Who owns the Madrid region's hospitals?

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Built by the Madrid regional government? Actually, no it wasn't. Not one of the nine public hospitals that have been inaugurated since Esperanza Aguirre became Madrid regional leader were built by the regional government. It didn't build them and it won't run them - at least not alone. In fact, it doesn't even own them. The nine hospitals belong to construction companies, real estate firms and a health services company owned by banks and a venture capital fund based in Luxemburg. And they will remain in their possession for the next three decades. In return for building and operating these facilities, the companies receive an annual fee for the provision of public health services. When the concessions expire in 30 years, ownership and management will be transferred back to the region. In the meantime, it is just a tenant.

It wasn't always like this. The state of public healthcare has changed dramatically since Aguirre arrived in the regional seat in 2003. The new premier inherited a healthcare system of more than 20 hospitals, all of which were 100-percent public (apart from the odd state-subsidized institution, such as the Jim¨¦nez D¨ªaz Foundation). Doctors, nurses, orderlies and administrative staff were government employees. Today, nearly one in three hospitals in the region is either partially or entirely privately run. The government ensures the provision of public healthcare, but it has wiped its hands of management.

Two models of private management are being used. The main difference between them is who has responsibility for the employment of specialized staff, including doctors and nurses. Under the private finance initiative (PFI) model, the concessionaire is responsible for everything, apart from paying the medical staff - doctors are still civil servants. In the public-private partnership (PPP) model, the private company is responsible for all aspects. This type of concession works in the same way that toll roads are operated - the government's role is limited to paying for services rendered.

Of the nine hospitals in question in Madrid, seven are operated under the PFI model and two under the PPP model. On Wednesday, the Spanish king and queen inaugurated the third PPP regional hospital, the King Juan Carlos in M¨®stoles. Healthcare group Capio Sanidad, which is owned by private equity firm CVC Capital Partners, spent 232 million euros building and equipping the new facility. The regional government has yet to spend a cent. But payment will begin soon, and continue for the next 30 years. The region's 2012 budget has destined 76 million euros to this end. In a few months, a fourth PPP hospital will open in Collado Villalba. At that point, the healthcare of 800,000 residents of the region will depend on Capio - or in other words, the venture capitalists of CVC.

The owners of the remainder of the nine hospitals are primarily the construction companies that built them. Two of these, and the one services company involved, were cited in the G¨¹rtel corruption case, a kickbacks-for-contracts scandal that has involved a number of Popular Party figures.

Under Aguirre's leadership, public healthcare has changed dramatically

This is the case of Hisp¨¢nica, a construction company awarded the concession for the Tajo Hospital in Aranjuez along with two other firms in 2005. Bought by the Essentium Group in 2009, Hisp¨¢nica is now known as Assignia Infraestructuras, which owns 40 percent of the Aranjuez hospital. The consortium that was awarded the concession for Infanta Leonor Hospital in Vallecas includes construction company Begar, with a 34-percent share. Begar's owner, Jos¨¦ Luis Ulibarri, was indicted in the G¨¹rtel scandal. Furthermore, Begar and another company in the consortium, Ploder Uicesa (which boasts a five-percent share in the Vallecas hospital), are both in bankruptcy. The third company with G¨¹rtel ties (through one of its directors) is health services provider Sufi. Its temporary consortium (a vehicle known under Spanish law as a UTE) with construction giant Dragados won the tender for the Puerta de Hierro-Majadahonda hospital. The services company was later acquired by Sacyr.

"One of the risks of the new centers within the context of the crisis is a possible bankruptcy of the UTEs behind the concessions, which may threaten the provision of healthcare services to a large chunk of the population," explains Marciano S¨¢nchez Bayle, a spokesperson for the Federation of Associations for the Defense of Public Healthcare. "When business is good," he adds, "the profits are private, but when there are losses, public money is used to buoy the companies only to have the new profits once again diverted to the private sector."

The regional health department denies that these swings of fortune place the concession or the provision of services at risk. But what if all the partners in a concession fall? "I don't believe that this situation will occur," says Jes¨²s Vidart, who oversees the ministry's financial management unit. He says the contracts used in the concessions contain mechanisms to prevent the concessionaire's bankruptcy.

"If one of the members of the UTE files for bankruptcy, this does mean the concessionaire is affected," adds Paloma Alonso, academic director of the Higher Program for Healthcare PPPs at IE Business School. The partners in the UTE form a new company with its own legal identity, separate from the activities of the mother companies, known as a special purpose vehicle (SPV). "The debt of the participating companies does not affect the SPV," says Alonso.

Alberto de Rosa, director of Ribera Salud Group, which owns Torrej¨®n hospital in Madrid and another five in the Valencia region, argues that the problems that have riddled public-private hospitals in the UK do not mean the model is faulty. "That would be like saying that the need to rescue one government is a sign that no government works," he says.

The United Kingdom now has more than two decades of experience in PFI hospitals. Last month, David Cameron's government approved an emergency fund of 1.5 billion pounds to meet payments to seven PFI hospitals in an attempt to prevent the loss of patient services. "British trusts are having trouble making the backed up payments for PFI facilities; the size of the financial burden they have inherited has begun to frighten members of parliament there, and now they are wondering if it was worth it," says Jos¨¦ Ram¨®n Repullo, head of Healthcare Planning and Finance for the School of National Healthcare. A 2008 study by the University of Manchester assessed the cost of the first 12 PFI hospitals in the UK, concluding that they were 60 million pounds more expensive each year than they would have been if they had been publicly funded.

The government has effectively wiped its hands of management

So why were these models chosen for the construction of nine hospitals in Madrid? "Centers of the size and complexity of that of Majadahonda need between seven and 10 years for construction and start-up as opposed to the 28 months [needed via the PFI model]," explains IE's Alonso, pointing out that all the hospitals were delivered on time and within budget. "The reasons," she continues, "are varied - the desire to build and equip a hospital when there are no funds to invest, to be able to borrow money without that debt appearing on the European accounts, or simply to be able to inaugurate an 'express' hospital before the four-year term of a government ends. The politician gets the credit for the inauguration and the costs are passed on to future politicians and generations. It's a temptation that is hard to resist."

The authority on healthcare management lists different motives for using the fully private model, which works on a per capita payment scheme. "That's another thing. In that case, provision is privatized, and it reflects the political preference behind the argument that everything private is, by definition, cheaper than that which is public," she says.

This type of model is "the cheapest for the government," adds Ribera Salud's De Rosa. He says it represents a 25-percent saving over centers that are directly managed, but admits that this calculation comes from information provided by the health departments of Madrid and Valencia, regions that have opted for the system.

Regional health chief for the Madrid region Javier Fern¨¢ndez-Lasquetty offered additional data this week while giving an account of the new hospitals' activity so far. The cost per capita of these hospitals, according to the councilor, averages 437 euros compared to 734 euros for the rest of the hospitals. But "everyone knows these figures are false," says S¨¢nchez-Bayle. "The cost per bed of the new hospitals is on average 100,000 euros more per year than that of conventional hospitals." A study carried out by the UGT labor union of government budget estimates found that the cost per bed of the new hospitals was significantly higher than those of conventional hospitals. Of the new hospitals, the one with the lowest cost per bed - Henares Hospital, at 335,000 euros a year per bed - was roughly equal to that of the most expensive publicly managed conventional hospital (the Cl¨ªnico at 338,000 euros a year per bed).

Lasquetty's calculations are, in any case, simply the result of dividing cost by patient number, and do not take into account the sophistication of the procedures performed in each case, such as transplants and specialized surgeries. This variable is not included in the calculations of the health chief, the regional department admits. "In Spain, public hospitals have 420 average-sized beds, while those under the new management structures have 211. In Madrid, this difference is even greater," says Repullo. "High specialization, teaching and research are concentrated in the former, while the latter supports the hospital network, but often drains its resources and transfers the most serious and costly cases its way. [Conventional hospitals] have been operating for much longer and have more experienced staff; others have the distinction of being new."

Proponents of public-private collaboration, such as Ribera Salud's De Rosa, insist that their hospitals are more efficient. "We offer greater accessibility, shorter waiting times and more personalized treatment," says the group's director. According to the company, 94 percent of patients are unaware if they are being treated at a public or private hospital. "People are more concerned with how a center is managed than with who manages it," he says.

Ribera Salud, which was originally owned by Bancaja and Caja del Mediterr¨¢neo (CAM), with a 50-percent stake each, is now up for sale. Bancaja's share is in the hands of Bankia, while that of CAM (which was taken over by the Bank of Spain) is now owned by Banco Sabadell. Capio is negotiating the purchase of Ribera Salud. If it is successful, it will acquire its main and almost exclusive competitor in the business of the private management of public healthcare concessions. "It could create a situation of oligopoly, in which it would be able to impose its conditions on the market," warns S¨¢nchez-Bayle, who is also concerned with a possible bankruptcy or that the "mother company, a private equity firm, may lose interest in the provision of healthcare services."

It's difficult to know if privately managed hospitals work better than conventional ones or not, as the region's health department has released little comparative data, only patient surveys. Penalties or payment reductions for failure to provide services are not made public. This is a lack of transparency that must be remedied, according to a report by PWC entitled 10 Pressing Issues in Spanish Healthcare in 2011. The report recommends that findings on the efficiency of both types of hospital be put "at the disposal of citizens so that they may be consulted."