A question of credibility and national interest | Martin Balzan

Dr Balzan, I interviewed Health Minister Chris Fearne in March 2015 – before the VGH group was named as the eventual investor – and back then he said that: ‘Our concept is that the health service has to find another source of revenue. We believe that this other source is medical tourism [...] So we need to create the facilities to attract paying patients from abroad. This will provide the revenue needed to keep the service free…” It was on this rationale that government signed a deal with VGH to buy and rebuild St Luke’s Karin Grech and the Gozo General Hospital. Just under three years later, this deal now seems to be collapsing. The Medical Association of Malta had been sceptical from the start. Do you feel your earlier position is now being vindicated?

Let’s start with the basic question: what is a private-public partnership? If you need 220 million to refurbish St Luke’s, Karin Grech and the Gozo hospitals, the capital would normally come from the treasury. The problem if you take it from government coffers immediately, as a one-off, is that it either goes into the national debt, or the deficit. Now: in the UK and other countries, they get the capital from a private company, then pay it back gradually. That is a public-private partnership. There are three types: one is called ‘lease-only’; the other ‘lease and maintain’... so apart from building the hospital and renting it to government, the private company is also responsible for its maintenance... and thirdly, ‘lease, maintain and operate’. In the UK, where there are lots of PPPs, they use the ‘lease and maintain’ model... because the profit motive is considered incompatible with a free national health service. There, we have the first flaw [of the Vitals agreement]. We went for the most rightwing model: which is incompatible with our socialistic system...

It was also claimed that Vitals itself had no prior direct experience in operating hospitals. This raises the question of why that private partner was chosen, in particular...

We are disappointed that the Auditor General did not give this priority. This is not one or two million. This is 2,000 million euro at stake, in a flawed deal

It was a ‘de novo’ company; a green company. Worse still, the owners were unknown... and they had set up a structure of companies which was suspicious. Why should somebody who is investing 200 million euro, and is getting two billion euro [worth of property and equipment] hide his identity? That is suspicious. Even if you are doing nothing wrong. Also, Vitals did not have its own capital. Vitals, per se, only had a few thousands to invest: it had to get the rest from somewhere else. Various sources were mentioned, which changed with time. We follow all the government’s statements: initially, they said two-thirds would come from Alliance. But no Alliance website anywhere in the world, in any language, mentions Vitals... until Daphne leaked a document that Alliance had moved out. Then, Oxley Capital was mentioned. Again, however, Oxley Capital never mentioned Vitals in any of its websites. It’s true that the CEO, Mark Pawley, came to Malta, and I actually met him once. But there was never a public commitment by the company to the funding. And at one point, Minister Fearne mentioned ‘Bank of Australia’. Now: none of this materialised. This company was new; we didn’t know the owner; it didn’t have the capital; and from the information we had, no bank or financial institution was ready to lend them money. Today, with ‘UBO [Ultimate Beneficiary Owner] Unknown’, even if you try to borrow 10,000 euro to refurbish a flat... no bank will give you money, unless they know your name, address. Or at least, no serious bank will give you serious money. So we were sceptical for all these reasons...

There was also criticism about the policy objective as a whole. From the outset, Minister Fearne had defended the PPP on the grounds that it would help to keep the free health service sustainable. Closing an eye (for now) at the failure of the investment to materialise... was the objective itself flawed? What is MAM’s view of involving the private sector in the national health service?

In principle, we are against this type of PPP because it is incompatible with a social service. With the profit motive, the end loser might be the patient. Especially patients who have social or mental health problems. They tend to be heavy users [of the system]; they have more health problems than people who have the money and education to look after themselves. So there may be pressure from management on doctors to, you know, ‘sideline’ those cases, or ‘decrease the service’... especially for patients who need expensive drugs or therapy...

Nonetheless, the question about the sustainability of the service remains. The original plan was that the only profit made by the private sector would come from ‘medical tourism’ – hailing from third countries, as EU member states are entitled to free service – and that the service would remain unchanged for local users.

Your question highlights yet another flaw.  ‘Medical tourism’ doesn’t work. I can mention specific entrepreneurs: Josie Muscat, Anglu Xuereb. These are quite successful entrepreneurs locally. They tried to attract medical tourism, and failed. It’s a difficult market. I know of a centre in Germany, which... if Siemens, or some other big name, produces a new [medical] robot, they’re the ones who’ll get it first. They train most of Europe’s doctors to use these robots. They have a level of expertise, especially in technology, that nobody else in the world has. These are the places where people with millions go, when they have health problems...

And yet, when it came to questions about marketing Malta as a medical tourism destination, it was argued that we do have the expertise to attract takers. That (to return to the Fearne interview): ‘We have a good name: our doctors are known internationally to be of high calibre’… Is that not true, then?

Let’s put it this way: Mater Dei is flooded with tourists and foreign residents... be they refugees, economic migrants, whatever... we are flooded. And sometimes, the treatment is so good that they get their relatives here, too. But none of them pay. Once they’re here and they pay tax, they’re entitled to free service. And they’re working here out of necessity. So if we had to try and get paying medical tourists at Mater Dei... well, it’s possible. But with EU citizens having the right to use it for free, it won’t be easy...

Turning to the contract itself: it appears that the 200 million euro investment will not now be forthcoming – or at least, not from Vitals – and the Minister has called for an inquiry by the Auditor General.  What are we talking about investigating, though: the fact that the deal has fallen through because the investor couldn’t raise the capital? Or (as the Opposition argues in parliament) a possible case of legal and political fraud?

The worst thing about this contract... in Maltese, I’d use the word ‘fazzul’. It’s not easy to translate. It means ‘flawed’... but so flawed that it makes it suspicious and fishy. Why do I say it is flawed? Because here, government did two things that normal people don’t normally do. If you have a house, and you want to carry out a refurbishment... you pay for the refurbishment. You do not sell your house for one euro. You do not sell off your capital: flaw number one. We cannot understand why the government passed on the property. There was no reason to. This was a concession, an operational deal. Why did the government sell off those properties? As we see it, the buildings were sold for three million. St Luke’s and Karin Grech are in a prime area: 180,000 square metres, with a sea-view. That is normally sold, on the local market, for 3,000 euro to 4,000 euro per square metre... which goes up to 600 million euro. So even if it’s three million euro, not one euro: just the equipment in Gozo alone was worth 20 million euro. And it was brand new.

Why should somebody who is investing 200 million euro, and is getting two billion euro [worth of property and equipment] hide his identity? That is suspicious. Even if you are doing nothing wrong

What do you think the rationale behind the one euro price-tag was?

I imagine they thought they might get a discount. But I’m speculating. I myself would never give my property away. And then rent my own house... because that’s what happened. I sold my house for peanuts, and then started paying rent to live in it before the capital expenditure was done. Anybody who commissions anything – even the government does this – if you commission something, first you build it... and finish it... it is certified that all the deadlines and everything have been met... and only at that stage, the government pays. And even anybody in his senses who commissions any construction project: first he finishes the job, and then you start paying the rent. So this led to another flaw. According to our predictions, within two years they [Vitals] would declare bankruptcy, and keep the money in this myriad of companies, without a UBO, and then it would be very difficult for government to get its money back. What we didn’t predict, however, was that, over and above all that, they would sell away what we gave them as part of the deal...

You mean Vitals, selling off its concession to Steward Healthcare...

To whoever. To any third party. Fortunately, however, there is one safeguard.  We must not say that everything was flawed; we must be objective. To sell, Vitals – especially if it is three years before the completion deadlines – need the consent of government. So in all these flaws, there is a safeguard for the Maltese taxpayer and the Maltese government. Last week, we were a bit alarmed to hear the Prime Minister making draconian threats to a trade union in a dispute... in the name of ‘national interest’. He also said on Sunday that is a question of ‘credibility’. Now: if we take those two key-words together – credibility and national interest – it was Minister Fearne himself who asked the Auditor General to investigate. Our position has been from the start: once you yourself have asked, do not give permission for transfer, before the Auditor General examines the deal. OK... MAM was always sceptical, but we may have sectoral interests. The Opposition always criticised, but it might have its own agenda... while the Auditor General is a recognised institution. We are disappointed that the Auditor General did not give this priority. This is not one or two million euro. This is 2,000 million euro at stake, in a flawed deal. Now: we have the chance, through this good clause, to recoup what might have been lost. We feel that it is a question of both national interest and credibility, that the AG finishes his work. There is no rush...

Is there any legal or contractual obligation for government to await the AG’s inquest before consenting to the sale?

No. There is no obligation, as such. But if we are talking of credibility and national interest... that is the way to do it. At least, in our opinion. And there is a precedent, in the case of Old Mint Street, where the AG said: ‘This deal is flawed, and tax-payers’ money was not spent reasonably’. And there was a legal way out, too. The Prime Minister went out of his way to remedy the situation, in the name of credibility and the national interest. We feel this deal, too, is flawed...

You’ve made MAM’s position very clear, but a lot of it is based on the assumption that the Vitals deal has completely fallen through, and that it is by now impossible to salvage. Is that true, however? What if Minister Fearne announces some unexpected breakthrough tomorrow?

[shrugs] Minister Fearne is now saying that ‘Steward Healthcare is the real thing’. If you invert the argument, everything else – Alliance, Oxley, etc. – was not real. The reality is that Vitals never showed it had the necessary capital. Everything it has done, it did with the money of government’s advance payments....

If you add all your arguments together, they suggest that the declared intention – i.e., to make money out of medical tourism – was all along a ruse. What do you think they were really after? Converting the properties into hotels or apartments?

That’s what the Opposition is claiming: that there was all along an intention for the project to fail.  No, that is not our position. Medical tourism failed everywhere else it was tried. It does not mean they did not try to succeed. But we do think the contract is flawed and suspicious... and that, since the government itself agreed with this AG investigation, then, in the name of credibility and national interest, before giving consent to a sell-out, let’s see if there is a better way according to the Auditor General....

So far, we have talked only about the collapse of the Vitals deal. What about the effect on the national health service itself? How would a worst-case scenario pan out in practice, seeing as we have now sold three hospitals – including the only one in Gozo – and might not be able to get them back?

First of all, the idea of this PPP was ‘capital investment’. So far we have seen no capital investment; we’ve seen excavation works in Gozo, which we’ve described as a giant hole or crater... and at St Luke’s, there was some superficial cleaning of the facade. We haven’t seen any real investment. As regards management, we have to be objective. According to the contract published on Daphne’s website, there was a 600,000 euro yearly agreement with Partners International... and Partners international have held some local courses, mostly for nurses, some for doctors, on patient safety.... and some staff from Gozo have been sent to do training in Boston, USA. And they recruited some doctors. I’m being objective. But we find it very difficult to tally this up with 70 million euro a year. The money going out, and what is being done on the ground... I’m not saying it’s zero. Some work was done. But I am sure there is a big discrepancy between what is being paid, and what is being served.