Lesotho Public-Private Partnership

Financing a New National Referral Hospital for Results

Topics

What is PPP? Background of Lesotho Hospital PPPWhy PPPPPP Financing & ArrangementsPPP for Results

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

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

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

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

BOT DBOM DBFO

Rehab ROT

Mgt Contracts

Service Contracts

ServiceContracts

ServiceContracts

PPP Options

Non-Clinical

• IT equipment & services

• Billing

• Maintenance

• Food

• Laundry

• Cleaning

Clinical Support

•Lab analysis

•Diagnostic tests

•Medical equipment maintenance

Clin. Specialist

• Dialysis

• Oncology services

• Day surgery

• Other specialist services

Varied

•Primary care

•Public health

•ART clinics

•Mgt of new, existing

facilities

•Mgt of entireHospital or Hospital /

clinicnetwork

• 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)

Public Private

Risk

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

Background

With a population of 1.89 million (2006 Census), and a GDP per capita of US$960, 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.

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.

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.

Government’s 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.

Financing options

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

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 Government’s Unitary Payment

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

PPP at Work: New Hospital

NewHospital

• 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

$

$

Ministry of HealthPrivateOperator PPP Agreement

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

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

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

Services offered: Queen II v New Hospital PPP

Queen II Today New Hospital

387 Notional Beds220 Functional Beds

390 Beds390 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 NonePower UnreliableEquipment UnavailableMaintenance Very little, No budget

Heat / Hot Water Full AvailabilityPower Full AvailabilityEquipment Full AvailabilityMaintenance Fully Included

23,448 Inpatients basic level services212,680 Outpatients basic level services

30,249 Inpatients high level of services265,850 Outpatients basic & high tech

Design of New Hospital

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

Financing New Referral Hospital PPP

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

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

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 Government’s affordability envelope – similar budget, on net basis, to existing hospital, rising only for inflation

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 Government’s 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 Operator’s internal monitoring Government monitoring Joint Services Committee COHSASA Accreditation

Due Diligence

IdentifyPSP

Objectives

Legal/RegulatoryReview

Assess PSP Options

FinancialModeling

AssesInvestor Interest

TransactionStructure

Phase IPreparation

QEII ReplacementHospital PPP - Preparation Phase

InformationMemorandum

Pre-qualification

Bidder Due DiligenceDraft Bidding

Documents

Final Bidding

Documents

Bidding

Closing

Phase IIImplementation

QEII ReplacementHospital 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.

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