from the sns health service perspective mariana abrantes ... · sns to build, finance, pay and...
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PPP Hospitals in Portugal from the
SNS Health Service Perspective
Mariana Abrantes de Sousa
PPP Days 2012 – UNECE, Geneva21 - February - 2012
Agenda� PPP hospitals in the Portugal’s National
Health Service (SNS) � Hospital PPP Program, key dates and
events � Key options: Integrated versus
Infrastructure PPP contract models (with or without clinical services)
� Experiences, results, conclusions
2http://[email protected]
Agenda� PPP hospitals in the Portugal’s National
Health Service (SNS) � Hospital PPP Program, key dates and
events � Key options: Integrated versus
Infrastructure PPP contract models (with or without clinical services)
� Experiences, results, conclusions
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Characteristics of SNS and the Health Sector• SNS since 1979, direct provision of health services to
resident population of about 10 million users• “Tendentially free” for users as per the Constitution • As of 2004, 171 hospitals, of which 89 public, some
purpose built • Mixed system
– SNS, conventions with non-SNS providers (about 10% hospital services)
– Dual professional practice permittted,“funcionário público”staff
• Health spending/GDP above average and growing, high public/total health spending
• SNS management in transition with transformation of public hospitals from Public Administration into state-owned companies, SA or EPE.
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Agenda� PPP hospitals in the Portugal’s National
Health Service (SNS) � Hospital PPP Program, key dates and
events � Key options: Integrated versus
Infrastructure PPP contract models (with or without clinical services)
� Experiences, results, conclusions
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Main challenges The SNS
Constraints o Old hospitals, some in historic buildingso SNS public hospital management
problematic, inflexible, unresponsiveo Little CAPEX procurement experience
within the SNS
o Some experience shifting from pay-per-input to pay-per-output with SA/EPE
o Considerable experience with outsourcing to private providers
Objectives� Consolidate health and quality gains, to
levels at or above OECD averages since 2000
� Increase coverage of services offered � Increase efficiency at the hospital
level , affordability to users
Constraintso Maastricht Government deficit and
debt criteria (Maastricht) o Contain and reduce public spending,
especially for investmento Public health spending growing
faster than total Government spending
Objectives� Rapid development of heath
infrastructure without publicspending or publicpublic debt
� Cut annual public expense growth for budget sustainability
� Overcome SNS project mangement and financing restrictions
The Government
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Public entities envolved in PPP procurement • Ministry of Health
– Members of Government– SNS- ACSS central health system administration – SNS-ARS regional health administrations – Parcerias da Saúde, Health PPP Unit
Ad hoc unit reated within the MdS, but not integrated with ACSS or other management units
• Each project procurement managed by a joint Health/Finance Steering Committtee and joint Tender Boards responsible for
– Preparation of tender– Bid evalution – Negotiations– Renegotiations
• “Visto” Court of Auditors (Tribunal de Contas) required for contract effectiveness
• Contract management and payment responsibilities with the regional ARS as the Public Partner
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Date PPP Hospitals in Portugal - Key Events 1995-Oct New hospital Amadora-Sintra built by Govt, managem ent contract
2001-Sept Creation of Parcerias da Saúde PPP unit, reporting to the Minister of Health
2001Announcement of first 5 PPP hospitals, with clinica l services (Loures, Cascais, Braga, VFXira, Sintra)
2002-Aug Legislation for PPP Health
2002 Announcement of second group of 5 PPP hospitals, w ith clinical services
2003 Launch of first Loures tender, cancelled in 2006
2005 Decision to limit to 4 integrated hospitals , and to move to infrastructure-only contracts
2002-7Reorganization and consolidation of public hospital network, from SPA and SA to EPE to gain efficiencies and economies of scale
2008-Nov TdC visto on Cascais contract, refused earlier in J uly 2008
2008-Oct SNS takes over management of Amadora-Sintra, transf ormed into Hospital, EPE
2008 Cascais signed, including clinical services
2009 Braga signed, including clinical services , Loures signed, including clinical services
2009-May Cascais cancer medication dispute resolved by Arbit ration Court
2010-Sept VF Xira signed, 4th and last including clinical se rvices
2010-2012 New hospital in operation Cascais (Feb 2010), Brag a (May 2011), Loures (Feb 2012)
2011 IMF/EU/ECB troika - Assisted Adjustment Program, new PPPs suspended 10
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PPP Hospital Program Portugal Public Partner
Project Clinical Services
TenderPSC
€ millionCurrent Phase Bidders
Bid NPV€million
ASR-LVT Cascais yes Sept-2004 409 as at Jan-2005
Financial cose Fev-2008, operating old hospital since Jan-2009,operaional since Fev-2010
HPP/Teixeira Duarte 375
ARS-N Braga yes Jan-05 1,186 as at Jan-2006
Financial close Feb-2009, in construction, operating existing hospital since Sept-2009
José de Mello Saude/Somague
795
ARS-LVTVila Franca de Xira
yes Dec-2005 590 as at Jan-2007 Signed Aug-2010José de Mello Saúde/Somague/Edifer
495
ARS-LVT Loures yes Feb-2007 745 as at Jan-2008Financial close Dec-2009, operating since Feb-2012
Espirito Santo Saúde/Mota Engil
578
AR´S-LVTLisboa Oriental Todos os Santos
infra April-2008 375 as at Jan-2008 Suspended Salveo, Somague, Teixeira Duarte
598, 612, 659
ART-S Algarve infra May 2008 266 as Jan-2008 Suspended
Salveo, NPS, Al-Gharb, Teixeira Duarte, Somague, AS Algarve Saude
-
ART-N Gaia infra Suspendende -
RAAAngra, Terceira, Azores
infra Oct-2008 Signed Aug-2009Mota-Engil Somague
-
The latest ppp hospital projects include only the infrastructure and ancillary services, with the SNS remaining responsible for clinical services.
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Agenda� PPP hospitals in the Portugal’s National
Health Service (SNS) � Hospital PPP Program, key dates and
events � Key options: Integrated versus
Infrastructure PPP contract models (with or without clinical services)
� Experiences, results, conclusions
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The options
� SNS to build and finance, and later to pay for services operated by the private sector (Amadora-Sintra)
� SNS to build, finance, pay and operate (Sta Maria da Feira)
� Hospital PPP integrated with clinical services, private sector to design, build, finance, operate, SNS to pay (Cascais, Braga, Loures, VF Xira)
� Hospital PPP infrastructure, private sector to design, build and finance, SNS to operate and pay (Algarve, Terceira, Lisboa Oriental)
� Increasing outsourcing to private providers “convencionados”, through SIGIC surgical waiting list
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• PPP off-budget• Unique PPP model,
including clinical services, to minimize interfaces, optimize efficiencies
• Large, ambitious program for critical mass, no pilot
• Compensate low levels of experience in SNS with a Health PPP unit and consultants
• Use of PSC
The choice • Good number of bids,
domestic bidders
• Crowded deal pipeline • Delays, mostly in bid
evaluation and final negotiation, average 3.5 year from launch to signature
• Banks required corporate guarantees for clinical risk, limited market
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Risk allocation depends largely on political will…
• Fitch, 2003: “In Spain and Portugal, the concept fo financial (re)equilibrium gives confort with regard to the possiblity of Government intervention, but this concept does not exist in other countries”
http://www.developmentfunds.org/pubs/Fitch%20PPP-UK.pdf
• Fitch, 2003: The Portuguese govenment’s current plan to privatise clinical services, a feat that has not been attempted in other European countries”
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The re-assessment • 2004-2006
– Long procurement delays – Impasse in bid evaluations
– Complex specifications
– Bidders limited to sponsors with local clinical experience
– Banks unwilling to take clinical risk
• clinical performance,
• demand demographics
• price and regulatory risks
– Bank ceilings on taking sponsor corporate risk
• Since 2007– Clinical services excluded (2005-2008)– Specifications simplified
– Tender panel to include ARS, as “contract manager” and payer
– Approval of final engineering designs postponed to after signature
…. Responses to GFC finacial crisis
– Temporary sharing interest rate risk not permitted
– Front loading debt, mini perm, reimbursement, maturities
– Reliance on single bank funding CGD, plus EIB
– Refinancing clause with gains for Public Partner
• New PPPs suspended in 201116http://ppplusofonia.blogspot.com
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The frst wave PPPs include the provision of infrastructural as well as clinical services.
Contractual structure - with clinical services
Scope
Banks
Clinical SPV
InfraSPV
Payment Infra
PublicSector
MaintenanceSubcontractor
ConstructionSubcontractor
Payment Clinical
Subcontractors
• Cleaning
• Catering
• Laundry
• Sterilization (…)
Inter SPV contract
Contract
10 years 30 years
Debt
Equity
BanksBanks
Share-holders Share-holders
Debt
Equity
BanksBanks
Share-holders Share-holders
Banks
Clinical SPV
Clinical SPV
InfraSPVInfraSPV
Payment Infra
PublicSectorPublicSector
MaintenanceSubcontractor
ConstructionSubcontractor
Payment Clinical
Subcontractors
• Cleaning
• Catering
• Laundry
• Sterilization (…)
Inter SPV contract
Contract
10 years 30 years
Debt
Equity
BanksBanks
Share-holders Share-holders
BanksBanks
Share-holders Share-holders
Debt
Equity
Debt
Equity
BanksBanks
Share-holders Share-holders
BanksBanks
Share-holders Share-holders
It has a thirty -year contract and is responsible
for the design, construction and maintenance of
the hospital building and fixed equipment.
The Clinical SPV has a ten -year contract and is
responsible for clinical services, ancillary
services and medical equipment acquisition and
replacement. Smaller investment needs and
difficulties defining clinical specifications led to a
shorter contract duration.
Clinical SPV
� A contract between the two SPVs ensures coordination and both groups are
joint and severally liable to the grantor.
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Construction Subcontractor
InfraSPV
PublicSector
MaintenanceSubcontractorSubcontractors
• Cleaning• Catering• Laundry• Security• Waste• Sterilization
BanksBanks
Share-holders
Share-holders
Car parking management
Energy and other utilities
Commercial activities
Contractual structure-Infrastructure
Payment Infra
Contract 30 years
Debt
Equity
7 years 30 years
The second wave PPPs include only the infrastructural services, keeping the clinical services in public responsibility.
Scope
As in the previous case, the Infrastructural SPV has a thirty-
year contract and is responsible for the design, construction
and maintenance of the building and fixed equipment.
The soft facilities services have a 7 year duration.
Infrastructural SPV
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• Clinical Services (first wave)– Clinical activity
• Impatient, unit price • Consultations, unit price• Emergencies, unit price, no ceiling• Outpatient, unit price
– Emergency services, availability– Medications adjustment with
benchmarkikng– Adjustments, deductions based on
performance indicators – Prices adjusted for inflation– Annual production limits by type, patients outside
the area, or private (non-SNS) – Third party revenues (insurance), shared with
grantor SNS-ARS
• Infrastructure (first wave) – Availabilty payments
• Debt service• Component adjusted by inflation
– Deductions for performance, service failures capped at 10% of annual payment
• Infrastructure and support services (second wave)– Availabilty payments,
inflation adjusted – Ancillary
services, adjusted by occupancy and inflation
– Deductions for Availability failures, up to 100% of annual payments
Hospital PPP in Portugal Payment mechanisms
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Agenda� PPP hospitals in the Portugal’s National
Health Service (SNS) � Hospital PPP Program, key dates and
events � Key options: Integrated versus
Infrastructure PPP contract models (with or without clinical services)
� Experiences, results, conclusions
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Clinical risk, the creditors, and the financial markets
� Banks never accepted clinical risks, required sponsor guarantees� Clinical risk taken by sponsor, in the form of corporate guarantees, under existing credit limits of local and international banks� Inclusion of clinical services exhausted the field of potential bidders, reduced competition � Market capacity to absorb clinical risk exhausted very quickly 2003-2005� NPV of payments at final bid, discounted at 6,08%, were consistently but moderately below PSC
� Cascais (Oct-2008) -7,8%� Braga (Feb-2009), -33%� Loures (June-2009), -20-3%� Vila Franca de Xira (July-2009) – 23%
� The initial bids for the Oriental Lisboa hospital (April-2009), came in significantly above the PSC, +50-75%, primarily due to the higher financing costs, now suspended
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PPP Hospitals Portugal Actual procurement outcomes
• No pilot, but re-assessment led to major shift in risk allocation strategy
• Evolution of risk allocation to international bank practice
• 5-6 groups entered sector in order to present as bidders
• Long delays exposed projects to more market risks, interest rate, underwriting risk
• Concept of financial re-equilibrium opens door to renegotiations
Results • Government contraints and
objectives
– Compliance with Maastricht criteria for Government deficit of 3% of GDP and Government debt of 60% of GDP
• Four integrated hospital PPP contracts signed, one infra hospital in Azores
• Great reliance on CGD local Government bank and EIB (Braga and Azores hospitals)
• Cascais dispute over paying for cancer medications in arbitration in year 1
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Clinical Services Pro and Cons (RSM 2010) Integrated model
with clinical services • Transfer significant risks, such as
cost overruns and delays • Partners able to manage risks more
efficiently
• More innovation and efficiency gains expected, with synergies and whole-life costing
• Lower interface risks, infra/clinical,• Higher political sensivity • Contract management periodic, lower
conflict • Coincident with transformation of SNS
hospitais into SA and EPE• Ability to benchmark performance
Infrastructure model • Higher interface risks• Lower political
sensitivity and risks• Higher cost overruns• Contract management
with daily interface requires daily cooperation between landlord and hospital staff, friction
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Clinical services: to include or not to include in the PPP
External Evaluation Report (Barros, Simões, July 2009)
• Include in PPP routine undifferentiated clinical services, easier to contract and benchmark
• Keep more differentiated services in the public sector, given difficulty in establishing contractual arrangements, incentivies and monitoring indicators
Abrantes 2010 :• Key interface is with primary care
physician, not between infrastructure provider and hospital staff
• Key criteria
– Budget sustainabilty and SNS-wide efficiencies
– Risk appetite and pricing by international sponsors, creditors
=> Exclude clinical services from hospital PPP , unless managed in integrated manner with the primary care physician (médico de familia) as doorkeeper (HMO or Alzira model )
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The health care sector is different • Suppliers, service providers, strongly influence demand • Taxpayer, as third-party payer, has great need for control
in dinamic situation • Demand for health services growing with ageing• Multiple interfaces
– Primary care versus specialists, MCDT, meds, hospitals, continuing care
– Provider versus third-party payer – Infrastructure versus clinical services is not the critical interface
• Budget sustainability will become the key constraint and will depend as much on contract management as on contract design, favoring simpler, transaparent contracts
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Conclusions • No real substitute for public sector
contract managment capacity, training, capacity building and rotations are essential
• Managing indirect public investment through a 10-30 year PPP contract is much more complex than managing direct public investment 3-5 year contract
• Great attention to market risk capacity and pricing in determining risk allocation
• Ongoing monitoring and evaluation key to maintaing Value for Money in the face or renegotiations and rebalancings
• Value for money must include concept of budget sustainability , renegotiations and equilibrium for the public partner, as well as the private partner
Recomendations• Plan for public sector capacity building,
guidance, guidelines, reviews
• Simplifty specifications, standardization of documents and procurement procedures
• Adjust to changing market conditions, manage project pipeline to avoid crowding and accumulation of external debt
• Find alternative, even if temporary, sources of financing to overcome funding gaps and overly tight conditions
• LT PPP funding vehicle to take over operating project loans
• Keep PPPs the exception, not the rule, as a form of financing public investment and public services, below 25% of relevant public investment
• Include PPP contract obligations in public investment expenditure and public debt
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Growing pensionerhealth care liabilities
Ageing Europe faces twin time bombs:
coming to a budget near you
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Growing pension liabilites
Comevisit
Portugal!*BYOHI
Mariana Abrantes de SousaIndependent Financial
Consultant and PPP Specialist
PPP LusofoniaAlgés, PORTUGAL
tel. (351) 214 194 151
Obrigada(* Please Bring Your Own Health Insurance )
PPP Lusofonia
28http://ppplusofonia.blogspot.com Mariana Abrantes de Sousa [email protected]