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Private-Public Partnership in Hospitals. The way of the future?

At the moment, one of the largest and most advanced hospital projects in the world is being built in Sweden. The construction of the New Karolinska Solna hospital is being organized as a private-public partnership, the country’s first healthcare private-public partnership project.

The new karolinska solna (NKS) is the one of the largest projects ever that the Stockholm County Council has initiated. The hospital opens for the first patients in 2016 and will focus on specialized medical care and the performance of research and educational training. In 2017, the hospital should be fully completed and will include 400 care rooms, 100 rooms for daycare patients, private rooms for all inpatients and 36 operating theaters.

The new hospital has been subject to the procurement process as a private-public partnership (ppp) project. A public-private partnership arrangement differs from conventional public procurements. In a PPP arrangement, a private company or a consortium is given the task to build, finance and run a public infrastructure project such as roads, railways, airports or hospitals, over a predefined period of time. The contractor is expected to take the risk of higher expenses or the possible need for more resources in order to avoid a delay. The method is used in several countries such as Australia, Canada, Spain, and Portugal. It has been particularly popular in Great Britain where schools and prisons have been built through ppp, as well as hospitals. 500  PPP-projects are estimated to have been initiated in Great Britain, 185 of which are hospitals.

New Karolinska Solna is being constructed by the Swedish project development and construction company Skanska, in partnership with the British investment fund Innisfree. Skanska and Innisfree will be in charge of financing, construction, building and the operation and maintenance of the new hospital until 2040, at a total cost of 27 billion sek.

“Skanska’s task is to deliver a new modern hospital. Since we have a contract with them through this agreement until 2040, it allows us to know exactly what the costs will be until then,” says Torbjörn Rosdahl, Stockholm County Commissioner for Financial Affairs.

“In 2040, we will hand over the hospital, should the County Council chose not to prolong the contract for another 15 years,” says Ulf Norehn, ceo at Swedish Hospital Partners (shp), which is half owned by Skanska and the British venture capital and private equity directorate Innisfree. shp is the project company set up for the nks project.

A hospital of much debate
Ever since the decision was made that nks was to be constructed according to a ppp-procurement, the project has been subject to debate. The price tag of the new hospital has for instance been highlighted as too high, which many believe is due to the use of private-public partnership. The political parties in opposition argue that the construction would have been performed at a much lower cost if the County Council would have financed the hospital and that the government would have acquired a mortgage with better conditions. Torbjörn Rosdahl does not agree on that point.

“In today’s monetary value, the expenses will not exceed 27 billion sek. That includes financing, planning, construction, service and maintenance until 2040. It cannot become more expensive than that. On the contrary, it might even be built at a lower price.”

Tanks is the first hospital ever in Sweden that will be built and run according to a ppp-procurement, as well as the biggest individual PPP-procurement of a hospital that has been realized in Europe. Even using this is the first experience Sweden will have in building a hospital through this model, Torbjörn Rosdahl emphasizes the benefits of using ppp to build the new hospital.

”As County Commissioner, my job is to ensure that the economy is in order. By building this new hospital through public-private partnership, I know that things will be stable until 2040. This model gives us both the security and the right conditions,” says Rosdahl.

”Even if there would be possibility that the construction becomes more expensive, this is something we have to provide for,” says Ulf Norehn.
What if something should happen along the way that has not been included in the arrangement with Skanska?

”We know that the hospital won’t cost more than 27 billion sek in  today’s valuation. However, questions about changes may of course emerge. For instance, nks will be equipped with its own kitchen for cooking meals. This was not included in the original design for the hospital, but has now been added to the plan and will be paid for by the County Council. In the following years we might also find other methods or changes that could lead to savings.”

Possible risks
Anders Hoffman, a construction manager at NCC construction has written an essay on the allocation of risks in ppp-projects. He agrees that the use of private-public partnership in hospitals can be a good alternative. However, this is
provided that the right conditions are available such as information about construction or soil conditions. Otherwise, a project of this size could be a risky undertaking.

”It is a quite expensive procurement, in view of that all facts need to be made known in advance. In Sweden, there isn’t much knowledge about private-public partnership in building hospitals. nks is the first healthcare project ever undertaken. Since we haven’t had much experience, there is always a risk. For instance, it could be problematic if there are differences between the parties that need to be solved, or lack of clarity regarding responsibilities can arise,” says Anders.

Torbjörn Rosdahl nevertheless does not see any major risks with the project.

”I don’t believe we’re taking any risk with regard to using ppp. Our main focus is to build a new hospital with the latest technology, a close cooperation between the laboratories and operating rooms and all materials to be used in construction and during the hospital’s operational life cycle is to be resource-efficient. All of these factors will of course affect the expenses.”

“In my opinion we are not taking any risks. We have learned a lot from what has been done in Great Britain, which I think the County Council also has done,” says Ulf Norehn.

The way of the future
If the model of ppp is to be a model that we will see more of in the future in Sweden is difficult to prophesize.

“This is a question for the politicians. But from my point of view – if it has been successful in other countries, why wouldn’t it be the same in Sweden,” Ulf Norehn says.

According to Anders Hoffman, it could be a future model, but one that is adapted to Swedish conditions.

“The model that is being used to build nks is more or less taken from Great Britain. For example, the County Council took on a great deal of the finances to bring down the interest on the mortgages. We have to learn more if we want to see further projects,” says Hoffman.

”If private-public partnership is to become a future model in Sweden, this has to be a very successful project. Otherwise, it will probably be difficult to convince the rest that this is something to proceed with. Perhaps, it would have been a better idea to launch ppp on a smaller scale. It is important to consider possible scenarios: the construction could be delayed, there could be higher expenses or insufficiencies in the maintenance phase. A lot of things can happen over a forty year period.”