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Public Private Collaboration
in Health Care Provision
Montenegro Workshop
September 2007
Matthias Loening
Overview

Global Trends

Public-Private Partnerships

Challenges for the Region

Summary

Contact
Global Trends
Public Health Systems Struggling
There are a number of factors driving the increased demand and rising
costs within health care:

– Aging populations
– Changing disease patterns
– Increased use of high-cost technology
– Pharmaceuticals

Hospitals account for the largest proportion of health expenditures

Further, there are fiscal constraints on new/additional public capital
expenditures

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:

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 MoH 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 MoH 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
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Public-Private Partnerships
Options

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


Public-private partnerships can be beneficially used for:
–
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

Abbotsford Regional Hospital and Cancer
Center is a US$344m, 300-bed
replacement hospital and oncology
center to be opened in mid-2008

Will serve area of 350,000 population

Under the PPP, the private operator will:
–
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 and 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
Payment
Contractor
FM
Services
Facility Management
Service Providers
Public-Private Partnerships
Case 2 - Hospital Geral de Pedreira, Brazil


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

The previous hospital has 1,000+ beds, 2,600+
employees, 37,000 IP discharges and 160,000 OP visits
–

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

Operator has full ownership, however city has right of
first refusal

Helios is privately financed and constructed the 200m
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
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
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
Case 1
Abbotsford
Case 2
Hospital
Geral de
Pedreira
Case 3
BerlinBuch
Private Sector
Public Sector
Examples
Designs, finances, constructs new
hospital

Provides clinical services
and hospital management

United Kingdom

Canada
Provides facility maintenance and
non-clinical services for long-term
period


Australia

Spain
Provides all clinical and non-clinical
services under long-term lease
contract

Designs, finances and
constructs the new hospital

Reimburses private partner
for clinical services provided
to publicly-funded or publiclyinsured patients




Pays annual lease fee to
government

Takes over hospital management,
all clinical and non-services and staff
under long-term contract

Pays facility fee to private
partner

Reimburses private operator
for Reimburses private
partner for clinical services
provided to publicly-funded or
publicly-insured patients

Brazil (several
states)
Bahrain
(planned)

Saudi Arabia

Germany

Sweden

Australia

US
Public-Private Partnerships
Allocation of Risk and Responsibility

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

Where risk/responsibility is shifted to the private sector will
determine the opportunities for cost savings
20%
54%
18 %
16 %
15 %
14 %
12 %
Average
10 %
10 %
% of
Hospital
8%
Operating
Budget
6%
5%
4%
4%
3%
3%
2%
2%
0%
4%
Design
&
Constr.
Facility
Mgt
Maint
Dietary
Support
Services
IT
Medical
Tech
Pharmacy
Diag
&
Lab
Clinical
Care
Delivery
Challenges for the Region


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

Funding

Political Risk

Excess hospital capacity

Informal payments
Challenges for the Region

Despite these challenges, there are PPPs taking place in the Region

Most have been low profile and at local level

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

PPPs will likely be at the level of purchasing for services (NHF) and
through transfer of ownership (Municipal level)
Current System
Contracting
With privates
Transfer of
ownership
Ministry
Of
Health
NHF/Multiple
Insurers
Policy &
Funds
services
Regulation
Provider
Municipalities
Employment
contributions
Ownership
Patient
Summary

Public-private partnerships can allow for
– Increased access
– Lower costs
– Improved quality of the facilities and services

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: [email protected]