Why Timor-Leste needs the private sector as a partner in health — and how regulated private investment can bridge the gaps that public services alone cannot fill.
This essay is a companion piece to "Healthcare as Market Failure: Financial Protection, Private Sector Regulation, and Universal Health Coverage." That essay establishes why health markets fail and why regulation is essential. This essay argues the complementary case: that regulated private investment is not just tolerable but necessary for Timor-Leste's health system to function.
No public health system in the world operates alone. Even in countries celebrated for strong universal health systems — the United Kingdom, Canada, Thailand, Costa Rica — the private sector plays a meaningful and recognized role in delivering services, supplying medicines and equipment, training health workers, and filling gaps that the state cannot efficiently address. The question for Timor-Leste is not whether to allow private investment in health. The question is how to structure that investment so that it strengthens rather than undermines the health of the people.
The previous essay in this series established, in detail, why unregulated private health markets fail: information asymmetry, catastrophic financial risk, supplier-induced demand, and the mathematical impossibility of viable private health investment in small, low-income markets without either predatory pricing or unnecessary care. These failures are real and documented. They demand rigorous regulation. But regulation — properly understood — is not exclusion. Regulation is the framework within which private investment can be welcomed, channelled, and made to serve the public good.
This essay makes the affirmative case. Timor-Leste needs private investment in health. It needs it urgently. The chronic shortages of medicines and medical supplies that have dominated public discussion for the past two years are only the most visible symptom of a public health infrastructure that is structurally underfunded, understaffed, and undersupplied. No government budget alone — certainly not Timor-Leste's — can close this gap quickly enough to meet the health needs of a growing population. Private investment, when properly governed, offers capacity, speed, innovation, and resources that the state cannot generate unilaterally. The task is to invite this investment intelligently.
A persistent and damaging misconception in health policy debates is the framing of public and private health provision as opposites — as if choosing one means rejecting the other. This false dichotomy distorts policy thinking in both directions. It causes some advocates to resist all private sector involvement on ideological grounds, as if any profit motive automatically corrupts care. It causes others to push for unregulated privatization on market-faith grounds, as if competition alone will produce good health outcomes. Both positions are wrong, and both cause harm.
The reality, confirmed by health system research across decades and dozens of countries, is that well-functioning health systems are almost always mixed systems. They combine public ownership and financing of essential infrastructure with private provision of services, supplies, and specialized care, under regulatory frameworks that align incentives with health goals. The World Health Organization's Universal Health Coverage framework does not prescribe a single ownership model. It prescribes outcomes: access, quality, and financial protection for all. These outcomes can be achieved through multiple configurations of public and private actors.
Universal health coverage does not mean the same delivery model everywhere. It means ensuring that all people receive the health services they need without suffering financial hardship — regardless of who provides them.
— WHO, World Health Report, 2010 (paraphrased)
For Timor-Leste, the practical question is not ideological purity but functional adequacy. Does the health system deliver the services the population needs? At the current moment, the answer in several critical domains is no. Private investment, structured and regulated appropriately, is one of the most powerful tools available to change that answer.
Private investment in health is not a monolith. It encompasses a wide range of actors — pharmaceutical companies, diagnostic laboratories, specialist clinics, medical equipment suppliers, health insurance companies, training institutions, telemedicine platforms, and more. Each brings different advantages. The cumulative contribution, when governed well, is substantial.
Private investment builds facilities, installs equipment, and expands the total bed count, diagnostic capacity, and clinical space available to a population.
Private entities can mobilize capital, design, build, and operationalize facilities faster than government procurement cycles typically allow.
Private sector actors drive adoption of new diagnostic tools, digital health platforms, and clinical innovations that often reach systems through commercial channels first.
Private hospitals and clinics attract, employ, and often train health workers, expanding the professional workforce available to the entire system.
Private pharmaceutical and medical supply companies maintain commercial-grade procurement systems that can be more agile and reliable than public supply chains.
Private providers expand the range of available specialties, diagnostics, and elective services, reducing the need for costly referrals abroad.
One of the most practically significant advantages of private investment is operational speed. When a Ministry of Health needs to purchase a new diagnostic machine, the process typically involves budget allocation, tender preparation, international competitive bidding, shipping, installation, commissioning, and staff training — a cycle that can span two to four years. A private investor, with access to capital and commercial procurement channels, can complete the same sequence in a fraction of that time. In a health system facing acute shortages, this speed differential is not a minor convenience. It is the difference between a patient receiving a diagnosis this year or next year, or not at all.
New health technologies — point-of-care diagnostic devices, digital imaging systems, electronic health records, telemedicine platforms, genomic screening tools — typically enter health systems through commercial channels. Public systems in low-income countries are often the last to access these innovations, constrained by budget cycles, procurement regulations, and risk aversion in purchasing decisions. Private providers, motivated to differentiate their services and justify premium pricing to capable-paying patients, tend to adopt new technologies earlier. When these technologies are available in a country, their benefits can be extended — through regulation, contracting, and accreditation requirements — to the broader population.
Private health facilities employ health workers. In a context where public sector wages and working conditions are constrained by fiscal limits, private employment often offers better remuneration, which attracts and retains qualified professionals who might otherwise emigrate. While this can create tension — private employers drawing workers away from the public system — it can equally be managed through regulation that requires private facilities to contribute to training, maintain certain public-service obligations, or participate in rotational arrangements with public hospitals. The critical point is that private employment of health workers expands the effective professional workforce of the country, even when the distribution between sectors is imperfect.
Many specialist services — cardiology, oncology, advanced imaging, specialist surgical care, reproductive medicine, mental health — are simply not available in Timor-Leste's current public infrastructure at adequate scale or quality. Citizens requiring these services must either go without or travel to Indonesia, Australia, or Portugal at enormous personal and financial cost. Private investment in specialist services, even when serving primarily the middle-income population initially, creates local capacity that the government can then contract, regulate, and progressively extend to the broader population through reimbursement mechanisms and social obligation frameworks.
Over the past two years, the chronic shortage of essential medicines, laboratory reagents, intravenous fluids, surgical consumables, and basic diagnostic supplies in Timor-Leste's public health facilities has moved from an internal administrative concern to a matter of active public debate and media attention. Reports of hospitals unable to perform basic laboratory tests, clinics running out of first-line antibiotics, and patients being asked to purchase their own supplies from private pharmacies before receiving care have become distressingly routine. These are not occasional logistics failures. They represent a systemic gap between what the public health infrastructure is funded and equipped to provide and what the population needs.
The causes of this supply crisis are multiple and interconnected. Timor-Leste's public pharmaceutical procurement system relies heavily on centralized purchasing through the Ministry of Health, with supply chains that depend on international shipping to a geographically isolated island economy. Budget constraints, procurement delays, distribution failures within the country, inadequate cold-chain infrastructure for temperature-sensitive medicines, and inconsistent quantification of needs at facility level all contribute to the gap between what is ordered and what reaches the patient at the point of care.
The result, in human terms, is severe. A patient with bacterial pneumonia who cannot receive antibiotics because the hospital has run out may deteriorate and die from a condition that costs a few dollars to treat. A woman in labour whose facility lacks the supplies for a safe delivery faces risks that are entirely preventable. A diabetic patient whose insulin is unavailable faces organ damage, amputation, or death. These are not hypothetical scenarios. They are the consequences of a supply failure that is happening now, documented in news reports, parliamentary debates, and civil society advocacy throughout 2023, 2024, and into 2025.
The private sector is not a panacea for supply chain failure, but it offers several concrete mechanisms through which the impact of public supply shortages can be reduced — and in some configurations, the shortages themselves can be prevented.
Private pharmaceutical distributors and retail pharmacies operate with commercial supply chains that are structurally more agile than centralized public procurement. When a public hospital runs out of a medicine, a well-functioning private pharmacy network in the same city may have that medicine in stock within 24 hours of a commercial order. This parallel supply capacity is not a replacement for a functioning public procurement system — it is a buffer that prevents supply failures from immediately translating into patient harm.
Beyond the immediate supply buffer function, private investment in pharmaceutical distribution infrastructure — warehousing, cold-chain facilities, last-mile logistics networks — builds the physical and logistical foundation that the entire supply system, public and private, depends upon. A private distributor who has invested in refrigerated storage and a reliable delivery fleet is providing infrastructure that can be contracted by the government to distribute public medicines as well as commercial products. This is not a theoretical possibility. It is standard practice in many countries where public-private partnerships govern pharmaceutical supply chains.
Private clinical laboratories similarly provide a buffer against the reagent shortages that have repeatedly rendered public diagnostic services inoperable. When a public hospital's laboratory cannot process blood tests because it has run out of a specific reagent, a licensed private laboratory in the same city represents an immediate alternative — if the regulatory and referral framework exists to direct patients there under conditions that do not impose catastrophic financial burden. This requires pre-agreed fee structures, potential government reimbursement mechanisms, and referral protocols. It requires governance. But the capacity exists, or can be built, in the private sector in ways that the government cannot replicate quickly with public funds alone.
The most productive framing for the relationship between public and private health provision is complementarity — each sector contributing what it does best, in a coordinated system governed by clear rules and shared accountability for outcomes. This is not a new idea. It is the operational reality of health systems that have achieved both broad coverage and high quality.
| Domain | Public Sector Role | Private Sector Role |
|---|---|---|
| Emergency & primary care | COREUniversal coverage, no refusal, free at point of need | Supplementary urgent care clinics; reduces overcrowding at public facilities |
| Medicines & supplies | Essential medicines list procurement; national formulary | STRENGTHCommercial supply chains; buffer stock; cold-chain infrastructure |
| Diagnostics | Basic laboratory and imaging at district level | STRENGTHAdvanced diagnostics; overflow capacity; specialist imaging |
| Specialist services | GAPVery limited specialist capacity currently | OPPORTUNITYCardiology, oncology, surgery, mental health — contractable for public patients |
| Workforce | Civil service employment; training institutions | SUPPLEMENTAdditional employment; retention through competition; training partnerships |
| Infrastructure | Public hospital network; community health posts | Additional facilities; shared equipment models; specialist centres |
| Innovation | National policy; standards setting; regulatory science | STRENGTHTechnology adoption; digital health; telemedicine platforms |
Public-Private Partnerships (PPPs) in health represent one of the most powerful tools for harnessing private investment within a public-interest framework. In a PPP, the government and a private partner share responsibilities, risks, and benefits in delivering a defined health service or infrastructure. The private partner brings capital, management expertise, and operational efficiency; the government brings regulatory authority, public land or facilities, and the guarantee of a patient population.
The government contracts a private operator to run a specific service — a laboratory, a dialysis unit, a diagnostic imaging centre — within or adjacent to a public hospital. The private operator provides equipment, staff, and management. The government defines price ceilings, quality standards, and the proportion of public patients who must be served at reduced or zero cost.
A private investor builds a facility, operates it for a defined concession period recovering their investment through regulated fees, then transfers ownership to the government. This model allows Timor-Leste to acquire health infrastructure without upfront capital expenditure, at the cost of accepting regulated private management for a period.
The government contracts private distributors with established cold-chain and logistics infrastructure to deliver public medicines to district health facilities. The private partner's commercial network is leveraged for public goods distribution, reducing investment duplication and improving reliability.
The government issues vouchers or operates reimbursement schemes allowing low-income patients to access defined services at licensed private facilities at subsidized or zero cost. This extends private capacity to the public patient population without requiring government ownership of the facility.
Private hospitals and clinics are accredited as training sites for medical, nursing, and allied health students, expanding training capacity beyond public facilities and exposing students to a broader range of clinical environments and technologies.
To welcome private investment is not to abandon the patient to market forces. It is to create the conditions under which private investment serves the patient rather than extracting from them. This distinction is the entire substance of health system governance. The companion essay to this one sets out in detail the regulatory instruments — business plan requirements, certificate of need legislation, tariff regulation, self-referral prohibition, social obligation clauses, and mandatory reporting — that define those conditions. They bear brief restatement here in the context of the affirmative case, because regulation and welcome are not opposites. They are the same policy, seen from different angles.
A private investor who cannot operate profitably within these conditions is an investor whose business model depends on exploiting patients. Such an investor should not receive a license. But a private investor who can build a sustainable, quality-driven operation within a regulated framework — recovering costs through reasonable pricing, filling genuine gaps in the service landscape, contributing to the training of health workers, and meeting defined social obligations — is an asset to the health system and should be actively courted.
The government's role here is both guardian and catalyst. Guardian of the patient from exploitation. Catalyst for investment that serves the public interest. These roles are entirely compatible, and in functioning health systems across the world, they are routinely combined by the same regulatory authority.
The global evidence base on health system performance strongly supports the case for well-governed mixed systems over either pure public or pure private provision. The WHO's comparative analysis of health system performance across countries has consistently found that outcomes — measured in terms of access, equity, financial protection, and health status — correlate with the quality of governance and the strength of regulatory frameworks, not with the ownership structure of providers.
There is no single best health system design. High-performing systems take many forms. What distinguishes them is not who owns the facilities, but the quality of stewardship — the framework of rules, incentives, and accountability within which all providers operate.
— WHO, The World Health Report 2000: Health Systems — Improving Performance
Thailand, which is regularly cited as a model of UHC achievement for a middle-income country, has a thriving private hospital sector alongside its universal public system. The private sector serves well-off Thais and medical tourists, generating foreign exchange and funding specialist care that exceeds what the public system provides. Crucially, the same private hospitals are contracted by the government's Universal Coverage Scheme to provide defined services to public patients at regulated rates. Private investment expands the total system capacity; regulation ensures that this capacity serves public goals.
Rwanda, a low-income country that has achieved extraordinary health gains over two decades, operates a community-based health insurance scheme that covers the majority of the population, including through contracted private providers. The government has actively encouraged private clinic development in underserved areas, offering regulatory fast-tracks, public land, and referral guarantees in exchange for social obligation commitments. Private investment filled geographic and specialist gaps that the public system lacked the resources to fill alone.
Bangladesh's pharmaceutical sector — largely privately owned and export-oriented — supplies the majority of the country's essential medicines at far lower cost than import would achieve, and has enabled Bangladesh to achieve drug accessibility metrics that far exceed what its income level would predict. A government that had insisted on state ownership of pharmaceutical production would have denied its population this benefit.
The lesson from these and many other examples is consistent: private investment in health, governed by clear and enforced regulatory frameworks, is not a threat to health equity. It is one of the most practical tools available to a resource-constrained government trying to deliver better health to more people with limited public funds.
The chronic shortages of medicines, reagents, and supplies that have embarrassed Timor-Leste's public health system and harmed its patients over the past two years are a symptom of a structural gap that public investment alone, given the country's fiscal constraints, cannot close in the near term. Private investment in pharmaceutical supply chains, diagnostic services, specialist clinical care, and health infrastructure is not a distant aspiration or an ideological compromise. It is a practical necessity.
But necessity alone does not make an investment beneficial. The form that private investment takes — the regulatory conditions under which it operates, the obligations it carries, the prices it charges, the patients it serves — determines whether it strengthens or exploits the health system. This is why the welcome must be regulated and the regulation must be enforceable. Not as an obstacle to investment, but as the architecture within which investment serves people.
Timor-Leste's regulatory authorities, particularly AIFAESA, stand at the intersection of these two imperatives: the need to attract and enable private investment that expands capacity, fills supply gaps, and brings innovation; and the need to protect patients from the market failures that unregulated private health provision predictably produces. Holding both imperatives simultaneously — welcoming investment, governing its behavior, protecting the patient — is the essential work of health system stewardship. It is neither easy nor simple. But it is the work that determines whether the citizens of Dili, regardless of their income, can trust that the health system exists to serve them.
The private sector can be a partner in that trust. Regulation is what makes the partnership possible.
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