Successful practices in healthcare PPPs and possible application in Egypt The Egypt Medical & Healthcare Conference 2012 Panel 3: Long-term financing of healthcare sector, PPP, private equity 01 February 2012

Successful stories in healthcare PPPsPage 2 Agenda ► Application of PPP in healthcare sector ► PPP models for healthcare delivery ► Case studies ► Lessons learned and possible application in Egypt

Successful stories in healthcare PPPsPage 3 Definition of PPP in healthcare ► Long-term contracts between a public sector authority and private sector entity for provision of healthcare services ► Dependant on the model, private sector entity is made of combination of various participants ► May include any healthcare-related services: clinical, non-clinical & support ► Delivery model depends on the jurisdiction and local need ► Innovation, private financing and risk transfer as key reasons for application Hospital providers and physicians Technology companies Pharmaceutical and medical device companies Private health insurers Facility managers (hard & soft FM) Construction companies Equity investors Debt providers Private sector participants in PPP

Successful stories in healthcare PPPsPage 4 Private sector involvement in healthcare delivery Categories of care Primary Acute Chronic/long-term Scheduled/planned Maternity & newborn Care for children Stay healthy Care delivery value chain Treatment Diagnosis Prevention Education Research Outreach

Successful stories in healthcare PPPsPage 5 PPP models #ModelPrivate sector responsibilityPublic sector responsibility 1Co-location  Operation of private wing  Accommodation services  Clinical services  Public hospital management 2Outsourcing non-clinical support services  Non-clinical services and staff  Clinical services  Hospital management 3Outsourcing clinical support services  Clinical support services  Clinical services  Hospital management 4Outsourcing specialized clinical services  Specialized clinical services  Routine procedures  Most clinical services  Hospital management 5Private management  Public hospital management  Clinical and non-clinical services  Contracting with private firm  Contract monitoring and services regulation 6DBFOLB  Design, build, finance, operate  Leasing back the hospital to government  Hospital management  Lease payments to private developer 7DBFO  Design, build, finance, operate  Non-clinical and/or clinical services  Periodic payments to private developer  Performance monitoring 8Sale of public hospital as going concern  Purchasing facility  Operation as public hospital  Payments to operator for clinical services  Contract monitoring and services regulation 9Sale of public hospital for alternative use  Purchasing facility  Conversion for alternative use  Conversion monitoring

Successful stories in healthcare PPPsPage 6 Case studies – Abbotsford Regional Hospital and Cancer Center, Canada (2005-present) Applying efficiently “infrastructural” PPP model for services delivery Description: ► Value: USD 355 million ► Design, build, finance and non-clinical facility management for a new hospital ► Clinical services continue to be delivered by the public authority ► The government needed to replace existing obsolete hospital, respond to growth in demand for ambulatory care and ambulatory care services and to the need for new cancer programs and services in the region, as well as to improve working environment for healthcare professionals in the existing hospital Lessons learned: ► Define appropriately the scope of facility management services: The scope was modified between the issue of tender documents and reaching the final agreement. For example, biomedical engineering and medical record transcription were removed from the bundle of services, largely because of difficulties in determining the scope, price and level of risk transfer involved ► Application of availability based payment schedule to provide incentives for the private sector to complete the construction as quickly as possible and respect operational KPI’s agreed in the contract ► Benchmarking and market testing mechanisms application on a periodic basis (every 5 year for this contract) to achieve best value for money for the public sector ► Involving health professionals in design development will crate patient-centered environment ► Providing comprehensive communications program will respond to stakeholder management requirements

Successful stories in healthcare PPPsPage 7 Case studies – Independent Sector Treatment Centers (2003-present) Spurring competition and consumer choices Description: ► Independent Sector Treatment Centers (ISTC’s) are private sector owned treatment centers within the English National Health Service to treat NHS patients free at the point of use, sometimes referred to as “surgicenters” or “specialist hospitals” ► ISTC’s perform common elective (i.e. non-emergency) surgery and diagnostic procedures and tests in the same way as NHS hospitals. Typically they undertake 'bulk' surgery such as hip replacements, cataract operations or MRI scans rather than more complex operations such as neurosurgery ► By partnering with private sector through ISTC’s, the NHS aimed to increase capacity, drive productivity and innovation and improve overall health outcomes. The procurements were carried out in two waves, with learning from wave 1 being applied to wave 2, including abolishing of volume guarantees Lessons learned: ► Encouraging private partners to compete with government health service requires an incentive that may initially be higher than the cost of service – the UK government provided income and volume guarantees ► Volume and income guarantees over long term inhibit true competition with the public sector. Therefore, in the second wave of contracts, all providers were paid the same rate and no guarantees were provided ► Performance metrics evolved with the ISTC contracts to raise the level of improvements for both the private and government partners

Successful stories in healthcare PPPsPage 8 Case studies – University Hospital and Primary Care, Alzira, Spain (1999-present) Description: ► Value: EUR 75 million ► Known as “Alzira model”, unique model widely cited clinical services PPP ► Construction and operation of new hospital, financing, in-patient clinical services, primary care services ► Private consortium accepts responsibility for healthcare for a defined population in return for an annual per capita payment ► Hospital track-record demonstrates the importance of flexibility and ongoing review of the schemes Lessons learned: ► Strong incentives are important to provide high quality services to maintain patient confidence: Citizens of the region have the choice to visit any hospital within the region, with their catchment hospital responsible for 100% of the costs. Conversely, when outside patients attend the Alzira hospital, the operator recovers only 85% of that cost. ► Flexibility and transparency are vital: In 2002 the partnership was on the verge of failure, so the agreement was altered in two major aspects: ► Incentives: Initially, the contract was for hospital services only, but it was re-negotiated to include primary care. By managing prime care, the operator can reduce unnecessary hospital admissions ► Payment mechanism: As the cost escalation was higher than inflation rate agreed contractually, the contract was re-negotiated so that the payment to the private sector increased in line with the rate of medical inflation Better integration of primary and secondary care services

Successful stories in healthcare PPPsPage 9 Case studies – Jondaloop Health Campus, Perth, Australia (1996-present) Balancing delivery of private and public hospital services in the same building Description: ► 20-year contract with private sector ► Replacement hospital and clinical services ► Key issues included ensuring that a viable private hospital would be eligible for full private health insurance rates (in the context where private health insurance paid only a subsidized rate for private patients in public hospitals), making arrangements for doctors to provide privatized public hospital services and for the transfer of public hospital staff to employment by a private operator Lessons learned: ► Commissioning services from both private and public sector doctors for public patients adds more complexity ► Managing labour costs is crucial for a successful PPP. The hospital employs private employees, but provides compensation to ensure that pay is equal to that of civil servants working in a neighboring hospital ► Government must remain responsible for the quality of care as citizens associate healthcare services with public services

Successful stories in healthcare PPPsPage 10 Lessons learned and possible application in Egypt ► Pilot private sector participation in few hospitals before tackling the entire network ✔ ► Clearly define projects to attract bidders ✔ ► Invest in public sector skills and resources ✔ ► Include, as much as practical, non-clinical services in the contract – the larger the services bundle, the better value for money ✔ ► Demonstrate political will and involve key stakeholders ✔ ► Establish robust legal and regulatory framework to attract investor/developer and ensure process efficiency ✔ ► Think about delivery partner in broad terms – include also not-for profit organizations ► Shift public resources focus from input and process definition to output prescription and outcome measurement

Successful stories in healthcare PPPsPage 11 Lessons learned and possible application in Egypt (cont’d) ► Select a model that delivers appropriate level of services and simultaneously reduces costs for both patients and healthcare system ► Agree appropriate risk sharing arrangement between public and private sector ► Appropriate use of payment mechanism to replicate successful models ► Develop measurements of success focusing on health outcomes and performance ► Contract management by the public authority extremely important for scheme success ► Consider low flexibility of PPP schemes and costly changes of scope ► Financial constraints may require adjusting deal structures to achieve bankable solutions

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