Chapter

CHALLENGES IN USING PUBLIC PRIVATE

PARTNERSHIP AS A POLICY TOOL IN HEALTHCARE

Maurya Dayashankar and Lai Yu Hung Allen

Lee Kuan Yew School of Public Policy (LKYSPP),
National University of Singapore (NUS), Singapore

INTRODUCTION
Public private partnership (hereafter PPP) is considered as a new mantra in today’s public
management and public administration reforms. PPP is being considered as one of the most
important policy tool in improving performance of public sector service delivery and it is not
surprising that, it finds an important place in the health policy documents of many developing
countries like India, Bangladesh, and Cambodia etc. PPP’s are promoted on various grounds,
as an ideological diversion from the sterile debate of state Vs Market; as a tool to address
practical problems faced by public sector (private sector cannot be ignored and is widely
available and used by both poor and rich especially in developing countries1) as well as on
theoretical grounds (superiority of the hybrid organizational arrangements compared to either
hierarchy or spot markets).
The proliferation in training programs, manuals and guidelines on PPP, in economic as
well as social sector reflects the enthusiasm of this tool among policy makers. At the same
time, Akintoye (2003) argue that the term is abused, as it is used to include any kind of
interaction between state and non state entity, far from a true partnership spirit. In spite of
numerous conceptual and theoretical difficulties, (as it will be discussed later), it is promoted
extensively as a tool to reform service delivery in developed as well as in developing
countries. Skeptics consider this tool as a disguised way of promoting privatization and point
towards the shaky foundation, based on which these new inter-organizational arrangements
are being promoted. How does the concept of PPP fares especially in health sector, and what
challenges it faces especially in a developing country perspective?
This essay reviews challenges encountered in using PPP as a policy tool in healthcare
sector. The focus is general but it draws mainly from experiences in developing countries
context. This essay also makes a modest attempt to succinctly summarize the literature on
PPP from various theoretical disciplines, and focuses not only on theoretical level but also
addresses the concerns of practitioners. The challenges reviewed can be broadly categorized

1
In at least 19 countries in Asia and 15 countries in Africa –including many of the most populous nations
(Bangladesh, China, India , Nigeria, Pakistan ) –more than half of the total health expenditure are private out of
pocket transactions.( G. lagomarsino 2008). Also in many of the Asian countries these private sector appears to
be growing (Limwattananon Supon 2008)
2 Maurya Dayashankar and Lai Yu Hung Allen

at two levels – theoretical and practical. At the level of theory, the challenges can be further
sub-categorized into three subcategories -those at the conceptual level, at the level of theory
formulation and at the level of framework. The challenges at the practical level are those that
are faced by practitioners in using PPP as a policy tool. These challenges are subcategorized
into challenges at the level of policy design, at the level of implementation and finally at the
level of evaluation. A specific section is included that discusses challenge of using this policy
tool specifically in developing country context. Each section also includes discussion on how
to move forward to overcome these challenges.
The essay is organized as follows. After a brief discussion in this section, next section
includes the emergence of PPP as policy tool. The section three and section four respectively
discusses challenges at the theoretical and practical level followed by a conclusion in last
section.

2. EMERGENCE OF PPP AS A POLICY TOOL

The origin of these new organizational arrangements (PPP) is underpinned in the
ideological movement, we witnessed in the last century, from heavy handed state involvement
to predominance of market mechanisms, followed by emergence of the third paradigm which
focuses on interdependence, networks and polycentric governance.
Failure of Keynesian policies led to reforms of public services under the label of new
pubic management, moving from a heavy handed state involvement to neo-liberal approaches
with enthusiasm for private solutions, during Regan and Thatcher Era. Inspired by the
privatization success in the some sectors specifically infrastructure, International Financial
Institutions (IFI) also pushed privatization vigorously in the other sectors of the economy
including social services by late 1980’s. This ideological movement was also supported by a
host of theoretical work coming from Public Choice theory (Nishkanen 1971), Transaction
Cost Economics (Williamson 1985) and Property Rights (Jensen and Fema 1983).
This ideology has strongly influenced public sector reforms as evident from the fact that
all over the world in health sector, from first world to third world, the healthcare reforms were
found to have similar ideological elements (neo-liberal economic ideology) and similar
concerns (i.e. bringing efficiency) (Twaddle 2002). Critiques criticized these reforms
for ignoring context and peculiarities of the sector (Nayar 2001), and being based on ideology
without consideration of local situation especially existing institutional structure (Ramesh and
Araral 2010).
Failures of both state-led as well as market-led reforms have led to a resurgence of a third
paradigm in the debate between market and state i.e. of polycentric forms of governance
(Ostrom 2005) and intra-organizational structures like partnerships.
A number of factors have been identified for emergence of this new form of governance
in variety of literature right from public policy , public administration, new institutional
economics, healthcare and others. Though terminologies differ some of the key factors
identified are common across variety of fields. Most commonly discussed factors driving
adoption of these inter-organizational arrangements are (Rodal and Mulder 1993; Linder,
1999; Osborne and Gaebler 1992). (i) globalization, (ii) speedy spread of communication and
information technology, (iii) neo-liberal politics and policies, (iv) financial constraints and
 Challenges in Using Public Private Partnership as a Policy Tool in Healthcare 3

budget deficits faced by many countries, (v) complexities and interdependence of issues (vi)
rise of NGO and idea of active citizen involvement.
Apart from the ideology and theoretical reasons as discussed above, these policy tools are
also promoted on the basis of pragmatic grounds. In the domain of healthcare the pragmatic
reasons most commonly cited for use of this policy tool is scarcity of public resources
(Pinstrup-Andersen, Jaramillo and Stewart, 1987), limitation of new public management
reforms (Figuras and Saltman 1997), need for private sector development (Bennett and
Tangcharoensathien 1994), availability of extensive of private sector (IHSD and LSHTM,
2000; Smith, Brugha and Zwi,2001), and higher utilization of private sector by poor
(Castro-Leal, Dayton,Demery, and Mehra, 2000). In developing country context, it is argued
that working with private sector will not only improve private sector performance but will
also improve public sector performance, as public sector physicians often “moonlight” in
private sector (Ferrinho et al 2004). Therefore there is dual benefit in working with the private
sector as this will also improve the performance of the public sector. Prata et al (2005) argue
that some of these experiments like social franchising have greatest potential to deliver public
health products and services as this model increase accessibility and quality of the services at
the same time shifting the financing burden from public to private sector without serious
inequities.
Widespread use of the term PPP in policy and program debates in health sector at local,
national and international levels is generating a growing consensus that large private sector in
developing country is not going to go away on its own and not in short time any sooner, and
therefore given the fiscal constraints experienced by these countries, debate on public or
private is futile; public sector must learn to better engage private sector and partnership is
one approach to do so.

3. CHALLENGES AT THE THEORETICAL LEVEL

The challenges at the theoretical level can be divided into three sub -categories –
conceptual ,theory development, framework development- to avoid overlaps and bring more
clarity. First, at the conceptual level, challenges includes issues in conceptualizing the term
PPP itself and its meaning. Secondly, at the level of development of theory, challenges
include issues in theorizing about PPP. The third category is at the level of framework that is
guiding principles that can be used to determine use PPP as a policy tool in a given context.

A. Challenges at the Conceptual Level

The challenges at the conceptual level basically deal with variauos ways the term PPP is
defined and interpreted by academics and practitioners leading to multiple interpretations at
different levels that has resulted into confusion and contradictions in the theoretical literature
on the notion of PPP.
The practitioner as well as academic literature uses PPP, as an umbrella term to describe
different types of relational arrangements between public, for-profit and not-for-profit
organizations. These arrangements range from simple coordination efforts to more complex
arrangements varying on a number of dimensions like purpose, structure and complexity.
4 Maurya Dayashankar and Lai Yu Hung Allen

Thus it is not uncommon to use the same term with different meanings. Linder (1999)
outlines the eight different meanings in which term PPP has been used from a name game2
to a very substantial instrument of public policy3. The debate about the definition and
conceptual issues regarding what exactly is PPP abounds in the literature, and thus it is not
surprising that it is considered as one of the most ill coordinated literature (Weihe 2010,
Wettenhall 2008).
The confusion over terminology its meaning and use, is not only in academic literature
but practitioners also differe in their interpretation and there is lack of consensus even on the
basic terms such as what constitutes private sector (Hozumi et al 2008).
Addressing the above challenges require, moving beyond a simple terminology of PPP
which describes the intent of forming relationship to a more nuanced terminology which
basically characterizes the nature of relationship. One example is typology developed by
Pallavi (2005 cited in A Venkat Raman, James Warner Bjorkman, 2009) that spans six
different types of claims associated with the PPP on the basis of nature and depth of
relationship between public and private sector. There is need for analysis of various
dimemnsion of relationships in PPP and developing typologies characterizing these different
dimensions leading to a theory based classification of PPP that reduces confusion created by a
nuber of typologies developed various scholars using different yardsticks.
Another issue in the use of the term PPP is the strong positive connotation associated
with it. Term ‘Partnership’in the practitioner oriented literature is generally regarded as an
inherently positive innovation, ignoring the large risk associated with it . This biased view of
partnership might be one of the reasons for its uncritical spread (Ritcher 2004).

B. Challenges at the Level of Theory

The theoretical literature in PPP suffers from many gaps in explaining why these
organizational arrangements form; how they reconcile the inherent differences between public
and private sector; how property rights should be allocated in these relationships and how
they need to be managed?
The present theorizing in PPP mainly relies on Transaction Cost Economics (TCE) which
considers incentives as the only reason for organizations to form these arrangements, ignoring
other motivations, emphasized in sociological and network management literature. On the
other hand sociological and network management consider PPP as a distinct organizational
arrangement but TCE considers it temporary mode of arrangement.The sociological and
management lietarture is more consistent with the practice as we see large number of long
term PPP. The present enthusiasm for long term contracts in healthcare (Prekar 2007) is
consistent with this theoretical advancement. There is clearly a need for PPP theorizing to
move beyond TCE and integrate sociological and other literature from the management field.
Secondly the PPP literature doesn’t yet have an answer on how these intra-organizational
arrangements can address the inherent differences between public and private sector. The
present advocates in both academic and practitioner oriented literature argue for shared and
joint authority and equal status between partners (Vinning and Boardman, 2008; Yescombe,

2
See Glendinning, 2002; Brinkerhoff, et al 2004; Grimshaw et al, 2002 etc.
3
This stream considers PPP as a new governance mechanism for example see Hodge and Greve 2007, 2010;
Wettenhall 2008, Weihe 2008.
 Challenges in Using Public Private Partnership as a Policy Tool in Healthcare 5

2007) as a designing rule for PPP . Joint authority and equal status will lead to better results if
there is a goal consensus between partners. But in PPPs , public and private sector differe
considerably in their culture , orientation and motivations. Provan and Kenis (2007) have
shown that in case of lack of goal consensus, lead organization based network structure
where one organization leads others is more successful compared to other network structures .
Equal status and shared authority in case of divergent goals is expected to lead to an impass
and therefore a lead organization with dominant status will be a better to a structure.
Thirdly there is also need to incorporate greater range of management strategies for
managing PPPs. Both the academic and practitioner oriented literature4 in PPP identifies
certain best practices for managing partnership, like competitive selection process, contract
design, shared responsibility, payment mechanism, performance management, sharing of risk
and responsibility. Most of practitioner oriented literature focuses strongly on alignment of
incentives and generally there is under emphasis on softer pats of PPP, like building trust, role
of values etc. The management strategies need to be different, as more fluid types of
relationship structures would require more fluid type of management strategies. Thus there is
a need to avoid both extremes of sole dependence on either pecuniary interest or on fairness
norms as management strategies in case of PPP.
Fourth, at present the theoretical developments in PPP provide contradictory
prescriptions. For example most scholars emphasizes the need for building trust (Brass et al,
2004; Zaheer et al, 1998) and the role trust plays in reducing transaction cost (Klijn et al.,
2010), but there are contradictory views regarding relationship between contract and strust
and whether contracts should be used in a more trust based relationship. Some scholars argue
that contracts reduce trust in a relationship (Vangen and Huxham 2003) and therefore need to
be avoided, whereas on the one hand the mainstream literature (especially coming from TCE)
strongly advises to have as complete contract as possible to reduce opportunism. Moving
forward in this theoretical challenge would require interdisciplinary collaboration and better
communication between scholars working in silos in various disciplines.

C. Challenge at the Level of Framework

Framework suggested by Preker and Harding (2000) is one of the most common
frameworks used to guide public private partnership in healthcare. Preker and Harding (2000)
based on TCE and Agency theory, advocate a make or buy decision grid for various health
care goods and services once the decision to finance a good or service is taken by
government. The decision grid is applicable to both the product market as well input market,
using two characteristic of good or service, measurability and contestability. According to the
framework, when a particular product or service has low measurability and low contestability
then it should be retained under hierarchical control whereas if the product has high
contestability and high measurability it should be left completely to market. In between these
two extremes, government has option to buy strategically.
This framework is based on two charachetrstics of goods or service- contestability and
measurability. It seems that framework assumes that measurability of a good or service is

4
See for example Yascombe 2007, Vining and Boardman (2008), in healthcare, Ramiah and Reich, (2006); Batley
and Mcloughlin, (2010); Lasker et al (2001); Johannes, J (2002); Osborne S. P. (2000); Hammer Buse and A.M.
(2007); Loevinsohn, B., and A. Harding, (2005) and Preker, Alexander S. (2007) A Venkat Raman, James
Warner Bjorkman. 2009; Vining, A.R. and Anthony E Boardman, 2008.
6 Maurya Dayashankar and Lai Yu Hung Allen

completely dependent on the nature of service, as if, it is inherent in the character of the
service; but we argue that measurability of a product or service does not only depend on the
nature of service, it also depends on the capacity of the purchaser to measure it. For example,
electronic road pricing has made it possible to control road congestion, but in Asia only
Singapore and Hong Kong managed to implement it, though technology is easily available
and cities in some of the developing countries like India and China, face much difficult
traffic issues than Singapore and Hong Kong. This highlights how capacity rather than nature
of good or service, determining measurability. Thus the framework could be improved
further by including other variables for example- capacity or institutions, that are critical for
implementing strategic purchasing in healthcare.

4. PRACTICAL CHALLENGES IN USING PPP AS A POLICY TOOL

Practical challenges in using PPP as a policy tool can be categorized at three levels -
policy design, implementation and evaluation.

A. Challenges at the Level of Policy Design

PPP design is not always a win- win situation: The contemporary PPP literature,
eulogizes PPPs as a win-win situation but this is not the case always (Bush and Hammer
2007; Mills, 1995; Dudkin and Valila, 2005; Loevinsohn and Harding 2004). In case of
healthcare, market failures are much more pronounced than other commodities (Hurley
2000), and opportunities for win-win situations are limited. A good example is case of
primary and secondary care. In primary care and secondary care for example Delivery care or
Sexual Transmitted Diseases, it is much easier to write a contract as compared to tertiary care,
as treatment protocols can be easily standardized. This there services can be easily contracted
out and monitored by public sector. Given the demand for these services public sector is more
interested to provide these services but private providers are more interested in providing
specialty diagnostic and clinical services then low revenue primary care. The specialty
diagnostic and clinical services have much higher asset specificity, information asymmetry,
as well as uncertainty and thus in case of these services there are higher chances of
opportunistic behavior by private sector. Thus a PPP design is not always a win-win
situation.
Similar situation is observed in case of global PPPs. Private sector is not interested in
diseases like Visceral Leishmaniasis and Chagas Disease even though they affect millions of
people (Bush and Hammer 2007). These disease are most suited for a public- private synergy
like but they have been ignored by these global PPP arrangements.
Secondly, even when a highly efficient and superior technical quality service is delivered
through the PPP arrangement, it may lose its effectiveness if the PPP arrangement leads to
fragmentation of the service . In healthcare, effectiveness of healthcare service highly
depends on the integrated nature of care. Using PPP generally requires moving services to
different private providers leading to fragmentation of care.
Table 1. Performance of various PPP Models
 Challenges in Using Public Private Partnership as a Policy Tool in Healthcare 7

Accessibility Equity Efficiency Quality Capacity Special

requirement attributes
Contracting Y ? (? ) (?) High Technical Waters et al.
efficiency (2003), Liu etal
and capacity (2004) ,
issues Loevinsohn and
Harding
(2004).
Private ? High For financial Pollock 1999,
Finance resource 2009
Initiative constraints
Social Y ? Y Y Moderate Availability
Marketing and so
access
Social Y ? ? Y High Quality Patouillard E et
Franchising improvement all 2007, WHO
2007,
Stanworth et al
2007, Knut
Lo¨nnroth et al
2007
Voucher Y Y ? (?) High Best in Ensor 2004,
targeting Richard et al
2010 A.K.
Mushi (2003).
Public- Y ? ? ? Moderate Venkat Raman
Private 2009
Mix

Notes: Y = Supportive evidence available, no evidence that contradicts ; ?= Evidence not supportive;
(?)= Mixed results.

Fragmented healthcare services however efficient and high quality in production (technical
efficiency), are not cost effective as fragmentation of care severely undermines their
effectiveness.
Another challenge that emerges in using PPP at the policy design stage is the limited
evidence-base on performance of PPPs. The limited evidence suggests that PPP performance
is mixed. Table-1 summarizes the growing evidence base of the PPP in terms of four
commonly used evaluation criteria in the literature. As can be seen from the table most of the
PPP designs have been able to improve accessibility to the services and products, but their
impact on other criteria’s is mixed.
One of the most commonly used policy tools under the banner of PPP in healthcare is
contracting and there also evidence is mixed in nature. There is clear indication that it
stimulates focus on quantity, quality and cost of care, improves operational efficiency by
improving competition, increases consumer choice, improves resource efficiency and
improves accountability in use of public funds (Ashton 2004). At the same time there is
considerable evidence that argues that it has failed to generate sufficient competition as
anticipated ( Venkataraman, 2009; Mills and Broomberg 1998) has high transaction cost (
Mills, 1995; Dudkin and Valila, 2005) doesn’t lead to efficiency as the efficiency gains get
captured by the private sector (Loevinsohn and Harding 2004) . Xun & Ramesh (2009) argue
8 Maurya Dayashankar and Lai Yu Hung Allen

that linking payment to performance as done in case of contracting may not materialize,
because of difficulty in specifying and monitoring quality as it has been observed in case of
contracting of dietary services by public hospitals in Bombay, where contracting not only lead
to lower cost but also poor quality (Bhatia and Mills 1997).

B. Challenges at the Level of Implementation

The key requirement for success of PPP (especially with reference to contracting) is that
they not only need to be well designed but also well implemented in order to have the
intended effect. Proper implementation requires a supportive institutional base (Ramesh and
Araral 2010) to avoid unintended consequences (for example change in orientation of non-
profit sector) and adverse effects like corruption. Lack of institutional support like credible
commitment, will drive away competent private sector as they are not attracted if there is a
risk that public sector can opportunistically change the rules of the game in subtle ways
(Spiller 2009). This leads to lack of competent bidders and in absence of sufficient
institutional support, most of the bidders of the project are cronies of the ruling elites.
Second issue in implementing PPP is lack of capacity to manage this relationship,
especially in developing country bureaucracy. The public sector needs to develop capacity to
manage risk sharing, as private sector is generally unwilling to share risk (Vinning and
Boardman 2008) and tries to shift risk to public sector, increasing its contingent liabilities.
Third, in general the literature identifies strong role of trust for better implementation of
these organizational arrangements, (Gulati 1998, Klijn et al., 2010 Argnoff and
Mcguire,2001; Brass et al, 2004; Zaheer et al, 1998; Goldsmith and Eggers , 2004; Provan
and Kenis, 2005; Mcguire 2006; Milward and Provan, 2006), but in many countries private
sector and public sector harbors deep suspicion about each other in terms of motives, methods
and objectives (De Costa and Diwan, 2008; Vinning and Boardman, 2008). There is still very
little knowledge base on what increases trust and how it can be built suggesting need of
research on how trust is generated in intra-organizational arrangement.
Another challenge in implementing PPP is ensuring accountability, especially in service
related PPPs, most common in social sectors like healthcare. Though there is considerable
experience in ensuring accountability in infrastructure projects, but these accountability
measures are applicable to infrastructure related PPPs, which generally have a dyadic
relationship, than to social sector PPPs which generally have a fluid structure involving
multiple organizations. Social sector poses some additional challenge in ensuring
accountability in service based PPPs because of difficulty in measuring and monitoring
quality, which plagues most of the healthcare services (Prekar and Harding 2004) and
creates a challenge in writing effective contracts and measure performance.
Many generally follow some form of vertical accountability but vertical accountability is
hallmark of hierarchical bureaucracy, implying that it needs to be modified when applied to
PPP arrangement. But how vertical accountability could be modified and exactly what forms
it should take remains debated. Research in ensuring accountability in PPP arrangement is
critical to prevent the abuse of this tool where PPP is used to seek rents (Loevinsohn 2008).
Finally implementing PPPs requires managing unintended effects of PPPs. In partnership
with non profits organizations, one of the common unintended effects is risk of change in the
nature of non-profits. Non-profit sector plays an important role in society and as non-profit
 Challenges in Using Public Private Partnership as a Policy Tool in Healthcare 9

sector gets increasingly involved in delivery of public sector services under the term PPP,
there is likelihood that this may have an impact on nature and character of non-profit sector as
they lose their independent voice and non-partisan character. The advantage of non-profits is
their commitment to communities to which they serve rather than to their financers and this
needs to be preserved.
Another important unintended effect of PPPs is, considering PPP as a retreat from
building the capacity of the public sector in delivering efficient and quality services. Such
orientation of policy makers in using PPP need to be changed.

C. Challenges in Evaluation

There are number of challenges in evaluating PPP, and thus limited scope of learning
from experiments. These challenges, as discussed below needs to be addressed if the policy
making on PPP aspires to become evidence based.
First there is lack of conceptual clarity regarding various terms used in PPP and how
different these terms and models are distinct from each other. Secondly there are a number of
variations in each model further limiting its comparison. These two reasons limit scope of
synthesizing existing research and conducting meta-analysis.
Third, at present most of the research studies have focused their analysis, either on equity
and\or accessibility impact of these PPP arrangements. Very few studies have used efficiency
and quality criteria in analysis. There is very few cost benefit analysis of these service
delivery models visa via pure public sector service delivery or pure private sector service
delivery.
Finally, long term impact of these service delivery arrangements on health system
remains unexplored, raising questions on long term impact of PPP arrangements on the nature
and characteristic of public and private sector.
Addressing these evaluation issues can prevent uncritical spread of these arrangements at
the same time it will prevent the painful learning process in future, due to their adoption
without clear evidence. Addressing these challenges will require investing resources in
research, by changing the present mind set which considers PPP as an inherently positive tool
and partnership as a desirable phenomenon in all circumstances.

Specific Challenges in Use of This Tool in Developing Country Context

Types of experiments under the banner of PPP in healthcare differ considerably in

developing and developed countries with respect to motive, purpose and design features. In
developing countries, PPPs are used, to address poor availability, accessibility and service
responsiveness of public sector and also as a targeting mechanism (Bennett and
Tangcharoensathien, 1994). In the developed world, the argument for private sector
involvement is basically based on resource availability, efficiency and service responsiveness.
Forms of PPPs as seen in developing countries are also different than those in the developed
world. For example in European countries, type of PPPs that are being implemented are
,contracting out (Service contracts, management contracts, construction and maintenance and
equipment contracts) concessions, private financing initiatives, divestiture etc (Nikolic and
10 Maurya Dayashankar and Lai Yu Hung Allen

Maikisch 2006). On the other hand, in developing countries, in addition to contracting out,
many other initiatives are being implemented like social marketing, accreditation, franchising,
training and regulation which are not found in developed countries. The motive behind these
initiatives is to capitalize the accessibility and popularity of the private sector providers
(Smith, Brugha and Zwi, 2001) and using PPP’s as a potential targeting mechanisms to reach
poor (Hanson 2007). This difference in purpose and design precludes learning of the lessons
from developed countries which have more experience of implementing PPP arrangements, as
compared to developing world.
As highlighted earlier, the key issue in PPP (especially with reference to contracting) is
that they need to be, not only well designed but also well implemented in order to have the
intended effect. In addition successful implementation requires a sound institutional support.
This is a significant constraint in the developing countries context. Healthcare markets in
developing countries suffer from a number of market and institutional failures. For example
in developing countries markets are thin and lack ability to compete (Bennet et al, 1997);
competition in most cases is on the basis of geography because of asymmetry of information;
there is another alternative of strengthening government services; the existing judiciary and
grievance redressal mechanisms are poorly performing and overburdened; and quality of
services in the private sector is poor. These are some of the concerns which still remain
partially answered (Bennet, et, al., 1997; Bennet, et, al.,2005).
One of the important features of a well designed PPP is to ensure accountability of
various players. Ensuring accountability depends on three factors- contracts, capacity to
manage contract and availability of well functioning private sector. First, PPP’s where
contracts are used, have better chances of ensuring accountability as contracts include at least
some formal commitment on output, risk and responsibility shared between parties.
Second effective contracts require a bureaucracy, well versed in designing monitoring
and enforcing contracts. In many cases PPP’s are being formed without assigning explicit
responsibility. For example Venktatarman (2009) in a review of case studies of PPP in India,
found that in eight out of ten contracting projects, the outcome indicators for private partners
were not explicitly stated. Similarly in an in-depth review of three contracting-out projects,
Bhatt et. al., (2007) found that capacity for contracting out, monitoring and evaluation were
inadequate in the public sector officials, and in some cases management was simply not
available.
Third, condition is that, private sector should be well functioning and efficient, if any
efficiency gains need to be achieved by partnering with them. In many developing countries
private sector is very much unregulated, has unethical practices and is not found to be
efficient. For example in India, private healthcare providers prescribe more drugs and
investigations than required, receive and give commission for referring patients
(Macroeconomics and Health 2005). A poor performing, inefficient and exploitative private
sector, under poorly designed and monitored PPPs will further become opportunistic and
exploit public sector resources.
The developing countries have yet to become competent in giving a consistent level of
basic performance. The hierarchical management structure provides a form of accountability
that can ensure a basic level of performance (Weber 1968). Even these hierarchical
structures, considered as one of the best forms of governance structure to curb opportunism
(Williamson, 1985), are not effective in curbing corruption in public sector in many
developing countries. PPPs have a much weaker accountability mechanism and therefore
 Challenges in Using Public Private Partnership as a Policy Tool in Healthcare 11

their use poses considerable risk as they can provide more opportunities for opportunistic
behavior. This implies that jumping ahead to PPP arrangement without strengthening basic
competency in management will most likely lead to more corruption and rent seeking. This
doesn’t mean that private participation should be completely ignored but it implies that
private participation should be encouraged slowly along with building capacity step by step
and PPP should not be considered as a magic formula to address all problems faced by public
sector.

CONCLUSION
PPP as a policy tool has been used very enthusiastically in a number of developing
countries. The uncritical spread of these arrangements needs to be controlled to avoid
disappointment we have experienced in reforms which were based simply on ideology like
Keynism and Privatisation. “One size fit all” or having one single type of institutional
arrangement, is being questioned by a number of scholars (Ostrom 2005), highlighting need
for diverse institutional arrangements grounded to local context. New frameworks which
focus on the appropriateness of institutional arrangement on the basis of type of good\service,
actors and their interest and existing institutional arrangement (Ramesh and Araral 2009)
provides a new thinking on analysis of institutional arrangements.
More research is needed to understand role of PPP as a policy tool especially in
developing country context. Simplified frameworks like that of Prekar and Harding (2000)
need to be improved by including other variables like capacity and existing institutional
arrangements to serve as a better tool . More research in theoretical areas like generating
typology of PPP is needed before any applied research (comparative impact analysis of
different models) can be done.
Developing countries should first consider building capacity of their bureaucracy in basic
management and PPP should be restricted on experimental basis where context permits until
public sector becomes capable of managing private sector and PPPs. 

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