This is, of course, insane. What really happens is that the company borrows the money at a rate much higher than the state can, charges the state interest+margin and pockets a profit.

How in hell can it be cheaper this way?

It translates into the public sector outsourcing, via a procurement process, the financing, construction and operation and maintenance of public accommodation projects such as schools, prisons and hospitals, to private partners. The first motive was transforming the upfront capital expenditure to operating expenditure spread over a very long term (up to 35 years). In the case of hospitals, the NHS would pay availability fees to the private partners. This outsourcing was also claimed to make the whole system of healthcare provision more cost efficient.

Did this have the intended (I assume) effect of allowing local health authorities (is that the right terminology in France?) to build needed facilities earlier?  or perhaps to upgrade existing facilities, like remodeling a room and bringing in modern imaging equipment, for example?

To what extent are "operating and maintenance" contracted to the partner?  Things like housekeeping, food services perhaps.  Or has it gone deeper into the operations of the hospital into areas like materials management and purchasing?  How about into any of the clinical areas, such as nursing?

On the contracted out new construction, were there any efficiencies gained on that, in the sense of being run in the public market rather than by the government--or is it viewed as pretty much the same?  In other words, is the contruction more "on time and on budget" than before, or maybe it was fine before.

Also, and don't answer if this is to revealing personally, of course, but am I correct in understanding that there is a private role for an investment banking type function, which it sounds like you have, to put together these deals between the healthcare system and the private sector?  It was interesting to me that you said you have done these in the UK and France.

Thank you, and tell me when I'm asking too many questions.  (And I'm almost certain to--I was one of those children that drove their parents crazy by always asking why.)  I don't want to take advantage of your good will in putting this diary together.

Blairs talk of patient choice is an illusion - an example: locally, there are two urban centres 9 miles apart, both with their own hospitals that serve the surrounding rural areas as well as the towns. In practice, one serves the south of the county and the other the north. In the last couple of years there have been efforts to 'rationalise' the two hospitals - e.g. having the eye department in one, the ear department in another. Currently we are fighting a battle to keep the childrens ward open in this town as the plan is to have just one childrens ward in the neighbouring town. While the finance bods may think it makes sense, it makes no sense at all to the family of a sick child to be further away than neccessary. Patient choice is not a reality when services are rationalised out of existance.

Couple of things that come up for me from the diary:
the US and UK healthcare operating mode.
I don't understand how they can be put together that way; the systems are so wildly different.

The other thing I wanted to mention is that one fairly critical (to me) way that our - that is France and Britain - systems differ is that we don't pay anything to go to a G.P. You are right in that we have to register with a G.P. and that has always seemed advantageous to me: I build a relationship with my doctor, he knows me and there is continuity of care. I can see other doctors in the same practise if I want to but the practice doesn't take registrations from outside the area because of the difficulty of call outs. There can be problems with this, of course: deprived areas can end up with not enough doctors and patients seen as problematic (for all sorts of reasons - violence, addiction, long-term mental health issues)may have trouble finding a doctor to accept them. In that situation a local health authority will allocate a patient to a doctor.

We have to pay for prescriptions (currently 6.50GBP per item) but children, the elderly and low incomes are exempt. I cannot imagine the heartbreak of having a sick child and wondering whether treatment will be afforded or provided - as I have known of people I know in the U.S.

When we left this last night, I was thinking of the issue as somewhat of an accounting issue--cash based accounting (normally used by governments) versus accrual accounting (normally used by business).  Upon reflection, I now think the better context for the discussion might be stated as an issue of "off balance sheet financing"--which BTW, makes me think agnesaparis should be doing this draft, because I think she may have used that term last night, and may be way ahead of me on this.  It's a little of both,,,but let me push agnes' phrase a little.

First let's step back and look at how a new hospital get financed in the US, versus in the UK.  Most hospitals in the US are not for profit hospitals, but they are not run by the government--they may be run by the Sisters of  Saint Mary's (whatever) or just some concerned citizens that initially wanted to do something for a city, formed a non-profit group and built a hospital.  These can go directly to the public financial markets and borrow money to tear down their old hospital and build a new one; or to update all of the facilities and technology (MRI's for example).  They have a reasonably good track record, so they sell bonds, bring in the cash, build the hospital, and pay back the bonds over 30 years or so.

In the UK of the `80's, the government ran the NHS, and if they wanted to build hospitals or make investments, they had to pay for it out of taxes, or more likely government spending as a total would be higher than tax revenues, so the effect of making new investments was to push the annual deficit higher, and force the UK debt higher.  So there was a very direct link between the investment spending and increasing the national debt in this system.

But note in the US system, the new hospitals have no impact on the national debt at all.  The public investors are directly buying bonds from the non-profit hospitals, and viewing that as an investment--which it is, of course.  So I guess you could argue that getting money for investment in new hospitals is perhaps an easier path in the US, than in the UK.

The PPP approach really attempts to adapt this US financing scheme to the government run healthcare systems.  It effectively sets up a long term lease (very much like a loan) that allows the investment to be made, and paid back over time, effectively introducing new funds into the healthcare system for investment.  Using business terms, this would be called "off balance sheet financing", because you really have borrowed money, but used leasing terminology, so you don't actually recognize the fact that money has been borrowed--ie, the lease does not require the government to call the new funds a loan, so the Treasury doesn't have to go out and borrow more money.  (One question from an American who left the UK in '89, at that time they were talking about setting up hospitals as trusts and letting them borrow money directly--another attempt to get money without having the government issue more debt.  Evidently that idea didn't work out?)

Note this arrangement of having the local health authority arrange the lease, puts them on the hook to pay it back, which has the impact of making the hospital run itself more like a business.  So this approach, depending on your perspective, may bring a lot of the good from the American system (investment funds for healthcare) but maybe also a little of the bad--pressures to run healthcare as a business.

So I'll close on two thoughts.  First, this was quite an epiphany for me, the Yank, because we have very few activities like this that are run by the government.  So all the implications of investments being treated just like spending for salaries in that they both go directly to increasing the government debt (unless the government is running a,,,,,what's that word?,,,,I forgot,,,,oh yeah,,,,running a surplus).  So part of me thinks you all may be thinking,,,"well yeah, we've understood this for decades".  If so apologies for wasting your time reading this, just help me catch on.  The other thought is, have I described this correctly, missed something?  Thanks for your interest.