"NAFTA HEALTH CARE ITS TIME "

PRIVATE INVESTMENT IN HEALTH CARE

By Melvin J. Howard

In many developing countries, there is a lack of corporate infrastructure to manage investments. As a result, many private equity funds have either developed alliances or partnerships with companies that have the capacity and skills to manage investments or have set up new companies to oversee the investment. In some cases, venture capital companies have become directly involved in running the investment activity. In this sense, venture capital investors can play an important role in developing the extent of the private sector.

Many governments have investment corporations linked to international development ministries that provide support for the development of the private sector. In Norway, Sweden and Finland, the international investment companies (Norrfund, Swedfund and Finnfund) have no involvement in health care investments. In the UK, the CDC (previously the Commonwealth Development Corporation) has health care as a defined priority for investment although it has not made any investments yet. Canada has experiment with public private partnerships but has yet to develop a roll for pure private investment in health care.

The Netherlands Development Finance Company is one of the investors in the MIGA project in Brazil. The US Overseas Private Investment Corporation (OPIC), is an independent federal agency that mobilises American capital for investment in developing countries. It has provided expertise for the Texas Pacific Group, which is linked to Newbridge LA, an investor in Latin America.

THE FUTURE OF THE PRIVATE SECTOR

The pattern of disease is changing in many regions of the world. Infectious diseases are still major causes of mortality and morbidity in many low income countries, such as HIV/ AIDS, tuberculosis, malaria. Non-communicable diseases are major sources of mortality and morbidity in high income countries but are also becoming more widespread in low income countries. This will have major implications for health care demand and treatment in many countries. CHD/CVD and cancers require often expensive diagnostic tests and high technology treatments. The rise in mental health problems is also becoming a global health issue which will increase the demand for mental health services.

Demographic change is also taking place in many countries with a growing ageing population. In many African countries where the incidence of HIV/AIDS in the adult population is between 10-30%, the older population is unlikely to grow as rapidly as in other regions of the world. For expanding older populations, there will be an increase in non-communicable diseases often characterised by long term chronic conditions which require long term health care.

The changing patterns of mortality and morbidity and a growing older population, will influence the demand for health care. There will be a growing demand for high technology diagnosis and treatments for non-communicable disease as well as more labour intensive care for long term chronic conditions often delivered in people’s homes. This will impact on the existing costs of health care as well as the skill mix required from health care workers. In many high income countries these changes are already leading to debates on the future financing of health care and the future role of public and private provision.

The main individual risk factors linked to the three main non-communicable diseases are smoking, diet, physical activity, alcohol. Preventive health strategies for non-communicable diseases tend to stress more individually focused measures such as changes in diet and increased physical exercise. These provide opportunities for private companies to provide products and services, especially in provided in partnership with health insurance companies with the aim of reducing demand for services. However factors that also influence the determinants of health, such as improved housing or increased income, are also important for reducing demand for health care services but are the responsibility of non-health sectors. They are not necessarily a source of future services for private health care companies.

Demographic changes and resulting changes in the financing and demand for the health care have implications for the private health care sector and investments will be influenced by the interpretation of these changes. Investment companies often seek information on which to base their investments through private and non-profit research and consultancy centres that specialise in developing visions of the future. Futures research is used by the business sector to generate views about how economic, social, political and environmental trends will interact to shape future societies. Examples of three global consultancy groups that have contributed to developing “health futures” are outlined below.

The healthcare practice of one of the largest global consultancy groups PriceWaterhouseCoopers (PWC) published a report “HealthCast 2010 Smaller World, Bigger Expectations” in 2000. It was aimed at PWC health care clients. The report was informed by a survey of policy makers, health system managers, health care employers, doctors, insurers and medical suppliers in US, UK, Finland, Spain, Netherlands, Germany, France, New Zealand, Canada and Australia about future health trends and the implications for the health care industry.

The survey results showed that the respondents felt that the amount of money spent on health care was growing in most developed countries because societies were getting wealthier. Technical advances were perceived as being able to contribute to cutting the costs of health care but were more than offset by an ageing society, increased health consumerism, biotechnology and medical advances.

Survey respondents also felt that increasing costs of health care took away money for spending on other consumable goods. Although health expenditure was considered to contribute to economic growth, decreasing health expenditure was also seen as the key to economic growth. The prospect of an increasingly older population with a decreasing working population is viewed with some concern. The impact will be strongest between 2010 and 2040.

The report also felt that the two major systems of health care financing – health care insurance through an employer and other systems where people have a right to health care (whether from taxation or social insurance) will converge in the future.

One of the major conclusions drawn from this survey was that the customer would play a key role in health care demand in the future. Interestingly, this was seen as potentially problematic. Quality, efficiency and customer satisfaction will be key to accessing capital. Resources need to be allocated for health workers to be retrained to deal with more consumers. Insurers must stress prevention because early detection and intervention will decrease costs.

The report shows that there are several underlying assumptions about the private sector view of health care futures. More demanding consumers and increased consumer spending on health care are seen as opportunities but also challenges for the future.

The Institute for the Future, a U.S. futures thinktank, together with A.T.Kearney (the management consultancy arm of EDS) organised the Healthcare Future Forces Leadership Roundtable in Venice, Italy, held in June 2001. It was the first of what will be an annual by-invitation-only gathering of top business leaders representing segments cross the healthcare industry spectrum, as well as top academics in the field. The three themes considered were:
• Assessing the impact of care customisation on the delivery and management of healthcare
• Assessing the impact of consumerism on the management and delivery of healthcare services
• Assessing the impact of information and communication technology on all aspects of the healthcare system.
A third source of futures thinking for the private health care providers and investors is the Institute of the Americas. A meeting in July 2000 organised in collaboration with the International Finance Corporation (IFC) looked at ‘Financing Private Health Care in Latin America’. The supporting paper raises a number of issues and challenges about investing in Latin America. These issues provide a useful insight into the type of concerns voiced by the private sector about investing in health care. These relate to:
What are the appropriate criteria for equity financing?
Are the lending terms of IFC and other financiers consistent with the nature of the business?

What are the best strategies for obtaining reliable data?
How should investors determine what infrastructure (especially IT) needs to be created or imported and what elements of local health systems be allowed to continue?
How significant is the training component (to create good management skills) and how can this training be provided?
Other questions deal with specific barriers to investing in medical equipment/devices, telemedicine and pharmaceuticals and surgical facilities. The focus is on the delivery of high technology, curative care and not on locally based primary health care. The questions raised by the Institute of the Americas suggest that investing in Latin America and Canada is seen as risky because of the lack of information available about existing health care companies or lack thereof and the nature of the health care business. There are also doubts about the efficiency and effectiveness of the current delivery of health care. Health care investors also raised questions about the lending terms of IFC.


CONCLUSIONS

The links between private equity investments and health multinational companies are strongest in Latin America and to a lesser extent in Central ,Eastern Europe and Canada.
Health care investing in developing countries is seen as involving considerable financial risk. Different regions can be characterised by varied financial capacities of the private sector, which limit investment unless holding companies or health management companies are set up to spread the risk. Investments in holding companies are a first step to developing this capacity. Private equity investors and some multi-national companies are involved in this type of investment.

The International Finance Corporation invests in health care projects and is involved in extensive development of the private health care sector in many countries. Some regions are characterised by different types of investments, e.g. holding companies, although direct hospital investments are the most common type of IFC investment.

Centurion will seek links with private equity and venture capital in IFC designate countries ready for private sector involvement

Centurion to invoke extraordinary enforcement provisions of NAFTA investment rules to challenge Canadian health care policy and law

Unfair trade practice against American health care companies wanting to enter Canada.

By Melvin J. Howard


After communication with US Federal government officials and intermediaries it was decided that Centurion would file a lawsuit under NAFTA and the WTO trade agreements. This investor state litigation is to bring some uniformity and consistency with provincial health care agencies throughout Canada. With Alberta’s Bill 11 for health care and the recent Supreme Court ruling in Quebec in favor of private health care insurance for residents of that province. As well as a number of provinces contracting out their health services including Public and Private Partnerships. There are serious inconsistencies throughout Canada in terms of the Canada Health Act and Provincial health care programs. Centurion will seek to be compensated for damages for barriers to entry and expropriation. As we have experience in the past even when following provincial guidelines and rules in terms of running private surgical facilities. Municipalities or city officials can and have put up numerous roadblocks such as zoning and by law requirements that is politically motivated instead of merit base. Its like saying yes you can no you can’t in the same sentence i.e. plausible deniability as far as the government is concerned. Centurion thus pursuant will file suit under specific investment services as follows:



· National Treatment (Investment and Services)
· Most Favored-Nation Status (Investment and Services)
· Performance Requirements (Investment)
· Senior Management and Boards of Directors (Investment)
· Local Presence (Services)



Article 1102: National Treatment
1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

2. The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded, in like circumstances, by that state or province to investors, and to investments of investors, of the Party of which it forms a part.



In other words, Canada must extend the very best treatment it accords its own citizens and companies to US and Mexican investors on a non-discriminatory basis. Article 1202 establishes the same rule for Foreign Service providers. Therefore unless explicitly excluded, National Treatment would require that foreign investors and service providers be given the same rights and opportunities that Canada makes available to domestic health care service providers and investors.



Article 1106: Performance Requirements
1. No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, conduct or operation of an investment of an investor of a Party or of a non-Party in its territory:
2. to achieve a given level or percentage of domestic content;
3. to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory.
Article 1106 prohibits government regulation that would condition the right to conduct business with obligations to support the local economy.



Article 1110: Expropriation and Compensation
No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except:
a. for a public purpose;
b. in a non-discriminatory basis;
c. in accordance with due process of law and Article 1105(1); and
d. on payment of compensation in accordance with paragraphs 2 through 6

Article 1205: Local Presence
No Party may require a service provider of another Party to establish or maintain a representative office or any form of enterprise, or to be resident, in its territory as a condition for the cross-border provision of a service.
Article 1107 imposes similar constraints with respect to the composition and nationalities of Senior Management and the Boards of Directors.



Reservations
No exception for health care is included among the general exceptions to NAFTA set out in Chapter 21. This contrasts with the approach taken for National Security, Taxation and Cultural Industries which are given broad exemption from the application of NAFTA rules. Rather, to protect health care policy and law from trade disciplines, Canada elected to list only certain health care services as reservations, and then only to some of the provisions of Chapters and 11 and 12.



Dispute Settlement
The provisions of Section B of Chapter 11 provide foreign investors with the rights to invoke international dispute resolution processes to enforce their rights under the Chapter. Accordingly, under Articles 1121 and 1122 foreign investors of a NAFTA party have a right to sue national governments for any alleged breach of investor rights they are granted by the trade agreement. The disputes will be decided, by the international arbitration panel under international law and according to procedures established for resolving international commercial disputes. This is just summary of the arguments we will be making at the tribunal.

CENTURION TO CHALLENGE CANADA UNDER NAFTA

IS CANADA FAIR WHEN IT COMES TO HEALTH CARE UNDER NAFTA

BY MELVIN J. HOWARD

NAFTA has been in the news lately because of Presidential elections in the United States. Indeed Canada's federal NDP Leader Jack Layton was in Washington on Monday to press for changes to the North American Free Trade Agreement.

Layton spoke at the 'Take Back America conference, a gathering of activists, elected officials, business owners and policy makers.
He his calling for changes to NAFTA, particularly for new labour and environmental standards. His message was 'let's work together and make trade deals that are sustainable and fair. He further goes on to state the Democrats in the U.S. can count New Democrats in Canada as allies in the vital effort to improve upon NAFTA and help build a modern 21st century North American economy that is prosperous, fair, and sustainable for today's families and future generations."

But is it fair when it comes to open markets for health care in Canada. I am of the opinion it is not for the last 5 years we have spent millions of dollars. Trying to build the largest private surgical center in Canada. The $154,000,000.00 facility was to be state of the art with major partners in the health care field to participate in the administration and financing of the project. We have had major bankers, investors, lawyers from major firms in the US come to Canada to do their due diligence. Not only did we have the financing in place. I also had commitments from top international surgeons to relocate to Canada. Only to jump hurdle after hurdle of governmental red tape, road blocks and stall tactics. The fact that I was American and that an American company was behind the project only made things more frustrating. The fundamentals of the project did not matter the focus was more on I am an American. So this will be an American style health care project. There are key elements of NAFTA that calls for fair treatment when it comes to trade it’s called the national treatment rule. It demands that Canada treats all investors, goods and services from Mexico and the U.S. no less favorably as those from Canada in the same circumstances. For example, if a provincial government required the contracting out of publicly funded surgical services, but only to Canadian -owned private facilities, this would put U.S. service providers and investors at a disadvantage. The second key element is called the expropriation provision it’s included in NAFTA’s Chapter 11 on investment. Section 111 0 states that the Canadian government must provide compensation for any measure expropriating an American or Mexican investment. This provision also applies for any measure that is tantamount to expropriation (or nationalization). If U.S. investors enter the Canadian market during periods of experimentation with private health care insurance or delivery, the expropriation provision means that provinces may find themselves compelled to pay compensation to those investors if the provinces want to remove or restrict the investors right to operate in Canada at a later date. Canada negotiated two exemptions in 1994 to try to protect outside investors from entering the health care market this is discriminatory. After spending thousands of man hours and costly delays. I am announcing on the behalf of my shareholders, my investment bankers, and partners. We are officially challenging Canada under the investor state provisions Chapter 11 of NAFTA. I will not get into specifics here but we have a strong case. At the very least my investors should be compensated for the costly delays and unnecessary red tape. We have a serious trade dispute that has been brewing for sometime I am calling on the tribunal to finally do something about the unfair practice. It seems to me you cannot cherry pick what you want in NAFTA then turnaround and say no you are not allowed to enter this market because it is untouchable. This will be the first challenge under NAFTA when it comes to health care. It is time to address this issue that has been unfair for so long.