Page 579 - Week 02 - Wednesday, 24 February 2010
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MR SMYTH: I table the following paper:
Calvary Public Hospital—Analysis of proposed purchase of Calvary Public Hospital, prepared by Sinclair Davidson, dated 28 October 2009
Even though I have only got seven minutes remaining, I might read as much of Sinclair Davidson’s appraisal of the proposal as I can into the record. He goes:
On 28 October I posted on the ACT government’s purchase of the Calvary Hospital.
The ACT government are buying the Calvary Public Hospital in Canberra. The Calvary Hospital is owned and operated by the Little Company of Mary Health Care Limited who subcontract health services to the ACT government.
The motivation behind all of this is a bit suspect. The ACT government claim that this is all about making a greater investment in public health and about building up the value of their own balance sheet. But it is not clear that governments are in the business of maximising their own balance sheet values—government is about providing services to citizens. So what is really going on here?
What makes this case all the more interesting is the snow-job the ACT government is pulling over the numbers. The ACT Treasury has produced an analysis of the costs of three alternatives. The status quo is that the ACT government continue to subcontract with the Calvary Hospital. The second option is to buy the Calvary Hospital and the third option is to build a new hospital.
Contrary to what they imply the ACT Treasury calculations do not support the purchase of the Calvary Hospital—rather they support the status quo or base case. The argument that the ACT government should maximise the value of assets on its own balance sheet is quite simply nonsense. It is the function of government to provide services to its citizens and to do so in the most cost-effective manner. The ACT Treasury analysis shows that cost-effective manner to be the maintenance of the status quo.
The ACT Treasury have provided four charts in their analysis (at page 3).
Three of these charts are entirely meaningless. It is not clear what ‘Operating Impact’ is, nor is it clear what ‘Balance Sheet Impact’ is measuring. The change in Net Assets is also unclear. After all we might expect that the difference between the two options ‘Buy’ and ‘Build’ would be the current purchase price of the buildings under the ‘Buy’ option. Looking at the graph, Chart 3, this appears to be (approximately) the case. The only graph that makes any sense is the Chart 4. That graph shows something called a ‘DCF’ and ‘Cashflow’ without explaining the difference between the two. However, it is clear that the Base Case (the current situation) has the better spending outcome for the ACT government. In other words, for a given level of health outcomes, the cost to the ACT government is lower with the Base Case than with either of the alternatives. Of course, it could be argued that the Base Case might not offer the same ‘given level’ of health outcomes—but if that is the case, then the entire analysis is fatally flawed because it does not compare like with like.
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