Public Private Collaboration in Health Care Provision Montenegro Workshop September 2007 Matthias Loening
Overview l Global Trends l Public-Private Partnerships l Challenges for the Region l Summary l Contact
Global Trends Public Health Systems Struggling There a number of factors driving the increased demand rising costs within health care: l – Aging populations – Changing disease patterns – Increased use of high-cost technology – Pharmaceuticals Hospitals account for the largest proportion of health expenditures l Further, there are fiscal constraints on new/additional public capital expenditures l Ø Public-Private Partnerships are seen as a vehicle to increase funding, improve quality while controlling for rising costs
Public-Private Partnerships Public-private partnerships (PPPs) generally involve: l l l The participation of the private sector in some aspect of the construction, financing and/or delivery of public health care service PPPs in health care typically involve the Mo. H or national health insurer contracting with the private sector for a specific service and/or capital asset Typically involves services for ‘public patients’ – i. e. patients funded by Mo. H or government health insurer Public-Private Partnerships An Umbrella Term Outsourcing Public-Private Partnerships Privatization Contracting by a public agency for completion of gov’t functions by a private-sector organization. Means of utilizing private sector resources combining outsourcing and privatization. The sale of government owned asset to the private sector asdfa
Public-Private Partnerships Options Ø PPPs can be applied to a wide range of services Design & Construction Non-clinical Services • Detailed designs • IT equipment & services • Building construction • Maintenance • Medical equipment • Capital financing • Food • Laundry • Cleaning • Billing Clinical Support Services • Lab analysis • Diagnostic tests • Medical equipment maintenance Specialized Clinical Services • • Hemodialysis Radiotherapy Day surgery Other specialist services Hospital Management • Management of entire hospital or network of hospitals and/or clinics
Public-Private Partnerships Options l Public-private partnerships can be beneficially used for: – – l the funding, construction, equipping and/or operation of new hospitals the upgrading, maintenance and operation of existing hospitals There is a wide range of options for structuring PPPs for new hospitals, with differing responsibilities for the public and private sectors pertaining to: – Capital financing (building and equipment) – Construction and procurement – Ownership – Provision of services
Public-Private Partnerships Case 1 – Abbotsford, Canada l Abbotsford Regional Hospital and Cancer Center is a US$344 m, 300 -bed replacement hospital and oncology center to be opened in mid-2008 l Will serve area of 350, 000 population l Under the PPP, the private operator will: – – l l Finance capital costs Design, build and maintain the hospital All clinical services will be provided by the government health authority and BC Cancer Agency The land facility will be owned by the public health authorities
Public-Private Partnerships Case 1 – Abbotsford, Canada PFI Model Structure Public Funder Facility Services Financier Monthly payments Funds SPV (Debt and Equity) Repayment Construction Services Payment Contractor FM Services Facility Management Service Providers
Public-Private Partnerships Case 2 - Hospital Geral de Pedreira, Brazil l l Sao Paolo State Government financed, built and equipped 16 new hospitals under traditional public works contracts State then contracted with ‘not-for-profit’ hospital operators to manage the hospitals (including all clinical and non-clinical services) Operator obliged to treat all local residents Operator receives global fixed budget from State provided specified patient volume and quality parameters are achieved Operator receives capital expenditure reimbursement
Public-Private Partnerships Case 3 - Berlin-Buch, Germany l The previous hospital has 1, 000+ beds, 2, 600+ employees, 37, 000 IP discharges and 160, 000 OP visits – l The Federal State of Berlin was not able to finance the cost of new construction Germany has a dual system of public financing for Healthcare: – CAPEX - Federal States finance capital investment costs – OPEX - Health Funds reimburse for procedures l l Operator has full ownership, however city has right of first refusal Helios is privately financed and constructed the 200 m Euro facility
Public-Private Partnerships Case 3 - Berlin-Buch, Germany Illustration of Berlin-Buch PPP contracts Cooperation Contract Charité University Purpose: Organisation of Research and Teachings Acquisition Contract Land of Berlin Purpose: transfer of movable assets, reconstruction site and liabilities HELIOS Klinikum Berlin Responsibility: Hospital Operation, Reconstruction and Service Provision Staff Transfer Contract Land of Berlin and Charité University Purpose: Transfering the staff from public into private employment Lease Contract Land of Berlin Purpose: Permitting use of old buildings until replacement
Public-Private Partnerships Allocation of Risk and Responsibility Private sector Public or Private sector Case Example: Abbotsford, Private Finance Initiative (Canada) Construction Capital Funding Facility Non-Clinical Equipment Maintenance Services Clinical Support Services Clinical Services Hospital Management Case Example: Hospital Geral de Pedreira (Brazil) Construction Capital Funding Facility Non-Clinical Equipment Maintenance Services Clinical Support Services Clinical Services Hospital Management Case Example: Buch-Berlin (Germany) Construction Capital Funding Facility Non-Clinical Equipment Maintenance Services Clinical Support Services
Public-Private Partnerships Allocation of Risk and Responsibility Private Sector Case 1 Abbotsford Case 2 Hospital Geral de Pedreira Case 3 Berlin. Buch Designs, finances, constructs new hospital l Provides facility maintenance and non-clinical services for long-term period l Provides all clinical and nonclinical services under long-term lease contract l Pays annual lease fee to government l Takes over hospital management, all clinical and non-services and staff under long-term contract l Public Sector Examples Provides clinical services and hospital management l United Kingdom l Canada l Australia l Spain l Pays facility fee to private partner l Brazil (several states) l Designs, finances and constructs the new hospital l Reimburses private partner for clinical services provided to publicly-funded or publiclyinsured patients l l Reimburses private operator for Reimburses private partner for clinical services provided to publiclyfunded or publicly-insured patients l Bahrain (planned) l Saudi Arabia l Germany l Sweden l Australia l US
Public-Private Partnerships Allocation of Risk and Responsibility l Basic premise of transfer of risk in new build hospital PPP: – – Conventional Case: Payment is made regardless of service performance PPP: Payment is based on service performance (i. e. , only after hospital is operational) Public-Private Partnership Conventional Case € € Payment is made regardless of service performance Construction t Operation Payment is based on service performance Construction Operation Note: At some point cost of construction must be paid t
Public-Private Partnerships Allocation of Risk and Responsibility Ø Where risk/responsibility is shifted to the private sector will determine the opportunities for cost savings 54% Average % of Hospital Operating Budget Design & Constr. Facility Mgt Maint Dietary Support Services IT Medical Tech Pharmacy Diag & Lab Clinical Care Delivery
Challenges for the Region Ø l The Region faces several challenges in implementing PPPs with respect to hospital management Very limited pool of strong bidders: – Few international hospital management companies – Lack of local providers with operational experience l Funding l Political Risk l Excess hospital capacity l Informal payments
Challenges for the Region l Despite these challenges, there are PPPs taking place in the Region l Most have been low profile and at local level l PPP models: – Most have been concessions where private operator: – Assumes full responsibility and financial risk – Has full use of assets, but assets continue to be legally owned by Gov’t – Also, the National Health Funds are increasingly contracting with the private sector for discrete services (e. g. dialysis, labs, diagnostic imaging) Key to the menu of options is in the manner in which the health system is structured
Challenges for the Region Ø PPPs will likely be at the level of purchasing for services (NHF) and through transfer of ownership (Municipal level) Current System Contracting With privates NHF/Multiple Insurers Policy & Funds services Regulation Provider Employment contributions Transfer of ownership Ministry Of Health Municipalities Ownership Patient
Summary l Public-private partnerships can allow for – Increased access – Lower costs – Improved quality of the facilities and services l l PPP’s can take many forms, each with a different degree of private sector responsibility and risk Gov’t decision on the most appropriate option will depend on: – The health care organization’s needs and circumstances – The govt’s capacity to regulate – The public consensus on the need for reform
Contact: Matthias Loening Senior Health Advisor European Bank for Reconstruction and Development Email: loeningm@ebrd. com
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