In the face of urgent healthcare financing needs, the adoption of public-private partnerships (PPPs) provides a viable opportunity to deliver healthcare service in Ethiopia. PPPs, characterized by their innovation and efficiency, hold the potential to ease government budgetary pressures while addressing the escalating demand for healthcare services.
By Eskedar Ezezew and Mekdes Mezgebu
Healthcare financing poses a serious challenge for developing countries. In 2001, African Union member states, under the Abuja Declaration, committed to allocate 15% of their national budgets to health. While Ethiopia has progressed in this front, increasing its health sector allocation to 10% of the total budget in 2021/22, it still falls short of the Abuja target. This gap underlines the ongoing challenge of meeting the committed funding and the need for additional measures to bridge the budgetary shortfall.
Ethiopia’s Health Sector Transformation Plan II (2020/2021 – 2024/2025) foresees private sector involvement as a mechanism to mitigate the financing gap. One approach is to implement public-private partnerships (PPPs).
PPPs establish long-term partnership between the public and private sectors whereby a service or infrastructure ordinarily provided by the public sector is provided by the private sector with clear allocation of risks and responsibilities. In these partnerships, the private party assumes considerable risk and management duties. Unlike conventional procurement or outsourcing, PPPs transfer most of the risk associated with the design, construction, financing, operation, and maintenance of the infrastructure or service to the private sector. In return for an agreed output specification, the public sector compensates the private sector either through a fee-based structure or directly from end-users of the infrastructure facility.
Globally, PPPs have predominantly been utilized in the transportation, energy, and aviation sectors. Yet, in the past two decades, PPPs in social infrastructure projects such as health, education, housing, and waste management have taken root. The health sector has seen a notable increase in PPP usage. According to the Project Finance and Infrastructure Journal (IJGlobal), approximately 600 global healthcare infrastructure projects or assets, with a significant portion developed via PPPs.
Health PPPs hold the promise of addressing several challenges and making substantial contributions to healthcare systems. Key among these includes the potential to increase healthcare access, facilitating the establishment of clinics, hospitals, diagnostic and imaging centers, dialysis centers, and mobile health units in urban and rural communities. In addition, PPPs introduce private sector innovation, efficiency, and expertise, elevating the quality and range of healthcare services. This leads to better patient outcomes and satisfaction and results in the introduction of advanced technology and effective management practices that positively impact service delivery.
By leveraging private sector resources, PPPs hold the potential to optimize resource allocation and increase the cost-effectiveness and affordability of healthcare services. In countries like Ethiopia, where fees for public health services are set by law, the provision of high-quality private services at regulated prices offers significant advantages to the public.
Moreover, PPPs facilitate knowledge and skills transfer and capacity building. Through the integration of private sector services in public health systems, healthcare professionals in the public sector stand to gain immensely from the expertise, management practices, and technology-driven approaches of their private-sector counterparts. This exchange of knowledge and skills is instrumental in strengthening the capabilities of the health workforce, thereby enhancing the overall efficacy of the healthcare system.
While the advantages of PPPs in healthcare are substantial, implementing them comes with distinct challenges. Foremost among these is maintaining a balance of interests between private and public stakeholders. Considering that the private sector assumes a significant portion of the financial risk, regulatory support and preparedness of the public sector is vital. Ethiopia laid the groundwork for PPPs with a PPP policy in 2017, complimented by the PPP Proclamation No. 1076/2018, PPP Directive No. 55/2018, and establishing a dedicated PPP Unit within the Ministry of Finance. While these arrangements form a solid foundation for the procurement of PPP projects, their effectiveness remains to be tested.
Furthermore, a PPP project design needs to be structured in a way that maintains the affordability of the services to the public while ensuring that the project remains profitable to the private sector. In Ethiopia, as public healthcare fees are regulated by law (at a highly subsidized and non-cost-reflective rate), the project structure needs to consider how a PPP initiative would be attractive to the private sector. For this reason, strong government support by way of guarantee or availability payments needs to be arranged.
Ethiopia’s governance structure also presents a distinct challenge while designing health PPPs. Successful health PPPs require the establishment of a robust, consistent, and reliable patient referral system, along with demand reliability. Navigating the intricacies of health sector governance both at the federal and regional levels under a centralized PPP framework poses unique challenges in project structuring and management of patient referrals. This, in turn, would require collaboration and commitment from the various public sector partners.
Ethiopia’s public health insurance system, encompassing the Community Health Insurance Scheme and the Social Health Insurance Scheme, introduces added complexity to the design and implementation of health PPPs. As a significant contributor to healthcare service delivery, the public health insurance provider, i.e., the Ethiopian Health Insurance Service, is a key actor responsible for covering healthcare costs for insurance members. The payment terms to the private entity need to be aligned with the regulated fees and the intricacies of claim management of the insurance system.
PPPs introduce new approaches to work and service delivery within public institutions. Integrating the existing civil service workforce into the PPP initiative (which may involve the recruitment, transfer, or replacement of civil servants) necessitates alignment between the civil service rules and regulations and the labour legislations for private employers.
PPPs for health service delivery offer a transformative opportunity for Ethiopia to address its multifaceted healthcare challenges. However, the successful implementation of PPPs in the health sector is contingent upon overcoming several challenges, including aligning the interests of public and private stakeholders, managing complex contractual and regulatory frameworks, ensuring equitable access, maintaining quality standards, and navigating the nuances of the health insurance system.
Given the significant public risk and the extensive institutional capabilities necessary for the successful deployment of PPPs, adopting a phased and flexible approach to implementation is prudent. This strategy allows for the careful assessment and management of risks at each stage, ensuring that lessons learned are integrated into future phases. Ethiopia can build the necessary institutional framework and capacity gradually, minimizing potential pitfalls while maximizing the benefits of PPPs. Such an approach not only facilitates more effective risk management but also enhances the adaptability and resilience of PPP projects, ensuring they align more closely with the evolving needs and capacities of the country.
The authors are lawyers at Mekdes & Associates, a boutique law office specializing in infrastructure and PPP projects. They can be reached at mekdes@mekdesmezgebu.com and eskedar@mekdesmezgebu.com
