The private sector plays a key role in health systems in low-income countries. As its services come under a public interest mission, it is essential for it to coordinate with the public sector. Consequently, investments can prove to be both profitable and have social impacts.
The private sector is a key player in health systems in developing countries. Private operators are generally more efficient and flexible than public services and are often the main healthcare providers in low-income countries. They account for over half of healthcare provision in Sub-Saharan Africa. The private sector’s adaptability and greater freedom of action allow it to develop innovative models to adapt to the needs and resources of the poorest communities, while maintaining the financial equilibrium of its operations.
Strengthen coordination between private and public players
However, ensuring equitable access to quality healthcare continues to be a public service mission that cannot be delegated to the private sector without supervision. In developing countries, where the health environment is weak and the bulk of the population is highly vulnerable, the risks are higher than elsewhere: exclusion from access to healthcare for poor communities, deterioration in the quality of healthcare and failure to observe sector standards, crowding out of public operators, which are supposed to fulfill missions that the private sector would not spontaneously take on, etc. Yet supervising a private health system – and thus ensuring the traceability of public funds that finance most of the sector – is a particularly difficult task in low-income countries. Indeed, the supervisory authorities have few resources and are faced with a whole host of small operators that are not immediately visible, sometimes informal and often themselves operate in difficult conditions that do not allow them to provide quality services. Developing countries do not offer an ideal environment for sustainable private sector growth: market limited by the low level of incomes, insufficient regulation, unfair competition from subsidized health systems, etc. In this context, private operators find it difficult to obtain financing and to structure themselves in order to reach a critical size and establish returns to scale.
Integrate social impacts in private sector investment programs
However, in view of their needs, low-income countries are certainly the most attractive markets for private investors. Their investments – if a good cooperation develops with the public sector – can sustainably improve healthcare provision. To achieve this, the private sector must innovate and tailor its models to the specific characteristics of these countries, in particular by seeking to make the Bottom of the Pyramid (BoP) segment, which forms the bulk of the potential market, profitable. This requires lowering entry costs in this segment, for example by pooling resources with the other operators and reducing structural costs. Cross-financing systems can also be established, whereby well-off patients indirectly “subsidize” the poorest patients. The social impact must not, however, be limited to making the most difficult to access segments profitable. Private operators can have a knock-on effect on the entire sector and contribute to supporting the public health systems to which they are accountable, since the sector continues to be substantially financed by public funds. Several forms of support are therefore conceivable: free treatment for the poorest patients, support for public operators via training activities or staff exchanges, structuring of the network of private operators in order to back up public action, dissemination of know-how, contribution to financing public health programs, etc. In this context, donors have a key role to play by promoting this cooperation and establishing innovative financial solutions to meet the growing needs of the sector.
Ed.: This opinion piece is taken from issue No. 17 of Proparco’s Private Sector & Development magazine
The opinions expressed on this blog are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.