Former Minister says containing cost of new hospital should be top priority
The financing of Bermudas new hospital facility didnt come cheap, conceded former Health Minister Zane DeSilva, who advised his successor to keep cost management on the front burner.
New Minister Patricia Gordon-Pamplin stated recently that the public-private partnership (PPP) underpinning the project will likely prove expensive for the Island in the long run.
Agreed Mr DeSilva: PPPs are costly. So are loans and mortgages — ask anyone thats ever bought a house or car what they pay in interest over the term of the mortgage or loan life.
The Progressive Labour Party MP added: You may recall the increase of hospital fees of one percent per year for five years was approved by all members of the legislature to assist with these projected costs.
Mr DeSilva referred to an annual price hike proposed by Bermuda Hospitals Board in 2009 aimed at raising the $40 million due when the new facility is completed next year.
Whilst I was Minister, cost containment at King Edward VII Memorial Hospital was top priority, and hopefully the current Minister will continue with actions that were implemented or soon to be implemented, he added.
The National Health Plan, aimed at delivering universal healthcare in Bermuda, is approaching its final stages of development and is currently being appraised by Ms Gordon-Pamplin.
The financing model for the hospital is new for Bermuda; PPPs have proved difficult to manage in other countries
Said Colonial Insurance CEO Naz Farrow: PPP and PFI [Private Finance Initiative] contracts have a very mixed track record in the UK and have been criticised in the press there because some of them have proven to be unsustainable. We agree with the Minister that a thorough review of the contract and any associated long-term business plan created for the hospital, is needed.
The potential impact is certainly significant if revenue forecasts do not match the repayment costs and any shortfalls will almost certainly be born by the taxpayer or through the cost of care at the hospital.
She added: Costs have risen sharply at the hospital in recent years and this was intended to raise the income to a level where the repayment costs could be covered. We do not have sufficient information to comment whether this strategy will prove to be adequate into the future.
Meanwhile, Bermuda Health Council CEO Jennifer Attride-Stirling told The Royal Gazette that provisions to pay for the new hospital are already in place.
She pointed to the one percent fee increases of recent years that have been allocated to support the project.
This is built into the standard premium rate — the price of the mandated hospitalisation insurance, she said. Last year, this accounted for $1.96 of monthly health insurance premiums. So as a health system we are already putting money aside to pay for the new hospital, via our premiums.
Future liability for the KEMH facility is contingent on a wide range of factors, Dr Attride-Stirling noted, including patterns of use, and the manner in which existing wards at the hospital are deployed once the new acute care wing opens next year.
What is clear now, more than ever, is that cost-containment is an essential priority for the Country, and we will need to balance the financing of various features of the health system with the way healthcare services are used locally and overseas. We all have a role to play in controlling costs by appropriate use of health services such as the Emergency Room, primary care, hospital beds, and testing.
Allaying fears of hidden costs associated with the project, BHB CEO and president Venetta Symonds pointed out that once the board signed its contract with Paget Health Services in 2010, the contracted cost was settled upon, and cannot be changed.
This level of cost certainty is a major benefit of this kind of delivery model for a construction project, Ms Symonds said. There are no unanticipated costs due to unexpected construction issues or delays, as these risks are assessed up-front and transferred to the private partner.
In an indication of the complexity inherent to the hospitals long-term financing, Ms Symonds said the $40 million due next March was just the start of a lengthy partnership.
There are also annual payments which include a 30-year maintenance contract for hard facilities maintenance and life cycle costs, which includes the infrastructure, roof, and systems such as heating, ventilation and air conditioning, she said.
As publicly released in February 2011, the first payment is $26.7 million, and this will not change. Thereafter, 70 percent of the annual payment is locked, and 30 percent could be impacted by variables such as inflation and insurance.
It should also be noted that if the facility does not meet the standards specified over the 30 years of the contract, penalties could be applied to the payment that reduce the cost.
Ultimately, she said, payments will be covered through a combination of fees and cost-cutting.
Government agreed in 2008 to pay one percent above inflation for five years to contribute towards the obligations of the new facility, and BHB committed to cost-cutting measures. The last increase will be in the coming fiscal year. As BHB is less than half the healthcare market, essentially the five percent increase in fees over the five years would result in approximately a three percent increase in premiums related to the new hospital by 2014.
Alongside annual payments, BHB is planning for increased operating costs and some staffing changes, mostly in support areas, such as housekeeping. BHBs financial position is complicated by the introduction of memoranda of understanding which have essentially capped the amount the hospital can earn, as well as the downturn in the economy. However, there is a sustained pressure on cutting costs and making services as streamlined as possible. BHB is confident this can be done. During this fiscal year, BHB undertook contract reviews, a zero-based budgeting process and introduced a number of cost-cutting measures. Additionally, plans are already being made to consolidate all administrative office spaces back into the old KEMH building once clinical services have transferred to the new facility, reducing the need for external rental costs. This will save us several millions of dollars.
A BHB Transformation Office is tasked with maintaining efficiency and quality, she said.
It is important to note that a more efficient service can also improve quality when planned for and managed appropriately, Ms Symonds added.
For example, BHB is going to separate the long-term care patients who are left in acute care beds as they cannot be safely discharged. By consolidating these patients into separate wards, you can focus the higher costs acute care healthcare professionals and services on the people who are truly sick. Alternative level of care services can be more nurse-led and relaxed, which improves quality for those patients and reduces the cost of the hospital stay.
Another way of controlling costs is to manage utilisation, by following evidence-based best practices. Rather than undertaking unnecessary or duplicate testing, physicians use care pathways to test appropriately — whether this is blood or urine tests, or diagnostic imaging tests such as CT.
It should be noted, however, that while hospital costs have increased over the last five years, the percentage of BHBs market share has not changed dramatically, indicating that all costs across private and overseas sectors — which is about 60 percent of overall healthcare costs — are also rising.
It will take a system-wide solution in order to truly control costs.
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