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C O N S U L T I N G | I N V E S T M E N T & A D V I S O R Y | T E C H N O L O G YHealth Care, Education, Social Security, Poverty Reduction, and Public Sector Reform
“Practical Application of Public-Private Partnership in the Economy of Kazakhstan”
Presented by James A. CerconeSanigest Internacional
V Astana Economic ForumAstana, Kazakhstan
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Agenda
• The Need for PPPs• PPPs in the health sector • Successful PPPs in the health sector: international experience• Lessons Learned
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The Need for PPPs
Throughout the CIS and in Kazakhstan there is an urgent need to improve the hospital network in terms of infrastructure, equipment and organization of activities to ensure compliance with current international standards.
From this… ….to this
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The Need for PPPs
• The World Bank estimates that the need for replacement hospital infrastructure in CIS will be more than $45 billion over ten years.
• In Kazakhstan alone, the figure could > $3 billion.
Implementing Health Financing Reform: Lessons from countries in transitionEdited by Joseph Kutzin Cheryl Cashin Melitta Jakab. World Health Organization 2010
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• Quicker Delivery of Infrastructure: global experience evidences that in 70% of PPP cases, infrastructure delivered early and under budget;
• Additional Capital: Private financing and extended repayment periods allow public authorities to deliver more social infrastructure in the short term;
• Private Sector Efficiencies: An average of 20% savings in long-term “life-cycle” costs of the assets;
• No delivery, no payment: Performance-based payments mean governments only pay for services that are delivered to satisfaction;
• Quality of Service: Incentive structures and private expertise result in higher service quality.
• PPP refer to forms of cooperation between public authorities and the private sector to procure the financing, construction, renovation, management, operation and/or maintenance of a public infrastructure facility or provision of a public service.
• Public sector retains responsibilities in PPP
• Private partner must be compensated for its investment and costs plus a reasonable profit
• Risk sharing• Life-cycle focus
What is PPP?Benefits of PPP
PPPs in the Health Sector
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Public-Private Investment Partnerships 20%Facilities Managementand Support Services…………………………………Engineering
Housekeeping
Dietary
Laundry
80%Clinical andAncillary Services……………………………………Preventative
Primary
Secondary and Tertiary
Ancillary (lab radiology
Finance Build Maintain Deliver
Horizontal bundling Service integration
The PPIP model embraces the full spectrum from financing through integrated service delivery
Design
PPPs in the Health Sector
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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 OptionsPublic-Private Partnerships Options
7
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Scope of services
Infrastructure only• Building design• Construction• Life cycle
maintenance (eg roof replacement)
• Mechanical and electrical maintenance
• Cleaning• Laundry and Linen• Security• Pest control• Grounds maintenance• Waste disposal• Car parking
Full-service Model• All infrastructure• All support services• Management team• Clinical services
Sometimes included (intermediate model)
Laboratory
Medical equipment
IT
Catering (food service)
Private patient unit
Equipment sterilisation
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Characteristics of a PPP-style arrangement
• Operator (SPV) makes investment to finance construction of hospital and manages over 15-30 years the project
• Government does not pay for the initial capital costs but pays over 15-30 years for the “service” of providing and managing services of the hospital.
• Profit for the operator is based on ability to contain life-cycle costs (with good maintenance and effective investments) and deliver high quality efficient services
• Risks are transferred from MOH/Government to the private operator
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Jorge Abreu Simões #10
Successful PPPs in the health sector: international experience
United KingdomUnited Kingdom
Availably PaymentAvailably PaymentBasically, Infrastructure Services and Hard & Soft FMBasically, Infrastructure Services and Hard & Soft FM
Valência (Spain)Valência (Spain)
Payment by a per capita feePayment by a per capita feeIntegrated Delivery of Primary and Acute Hospital Care for a population area
Integrated Delivery of Primary and Acute Hospital Care for a population area
PortugalPortugal
Availably PaymentPayment by Clinical Episodes (“Case Mix”)
Availably PaymentPayment by Clinical Episodes (“Case Mix”)
Hospital Management, Infrastructure and Clinical Services
Hospital Management, Infrastructure and Clinical Services
Victoria (Australia)Victoria (Australia)
Payment by Clinical Episodes (“Case Mix”)Payment by Clinical Episodes (“Case Mix”)
Hospital Management, Infrastructure and Clinical Services
Hospital Management, Infrastructure and Clinical Services
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Public-Private Partnerships Options – Private Finance InitiativePublic-Private Partnerships Options – Private Finance Initiative
Case Study: Darent Valley, UK Darent Valley (400 beds) was the first PFI project, built to
replace three old hospitals (totaling 450 beds)
Transaction Structure Government tendered for a private operator to:
design, construct and capital finance the new hospital maintain and provide non-clinical services Long-term contract with facility and services payments linked to
performance All clinical services and management remain under the public
sector 25 year contract Completed and commissioned in July 2002
11
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Case Study: Hospital Geral de Pedreira, Brazil State Government financed, built and
equipped 16 new hospitals under traditional public works contracts
State contracted with ‘not-for-profit’ hospital operators to manage the hospitals (including all clinical and non-clinical services)
Santa Catarina was chosen to operate the Pedreira hospitals
Public-Private PartnershipsPublic-Private Partnerships Options – Operating LeaseOptions – Operating Lease
Transaction Structure Operator obliged to treat all local residents Operator receives global fixed budget (monthly disbursements) from State,
provided specified patient volume and quality parameters are achieved (contract includes 10 performance targets)
Operator receives capital expenditure reimbursement Operator assumes all operating risk (demand and financial)
12
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Public-Private Partnerships Options – Integrated Care ConcessionPublic-Private Partnerships Options – Integrated Care Concession
Case Study: Alzira Health Area, Spain Newly constructed 250-bed Ribera Hospital with MRI, cardiac surgery, radiotherapy services Approx. 20,000 inpatients annually, 20,000 surgeries and 460,000 outpatient
visits Annual budget of approx $125 million
Transaction Structure The transaction is an administrative concession to privately finance the
construction of a new hospital - Hospital de la Ribera - on public land and manage the hospital
The Valencia Health Department (VHD) contracted with a consortium (UTE) to build, own, and operate the $75 million hospital for 10 years
VHD pays the consortium an annual capitation fee for residents of the area and a DRG fee for patients from outside the catchment area
13
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Dialysis Services IP and OP dialysis services are provided in approx. 40 public hospitals Dialysis supplies are purchased by the NHIF and equipment is purchased by the Ministry (if funds available) and allocated to the hospitals Backlog of patients and facilities in need of upgrading and expansion
Transaction Structure NHIF tendered for experienced private dialysis operators to take over and upgrade dialysis
centers in 8 different public hospitals across Romania Operator to assume full responsibility service provisioning NHIF conducted simultaneous tender for 8 dialysis centers Winning bidders selected on basis of highest investment commitments Total investment commitments amounting to over $16m
Public-Private Partnerships Romania– Dialysis CentersPublic-Private Partnerships Romania– Dialysis Centers
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Jorge Abreu Simões #15
PPP Models for Health SectorThe Variable Geometry Approach
InfrastructureServices
Clinical Services
Public Operator(PAS Hospital)
Private Operator Infraco
Clinco
AInfrastructure
ServicesClinical Services
Public Operator(Corporate Hospital)
Private Operator Infraco
Clinco
B
InfrastructureServices
Clinical Services
Public Operator
Private Operator Infraco Clinco
CInfrastructure
ServicesClinical Services
Public Operator
Private Operator Infraco Clinco
D
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Jorge Abreu Simões #16
Two Separated Payment Mechanisms
InfracoInfracoAvailability Payment to cover Capex and building O&M
Annual Service PaymentFixed Component: annual, not subject to revisionVariable Component: annual according to CPI
Performance Failures Deduction
Availability Payment to cover Capex and building O&M
Annual Service PaymentFixed Component: annual, not subject to revisionVariable Component: annual according to CPI
Performance Failures Deduction
AvailabilityPaymentAvailabilityPayment
ClincoClinco
Payment by Clinical Activity LinesVariable payment according to effective clinical production
Availability payment component related with special and specific clinical units
Pharmaceutical’s savings sharing
Performance Failures Deduction
Payment by Clinical Activity LinesVariable payment according to effective clinical production
Availability payment component related with special and specific clinical units
Pharmaceutical’s savings sharing
Performance Failures Deduction
InpatientOutpatientPayment
InpatientOutpatientPayment
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A Concrete Example for Akmola Oblast
New Multi-Profile Inter-District
Hospital
Zerendinsky Hospital
Krasnyi Yar City Hospital
Kokshetau City Hospital
Oblast Derma Venerology Clinic
Akmola Perinatal Center
Zerendinsky Hospice
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Lessons Learned
• >90% of hospital projects have been delivered on time
• All projects were delivered within the public sector budgets
• 77% of hospital managers stated that the projects have, so far, met their initial expectations (only 4% described value-for-money as poor)
• Estimated that PFI projects cost 17% less than public sector projects – a saving of $4 billion on a $22 billion programme – the equivalent of 25 hospitals
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Lessons Learned
― Recent UK Treasury study into PPP projects showed:― 89% coming in on time or early― No cost overruns on construction borne by public sector
― Noting:― 70% of Non-PPP were delivered late, and― 73% ran over budget
― UK National Audit Office Study of Highway PPP.’s found savings of:― 19% on capital costs― 34% on operating costs― 17% overall lifecycle savings
― Reasons for cost savings in UK PPP.’s― Transfer of risk and .“whole life.” responsibility to private sector― Broader competition (not just contractors, but also operators,
suppliers)― Economies of scale in project management, design, construction,
operation
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Lessons Learned
• Design to meet public policy objectives• Health service planning is key to meet
objectives• Political commitment is necessary• Enabling legislation for PPP is important• Signals to market for long term
sustainability• Deal flow from MOH• Good governments get good PFI/PPPs
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Thank You
Contact:James A. Cercone
Contact:James A. Cercone