conventional public funding and procurement models. Between 1997
and 2009, 101 of 135 new hospital projects were completed under
the Private Finance Initiative,(13) driven in part by a lack of
alternative sources of funding but also by an overt political
decision in favor of the model irrespective of whether other
choices were workable.(17)
Other examples of using public-private partnerships to
modernize health care infrastructure come from Italy, France,
Spain, and Portugal, where such arrangements have been used to
construct major hospitals. Similarly, Central European and post-
Soviet states have major hospital infrastructure renewal plans,
although so far no big realized projects.
Romania has experimented with small schemes for radiology
and imaging(4) and for dialysis clinics.(18) The Czech government
has indicated its interest in public-private partnerships for
hospital services.(19,20) Poland has agreed to the first of several
public-private partnership health care schemes.(21)
The largest health care infrastructure program by far is in
Russia, where it is claimed that about $380 billion will be

invested between 2010 and 2020.(22) The private sector is expected
to contribute most of the financing, and several public-private
partnership hospitals are currently in the preparation stage,(23)
although the program has also faced legal problems.(24)
Improving Efficiency And Quality Of Care
Proponents of public-private partnerships argue that the
use of such partnerships raises the efficiency and quality of
infrastructure delivery because payments can be linked to
performance or achievement of quality targets. Governments often
claim that public-private partnerships will secure better value
for money than traditional public procurement options can
achieve.
The UK experience is instructive. There is some evidence
that most Private Finance Initiative hospitals were completed
close to on time, on budget, and meeting all specifications.(25)
However, these conclusions must be interpreted with care, since
the comparison is usually made for costs incurred only after
contract signature--a stage at which such costs will probably
have been identified. In the case of the Private Finance
Initiative, this stage is, on average, later than for public
projects because of the lengthy time involved in project
development and negotiation.

Another inquiry concluded that project construction and
quality are not unambiguously better under the Private Finance
Initiative.(13) Others have argued that “soft” facilities
management, such as for ancillary services like cleaning and
catering, provides lower value for money than in non-Private
Finance Initiative hospitals.(12) Around 20 percent of hospital
trusts were dissatisfied with the maintenance services provided
within their Private Finance Initiative contracts.(17) On balance,
evidence that the UK program has delivered timely projects with
high quality and low operating costs is, at best, ambiguous.
Portugal’s public-private partnership program--the second-
largest relative to the size of a country’s health sector--was
stimulated in part by concerns about below-standard performance
and cost overruns in public hospitals procured under traditional
contracts. The government wished to introduce competing clinical
providers and new procurement models, and it believed that
operational efficiency gains from public-private partnerships
would subsequently spread to other hospitals.
Between 2004 and 2008 four new partnership hospital
projects were launched, which included private delivery of
clinical services in addition to construction and management of
the buildings.(26) However, the complexity of these contracts and
a lack of interest by banks in taking clinical performance risk

led the government to revert to a UK-style accommodation-only
model for the “second wave” of partnerships initiated in 2008.(27)
Although there is confidence in Portugal that the new
hospitals will generate efficiency savings, this remains to be
demonstrated since a full post-construction audit has not yet
taken place.
Risk Sharing
A fundamental principle behind public-private partnerships
is that risk is allocated efficiently between private and public
organizations. Risk should be allocated to the party that is
best able to control it, or that requires the minimum risk
premium. This, in theory, should drive innovation to achieve
cost efficiencies and greater certainty of success, because the
parties bearing the risk have an incentive to manage it more
efficiently.
The private-sector partner needs to manage the risk whether
it concerns construction or operation. “Bundling” together the
infrastructure and future maintenance should theoretically give
the main contractor incentives to deliver reduced whole-life
costing and performance improvements. Put simply, the contractor
will carry the responsibility for the facility, not just on
handover to a client but for decades beyond.
Under public-private partnerships, some operational risks
that traditionally rest with the hospital--those relating to

inflation in maintenance and operational costs--are transferred
to the private consortium. But major risks arising from
technical obsolescence, changing regulations or policies, and
unidentified future health care needs--such as falling or
shifting clinical demand--generally remain with the public
hospital authorities.
The widespread criticisms of the experience of risk
allocation under the UK Private Finance Initiative are
important, given that the majority of European public-private
partnerships have been developed using the UK model as a
template. This model has been widely evaluated and is said to
have failed to achieve good value for money from risk transfer
to the private sector.(13) In other words, public-sector
organizations pay a hefty premium for the contractually
stipulated risk transfer to the private sector, but still
ultimately bear health project risks if the private-sector
company is unable to deliver the project.
What the UK experience exposes is that building health care
infrastructure inevitably involves risks. Public-private
partnerships may help ensure whole-life cost control, because
this is usually contractible and can largely be captured by the
private-sector partner. However, there is a trade-off against
quality and flexibility--crucially important for hospitals as

health care practice evolves, but much harder to specify in the
contract.
What’s more, although the potential alignment of incentives
between the parties to deliver improved performance may well be
greater in public-private partnership models that embrace
buildings and nonclinical and clinical services, this alignment
is at the expense of increased contractual and financial
complexity.(28)
Stimulating Innovation
Finally, the United Kingdom’s Private Finance Initiative
program suggests that innovation in design and construction has
not been encouraged. When the program was developed, it was
emphasized that the need for whole-life costing would stimulate
innovation in buildings. However, research on early Private
Finance Initiative hospital projects suggests that the model
failed to achieve this result.(16)
First, because design was carried out concurrently with
contract bidding, open discussion of new ideas was constrained
by the consortium’s fear that it might lose the project in the
next phase of the tendering process. Second, final risk
allocation occurred too early in the project bidding process,
limiting the opportunities for innovative thinking as the
project unfolded. In the circumstances, contractors played safe
and offered designs that they could guarantee to deliver.

Future Directions In European Health Care Public-Private
Partnerships
Funding
Future development of health care public-private
partnerships in Europe will be shaped both by the effects of the
immediate financial exigencies and by longer-term challenges in
meeting future health and social needs. The public expenditure
squeeze may motivate governments to choose a private financing
route for health care capital investment and selected medical
services.
Currently, funding anywhere in Western countries for major
infrastructure projects is proving expensive and hard to obtain.
Banks are increasingly risk averse and are seeking higher
margins to cover themselves against their risks.(29) In the longer
term, though, public-private partnerships are fundamentally an
attractive market for investing institutions, especially pension
funds. A prolonged economic downturn could provide investors
with greater incentives to participate, to secure predictable
income from the rising and relatively stable demand for health
care.(30)
Rising public pension costs in aging societies provide
another possible indirect stimulus to the development of public-
private partnership structures, this time from the perspective
of the desirability of creating financial assets. Governments,

concerned with looming entitlements, may have little choice but
to try to pass on more of their pension, and possibly some
health care, commitments to households to purchase and manage
personal assets through increased private saving.
The financial institutions serving the household sector,
particularly pension funds, will need assets to match these
increased liabilities, over the long term, and many of these
income-generating capital investments could be public-private
partnerships. Health care capital investment, providing a
relatively stable if limited return, could well be part of the
mix of these assets--and conveniently one that to some extent is
correlated to the services being demanded.
Developing New Care Models
Another factor influencing the future of European health
care public-private partnerships is the extent to which
governments see them as a way of solving broader problems in
care delivery. One report suggests that the partnerships will
increasingly move from “replacing crumbling inpatient structures
to managing care delivery.”(31) This shift will require the
delivery of flexible infrastructure that is more closely linked
to health care services and outcomes. Greater sophistication may
therefore be needed in the design of public-private
partnerships, particularly where the boundaries around which
services are included within the contract scope are drawn.

The more extensive public-private partnership models appear
to be pointing the way. An example is Coxa Hospital, in Tampere,
Finland, where existing elective orthopedic services have been
consolidated into a new hospital.(10) The public-private
partnership involves a private company with yearly contracts,
via the local university hospital, from municipalities, which
are responsible for purchasing health care in Finland.
The arrangement embraces both physical infrastructure and
clinical services--in the form of surgical replacement of upper
and lower limb joints. Significant process and safety
improvements are said to have resulted--notably, reduced time to
prepare operating theaters, significantly lower infection rates,
shorter lengths-of-stay in hospital, and less readmission for
revisions of operations.(32)
The partnership was funded mostly by project finance debt
and is now making modest profit distributions to the public-
sector owners of the equity in the project.(32) The local health
planning district is now looking at introducing this model for
other clinical-specific facilities, including cardiology and
ophthalmology, with new “focus hospitals” sharing common
services with the university hospital.
Another example, extending the idea of bundling services
even beyond the hospital, is that of Ribera Salud, in the
Valencia region in Spain.(10) Initially, a consortium there built

a hospital only, but it faced insufficient income to cover
costs, as a result of overly optimistic pricing to win the
contract and underestimated cost inflation. The consortium was
obliged to renegotiate its contract with the Valencia health
authority, and the scope of the partnership was extended from
purely hospital care to a full primary and secondary care
service.
The current, renegotiated model of Ribera Salud is
innovative in several ways. Payments use a “capitation” model in
which the city authority makes a standard payment for each
member of the population in a single local area approximating
the catchment area of the hospital. The payments are set so that
the cost to the public purse is lower than that previously
incurred under purely public-sector provision or in other
comparable areas. Furthermore, the terms of the contract
discourage the consortium from reducing the volume or quality of
health care services provided in its geographic area, since
costs incurred by patients traveling outside the concession are
charged to the hospital company.(33)
Despite the apparent successes in these examples, the
extension of public-private partnerships into a wider range of
services beyond the infrastructure is by no means
straightforward because of the two trade-offs mentioned above.

The first is alignment of incentives against complexity:
Managing a myriad of relationships across private and public
boundaries and over extended periods in extensive models is
administratively demanding. The second is cost against quality:
Identifying ex ante, and monitoring ex post, the level of
quality that partnership parties are required to achieve in
performing their contractual obligations is difficult when
“quality” is noncontractible and hard to observe.
Payment Systems
Ensuring that public-private partnerships deliver what they
promise requires thought on how their payment systems should be
designed. There are major differences between direct payment
models for the infrastructure alone, focusing on the
availability of facilities and performance in delivering
facilities management (for example, the United Kingdom’s Private
Finance Initiative program), and indirect payment models such as
the capitation approach deployed in Ribera Salud in Spain--
somewhat similar to a US accountable care organization, but
under tight state regulation. Here, with money following the
patient throughout, patients have more freedom to choose their
preferred provider with the highest service and care standards,
thus giving the health care organization incentives to deliver
the highest performance.
Conclusion

We have argued in this article that public-private
partnerships in health care are only peripherally about
perceived private-sector efficiencies, easier finance, or the
removal of expenditure from national balance sheets. They are,
or at least should be, much more about ensuring that risks
arising from the development and operation of health care
infrastructure are optimally allocated between public and
private partners, thereby reducing the risk premium. Bundling
activities and using the payment mechanism to create incentives
for high performance by the different contractual parties is one
way of achieving this result.
Until now, public-private partnership arrangements have
been most successfully realized in those utility sectors in
which service quality can be clearly specified, measured, and
guaranteed. But this is challenging in health care, where
outcomes are harder to measure and public-interest objectives
can clash with the cost-saving behavior of a private party.
The partnership examples in health care that have bundled
infrastructure and nonclinical services hint at promising health
care and economic outcomes. However, lessons need to be
translated into a more refined understanding of how best to
achieve this result by creating incentive and risk management
mechanisms acceptable to all parties, given that extending the

partnerships within a project to include clinical services adds
an additional layer of complexity.
Public-private partnerships will not always be the best
option--the risk of being locked into an inefficiently designed
contractual arrangement is high. But they remain very much a
prominent feature of health care discourse in Europe. The
European Commission promotes the use of the public-private
partnership instrument across many sectors, and the developing
concept of European Project Bonds is compatible with this
approach. A more robust understanding of their limits and
possibilities is therefore vital.
ABOUT THE AUTHORS: JAMES BARLOW, JENS ROEHRICH & STEVE WRIGHT
In this month’s Health Affairs, James Barlow and coauthors
assess the public-private partnerships that European governments
have increasingly turned to for financing, constructing and
operating public hospitals and other health care facilities and
for providing services. The experience, they write, has been
mixed, with some models falling short of expectations for
achieving greater efficiencies at lower costs, while others hold
greater potential for achieving these ends. They predict that
these partnerships will grow in number as European governments
continue to face budgetary constraints.

Barlow is the chair in technology and innovation management
at Imperial College Business School, London. He leads a program
of research on the adoption, implementation, and sustainability
of innovation in health care systems and is the principal
investigator of the United Kingdom’s Health and Care
Infrastructure Research and Innovation Centre.
Barlow has participated in many government and industry
expert panels on health care innovation. He earned a doctorate
in economics from the London School of Economics and Political
Science.
Jens Roehrich is a lecturer in the School of Management at
the University of Bath, England. His research focuses on the
management of long-term interorganizational relationships,
including the dynamic interplay of contracts and trust, between
public and private organizations. He also investigates the
impact of public procurement policies on delivering innovative
health infrastructure and service projects in Europe with a
special focus on public-private partnerships.
Before joining the University of Bath, Roehrich was a
researcher at Imperial College Business School. Roehrich earned
a master’s degree in management and a doctorate in operations
management from the University of Bath.

Steve Wright is the executive director of the European
Centre for Health Assets and Architecture, a research and
strategic advisory group focusing on the relationship between
services and the buildings and equipment that support them.
Before joining the center, Wright was an associate director at
the European Investment Bank, a European Union long-term lending
institution. He is also an honorary research fellow at the
London School of Hygiene and Tropical Medicine.
Wright’s interests cover the implication of integrated care
systems for facility development; health care problems of
transition economies in Europe and beyond; and the economics of
capital finance, including public-private partnerships. He holds
a master’s degree in the economics of natural resources from the
University of Aberdeen, Scotland.
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Exhibit list:
Exhibit 1 (table)
Caption: Location And Features Of Public-Private Partnerships
For Health Care Project Financing In Selected European Countries
Source/notes: SOURCES Adapted from Barlow J, Roehrich J, Wright S.
De facto privatization or a renewed role for the EU? Paying for
Europe’s healthcare infrastructure in a recession. J R Soc Med.
2010;103:51—5. Some figures are based on Survey of Project Finance
in Healthcare sector, Finlombarda, 2009 May. NOTE PPP is public-
private partnership. [Author: What does * denote?]
Exhibit 2 (table)
Caption: Models Of Public-Private Partnership Structures In
Hospital Construction And Other Health Facilities
Source/notes: SOURCE Authors’ analysis. NOTES PFI is Private
Finance Initiative in the United Kingdom. Portugal Wave 1 and
Wave 2 denote [please explain--not in text].
Exhibit 3 (table)
Caption: Advantages And Disadvantages Of Public-Private
Partnerships
Source/notes: SOURCE Authors’ analysis. NOTES Some exemplar
references are in the Notes in text. Others are in the online
Appendix. To access the Appendix, click on the Appendix link in
the box to the right of the article online. In column 1, a plus
sign denotes an advantage, and a minus sign denotes a
disadvantage.

EXHIBITS
Exhibit 1: Location And Features Of Public-Private Partnerships
For Health Care Project Financing In Selected European Countries
Country
Predominant
health care
finance
source
Role of private capital in
infrastructure and services
provision
Number of
PPPs
Value of PPPs *
Finland
Tax
Experimenting with
buildings/maintenance and
clinical partnerships
1
<$100 million
France
Social health
insurance
Some buildings/maintenance
partnerships
16
$1.6 billion
Germany
Social health
insurance
Growth in for-profit provision
under state concession; mostly
state grants for capital
expenditure; partnership
experiments
24
$2.1 billion
Italy
Tax
Small private sector; some
buildings/maintenance
partnerships
71
$5.7 billion
Poland
Social health
insurance
Buildings/maintenance
partnerships
1
$40 million
Portugal
Tax
Buildings/maintenance and
clinical partnerships; now
buildings/maintenance only
8
$4.6 billion
Spain
Tax
Some buildings/maintenance
partnerships and “full-service”
partnerships
19
$2.3 billion
Sweden
Tax
One major contract under
construction
1
$2.1 billion
United
Kingdom
Tax
Small private elective sector;
major buildings/maintenance
program
146
$25.8 billion
SOURCES Adapted from Barlow J, Roehrich J, Wright S. De facto
privatization or a renewed role for the EU? Paying for Europe’s
healthcare infrastructure in a recession. J R Soc Med. 2010;103:51—5.
Some figures are based on Survey of Project Finance in Healthcare
sector, Finlombarda, 2009 May. NOTE PPP is public-private
partnership.

Exhibit 2: Models Of Public-Private Partnership Structures In
Hospital Construction And Other Health Facilities
Model
Brief description
“Public-public partnership”
(example: certain Spanish
projects)
A special-purpose publicly owned company, largely financed by limited-
recourse commercial debt, has responsibility to deliver facilities, with
the state continuing to provide medical services
Accommodation-only: often
via “design, build, finance,
operate” (DBFO) or “build,
own, operate, transfer”
(BOOT) schemes
(examples: UK’s PFI; also
used in France, Spain,
Portugal Wave 2, Italy,
Sweden, Australia, and
elsewhere)
A private consortium designs, builds and operates infrastructure
facilities based on a public authority’s specified requirements, often
as an output rather than input specification
In the DBFO model, the private sector also finances the facility, typically
via high “gearing” (proportions of debt); the limited amounts of equity
can include the public sector, with mechanisms to control any
conflicts of interest; the public authority purchases services for a
fixed period, after which ownership reverts to the public authority
Twin accommodation/clinical
services joint venture
(example: Portugal Wave
1)
The infrastructure element is like an accommodation-only model
A clinical services company with different, shorter-term financing
provides medical services and has a contractual and shareholding
relationship to the asset provider
Franchising (example:
German private hospital
companies)
A public authority licenses a private company to develop (finance, build,
and manage, inclusive of medical services) a replacement for a
public hospital
“Full-service public-private
partnerships” (example:
Ribera Salud, Spain)
A private contractor builds and operates a hospital and some or all of
the area’s associated community primary care provision, with a contract
to provide care for a defined population
SOURCE Authors’ analysis. NOTES PFI is Private Finance
Initiative in the United Kingdom. Portugal Wave 1 and Wave 2
denote [please explain--not in text].

Exhibit 3: Advantages And Disadvantages Of Public-Private
Partnerships
Advantages and disadvantages
Brief description
Exemplar references
Solution for public-sector capital
shortage (+)
Public-private partnership
arrangements may deliver an asset
that might be difficult to finance
National Audit Office (Note 25
in text); Broadbent and
Laughlin (Appendix)
Reduces cost of capital (+) or
higher capital costs (-)
Mixed results from prior studies
Liebe and Pollock (Note 12 in
text); National Audit Office
(Note 25 in text); Ball et al.
(Appendix); Gaffney et al.
1999a (Appendix); Gaffney et
al. 1999b (Appendix)
Health care providers can
concentrate on clinical services
(+)
Nonclinical services (such as
maintenance and security) are left
with the private contractor
Finlayson (Appendix)
Introducing private-sector
efficiency (+)
Project delivery on time and on
budget; most contracts are fixed
price; ongoing maintenance and
transparent life-cycle costs
Finlayson (Appendix); Hodgson
et al. (Appendix); Flinders
(Appendix)
Adoption of new technology and
management (+) or stifling of
innovation (-)
Incentivizing performance by
specifying service levels;
innovation and good design
through output specifications
Barlow and Köberle-Gaiser
(Note 16 in text); National
Audit Office (Note 25 in text)
Higher transaction, monitoring
and set-up costs (-)
Complex, long-term contracts and
inter-organizational relationships
need to be set up and managed;
reduced contract flexibility as
contracts are difficult to change
and monitor
Lonsdale (Appendix); Dixon et
al. (Appendix); Entwistle et al.
(Appendix); Pollock et al.
(Appendix)
Lack of integration between
clinical models and
infrastructure design (-)
Responsibility for infrastructure and
clinical services mostly not
provided by one organization so
important to align incentives
Barlow and Köberle-Gaiser
(Note 16 in text)
Difficult relationship management
over extended periods of time (-)
Need to manage a wide network
(including banks, suppliers,
consultants) over time periods of
up to 30 years
Barlow and Köberle-Gaiser
(Note 16 in text); Domberger
et al. (Appendix); Zheng et al.
(Appendix)
Risk allocation (+/-)
Allocation of risks to party best able
to manage them; ultimate risk lies
with public sector; increased
commercial risks due to long-term
and high contract value
National Audit Office (Note 25
in text); Ball et al. (Appendix);
Bing et al. (Appendix);
Deloitte (Appendix)
SOURCE Authors’ analysis. NOTES Full citations for exemplar
references are in the Notes in text or in the online Appendix.
To access the Appendix, click on the Appendix link in the box to
the right of the article online. In column 1, a plus sign
denotes an advantage, and a minus sign denotes a disadvantage.
Acknowledgment

The authors express their gratitude to the Engineering and Physical Sciences Research Council [please
spell out] (EPSRC) and the Health and Care Infrastructure Research and Innovation Centre (HaCIRIC) for
funding this research. They also thank all of the organizations and individuals who took part in European
Centre for Health Assets and Architecture (ECHAA) workshops in London and Berlin, 2008 and 2009.