‘Business case’ for new hospital should alarm

LAST month, National and Labour announced their intentions regarding Dunedin Hospital. Both committed to a complete rebuild, at roughly the same cost. But beyond that they differ.

Labour will use a central site, and the traditional government funding model, and do it sooner. National says it prefers a central site, but won’t commit to that, and it’s clear, from its lack of capital budgeting, that, despite pretending it hasn’t yet decided how the build will be funded, it means to use a publicprivate partnership (PPP).

The ‘‘business case’’ for the rebuild suggests a private provider could build the hospital, and maintain it over a long period, meaning the government wouldn’t have to find the upfront capital cost of the rebuild.

The down side is obvious: the capital has to be repaid over the years, plus substantial profits for investors, from operating budgets, committing the DHB to huge overheads for many years to come. Bill English says voters won’t worry about the source of the funding — well, they should.

Britain’s National Health Service has used private finance initiatives (PFIs) since the 1990s, with disastrous results. Last month, the Centre for Health and the Public Interest reported that the value of NHS hospitals funded through PFIs is £12.4 billion ($NZ22.6 billion), but over the course of the contracts the NHS will pay £80.8 billion (6.5 times that) to private funders (for comparison, repayments for a 30year mortgage, at 5% interest, total 1.9 times the sum borrowed).

Closer to home the $10 million ‘‘integrated family medical centre’’ planned to replace Buller Hospital will be built by the ACC and leased to the DHB, initially for 35 years. In return, the DHB will pay ACC nearly $1 million a year more than it would pay the

Crown as capital charges. At that rate Dunedin Hospital would cost nearly $140 million a year more than the usual capital charges.

There are other problems with PPPs. National list MP Michael Woodhouse claims PFIs caused problems in the UK only when providing clinical services. He’s wrong. Prof Martin McKee, from the London School of Hygiene and Tropical Medicine, has warned about PFI buildings too. For example, private providers build hospitals in ways easiest (and cheapest) for them, rather than most appropriate, innovative, or flexible. Requirements for hospital facilities can change rapidly: the private partner, owning the building, can charge high prices for modifications.

It’s the government’s job to fund major infrastructure, including hospitals (remember the rhetoric, when governmentowned electricity companies were sold down, about funding new hospitals?), usually by borrowing: government will always be able to borrow more cheaply than anyone else.

Even if PPPs are rejected, as Labour promises, why do we have capital charges? Introduced in 1991, they’re a charge on assets owned by government agencies, intended, Treasury says, to ensure goods and services produced by those agencies reflect full production costs, and to create an incentive for them to make proper use of working capital and dispose of surplus assets.

According to Treasury’s website the annual charge at present is 6% of asset value. On $1.4 billion that’s $84 million a year, just for the new hospital.

Capital charges may be appropriate for stateowned enterprises which trade, especially those competing with private businesses. But DHBs don’t sell things, and, as Dunedin knows, can’t undertake major building projects without detailed government approval. So neither of those reasons apply to DHBs. And paying them is a major drain on DHB funds: the PwC stage 2 financial review of the Canterbury

DHB (internationally renowned for treating illness in the community, where possible, rather than in hospital) shows that the capital charge on new buildings, mainly postearthquake rebuilds, is a major driver of its large deficits.

Beyond the rebuild, National’s healthrelated election promises include lower GP fees for community services card holders. Labour has trumped both, will increase significantly the number of funded GP training posts (essential if the ageing GP workforce is to be maintained), and promises to correct nine years of progressive government underfunding (estimated, by Infometrics, to reach

$2.3 billion by June 2018) of public healthcare.

New electoral bribes may have overshadowed healthrelated promises (church repairs anyone?). But healthcare remains a vital issue.

PPPs are a stupid option. And, whoever forms a government, capital charges for DHBs should go.