Wednesday, November 26, 2008

Globalisation, privatisation and heal...



Globalisation, privatisation and healthcare

article publiƩ le 19/03/2002



The paper distinguishes between globalisation, which may have a negative development impact in any sector, and privatisation, which specifically damages public services. Various channels are identified of globalisation influencing the privatisation of healthcare, including international institutions, government policies, and the activities of multinationals themselves.






 


 


 


Globalisation, privatisation and healthcare – a preliminary report


 


Executive summary


The paper distinguishes between globalisation, which may have a negative development impact in any sector, and privatisation, which specifically damages public services. Various channels are identified of globalisation influencing the privatisation of healthcare, including international institutions, government policies, and the activities of multinationals themselves.


· The WTO provides two kinds of threat to health services. The first is the potential threat of GATS, which could force more privatisation in future. The second is the effect of TRIPS in supporting pharmaceutical profits at the expense of health needs.


· The World Bank has a major impact on privatisation of healthcare services through its projects, which often have greater privatisation as a stated objective. Other parts of the World Bank also support privatisation: the direct investment activities of the IFC, and the investment guarantees of MIGA. Other international organizations such as the WHO and OECD also influence privatisation. 


· The various regional trade zones of the world have rules which may facilitate privatisation: healthcare policy changes in Alberta Canada, for example, could become a ‘one-way street towards privatisation of the health sector’ because of NAFTA. Procurement rules can also affect the introduction of private capital into public services. 


· Government decisions to introduce healthcare privatisation have been and are being made in a number of developed and developing countries. These include service provision and also privatised insurance schemes like HMOs.


· The marketing activities of MNCs themselves are central to the processes of privatisation and globalisation. This marketing may involve international agencies and governments, as at the annual AIHS conference.


The main multinationals active in health so far are listed in four categories: insurance, hospitals, clinical/labs etc, support services. 


Some general comments can be made from this preliminary review:


· The World Bank is a very significant force driving privatisation in healthcare, both through projects, investments, and institutional support for the multinationals. 


· WTO and GATS provide a threatening background against which privatisation in one form or another is already happening in a wide range of countries .


· Trading and procurement rules of organisations like NAFTA and the EU may impact on privatisation of public services.


The picture of multinational behaviour by private healthcare companies is not as coherent or as expansionist as in other sectors.


· Many of the USA groups are weak internationally 


· The private hospital companies have not been very successful so far at expanding internationally. 


· Cleaning and catering support services exhibit the ‘classic’ pattern of multinational dominance worldwide, at least in developed countries. 


· The insurance companies, as insurers or with HMO schemes, are also expanding. 


· There is multinational expansion in clinical diagnostic or therapy services, such as dialysis, blood products, MRI scans, in a number of countries


· There is little sign of vertical integration of private healthcare companies, or of any consistent synergies with other services.


· Privatisation of services may be established first before globalisation


¨  Abbreviations




















































EU


European Union


GATS


General Agreement on Trade in Services


HMO


Health management organisation (managed care)


IBRD


International Bank for Reconstruction and Development (‘core’ part of World Bank)


IFC


International Finance Corporation (part of World Bank)


IMF


International Monetary Fund


MIGA


Multilateral Investment Guarantee Agency (part of World Bank)


MNC


Multinational company


MRI


magnetic resonance imaging


NAFTA


North American Free Trade Agreement


OECD


Organisation for Economic Cooperation and Development


PFI


Private Finance Initiative (UK)


PPP


Public private partnership


TRIPS


Trade-Related Aspects of Intellectual Property Rights


WHO


World Health Organisation


WTO


World Trade Organisation




1.  Globalisation, privatisation and public services


 1.1  Globalisation and public services


There are many issues connected with globalisation and its impact especially on developing countries. These include economic development in general, development of national industries, exporting of profits, labour conditions, environmental impacts, and erosion of power of democratic institutions. This paper is concerned with the impact on public services in general, and health services in particular.


In most sectors - e.g. agriculture, extraction, production and service industries - the problem of globalisation, in the sense of opening up these sectors to foreign capital, is its threat to national development. This problem is significant whether the industry is in local private or public hands, whether privatisation is an issue or not.


The worst effects of globalisation on public services - e.g. health, education, water, energy – on the other hand are specifically connected with privatisation: either through limiting social and economic solidarity in the financing of services, so undermining the basic principle of public services; or privatisation of service provision - once services such as health, education, transport, water, energy, waste management have been privatised, the provision is dictated by the requirements of profits.


Whether the private companies involved are national or foreign is arguably a less important issue for public services than the impact of privatisation on financing or service provision. For example, UK rail privatisation is just as much of a problem in the hands of a UK-owned company like Railtrack or Virgin as in the hands of a foreign-owned multinational like Vivendi. The same can be said in developing countries - the privatisation of support services in Malaysian hospitals to a Malaysian-owned company does as much damage to the public service as if it had been privatised to a multinational. There may still be negative development consequences of globalisation in these services, from the entry of foreign capital, but the distinctive damage to public services happens through privatisation.


The chart attempts to illustrate these distinctions. It presents a categorization of providers according to the corporate form, the sector in which they are owned, and whether they are nationally or internationally based. It can be used to identify various structural changes. For comments on the different elements in this chart, see Annexe A.


¨  Privatisation and internationalisation (see also Annexe A)





















































 


Public


 


Private


 


A


B


Corporatisation boundary


C


Privatisation boundary 1


D


Privatisation boundary 2


E


F


1. National


State


Munic-ipal


Corpor-atised


Not-for-profit


PPPs


Companies, PPPs


 


National health, universities


 


Trusts, municipal enterprises


NGOs, churches,


Joint ventures


National companies, partnerships


 


 


 


 


 


 


Globalisation boundary


2. International


WHO, World Bank


 


Foreign public enterprises


Internat-ional NGOs


Global PPPs


 


Multinat-ionals


 1.2  The channels of globalisation


There are a number of different channels through which the process of globalisation is driving the privatisation of public services. The most prominent at present is the role of the World Trade Organisation (WTO) and the liberalising drive of its agreement on trade in services. But the agents of change also include other international institutions – notably the international financial institutions (IFIs), the IMF and World Bank, and also bodies such as the WHO and OECD. They also include the rules of the regional trading zones, like NAFTA, or the EU, or Mercosur – these regions may already have in place trading rules and procurement rules that impact on privatisation of public services. And they include bilateral relations between countries, either through formal trade deals or through other international political relations, in which countries such as the USA may place conditions on other countries which concern privatisation or liberalisation of services.


Most of all, there are the constant activities of the corporations themselves, engaging in individual and collective marketing of themselves, forming national and international political relations through a range of mechanisms including corruption and promoting both privatisation and trade liberalisation as inevitable historical trends.


The various elements are not necessarily co-ordinated, and there may be contradictions between these elements. In November 2000 Suez-Lyonnaise is reported to have sounded a cautionary note about GATS at a meeting discussing the position of EU and France in pushing for further liberalisation through GATS. The company is said to have commented, “We are very careful with the terminology "liberalism". Therefore, we want to preserve the public service in the framework of the liberalisation, in the long term it is the only way we can ensure the profitability of our investment, by doing so we keep the confidence of the population in our investment and in general we know if we liberalised one sector it does not work. That is why we are developing public/private contracts." [i] Water privatisations are happening already, profitably, through agreements reached between the company and governments. An aggressive push for liberalisation of trade rules, which are not at present an obstacle in most countries, could just succeed in creating greater political opposition to the process.


Finally, at the end of the chain are the decisions taken by governments to privatise or liberalise particular services. Such decisions have already been made in many countries, in healthcare as well as other services such as water, and are being discussed in others.


The rest of this paper looks at some of these factors, and ends with a brief survey of internationally active healthcare companies.



2.  The WTO threat to public services


2.1  WTO – the potential impact of GATS


The World Trade Organisation (WTO), through the General Agreement on Trade in Services (GATS), is creating potential extra pressure for privatisation of public services, especially healthcare. There have been a number of detailed analyses of the potential impact of GATS in general [ii], on health services in particular, [iii] from the perspective of international trade unionism, [iv] and from a development perspective.[v]


The key element in GATS is for countries to make ‘commitments’ to open a sector to trade. Countries are not obliged to open sectors, but can do so: a number of countries have already done so in some aspect of health services. [vi]


So far the impact of GATS is potential rather than actual: “the GATS is a framework agreement that is not yet in application”[vii]. But the WTO is working to increase the sanctions for not offering to open sectors, by insisting that states must prove they are not using anti-competitive policies to protect a sector: “The legal tests under consideration would outlaw the use of non-market mechanisms such as cross-subsidisation, universal risk pooling, solidarity, and public accountability in the design, funding, and delivery of public services as being anti-competitive and restrictive to trade”.[viii]


 2.2  GATS exemptions – government services and procurement


At present GATS rules contain two clauses which exempt much of the public services area. The first is the direct supply of services by government, as long as the services are “supplied in the exercise of governmental authority” and “supplied neither on a commercial basis, nor in competition with one or more service suppliers”. The second exemption – in article XIII - exempts government procurement, which includes contracts issued by public authorities for services of all kinds e.g. hospital cleaning. Between them, they mean that inhouse services and contracted-out work are so far not covered by GATS.


But these exemptions have been explicitly targeted for removal or amendment by business. For example, in 1999 the European Services Network (ESN) proposed [ix] that the procurement exemption should be removed: The absence of multilateral rules for procurement is probably the most important non-tariff barrier affecting the services sector. The GATS 2000 global talks provide the right tool to improve the situation either by deleting Art. XIII of the GATS or by extending the Agreement on Government Procurement to all GATS member states.”


The ESN also proposed a tightening of the exemption for direct services: A major obstacle to the international fair competition is that public authorities try to get around public procurement regulations by using so-called "in-house services" and therefore feel that by this they are not required to follow public procurement laws. Federal, regional and local governments must be strictly advised that any body governed by public law is obliged to follow public procurement regulations. This includes …. any association formed by one or more of such authorities or bodies governed by public law…”


These areas may also be subject to pressure under procurement rules of governments or trading zones, such as the EU. See below for an example of how the EU procurement regulations and provisions on concessions may threaten to extend the portion of public services which may be forced open to private sector bids.


2.3  TRIPS


The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which concerns international patents, is administered by the WTO, but is separate from the GATS. TRIPS can also exacerbate the problems of public services, especially in healthcare, because it reinforces the rights of patent-holders such as the pharmaceutical companies. This makes the provision of drugs more expensive than it would otherwise be – and so boosts the revenues of the pharmaceutical companies, at the expense of other healthcare expenditure, as well as making some needed medicines - notably anti-AIDS drugs, for example – prohibitively expensive.[x] When South Africa and Thailand recently announced that they would grant compulsory licences to make anti-AIDS drugs at low cost, the US threatened them with trade sanctions.[xi]



3.  The influence of other international institutions


 3.1  IMF and World Bank: general conditionality


Structural adjustment programmes (SAPs) introduced under the IMF carry a large number of conditions. In some cases these conditions explicitly refer to the privatisation, or commercialisation of public services. In Tanzania, for example, increases in charges for healthcare and education were required as a condition of the SAPs; in Ecuador the conditions included increases in energy prices[xii], in Ghana water privatisation was a condition both for an IMF restructuring package and as a general condition of World Bank assistance.[xiii]


 3.2  World Bank IBRD projects


Specific loans from the World Bank may involve, and be conditional upon, privatisation of the provision of the relevant services. This is now a commonplace in energy (recent examples include Uttar Pradesh in India, and Kenya) and water, where loans to Palestine, Ghana, and others have required privatisation of the water service.[xiv] The imposition of these conditions makes privatisation almost unavoidable, assuming that the country needs the World Bank loan to develop the service further.


The World Bank is currently operating over 200 projects which concern healthcare: a list is attached at Annexe B [xv]. Many of these projects are concerned, directly or indirectly, with restructuring of the public health system, and effectively require further privatisation. Three examples illustrate the ways in which private sector involvement, or private payment principles, form part of the agenda of these projects.


¨  Tanzania


The Bank has a $22m “Health Sector Development Program” Project in Tanzania which is concerned with reforming the whole health sector. It’s first stated goal, “Strengthening Service Delivery” includes improving quality and financial viability of services and will explicitly “promote private sector involvement in delivery of health services”.[xvi]


¨  Indonesia


The Provincial Health Project for Indonesia starts with the stated aim of establishing ”effective health sector decentralization” in two provinces, and includes later elements of a market-based approach including


“reviewing and piloting alternative insurance approaches” and “examining tax-based and other means of generating resources for health”.[xvii]


¨  Bulgaria


The project in Bulgaria is summarised as assisting the government to restructure and improve access, quality, and financial and operational sustainability – with no overt mention of private sector involvement. [xviii]


However, the detailed project appraisal document [xix] states that in the context of the Bank’s overall programme for Bulgaria, the key areas with respect to the health sector include “putting into place an efficient and sustainable health financing regime through an effective health insurance system and an increased role for the private sector; reducing structural inefficiencies by reducing excess capacity, strengthening sector management at the central and local levels, and promoting competition among providers”.


Hospitals will be corporatised not for greater efficiency, but for ultimate handover to the private sector, so the project aims: “to complete the re-registration of the health care establishments as trade companies in the light of creating opportunities for subsequent privatisation, with guaranteed preferential participation of doctors and dentists working within the health care system.”


 3.3  World Bank: International Finance Corporation (IFC)


The IFC is a division of the World Bank, which invests solely in the private sector. As such, IFC loans in public services are bound to be restricted to privatised ventures.


The IFC has a declared policy of being simply in favour of extending the role of the private sector in public services, including healthcare. Its chief executive, Peter Woicke, declared in September 1999:


“….IFC is also moving aggressively to invest in sectors where we believe there is substantial scope for more private sector involvement. This ranges from water and transportation investments to healthcare, education, and the environment. Not that we believe the private sector should replace the public sector, but private education and healthcare can and must compliment the public providers of these services. And a little bit of competition will create innovation in these areas, often desperately needed, and hopefully this will have a positive spill-over effect on badly run public service providers.” [xx].


IFC has a special director for health and education projects, Karl Voltaire.


The IFC’s investments are quite simple financial investments in private facilities, usually clinics providing various diagnostic and therapeutic services, or hospitals, to private patients. The IFC investments so far have been with partly local and partly multinational partners (based in Finland, Portugal, Spain, and Singapore).


¨  Russia


Most recently (January 2001), it has invested $2.1m in a new private clinic in St Petersburg, the New Medical Center (NMC). This is described as an “a one-stop facility for most preventive, diagnostic, and treatment services”, and is a venture of the private Finnish medical company Scanfert Oy, (see previous section). IFC’s press release is somewhat misleadingly titled “IFC invests to boost Russian healthcare system”: more accurately it states “IFC and its partners will be tapping into a potentially large market for high quality private facilities in Russia”. [xxi]


¨  Dominican republic


IFC has made similar investment in Dominican Republic (April 2000), where it invested US$22 million in four private hospitals, to be run by Spanish hospital company Hospiten, in tourist destinations of the Dominican Republic. The hospitals are said to ‘serve local residents’, but are basically an investment in the tourist industry: “the lack of quality healthcare services has been identified as one of the major barriers to the development of tourism in the Dominican Republic”. [xxii]


¨  Brazil


In Brazil, IFC has invested $6.5m, in Innovative Health Services (IHS), a $25m joint venture with a Brazilian financial company, ICATU, and a Portuguese company, Jose de Melo Group. I.H.S. is a holding company which will invest in companies operating “in areas such as home care, occupational and preventive medicine, information technology, prescription benefit management and hospital services and management”.


This has been done explicitly to cater for the growth in private health insurance in Brazil, because the insurance companies want more providers. IFC expects that the project will “create new options in healthcare, which may change the way such services are delivered in Brazil”. [xxiii]


¨  Nigeria


In Nigeria, IFC has invested twice in private clinics serving the private healthcare market. In 1999 it invested US$581,000 in Hygeia Nigeria Limited, a company headed by two local doctors, building five clinics and upgrading facilities at Lagoon Hospital in Lagos, to “extend the managed care coverage for the company’s existing and potential clientele” [xxiv]. In 1997 it invested $290,000 in the Radmed Diagnostic Center. [xxv]


¨  India


The IFC’s largest investment in health remains the $8 invested in a new private 270-bed hospital in Calcutta, India in 1997. The hospital is part of the Gleneagles chain, owned by the Singapore-based Parkway Holdings. [xxvi]


 3.4  World Bank: Multilateral Investment Guarantee Agency (MIGA)


Another section of the World Bank, MIGA, provides investment guarantees to protect mainly against political risk.


Together with the IFC, MIGA has provided two remarkable forms of support for the private leasing of medical equipment by a USA firm – DVI – into Brazil. DVI Inc is a company which finances the leasing of medical equipment, mostly MRI scanners, but increasingly treatment equipment such as lasers. Until 1993 it also owned hospitals, but now focuses exclusively on leasing it. DVI “provides equipment financing and related services for users of diagnostic imaging, radiation therapy, and other medical technologies”. DVI has expanded internationally and now does business in Europe, Asia-Pacific, and Latin America. [xxvii] For such a company, the growing Brazilian market for health care – whether private or public – provides major opportunities for growth business, but there remain currency risks and political uncertainty.


DVI has found the IFC and MIGA perfect business partners. First, the IFC formed a joint venture with DVI, called MSF Cayman, in the offshore tax haven favoured by money-launderers, the Cayman Islands. The role of MSF Cayman is to provide “cross-border loans and lease financing to private hospitals, clinics and physician groups throughout Latin America, for the purchase of state-of-the-art diagnostic imaging and radiation therapy equipment. The equipment includes magnetic resonance imaging (MRI), CAT scanners and other medical devices that are essential to the improvement of health care delivery worldwide … The developmental impacts of this project are significant particularly for cancer patients. It offers high-quality, cost-effective and more efficient alternatives to invasive surgery or travelling abroad to the United States or Europe for diagnosis and treatment”. [xxviii]


Then MIGA’s role was to provide insurance worth $75m to protect the investments against political risks, including the risk of restrictions being placed on the export of profits, and the risk of expropriation.


A year later, in 2000, MIGA provided a further boost to the venture. This time it provided $150m worth of guarantees against political risks for notes issued by MSF secured on future revenues from dollar-denominated contracts in Brazil. This insurance was worth a lot to MSF and DVI, because it raised the credit rating of the notes higher than the credit rating of Brazil itself – so international finance could be obtained by MSF at lower interest rates than they could have otherwise. Once again, MIGA claimed that this has development benefits: “This is a project with high development impact, which will help improve the provision of health care in Brazil.” [xxix]


 3.5  Other international organisations and treaties


The activities of other international bodies also have an influence on the privatisation process.


¨  WHO


The World Health Organisation (WHO) has an obviously influential role both as an advisor and actor in world health policy.[xxx]


¨  OECD


The Organisation for Economic Cooperation and Development (OECD), which exercises a powerful role as economic policy advisor, provider of comparative international economic information – including information on health services, and a growing regulatory role - although it abandoned its attempt to introduce a Multilateral Agreement on Investment (MAI). It is currently taking coordinated initiatives on bribery, offshore tax havens, and a code of conduct for multinational companies.[xxxi]


¨  Energy charter treaty


The Energy Charter Treaty, as its name suggests, applies specifically in the energy sectors. It protects multinational investments in energy in various ways, including an absolute legally enforceable right for companies to export profits wherever they wish, in whatever currency they wish.[xxxii]


¨  Regional trade zones: NAFTA, Mercosur, Asean, EU


Additionally, the various regional trade zones of the world have rules which may already affect trade in services between countries in each zone. These rules may make privatisation easier or more likely in various ways, for example by giving rights to investors anywhere in the zone to enter a market elsewhere.


In Canada, for example, the modification of healthcare policies in Alberta province could lead to a one-way street towards privatisation of the health sector because any attempt to reverse it could be met by investors demanding compensation under NAFTA. [xxxiii]


 3.6  Public procurement


Procurement rules can also affect the introduction of private capital into public services. This is an area which is currently exempt from GATS, but in the EU at least, is covered by European regulations.


The EU has a set of common procurement rules for public authorities in all member states. They have to be adopted as part of accession to the EU, and therefore have a similar impact on accession countries in CEE. The main common principle is that they require every public authority in Europe, local, regional, and national, to invite tenders from any undertaking in any country in the EU for all contracts issued by that authority.[xxxiv]


There are some conditions to these requirements: direct service provision is not covered, because the directives do not require compulsory tendering of any work carried out by the public authorities themselves, or their own undertakings, then there is no requirement to invite tenders from private companies. (The directives are thus the precise opposite of the tendering legislation that operated in the UK under the Thatcher government, which insisted on tendering if the public authorities planned to do work themselves, but allowed contracts to be given to favoured private contractors without any competitive tendering). Tenders can be submitted by any organisation in Europe, public or private. Authorities cannot discriminate against public sector undertakings, so a municipal enterprise in Italy can tender for a contract in Spain, for example.


The services directive has a list of the services covered, which have to be tendered. At present the list of services that have to be tendered includes services such as cleaning, catering, computing; but not health and social services themselves. In practice however there is a considerable amount of Europe-wide advertisement of health service work. The effect is that this work is open to both public and private sector bidders, nationally and internationally.


Two small issues could change the effect of procurement directives dramatically. One is the scope of the definition of direct services which are exempt – for example, the private sector have already tried to exclude from this services provided by a consortium of local authorities (a common feature in continental Europe). The more ‘arms length’ or corporatised the public sector body, the more vulnerable it could be to this kind of shift. The other would be an extension of the list of services to include health and social services.



4.  Governments and multinationals


 4.1  Government decisions


The introduction of privatisation is ultimately by government decisions, as a result of a mix of influences – national politics, international pressures, financial and economic crises or opportunities.


As in other policy areas, the dictatorship of General Pinochet in Chile was a pioneer in restructuring and privatisation of health services in ways which are now more familiar – decentralisation of authority, ‘targeting’ of services to the poor, introduction of private health insurance competing with public systems - but only for the money of the relatively rich and relatively healthy.[xxxv]


Privatisation of services has since been introduced into a number of countries (extensively in India, for example). In Europe at present there are proposals for further privatisation of services in both UK and Germany (under social democratic governments)[xxxvi]. In Malaysia, there has been systematic and deliberate privatisation of both hospitals and support services in recent years. Both supplies and support services were privatised in huge monopoly contracts, accounting between them for 22% of the health budget. Private hospitals and clinics have been expanding, and privatised health insurance has been proposed. [xxxvii]


 4.2  Managed care schemes


A number of developing countries, especially in Latin America - notably Brazil and Argentina - started introducing ‘managed care’ schemes in the last 20 years. A key aspect of these schemes is that they exert downward pressure on payments to hospitals, reducing risk and improving margins at the expense of health workers. [xxxviii]


In Brazil, these schemes have developed over a number of years, with over 700 existing today, served by a large number of private hospitals. Multinationals started to invest into this system in the late 90s, including Aetna (then USA-based, now part of ING) which set up a $375 million arrangement with Sul America; American International Group, with a $460 million investment in Unibanco Seguros; Cigna, in a partnership with Bank Excel and Golden Cross; and ITT Hartford Life in a joint venture with Icatu Seguros.


In July 2000 it was reported that the Baylor system in Texas established relations with Brazilian Groups Care and APPH to form Hospitalium, a joint venture with a R$250 million budget (in Brazilian currency) to buy Brazilian hospitals.[xxxix]


There is a similar picture in the Philippines, where a number of HMOs developed. Again, three US-based multinational insurers – United HealthCare, Aetna, and CIGNA – have invested in these managed care ventures. [xl]


 4.3  The problem of trade unions


Trade unions and organised health workers are often a specific target of health restructuring. In Mexico, for example, supporters of privatisation claim that the three biggest issues about introducing more privatisation were the effect on standards, of care, the risk-selection policies of insurers, and “the effect of shifting jobs from the control of the unions to the private sector” [xli]. The point is thus about increasing the vulnerability of health workers to exploitation, but also about reducing the political influence of the trade unions: the education union and social security workers union are described as “the last bastion of support for preserving the state’s role as corporate provider of health care”


 4.4  MNCs’ marketing - the annual global conference


The marketing activities of MNCs are central to the processes of privatisation and globalisation. From the companies’ point of view, many of the international agencies are in effect supporting these efforts, to the extent of forming g





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