Public Private Collaboration in Health Care Provision Montenegro Workshop September 2007

1. Public Private Collaboration in Health Care ProvisionMontenegro Workshop September 2007 Matthias Loening

2. Global Trends Public-Private Partnerships Challenges for the Region Summary Contact Overview

3. 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 Global TrendsPublic Health Systems Struggling • Public-Private Partnerships are seen as a vehicle to increase funding, improve quality while controlling for rising costs

4. 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 gov’t functions by a private-sector organization. Public-Private Partnerships Means of utilizing private sector resources combining outsourcing and privatization. Privatization The sale of government owned asset to the private sector asdfasdfa

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

6. 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

7. Public-Private PartnershipsCase 1 – Abbotsford, Canada • 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 • 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

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

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

10. Public-Private PartnershipsCase 3 - Berlin-Buch, Germany • 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

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

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

13. Public-Private PartnershipsAllocation of Risk and Responsibility

14. € Payment is made regardless of service performance t Construction Operation Public-Private PartnershipsAllocation 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) Public-Private Partnership Conventional Case € Payment is based on service performance t Construction Operation Note: At some point cost of construction must be paid

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

16. Challenges for the Region • The Region faces several challenges in implementing PPPs with respect to hospital management • 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

17. 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

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

19. Summary • 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

20. Contact: Matthias Loening Senior Health Advisor European Bank for Reconstruction and Development Email: loeningm@ebrd.com