NSW Northern Beaches Hospital Deal

One of the largest public health projects in NSW has been slowly releasing more and more information about the total cost of the project. Like some other public private partnership arrangements this project is a combination of capital investment and operating service payments.

The Northern Beaches Hospital project was belatedly revealed to the public to cost $2.14 billion cost, up from “over $1 billion” in December 2014. See: http://www.brisbanetimes.com.au/nsw/revealed-the-real-2-billion-cost-of-privatised-northern-beaches-hospital-20150501-1mxgqd.html

A lot of information was shrouded in commercial secrecy and the Health Minister has indicated she did not get involved in the financing.

So let’s have a look at what the good taxpayers of NSW may be getting.

From public information, the hospital development itself will cost $600 million. The NSW government plans to chip in some $400 million in adjacent transport improvements. A big assumption is that this is actually delivered on schedule and budget.

That basically handles the capital investment side of the equation and may leave $1.14 billion for the hospital services NSW is purchasing up to 2038 from the consortium.

Let’s say the hospital is operational in 2018, so there is a 20 year service period. According to some reports, 488 public beds will be provided.

This means the average daily cost per bed – occupied or not – is around $320 over this period.

Across the NSW health system the average cost per occupied bed was around $1,400 per night in 2012-13, based on information given to the NSW Auditor General.

See: http://www.audit.nsw.gov.au/ArticleDocuments/358/10_Managing_Length_of_Stay_Hospital_Readmission_Appendix_Three.pdf.aspx?Embed=Y

So this looks like it might actually be a good deal even at low occupancy rates. But since we do not know the basis of the service payments we simply cannot be sure.  The consortium get to make some extra cash on the side by selling private services through the site.

At about this point I can hear a lot of health economists scream.

So let’s recognise there is a lot of detailed, good work being done by the Independent Hospital Pricing Authority (see: http://www.ihpa.gov.au/internet/ihpa/publishing.nsf) that is putting evidence-based price signals into the hospital funding system, allowing funding arrangements to move from block grants to activity-based funding payments.

Over time this should help improve the efficiency of our hospital systems.

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