Using private finance to reform healthcare – Taiwan Focus

The problems

Care services are provided by related government departments and non-profit organisations, but their poor efficiency and service quality have often been criticised. Below are the main issues encountered:

1. Administrative confusion

The social services system is afflicted with interference and with conflicting competitive-cooperative relationships, which need immediate attention. Responsibility for the following acts and laws resides in different administrative departments and agencies (see table one).

2. Insufficient resources for long-term care

Except for fully equipped long-term care services developed in government owned facilities, home-based care and community-based care cases have a severe resources problem. For example in 2010, 27,800 people used home-based care. This is 5,783 more individuals than in 2009 or a 26% increase over the previous year. Up until May 2011, only 69 community-based day care facilities had been established. This included 12 Dementia Day Care Centres (Ministry of the Interior, 2011). This amount is far below the 10-year policy schedule goal, namely one long-term care facility for each county/city/district.

Not only are there limited resources, but there is also an uneven distribution in remote mountainous areas and on the various islands. The goal to have these facilities established and operational by 2011 was missed.

3. Uneven quality in the private sector

Even though the number of private facilities is sufficient, the quality is not uniform and varies so considerably that it arouses mistrust and suspicion. It is indeed impossible to predict the kind of care that will be received from one facility to another.

The situation will only deteriorate with the aging wartime baby boomers. More facilities will be needed with more than basic service items. How to create people-oriented services that are diversified, life-fulfilling and dignified is the true challenge for these facilities.

4. Lack of manpower

Long-term care is a labour intensive service and with the increasing demand for services more trained nursing staff needs to be involved. There were 18,991 nurses in 2009. It is estimated that there will be between 48,569 and 64,300 in 2015, with 29,578 to 45,309 under a training programme.

However, with salaries below average, a relatively low social status and competition from lower-paid foreign labourers, it is difficult to keep a stable employment number and rate in the nursing industry. If this problem remains, long-term care policies will eventually become moot and there will be much more reliance on foreign nursing staff.

5. Problems with local government

There are several important differences among counties/cities in the implementation and operation of 10-year long-term care programmes. These differences are key to identifying the underlying reasons for the failure in both their implementation and operation and must be understood so that past errors are not repeated.

Using private finance

In view of Taiwan's rapidly aging society, there is a growing demand in the senior services industry. Social welfare resources and mainstream industry attitudes towards this expanding industry are lagging far behind and restricting needed development.

In order to comply with global privatisation, the Taiwanese authorities have aggressively introduced public resources to the process.

In addition to expanding social welfare on a vastly accelerated scale, the Ministry of the Interior, as dictated by the Executive Yuan, will actively assist all county/city regional administrations, through Private Financing Initiatives (PFI), employing a Value for Money analysis, in the development of state-owned Senior Citizens' Welfare Facilities.

The authorities have completed a Private Finance Initiative principle for future organisers to follow as public-private partnerships continue to receive attention. A PFI project for long-term care has recently been initiated in Pingtung county and Kinmen.

The different models

The concept of the private finance initiative (PFI) originated and was developed in the United Kingdom and was shortly after adopted by the Japanese and Korean governments. At present both Britain and Japan have the most sophisticated and successful PFI projects.

The private finance initiative concept is simply one whereby a private or non-government entity invests in public facilities and provides qualified services, while the government remunerates the private entity.

To promote private entities to participate in public welfare activities and public works projects, such as sewage systems and social welfare facilities, governments may provide inducements to encourage these private institutions to participate in PFI projects. The combination of the public and private sectors ensures more efficient and economical implementation and operation.

This also applies to build, operate and transfer (BOT) projects, which began in 1994 with the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects. BOT projects have non-governmental institutions establishing and operating public works on government-owned land. However, the BOT projects are limited to transportation infrastructures.

Since the year 2000 when the Act for Promotion of Private Participation in Infrastructure Projects was enacted, the government in Taiwan has expanded the scale of public works in which non-government institutions could invest. These now include non-profit entities, transportation, cultural undertakings, social worker welfare facilities and commercial recreation business facilities.

The implementation of the Farmland and Financing Act added more flexibly, providing preferential financing, tax exemptions, and making guidelines for public/private obligations and rights.

The next stage

The Taiwan government has been encouraging private enterprises to become involved in the long-term care services industry, utilising the UK model and experience. Having been involved in hundreds of BOT projects, we have the following insights and suggestions.

The introduction of care services into market mechanisms can elevate service efficiency and flexibility and allow expansion on a much larger scale and provide a larger variety of service. For example, Britain's Community Care Act amendments and revisions induced the establishment of short-time resident foster homes and promoted the increase of other related care services. Germany introduced a long-term care insurance system and competition among many of the small-class companies also motivated six major official welfare organisations to raise quality and efficiency. The main building blocks that need to be put in place are:

• Establishing a financial resource to provide available funding. Stable and institutional sources of funding are a vital condition for private investment.

• Japan's and Germany's long-term care insurance provides for various care item refunds. This expands market scale and gives growing space to private sectors.

• At present, global managed care service financing resources policies can cope with insurance fees, bonuses, taxation, and personal accounts.

Taiwan has promoted long-term care for years and has gathered suggestions from all sectors of the community regarding how to coordinate sets of measures with the National Health Insurance and the National Pension Insurance. This shows the community attaches great importance to the policy.

Promoting competitiveness

The UK government used several different methods at the same time to increase efficiency, which included:

• cutting down the budget to local governments, which disengages them from providing care service independently, and pushes them to support the BOT/PFI policies;

• encouraging volunteer departments to get involved by increasing budget subsidies;

• adding inducements to non-governmental corporations and giving full-refunds to those who choose non-government run nursing houses/senior centres;

• reducing the market competitiveness of government-run service facilities, which means no allowances will be rewarded.

The above methods are all for raising private companies' market competitiveness.

Taiwan should also adjust its policies to varying conditions. For the past few years, the authorities all have committed themselves to assisting non-government entities in handling care services' establishment and facilities, and transforming foreign labour manpower agencies to be locally stationed. As such, the authorities have shown their desire to stimulate competition in the industry.

Encouraging public-private collaboration

In order to enhance the evaluation mechanism and induce local government to collaborate with private care service companies, the UK government has used two main methods.

First, to control the local government's financing resources, the UK government applied the so-called “85% Act” on the subsidy to local government. This means that local government should have 85% of the subsidy applied to supporting private care service-related companies.

Second, the UK government has performed evaluations on ranking the social services made by local governments since May 2002, and passed the best value evaluation policy in April 2000. This helps to supervise local governments in putting the central government's goal into action and in reaching the estimated cost-effectiveness.

Above all, the aim is to induce local governments to collaborate with the central government's policies, to encourage private enterprises to run care services and also to avoid the previous local government's failures in the execution of policy.

Concerns

However, with these non-governmental run limitations, several issues of concern may occur.

As an example, there were quite a lot of problems with bad care service in the 1970s and 1980s in the US due to costs being cut to attain a marginal profit.

Additionally, opportunistic business practices led many to provide only selective service items with high profit margins and they failed to provide other items which had smaller profit margins. This eventually had a cream-skimming effect of only providing services to higher-income individuals and to those who could afford the services to the exclusion of lower-income individuals.

To avoid this problem, the Taiwan government has adopted legal and systematic methods to control the service quality and guarantee the users' rights, including setting up service standards, a third party supervision system, and an appeal system.

Additionally, balancing resources between facility and service-at-home, and adjusting service content according to users' actual needs are both areas where private companies should concentrate their efforts.

Bernice Fan, Liang & Partners

Frank Kung

Managing partner

Liang & Partners

In the area of construction, Frank Kung has represented contractors and owners in nearly 300 cases of construction arbitration, litigation and mediation affairs, including construction disputes regarding Highway No 1, No 3 and No 5, the Xyue Shan Tunnel and the Fourth Nuclear Power Plant. He also provides contractors, investors and companies with legal opinions on the prevention of construction disputes and on compensation issues. Frank has acted as a legal consultant on BOT projects between government and private institutions for nearly 14 years and has participated in many projects, such as the THSR, Taiwan Taoyuan International Airport, Kaohsiung Arena and Penghu Entertainment Resort Centre.

He is a doctoral candidate at the China University of Political Science and Law and received his LLM (1994) and LLB (1991) from the National Taiwan University. He is the chairman of the construction law committee of the Taipei Bar Association and the director for the Taiwan Construction Law Association.

Bernice Fan

Chief senior consultant

Liang & Partners

Bernice Fan is the chief senior consultant and head of the public construction department at Liang & Partners Law Office. Bernice advises on all aspects of long term care PFI projects, public construction projects, such as the High Speed Rail, national museums, cultural and educational facilities of national universities, Mass Rapid Transit and tourism and recreational industries. Bernice is the legal consultant for the Bureau of High Speed Rail, MOTC for business invitation, construction and operation of High Speed Rail BOT projects, for the Government Invitation for Private Participation in Airport MRT Project, for the Dapeng Bay National Scenic Area BOT Project and for the Kaohsiung E-City BOT.

She holds a LLB from Fu Jen Catholic University and an EMBA in Knowledge Management from National Taiwan University. She is also an adjunct lecturer of commercial law at National Taiwan University.