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 Public-Private Partnerships are seen as a vehicle to increase funding, improve quality while controlling for rising costs 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 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 Contracting by a public agency for completion of govt functions by a private-sector organization. Outsourcing Contracting by a public agency for completion of govt functions by a private-sector organization. Privatization The sale of government owned asset to the private sector asdfasdfa Privatization The sale of government owned asset to the private sector asdfasdfa Public-Private Partnerships Means of utilizing private sector resources combining outsourcing and privatization. Public-Private Partnerships Means of utilizing private sector resources combining outsourcing and privatization.

Hospital Management Hospital Management Specialized Clinical Services Specialized Clinical Services Clinical Support Services Clinical Support Services Non-clinical Services Non-clinical Services Detailed designs Building construction Medical equipment Capital financing Lab analysis Diagnostic tests Medical equipment maintenance Management of entire hospital or network of hospitals and/or clinics Hemodialysis Radiotherapy Day surgery Other specialist services IT equipment & services Maintenance Food Laundry Cleaning Billing Design & Construction Design & Construction PPPs can be applied to a wide range of services 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 Options

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 Public-Private Partnerships Case 1 – Abbotsford, Canada 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 Funder Financier (Debt and Equity) SPV Facility Management Service Providers Contractor Payment FM Services Construction Services Funds Repayment Facility Services Monthly payments Public-Private Partnerships Case 1 – Abbotsford, Canada PFI Model Structure

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 Public-Private Partnerships Case 2 - Hospital Geral de Pedreira, Brazil Operator receives global fixed budget from State provided specified patient volume and quality parameters are achieved Operator receives capital expenditure reimbursement

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

HELIOS Klinikum Berlin Responsibility: Hospital Operation, Reconstruction and Service Provision Acquisition Contract Land of Berlin Purpose: transfer of movable assets, reconstruction site and liabilities Acquisition Contract Land of Berlin Purpose: transfer of movable assets, reconstruction site and liabilities Staff Transfer Contract Land of Berlin and Charité University Purpose: Transfering the staff from public into private employment Staff Transfer Contract Land of Berlin and Charité University Purpose: Transfering the staff from public into private employment Cooperation Contract Charité University Purpose: Organisation of Research and Teachings Cooperation Contract Charité University Purpose: Organisation of Research and Teachings Lease Contract Land of Berlin Purpose: Permitting use of old buildings until replacement Lease Contract Land of Berlin Purpose: Permitting use of old buildings until replacement Public-Private Partnerships Case 3 - Berlin-Buch, Germany Illustration of Berlin-Buch PPP contracts

Public-Private Partnerships Allocation of Risk and Responsibility ConstructionEquipment Facility Maintenance Capital Funding Non-Clinical Services Clinical Services Hospital Management Case Example: Abbotsford, Private Finance Initiative (Canada) Private sector Clinical Support Services Public sector Public or Private sector Case Example: Hospital Geral de Pedreira (Brazil) Construction Capital Funding Equipment Facility Maintenance Non-Clinical Services Facility Maintenance Non-Clinical Services Clinical Support Services Clinical Services Clinical Services Clinical Support Services Hospital Management Hospital Management Case Example: Buch-Berlin (Germany) Capital Funding Construction

Public-Private Partnerships Allocation of Risk and Responsibility Private SectorPublic SectorExamples Case 1 Abbots- ford Designs, finances, constructs new hospital Provides facility maintenance and non-clinical services for long-term period Provides clinical services and hospital management Pays facility fee to private partner United Kingdom Canada Australia Spain Case 2 Hospital Geral de Pedreira Provides all clinical and non-clinical services under long-term lease contract Pays annual lease fee to government Designs, finances and constructs the new hospital Reimburses private partner for clinical services provided to publicly-funded or publicly- insured patients Brazil (several states) Bahrain (planned) Saudi Arabia Case 3 Berlin- Buch Takes over hospital management, all clinical and non-services and staff under long-term contract Reimburses private operator for Reimburses private partner for clinical services provided to publicly-funded or publicly-insured patients 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) Construction Operation Payment is made regardless of service performance t ConstructionOperation Payment is based on service performance t Note: At some point cost of construction must be paid Conventional Case Public-Private Partnership

Dietary IT Pharmacy Average % of Hospital Operating Budget Facility Mgt Maint Support Services Medical Tech Diag & Lab Clinical Care Delivery 54% Design & Constr. Where risk/responsibility is shifted to the private sector will determine the opportunities for cost savings Public-Private Partnerships Allocation of Risk and Responsibility

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 The Region faces several challenges in implementing PPPs with respect to hospital management

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 Ministry Of Health Provider Patient Current System Policy & Regulation NHF/Multiple Insurers Employment contributions Funds services Municipalities Ownership Transfer of ownership Contracting With privates PPPs will likely be at the level of purchasing for services (NHF) and through transfer of ownership (Municipal level)

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 Summary

Contact: Matthias Loening Senior Health Advisor European Bank for Reconstruction and Development