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w w w . s a n i g e s t . c o m 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 Y Health 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. Cercone Sanigest Internacional V Astana Economic Forum Astana, Kazakhstan

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Page 1: W w w. s a n i g e s t. c o m 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 Y Health Care, Education, Social Security,

w w w . s a n i g e s t . c o m

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

Page 2: W w w. s a n i g e s t. c o m 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 Y Health Care, Education, Social Security,

www.sanigest.com Slide 2

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

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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

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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)

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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

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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

[email protected]

Contact:James A. Cercone

[email protected]