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Lesotho: "Model" Project Drains Health Budget
AfricaFocus Bulletin
April 14, 2014 (140414)
(Reposted from sources cited below)
Editor's Note
A new hospital in Lesotho, touted as a model for public-private
partnership by the World Bank's International Finance Corporation
(IFC), is already draining the country's health budget and
diverting resources from rural health, charges Oxfam International
in a new report released on April 7. Cost overruns, high earnings
by the private partner, and clauses imposing additional financial
risks for the government offset the advantages of the new hospital
in improved hospital care in the capital Maseru, the report
contends.
While this issue is particularly critical for Lesotho, the
implications, Oxfam notes, are far broader. The IFC is that part of
the World Bank system most dedicated to pushing expanded roles for
the private sector, without considering the possible negative
effects or compatibility even with development strategies advised
by other parts of the World Bank. In contrast, Oxfam argues, the
costs and risks as well as potential benefits of any public-private
partnership should be carefully and transparently evaluated. The
record of the Lesotho project is a prime example of the failure to
do so.
For a summary article on this Oxfam report, see
http://allafrica.com/stories/201404081107.html
For previous AfricaFocus Bulletins on health issues, visit
http://www.africafocus.org/healthexp4.php
For previous AfricaFocus Bulletins on Lesotho, and other
information links, visit
http://www.africafocus.org/country/lesotho.php
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A Dangerous Diversion
Will the IFC's flagship health PPP bankrupt Lesotho's Ministry of
Health?
Oxfam International
http://www.oxfam.org/en/policy / direct URL -
http://tinyurl.com/ngwn5be
The Queen 'Mamohato Memorial Hospital was built to replace
Lesotho's old main public hospital under a public-private
partnership (PPP) - the first of its kind in a low-income country.
The PPP signed in 2009 was described as opening a new era for
private sector involvement in healthcare in Africa, and was seen as
the International Finance Corporation (IFC)'s flagship model to be
replicated across the continent. Instead, the Ministry of Health in
one of the poorest and most unequal countries in the world is
locked into an 18-year contract that is already using more than
half of its health budget (51 per cent), while providing high
returns (25 per cent) to the private partner. This is a dangerous
diversion of scarce public funds from primary healthcare services
in rural areas, where three-quarters of the population live.
Lesotho's experience supports international evidence that health
PPPs of this kind are high risk and costly, and fail to advance the
goal of universal and equitable health coverage. The IFC should be
held to account for the poor quality of its advice to the
Government of Lesotho and for marketing this health PPP as a
success internationally, despite its unsustainable costs.
1 Introduction
The Queen 'Mamohato Memorial Hospital, which opened in October
2011, was built to replace Lesotho's old main public hospital, the
Queen Elizabeth II (QE II) Hospital, in the capital, Maseru. It is
the first of its kind in Africa - and in any low-income country -
because all the facilities were designed, built, financed, and
operated under a public-private partnership (PPP) that includes
delivery of all clinical services. The PPP was developed under the
advice of the International Finance Corporation (IFC), the private
sector investment arm of the World Bank Group. The promise was that
the PPP would provide vastly improved, high-quality healthcare
services for the same annual cost as the old public hospital.
Today, the PPP hospital and its three filter clinics:
- cost $67m per year - at least three times what the old public
hospital would have cost today - and consume more than half (51 per
cent) of the total government health budget;
- have necessitated a projected 64 per cent increase in government
health spending over the next three years, 83 per cent of which can
be accounted for by the budget line that covers the PPP;
- are diverting urgently needed resources from primary and
secondary healthcare in rural areas where mortality rates are
rising and where three-quarters of the population live. Despite the
severe shortage of qualified health workers, the human resources
budget will see a real- terms cut over the next three years, rising
by an average of just 4.7 per cent per year (significantly lower
than inflation);
- are expecting to generate a 25 per cent rate of return on equity
for the PPP shareholders and a total projected cash income 7.6
times higher than their original investment;
- are costing the government so much that it believes it will be
more cost effective to build a brand new district hospital in the
capital to cater for excess patients rather than pay the private
partner to treat them - a plan that was announced in the budget
speech in February 2014.
Lesotho, a small, mountainous land-locked country surrounded by
South Africa, faces enormous development challenges. One of the
most unequal countries in the world, the Gini coefficient is 0.531
and the richest 10 per cent of households account for more than
half of total consumption. More than 57 per cent of its population
(the Basotho) live below the poverty line. Poverty is 50 per cent
higher in rural areas than in urban areas.
Lesotho has the world's third highest burden of HIV and AIDS, with
prevalence 26 per cent for women and 19 per cent for men. Life
expectancy has fallen from 60 years in 1990 to just 50 years in
2011, and infant and maternal mortality rates are rising. Underfive
mortality is 40 per cent higher for the poorest quintile than
for the richest, and the variations in mortality rates between
those living in the capital region and those in rural areas are as
wide. Poor households are less likely to seek healthcare, citing
cost and distance as the major barriers; 25 per cent of the poorest
quintile and 25 per cent of people who live in rural areas have
more than three hours to travel to their nearest health facility.
The need to address poverty and extreme income and health
inequality in Lesotho could not be more urgent. Oxfam's recent
research has highlighted the powerful role that free, universal and
equitable public health services can play in reducing inequality in
rich and poor countries alike. The International Monetary Fund
(IMF) agrees that spending on health and education is critical to
achieving economic growth and tackling inequality. The World Bank
Group itself is guided by two clear goals - to end extreme poverty
and promote shared prosperity - and its President, Jim Yong Kim,
has repeatedly emphasised the central role played by universal
health coverage (UHC) and equity in health in achieving these
goals.
To advance UHC and redress health inequity, the World Bank has
recommended that Lesotho prioritise health and nutrition in the
heavily under-resourced rural areas. The government's ten year
health sector reform plan in 2000 - partly funded by the World
Bank's International Development Association (IDA) - emphasised the
need to improve essential health interventions in under-served
areas. While few questioned the need to radically refurbish or
replace the capital's dilapidated public hospital, a World Bank
document did raise questions about the cost effectiveness and
equity of the proposal, citing evidence that it is generally the
wealthier in society, and men rather than women, who make heaviest
use of expensive hospital services.
Given this context, and the fact that it appears that alternative
public financing options were available and should have been
further explored with the Government of Lesotho, it is very
worrying that the IFC was able to pursue such a costly and risky
strategy for replacing the old national hospital.
2 The Lesotho Health PPP
...
Some form of PPP exists in almost every national health system. The
most common example is the sourcing of medical products from the
private sector. This paper examines a particular type of health PPP
- the construction of a health facility and ongoing provision of
services by a for- profit private partner within a public system of
provision.
...
In 2009, the PPP contract was awarded to Tsepong Ltd, a consortium
led by Netcare - a private South African hospital operator and a
major multinational company - and a group of local economic
empowerment shareholders.
Under the PPP, Netcare is contracted to treat all patients
presenting at the Queen 'Mamohato Memorial Hospital, up to a
maximum of 20,000 inpatients and 310,000 outpatients annually.
Patients pay the same user fees as they would in any public
facility. Certain services such as transplants, elective cardiac
and vascular surgery, chemotherapy, and radiotherapy are excluded
from the contract for reasons of affordability.
...
In return, the government pays an annual unitary fee that covers
capital repayment and service delivery costs. The fee should be
adjusted only for inflation or if additional services beyond those
in the contract are agreed and incorporated. ...
Well before the PPP contract was signed, the IFC, as transaction
advisor to the Government of Lesotho, said it was a major success,
proposing it as a model for other countries to replicate.
...
Despite a significant body of evidence highlighting the high risks
and costs associated with health PPPs in rich and poor countries
alike (see Section 5), similar IFC-supported health PPPs are now
well advanced in Nigeria, and in the pipeline in Benin. ...
The IFC has consistently highlighted its own role as transaction
advisor to the Government of Lesotho for the health PPP, for which
it earned a 'success' fee of approximately $720,000 when the
contract between the government and Tsepong was signed. The central
role of the IFC - which included acting on behalf of the government
in the planning, tendering and contract negotiation and agreement -
was confirmed by all of the Lesotho health PPP stakeholders
interviewed for this report.
...
3 How the Project has Failed to be Cost Neutral
Far from being cost neutral (the main selling point of the PPP),
soon after the new hospital opened in 2011, one health PPP academic
and journalist, John Lister, used the limited data that were
available to suggest that costs for the new privately run hospital
were already double that of the old public hospital. Lister also
identified several unfavourable terms in the PPP contract that left
the government exposed to escalating costs in the future.
Calculations commissioned and published by the IFC confirmed that
in 2012/13, the annual cost of the new hospital was between two and
three times the costs of the old hospital. In its most expensive
year before closure, in 2006/7, the old hospital cost 28 per cent
of Lesotho's total health budget. In 2012/13, the new private
hospital cost $45m - more than 41 per cent of the total health
budget. ...
Figures made available by the Lesotho Ministry of Health suggest
that in 2013/14 the cost of the new private hospital has escalated
further to between 3 and 4.6 times what the old public hospital
would have cost today. The figures suggest that the PPP now
consumes as much as 51 per cent of the total health budget, or $67m
per year. The real cost of the new privately run hospital is
already nearly two and a half times the amount that was agreed as
affordable between the Government of Lesotho and the IFC before the
contract was awarded.
...
One government minister Oxfam spoke to confirmed that the PPP is
'eating more than half of the health budget' and is 'hitting the
government hard'. ... Costs are predicted to spiral further. For
2014/15, the government allocation for the PPP had already been
exceeded by costs submitted by Tsepong before the new financial
year started.
...
While costs of the PPP escalate for the Government of Lesotho and
Basotho taxpayers, the financial model for the Lesotho PPP confirms
that the IFC helped to structure a contract projected to generate a
25 per cent rate of return on equity for Netcare and the broader
Tsepong shareholders. This compares with a norm of between 13 per
cent and 18 per cent equity return on similar hospital Private
Finance Initiative projects in the UK - a rate already considered
to be highly profitable.
...
Factors contributing to rising costs
[see full report for detailed explanation]
Implications for the rest of the health system
There is no doubt that costs for the Lesotho health PPP are rising
at an unsustainable rate. In an effort to fulfil its legal
obligation to meet these costs, the Government of Lesotho has
proposed an extraordinary 64 per cent increase in the total health
budget over the next three years. Such commitment to increased
health spending would normally be celebrated. However, in this
case, at least 83 per cent of the proposed increase can be
accounted for by the budget line that covers the health PPP. And as
a senior Ministry of Health official confirmed: 'The main reason
the budget is increasing is because of Tsepong.'
With such severe skewing of the budget, detrimental impacts on
other national health and development priorities are unavoidable.
While the total health budget is set to increase by 64 per cent by
2016/17, agriculture and education will experience a cut in real
terms, with below inflation rises of just 14 per cent and 7 per
cent respectively over the same period. The ramifications of this
are likely to be significant; as the Minister of Development
Planning said: 'Health is increasing but this will be at the
expense of something else. We may be able to treat people if they
get ill but we will not be able to ensure they have enough to eat.'
The resource squeeze for rural health care
Lesotho is off track to meet its health-related Millennium
Development Goals (MDGs), and there is agreement that while more
spending is important, reversing the country's poor progress in
health and advancing equitable universal health coverage requires
prioritising investment in primary and secondary health services in
rural areas, where more than three-quarters of the population live.
...
'Not enough money goes into primary health care and the biggest
budget has always gone to QE II. It is worse with the new hospital,
which takes even more. If primary health is meant to be the
cornerstone of our health system, you think this should take
priority rather than it being the other way around.' - Dr Ntsekhe,
Manager of Senkatana Clinic
For example, the maternal mortality rate in the capital Maseru is
four times lower than the national average. So while it is
encouraging that the new PPP hospital is reporting a 10 per cent
reduction in maternal mortality, there is an urgent need for more
resources to address the significantly higher numbers of pregnant
women who die in poor rural areas for want of access to antenatal
care, skilled delivery attendance, and emergency obstetric care.
...
Government health expenditure was already skewed towards tertiary,
urban-based care. The health PPP has dramatically exacerbated this
inequitable trend by absorbing over half of the Ministry of
Health's budget in 2013/14, up from 28 per cent for the old public
hospital in 2006/7. The Christian Health Association of Lesotho
(CHAL) runs approximately 40 per cent of the country's health
facilities, predominantly in rural areas. Yet in 2013/14, the
government allocation to CHAL was equivalent to just over a quarter
of that spent on the health PPP.
...
Supporters and critics of the health PPP interviewed for this
report agreed that the poor state of the rest of the health system
and lack of investment in primary healthcare is encouraging those
sick patients who can afford to travel to the capital to seek care
at the new hospital. This problem is only set to get worse, as the
PPP consumes ever-increasing amounts of the national health budget.
The Minister of Planning and Development has said that in
hindsight, 'the new hospital should have been part of a broader
package of investment to upgrade the entire health system'.
The proposed 'cost neutral' health PPP is now costing the
government so much that it believes it will be more cost effective
to build a brand new district hospital in the capital to cater for
excess patients, rather than pay Netcare to treat them - a plan
that was announced in the budget speech in February 2014.
The biggest losers of the health PPP in Lesotho are the majority of
Basotho people who live below the poverty line in poor rural areas,
who have little or no access to decent healthcare. As the country's
health financing crisis escalates, the option of reintroducing and
increasing user fees at primary and secondary level facilities has
already been tabled for debate. Such a devastating and retrograde
move in Lesotho would further exacerbate inequality and increase
rather than reduce access to healthcare for the majority of the
population.
...
6 Conclusions and Recommendations
The Lesotho health PPP has been described as opening a new era for
private sector involvement in health care in Africa. Instead, the
Ministry of Health in one of the world's poorest and most unequal
countries is locked into an 18 year contract which already consumes
51 per cent of its budget. Far from being cost neutral, government
spending on the IFC's flagship health PPP is spiralling; drawing
resources away from other urgent healthcare needs and exacerbating
health inequalities across the country.
Lesotho's experience supports the international evidence that
health PPPs can be extremely high risk and costly, and strongly
suggests that they should be avoided, especially in low-income,
low-capacity contexts where they constitute a threat to the entire
health system. Instead, lessons should be learnt from successful
countries making most significant progress towards universal health
coverage, all of which rely heavily on public financing and
delivery of healthcare. As such, explicit preference should be
given for financing health infrastructure and services via lowercost
publicly channeled financing. This could include concessional
and non-concessional multilateral and bilateral funding.
IFC should be held to account for the poor quality of its advice to
the Government of Lesotho and for marketing this health PPP as a
success internationally, despite its unsustainable cost.
Oxfam and the Lesotho Consumer Protection Association make the
following recommendations.
In Lesotho
The World Bank Group should:
- finance and publish a fully independent and transparent expert
financial audit and broader review of the Lesotho health PPP in
partnership with the Government of Lesotho, including a
presentation of the full range of options available to remedy the
negative impact of the partnership. The review should cover, but
not be limited to options for contract renegotiation, termination
and mitigation in order to reduce costs to the government. The
World Bank Group should finance independent, not IFC provided,
advice and support to the Government of Lesotho in this process if
requested;
- scale up funding to support the Lesotho Ministry of Health to
uphold and fully implement its commitment to revitalise primary
healthcare and especially to rapidly increase the number of nurses,
doctors and other health workers.
The Government of Lesotho should:
- fully implement its commitment to revitalise primary healthcare,
prioritising investment in rural areas where more than threequarters
of the population live;
- build and strengthen the capacity of the Ministry of Health and
Ministry of Finance to manage the PPP contract and reduce cost
escalation as effectively as possible. This should include
supervision of Tsepong's performance and ensure that financial
penalties are applied when standards fall. Tsepong should be held
to account for its obligation to operate the PPP hospital as a
fully functioning teaching hospital;
- create a platform to actively engage civil society in monitoring
and evaluating service delivery at the PPP hospital and across the
health sector more generally;
- publish a full financial statement and explanation of costs of
the PPP to date, to support public scrutiny and understanding;
- avoid further health PPPs unless and until the Tsepong PPP has
been fully reviewed, audited and the findings published; and it can
be proven, using national and international evidence, that health
PPPs constitute a more appropriate, cost-effective, and equitable
approach to healthcare financing and delivery than publicly
financed options in Lesotho.
Tsepong Ltd should publish a full financial statement and
explanation of costs to date invoiced to the Government of
Lesotho. This should include a full explanation for services that
are not yet provided that are included in the original PPP
contract and any additional services agreed with government and
invoiced for since that time. Tsepong Ltd should also provide
evidence to demonstrate how it is upholding its contractual
obligation to local economic empowerment.
Internationally
The World Bank Group should cease all IFC advisory work in support
of pipeline health PPPs until and unless:
- the IFC's role in the Lesotho health PPP has been fully and
transparently audited and reviewed and explanations have been
published as to why the high-risk and unaffordable contract was
pursued;
- the competency and appropriateness of the IFC as a transaction
advisor on health PPPs on behalf of low- and middle-income country
governments has been fully and independently investigated, with
results published and reviewed by the World Bank Group Board;
- a full independent review has been undertaken and peer-reviewed
evidence provided to support the appropriateness, costeffectiveness,
clinical and equity impact of health PPPs in lowincome,
low government capacity contexts;
...
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providing reposted commentary and analysis on African issues, with
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