PPP Problems & Pitfalls: How to Avoid Them April Harding Mazowiecke Voivodeship January

Key points 2 PPP design to suit goals PPP design to fit context You will get things wrong (managing implementation is critical) The “partnership” is critical

Outline 3 UK Case and Lessons Spain Case and Lessons Conclusions

UK starting point 1992: directly administered hospitals 4 UK national government directly administers hospitals National Health Service (NHS) owns the hospitals, and funds their operation Rigid public services rules undermines effective, responsive operation. Low spending, run-down facilities

PPP infrastructure model gets adapted for hospitals 5 In infrastructure sectors (power, transport, water, rail) tendered for finance, facility & services large amounts of capital upfront; risks are big, but there are many payers efficiency gains captured in full range of activities (facility design and operation) When applied in health, one big change: services omitted. In health: another key difference, only one payer, the NHS….more risk, higher cost

Omitting services, limits efficiency gains Average % of hospital operating budget by cost category Dietary IT Pharm- acy Facility Mgt, Maint Support Services Medical Tech Diag & Lab Clinical Care Delivery 54% Building Design & Const r.

Limited efficiency gains Designs Builds Non-clinical services Designs Builds Finances Non-clinical services, for years PUBLICLY-FINANCED ‘DESIGN & BUILD’ PRIVATELY-FINANCED ‘DESIGN, BUILD, FINANCE AND OPERATE’ What the private sector does....

PFI benefits 90% of all PFI projects delivered on-time Within budget projects Better maintenance

PFI costs Transactions costs are higher for PFI than traditional procurement:  external advisers for all parties  longer duration of tendering and contract negotiation

Higher Cost of Capital PUBLIC FINANCE Government borrows Government’s cost of capital paid (Future taxpayers bear risks) PRIVATE FINANCE Borrow from banks, bond and equity markets Higher cost of capital

PFI offers: Slightly lower construction costs Fewer construction time overruns Little difference in support services Better maintained hospitals Higher transactions costs Higher costs of borrowing Privately Financed versus Well-Managed Publicly Financed

Result: in most cases, not value for money 12 PFI model used less often after budget reform compelling the costs to be properly accounted for (e.g. on capital account) Main driver may have been getting around budget constraints on capital investment Insight: PPP model didn’t fit the objectives of cost savings, and services improvement Insight: Poor accounting misrepresented “value for money”

Valencia government applies a comprehensive PPP model 13

Valencia starting point 14 State (sub-national govt) directly administers services Universal coverage; tax finance Lacking facilities Rigid public services rules undermines effective, responsive operation.

Alzira community needed a hospital 15 Alzira community – 230,000 people Nearest hospital: Valencia, > 30 miles Political promise to build a new hospital

PPP for finance, facility & services PUBLIC FINANCING ALZIRA MODEL PUBLIC CONTROL PRIVATE PROVIDER PUBLIC PROPERTY CAPITATION PAYMENT PERIOD: 10/15 years Local Government Inspector Control Inspection Builds new premises Employ medical staff Management “know how” Free & public healthcare services Returns to the Local Government after 10 years

Innovative services purchasing: “money follows the patient” CAPITATION PAYMENT Yearly capitation payment for each person Annual review: CPI or % health budget Hospital pays 100% of the cost of patients who go elsewhere Hospital is paid an 80% of the cost of treating patients from other area

Alzira: phase 1 18 Alzira Model I (Hospital Care): 1999/2003 –Contract #1: lease of facility/ land –Contract #2: concession for 10 years, extendable to 15 for the operation of hospital services for people in catchment area –Capitation fee: $300 + CPI (1999) –Investment commitment ($95M) - build new hospital

2002: Alzira model clearly not working 19 Consortium can’t cover costs Can’t constrain costs because PHC referrals are high, and they can’t influence them Can’t deliver investment, and new facility Renegotiation - PARTNERS

Alzira II: integrated with PHC to enable cost control 20 Alzira Model II (Integrated Care): 2003/2018 –Contract #1: lease of facility/ land –Contract #2: concession for 15 years, extendable to 20 –Covers management of primary and hospital care in catchment area –Capitation fee: $570 + % yearly increase in the health budget –Investment: $115 M during the 15-year period

Redesigned model achieves good results 21 Increasing activity, services availability Substantial increase in patient satisfaction New facility offers sizable upgrade in capacity and quality Ranked most years in top 20 general hospitals in Spain

More and more services and facilities provided with this PPP model 22 Valencia Community: 25% of the population Alzira (1999) Torrevieja (2006) Denia (2008) Manises (2008) Crevillente (2009) Madrid Community Valdemoro (2008) Portugal: Braga ( 2006)

Insights: the services are critical 23 Private sector (flexible) management and staffing enables: Incentivizing performance of staff incentivizing team work and coordination Incentivizing uptake of use of new organizational models and technology supports widespread use of chronic disease management systems

Insight: monitoring and dealing with problems as partners is critical 24 Extensive collaboration and cooperation was required to bring about the successful redesign

PPPs work when model fits goals and context 25 Services taken over by private operator – allowed efficiency and quality gains PHC added to enable cost containment Capitation (money follows patients) worked within the Spanish health finance context to incentivize performance

PPPs can be fixed 26 Even with lots of effort… Everyone gets things wrong The “partnership” is critical