Lesotho Public-Private Partnership

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Lesotho Public-Private Partnership

• Financing a New National Referral Hospital for
  Results

2
Topics

• What is PPP?
• Background of Lesotho Hospital PPP
• Why PPP
• PPP Financing Arrangements
• PPP for Results

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Definition of PPPs

• Public Private Partnership
• Public Government
• (national, district, municipal,
  local)
• Private anything other than government
• (private company, NGO or other
  not-for-profit organization)
• Partnership formal agreement between the
  parties for the private provision of public
  infrastructure and/or public services

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Definition of PPPs

• A contract between government institution
  private party
• Private party performs a public function
  according to output specifications
• Substantial project risk (financial, technical,
  operational) is transferred to the private party
• Government becomes purchaser of services and/or
  enabler
• Payment received by private party either
• Fees from government budget
• User fees
• Some combination of government fees and user fees

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Why embark on a PPP?

• Changing role for modern Governments
• Old model Govt plan, finances, and provides
  public services everything,
• New model Focus on high level priorities
• Regulate, design implement sector policies,
  quality standards
• Contract out for specific services and
  infrastructure
• Private sector expertise and resources
  provide efficient,
• effective public services and
  infrastructure

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PPP as RBF Performance-Based, Output-Driven
Contracts

• Transparent bidding/negotiations
• Objective ranking/selection criteria
• Criteria to evaluate compliance with output needs
  to be clearly defined
• Service-oriented
• What controlled by buyer (Government)
• How controlled by seller (private sector)
• Responsibility for performance is clear
• Allows the bidders to apply expertise and
  innovation to lower costs

A clear regulatory environment as well as
skilled contract monitoring is KEY for success
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PPP Options
Risk
Public
Private
BOT DBOM DBFO
Rehab ROT
Mgt Contracts
Service Contracts
Service Contracts
Service Contracts

• Detailed design and construction
• Medical equipment
• Capital financing
• Management
• Operate
• (FM, support svcs, clinical)

• Varied
• Design and Rehabilitate
• Upgrade and Re-equip
• Management
• Operate
• (FM, support services, clinical)

• Clin. Specialist
• Dialysis
• Oncology services
• Day surgery
• Other specialist services

• Varied
• Primary care
• Public health
• ART clinics
• Mgt of new,
• existing facilities
• Mgt of entire
• Hospital or
• Hospital / clinic
• network

• Non-Clinical
• IT equipment services
• Billing
• Maintenance
• Food
• Laundry
• Cleaning

• Clinical Support
• Lab analysis
• Diagnostic tests
• Medical equipment maintenance

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Hospital PPP

• PPP Models match needs by country
• Countries with primary need for infrastructure
  alone, have opted for the PFI model (UK, Canada,
  others)
• Countries with need for infrastructure, know-how
  and trained staff have opted for full PPP models
  and purchase specified services from their PPP
  Partners (Brazil, Australia, US and countries in
  Eastern Europe, Latin America, Asia)
• Projects include new and refurbished hospitals,
  clinical and support services, primary care,
  national insurance and contracting for other
  health services
• Lesotho hospital PPP will be the first of such in
  IDA countries

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Background

• With a population of 1.89 million (2006 Census),
  and a GDP per capita of US960, Lesotho is a
  small and landlocked economy, completely
  surrounded by the Republic of South Africa.
• Two great challenges hindering economic growth
  and poverty reduction
• -A HIV/AIDS epidemic and a heavy disease
  burden
• HIV prevalence in the adult population estimated
  to be the third highest rate in the world.
• Life expectancy at birth in 2004 was estimated at
  36.81 years.
• For a total population of about 1.8 Million
  (Census 2006), 108,700 children are orphaned due
  to AIDS and 270,272 people are reported to be
  living with HIV and AIDS.
• There are an estimated 62 new HIV infections and
  50 deaths from AIDS each day in the country.
• Poor health status and heavy disease burden,
  featuring fifth highest TB incidence high
  maternal and child mortality and malnutrition.
• Lesotho is not on track to reach the health MDGs.

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Queen Elizabeth II Hospital

• The only national referral hospital and important
  part of the health care system.
• The hospital, built in the early 1900s, is no
  longer fit to serve as the national referral
  hospital
• Major problems collapsing structure, obsolete
  systems, limited service space and capacity, and
  overcrowding of patients.
• It even poses a real risk of cross-infection.
• Nonetheless, the hospital continues to consume a
  significant share of the national health budget,
  and its budget has tripled in the last five
  years.

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The Need for a New Hospital

• As part of the ongoing Health Sector Reform
  program, Government is replacing the Queen II
  hospital with a new referral hospital.
• Governments objectives for the new hospital
  project include
• A new public hospital with a higher level of
  service and quality
• Maximizing the value for money spent more
  services!
• Reliable services, affordable and predictable
  costs for the budget
• Accountability for results
• Benefits from new hospital to all Basotho and
  throughout health sector.
• The New Hospital cannot solve all issues in the
  health sector, but it will help to address many
  of them.

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Financing options

• Public only (the traditional way)
• Private only
• Public-Private Partnership

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Why the PPP Model?

• Increased need for better services as expressed
  by both the public and government
• Private Sector can deliver the results Government
  and the public are seeking
• Government is increasingly focusing on
  accountability and results
• Government intends the New Hospital PPP Project
  to provide -
• -Modern approaches to health management,
  clinical procedures, medical equipment
• -Training for the health sector
• -Predictable expenditure to stay within
  Governments Unitary Payment

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Decision

• Government began considering PPP options in late
  2004 in late 2005 it requested the IDA and IFC
  to review the strategic options for a New
  Hospital PPP, to prepare for rapid implementation
• In September 2006, Cabinet approved moving to
  market with the New Hospital PPP as a
  Design-Build-Finance-Operate project for a 390
  bed hospital to be constructed on a greenfield
  site
• The contract is anticipated to be for 18 years,
  during which the PPP Partner will initially
  refurbish and operate the filter clinics while
  constructing the new hospital, then fully manage
  and operate the clinics and hospital

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PPP at Work New Hospital
PrivateOperator
Ministry of Health
PPP Agreement
New Hospital

• Detailed designs
• Capital financing
• Construction
• Medical supplies equipment
• Clinical services
• Maintenance
• Non-clinical services
• Staffing and Training

• Sector Policies and Strategy
• Service Package
• Reimbursement for all clinical and non-clinical
  services
• Performance monitoring
• Joint Services Committee

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Lesotho New Referral Hospital PPP

• The Project
• Greenfield public hospital of 390 beds 35
  private beds
• Refurbishment, upgrade and operation of 3 large
  filter clinics
• Design, construction, partial finance, full
  operation for 18 years significant risk
  transfer to the private sector
• Operational services include
• Non-clinical services - administration, building
  facilities management, IT, etc.
• Clinical Support Services - biomedical
  engineering, labs pharmacy, imaging, etc.
• Clinical Services - Tertiary hospital, with fewer
  referrals to South Africa
• Private wing

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Guiding Principles

• New Public Hospital serves two equally important
  functions
• High quality services for all Basotho
• Training resource for health sector
• Balance what is needed with what is affordable
• Suitability, durability, ease of maintenance and
  minimum life-time cost for the building and
  equipment
• Maximum value for money spent on this project

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World Bank Contributions

• Strong sector and country support, e.g., Health
  Sector Reform Program Phase II
• World Bank has approved a GPOBA grant of 6.25m /
  M43.75m to top up the budget for the first 5
  years of the PPP project, allowing additional
  patients to be seen for most needed services
• IFC is providing TA to the PPP
• IDA agreed to provide a PRG to mitigate the risks
  associated with the PPP and to attract bidders

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Services offered Queen II v New Hospital PPP
Queen II Today New Hospital
387 Notional Beds 220 Functional Beds 390 Beds 390 Functional Beds
Surgeries p.a. 1,000 - General (emergency/basic) 1,500 - Opthalmology 100 - ENT 2,600 Total General Surgeries p.a. 5,000 - General (emergency, basic complex) 4,000 - Opthalmology 500 - ENT 10,000 Total
0 ICU beds 10 ICU beds
0 Recovery beds 10 Recovery beds
22,000 Dental patients p.a. 63,000 Dental patients p.a.
Radiology services p.a. Unknown and low reliability Staff understaffed serious retention issues Radiology services p.a. 20,700 Total (basic complex services) Staff Overall 20 increase in staff numbers 79 salary increase, improved benefits working conditions extensive training
Heat / Hot Water None Power Unreliable Equipment Unavailable Maintenance Very little, No budget Heat / Hot Water Full Availability Power Full Availability Equipment Full Availability Maintenance Fully Included
23,448 Inpatients basic level services 212,680 Outpatients basic level services 30,249 Inpatients high level of services 265,850 Outpatients basic high tech
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Design of New Hospital
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Financing New Referral Hospital PPP

• Estimated cost US 68m
• Govt capital contribution (46m)
• Private sector capital contribution
• Partial Risk Guarantee (World Bank) attractive to
  bidders
• GPOBA output based grant for service delivery
  (6.25m)
• Co-pay per patient does not change (1.25 per
  patient)
• Unitary Payment
• Guarantees service to 20,000 inpatients 310,000
  outpatients per annum
• Escalated only by CPI ensuring budget certainty
  for Government
• Local Economic Empowerment
• Strong contractual commitment - 20 at project
  start, 30 by year 12

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Lesotho New Referral Hospital PPP

• Goal Maximize value for money better quality
  and more services for similar budget
• Bidders provided with
• Set annual operating budget (Service Payment)
• List of services (required optional) to be
  provided at the new hospital
• Set quality parameters for services and minimum
  patients to be seen p.a.
• Bidders required to specify the volume of each
  service to be provided from list, within the
  specified budget and quality standards
• PPP Agreement allows for changes in the service
  mix, to meet future needs, changes in
  demographics and disease profiles
• Operator required to gain and maintain hospital
  accreditation

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PPP for Results

• Operator must manage services within set budget,
  adjusted for inflation
• Hospital building required to have minimum 50
  year lifespan
• PPP Agreement includes equipment replacement
  schedules, maintenance and servicing levels to
  manufacturers standards
• Equipment replacement schedule means that at
  handover, Government receives equipment in good
  operational condition
• Staff may choose to transfer to Operator or be
  reassigned by Govt
• New hospital must attend all patients who present
  
• New hospital required to provide practical and
  ongoing professional training opportunities for
  health professionals throughout the country
  (medical and nursing students, district
  hospitals, clinics)
• Operator committed to attracting and retaining
  health professionals key constraint for
  Government

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How will the New Hospital Affect the Health
Sector?

• Higher level of medical services at New Hospital
  fully functioning hospital with required staff,
  training and equipment
• Greater access to services more patients can be
  seen, and at higher level of service quality
• Better referral resource for district hospitals
• New Hospital will serve as a training resource
  for the health sector, complementing existing
  programmes this is a contractual obligation
  students from NHTC will have placements, District
  hospital staff will also have training rotations
• Fewer referrals expected to South Africa over
  time
• Fits in Governments affordability envelope
  similar budget, on net basis, to existing
  hospital, rising only for inflation

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Accountability for Results

• IFC Baseline Survey measured services and
  quality today
• Contractual Performance Indicators (clinical and
  support svcs)
• Ramp up from current baseline to targets
  (equipment availability, charts, etc)
• Indicators based on review of Governments health
  targets (e.g., MCH MDG) and international best
  practices for quality of service
• Failure to meet performance indicators invokes
  penalties (up to 10 of UP p.a.)
• Performance Monitoring 5 levels
• Independent Monitor quarterly assessment
  against performance indicators
• Operators internal monitoring
• Government monitoring
• Joint Services Committee
• COHSASA Accreditation

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QEII ReplacementHospital PPP - Preparation Phase
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QEII Replacement Hospital PPP - Implementation
Phase
Implementation will begin in with the marketing
program and Investors Conference, and will be
completed with bid evaluation, bid award and
closure later this year.
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Ongoing Process

• Bidding process was completed and private
  operators have been selected
• PPP arrangement signing is scheduled for October
  2008
• Financial closing by the end of 2008
• Construction will start in January 2009
• The new hospital is expected to be operational in
  2011