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minute ISSUE 1 VOLUME 13 SUMMER 2014

The MarkeTech Group

INTERVIEW OF THE SEMESTER

Hospital PPP from the inside

Mr. Bernard Bensadoun (BB) Managing Director of Nantes Polyclinique de l’Atlantique Mr. Yann Bubien (YB) Managing Director of Angers CHU Mr. Jean Michel Budet (JMB) Deputy Managing Director of Assistance Publique

Hopitaux de Marseilles (AP-HM) Mr. Michel Meignier (MM) Managing Director of Nantes Bretéché Clinic Nantes

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W Interviewer: Olivier Cotten, TMTG Partner

OC: Before discussing further on how these PPPs affect purchasing and investment, I would like you to give us your own definition of a PPP. BB: In the hospital world, PPPs deal, on the one hand, with the hospital building for renovation, extension or rehabilitation projects and on the other hand with cooperation between public and private establishments. The latter projects date principally from the Hospital, Patient, Health, Territory law (HPST law) that has ensured promotion as a source of performance even if they already existed before this law. YB: We can define a PPP as being a market entrusted to a private player to build or even manage a public hospital. Funding is provided by the private group and the public establishment then pays this investment back in the form of rent. At the end of the day, this is a kind of leasing arrangement over several years (10 to 40 years). The approach is attractive to the extent that it means that a significant amount of money does not have to be paid out in one go as the expense can be spread out over time. It is also useful to make the most of private sector advantages, benefitting from more advantageous legal arrangements in market terms: less formal calls for tender and more significant expertise, for example, to shorten construction times, optimise maintenance contracts or benefit from wide ranging legal services. However, these examples remain quite theoretical and do not always actually come to light. The rent approach is seductive but recent attempts have often ended in failure or have been time bombs, particularly for very large operations.

JMB: PPPs effectively deal with cooperation but there are practices prior to texts from 2004 and 2005 with, for example, public services concessions that really correspond to PPPs in other forms. The 2004 law intended to contractualize these partnerships to allow construction or logistics operations to be performed in the hospital world. These experiences are now expanding to other expertise: in Marseille, the AP-HM thereby welcomes private establishments into the public domain that complement the care offer, particularly in the field of follow-up care. Other considerations involve assessing hospital property patrimony or the field of purchasing equipment (medical imagery, for example).

There are partnerships to pool

resources or to acquire

technologies they cannot access

alone. One example might be

PET Scans or robotics in

nuclear medicine.

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W MM: One of the private sector's lines of reasoning also considers setting up consistent territorial ensembles from a medical and

institutional point of view including as many participants as possible. In the past, some partnerships have turned out to be catastrophic. These failures can be explained away by lack of experience and distance from these partnerships and by culture divergence that should be toned down in the future. OC: We have understood, I think, what PPPs are and are not. Now I would like to understand whether this approach can be applied to all fields or if it is limited to just some: BB: If we only look at the matter from a legal point of view, the possibilities are endless. We can share human resources, equipment, administrative tasks or logistics. The legislator has got it all planned to manage implementing partnerships such as the GHSs (Healthcare Cooperation Consortiums). JMB: One priority is to make a reasonable choice of PPP. The main failures have concerned wide reaching projects that affect the hospital's overall core business. This ambition is in all likelihood too vast. We can quote examples from Sud Francilien or the Caen CHU where projects lacked maturity. As an example, at AP-HM, a PPP was set up for a logistics platform. This is not the hospital's core business. Logistics processes are more classic and common. This refers to stable, controlled fields where performance targets are quite easy to identify. YB: The chances of success are much higher for targeted, well-calibrated operations such as in Angers involving a crèche or biomass project. These are reasonably simple operations that are easy to control. In wide-reaching projects, we see that private companies are far better armed than a hospital or even a CHU. There is a difference in level, particularly legally. We have to stick to small operations (linen store, for example) to guarantee a PPP's success. BB: Apart from PPPs where the hospital delegates building construction to a private player, there are partnerships to pool resources or to acquire technologies they cannot access alone. One example might be PET Scans or robotics in nuclear medicine. As far as IT is concerned, the approach is more complicated for reasons of confidentiality and independent patient data management. YB: The ARSs (Regional Health Agencies) clearly encourage public, private establishments and PSPHs (private establishments participating in public hospitals) or ESPICs (collective interest private health establishments) to pool equipment with a view to optimising use. As an example, a partnership between the Angers CHU and the Paul Papin Cancer Centre is underway to pool use of the technical support centre (operating and imagery centre). How it will be used remains to be defined, particularly concerning staff. Nevertheless overall, we can see an increasingly strong demand for these groups from public authorities. BB: To go into further detail on this trend, here are a few figures: In 2006, there were 65 GCS (Healthcare Cooperation Consortiums) set up, 128 in 2007 and 491 today. Initial failures also spring from the fact that the contracts did not evolve over time. Local context and evolving needs have not generally been integrated in these rather constraining contracts where the tiniest request for change causes significant contractual difficulties that were not initially envisaged. YB: It is essential to understand that before 2011, a PPP's financial commitments were not considered to be a debt on the balance sheet which distinctly worsens the establishment's results. Since January 2011, we have had to enter these commitments on the balance sheet which modifies the data remarkably, particularly for PPPs involved in construction operations. OC: Is the PPP principle uniform across Europe? YB: Great Britain was one of the first European countries to launch PPPs. These PPPs particularly focussed on prisons and then hospitals. Following Great Britain's lead, France began to implement PPPs even before they saw specific results on their efficacy. Today, results are extremely lukewarm or even negative as far as Great Britain is concerned. The British have therefore put a stop to PPPs for major operations. British and subsequent French experience tends to show that we have to recalibrate these operations on more technical and modestly sized approaches. It should be noted that in England, staff pooling does not happen as health is very largely public. The private sector is very narrow, very independent and not reimbursed by the public sector. OC: To what extent do PPPs provide new funding opportunities for health establishments? JMB: It is important to note that one of the reasons for creating PPPs is linked to the economic context as hospitals have significant debts on the whole and it is difficult to borrow any further. In terms of funding, PPPs represent an indispensable alternative. As an example, in the field of imagery, during periods where we have little cash flow, it is interesting to work with suppliers such as GE or SIEMENS who have a banking organisation to support investment operations. Furthermore, it should also be noted that these PPP contracts are included as public debt from now on and not as a charge entered in the results account. OC: How does belonging to a PPP affect purchasing strategies? BB: On the one hand, there is the purchasing performance and, on the other, the rise in purchasing power. As an example, it is hard for an establishment to pay for a PET Scan or an operating robot due to lack of funding capacity and particularly due to under-exploitation in terms of usage volume. MM: PPPs come into play on heavy machinery. Regarding other aspects such as purchasing drugs, this becomes much more difficult to envisage due to very different ways of working.

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MEASURING the VOICE-OF-CUSTOMER in HEALTHCARE

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JMB: Regarding purchasing anything other than heavy equipment, encouragement has been seen lately to modernise public spending with public establishment consortiums and buyer training. This group strategy concerning public establishments may be at the expense of local cooperation. BB: Today, purchasing performance involves consortiums such what as UniHa (Health Cooperative Group) has managed to do in the public domain. Public/private groupings could be set up. Nevertheless, it is important to understand that this is not where the industry's interest lies. Today, the industry no longer tugs on the heart strings of the competition between establishments and will not be a facilitator for the participants' capacity to work together. MM: In terms of purchasing strategy, as far as pooling the purchase of small scale equipment is concerned, it is plausible that this will make something that is already not simple even more complicated. YB: As far as drugs are concerned, a pharmaceutical GCS could be envisaged as the approach is legally possible. However, this approach is extremely complex, particularly because of the pharmacist's liability on either side. Nobody really wants to launch themselves into this idea or only by taking vast precautions. OC: Conclusion JMB: The idea of rental, within the framework of building for example, can potentially be applied to other fields. As far as MRIs are concerned, we might envisage asking constructors, not for an MRI, but the MRI availability time whilst paying for use. This is an area to be explored in line with current rates and performance targets. YB: In the construction field, the opinion is rather unfavourable (except for small operations) as public hospitals would be at a distinct disadvantage against the particularly well-armed (certainly legally) major private groups. In terms of heavy equipment, this is a good approach if ratios are relatively balanced in terms of activity. It has to be a win-win situation. MM: The PPP tool is interesting for targeted operations that take into account the local environment. BB: There are really two major lines: the first line concerns construction PPPs with a rather more pejorative reputation although they are quite interesting as they are thought up to allow funding for modernity and innovation. The other line corresponds to PPPs between establishments such as cooperation projects. In this case, the economic context encourages us to explore this approach to optimise resources and equipment. This also refers to a means of structuring a care offer to the scale of a territory and thereby becoming more consistent. JMB: The success of the logistics platform contract in Marseille gives some maturity to the targets as well as solid legal and financial support to work on a level playing field with our private partnerships. These targeted approaches are interesting.