by Steven Millstein (CC BY 2.0)

Today, Jorge Alcocer, future head of the Ministry of Health announced in an interview with the newspaper Reforma, that hospitals built under the Public Private Partnership (PPP) model will have to be reviewed and, if feasible, modified or canceled to avoid debts for the federal government.

The PPP model emerged as a result of the financial crisis of 2008 to 2011 to boost the growth of the economies in a limited public and fiscal resource environment. PPPs became an alternative way to cover the financing deficit of the governments. Governments now rely on PPPs in the hope that the private sector will help finance the public infrastructure and public services that are financially demanding.

Currently, there are already several projects in the health sector, especially public hospitals that operate under the PPP scheme, according to Alcocer. Seven general and highly specialized hospitals located in the State of Mexico, Guanajuato, Tamaulipas and Yucatan already operate under this model, in addition to seven more hospitals that are under construction and four in the planning stages.

Under the current model, the construction and operation of hospitals has meant a mega-debt for the Ministry of Finance of more than MX$119. 3 billion to be paid between five and 25 years. Alcocer said the new government is going to revise the PPP model “to analyze the relevance of each of these hospitals because the government should not be developing projects that cannot be maintained later.”

At the beginning of the month, Enrique Chaqués, the Director General of Currie & Brown Colombia, a company specialized in developing worldwide hospital PPP projects was interviewed by El Economista. The company with its experience working in the Americas in countries such as Mexico, the US, Peru and Colombia, said the PPP model is especially popular in Mexico. “Mexico and Chile are the two leading countries in hospitals under the Public Private Partnership (PPP) scheme in Latin America,” he said.

However, not all PPP projects are the same for all countries. PPP projects in the health sector measure their scope depending on the substitute or complementary function of the sanitary attention they provide. According to Chaqués, Mexico develops a PPP model know as grey robe (bata gris) projects which allow private companies to cover the design, construction, operation and maintenance of the infrastructure, as well as the equipment installation and another non-clinical support service, while medical care is left to the control of the public sector.

The potential risks of the PPP model, according to the World Bank, is that if governments do not rigorously analyze the profitability based on cost and quality the project may involve more expenses than expected and produce problems in the fulfillment of the financing scheme. There are associated costs with the debt that must be considered and must be amortized by the clients or by the government through subsidies or other mechanisms.

On the bright side, PPPs can also bring potential benefits for the health sector and the national economy in general. According to the World Bank, PPPs are a potential way to bring technology and innovation into the public sector, increasing the participation between public and private companies and attracting foreign companies, which creates greater diversification of the economy, as well as the ability to complement the capacity of the public sector to meet the growing demand for infrastructure development in the country.

As long as the contracting parties have clear legal and regulatory framework of the PPP project and contemplated possible problems that may arise from its development, the PPP project should be sustainable.

Alessa Flores

by Alessa Flores

Industry Analyst and Journalist at Mexico Business Publishing

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