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By Ahmed Faiyaz, Health Sector Practice, A.T. Kearney Middle East
GCC governments in the GCC region are increasingly looking at alternative models to fund and operate new and existing public facilities delivering health services, given the growing demand for health services contributed partly by rise in population, increase in prevalence and burden of chronic diseases and an expected rise in elderly population. The current capacity to deliver health services in the public-sector is constrained, and the increase in availability of health infrastructure (hospital beds, primary care centers, elderly and long term care, dialysis units etc.) hasn’t kept up with rise in utilisation of health services, with the exception of primary and secondary care services in the emirates of Abu Dhabi and Dubai that have seen significant investments in the private sector supported by the enabling business environment and the health insurance mandate. Despite increases in the efficiency of regional health care delivery, payers including GCC governments and insurance companies, find the increase in healthcare costs (ranging from 8-12% per year across GCC countries over the past three years) to be unsustainable in the current economic environment. To add to this, the public-sector facilities face challenges to recruit and retain highly qualified clinical talent, address low productivity and efficiency of clinicians and assets, as well as delays and overspending on new infrastructure.
PPP/PSP models have been used widely for financing of public hospitals in mature healthcare markets – UK, Australia, Canada, Spain, Portugal, Eastern Europe, Latin America and parts of Asia. Public sector hospitals and clinics can benefit from lessons learnt across Europe over the last two decades to bring down average length of stay, improve productivity and shut down non-functional beds, which has helped slow down the rise in healthcare costs despite a sizeable ageing population.
In the United Kingdom, 85% of all hospital projects since 1997 have been done under the Private Finance Initiative (PFI) program – 130 hospitals with investment of US $ 22 bn in capital value. In rest of Europe, over 15 hospitals have been set up through PPP’s at a cost of US $ 2.4 bn. In the UK there has been a clear evidence on PFI vs. traditional approach. Assets developed through PSP/PPP models have 15-20% lower construction cost, 10-45% lower life-cycle cost and 60-70% reduction in construction delays. The benefits delivered from PSP/PPP models are positive with similar experiences in Australia, Portugal, Canada, South Africa where the assets have been developed with lower up-front capital requirement, lower project cost, the quality of infrastructure is better and this has been delivered at speed and efficiency that hasn’t been experienced in traditional models. Evidence of PPP vs traditional approach in other countries: 50-60% reduction in budget overruns, 55-70% reduction in construction delays and 15-25% reduction in overall costs.
Key Elements of PPP/PSP Models
The following are the key elements of the PPP/PSP model to deliver on the intended benefits –
Opportunities and Benefits - Healthcare PPP/PSP Models for GCC
There exists evidence of different types of PPP/PSP models being used in the health sector ranging from Design-Build, Design-Build-Maintain, Build-Operate-Transfer to Operator Agreements, Concession agreements, Joint Venture etc. The appropriate model should be structured to market dynamics and needs.
PSP/PPP models, if structured and implemented well can deliver the following benefits to providers, patients -
Design-Build, Design-Build-Maintain, Build-Operate-Transfer and Concession Agreements can be structured to support the financing of new public hospitals and medical cities, networks of ambulatory/ primary care clinics and long term care facilities. With the right partner and well-structured agreements based on a reasonable estimation of demand, it could deliver –
Operator Agreements with risk-profit share and management contracts (more commonly used in Abu Dhabi, KSA and Kuwait in the past) can be used to bring in a private sector partner to deliver laboratory services, imaging diagnostics, manage the entire facility or a specific department/service within existing primary care clinics and hospitals and other clinical support services. This could –
Operator Agreements with risk-profit share and Joint Ventures could be used in setting up retail units in hospitals and clinics (new and old), digital health solutions, wellness centres, and retail pharmacies near clinics and hospitals. This could help -
Key Challenges - Healthcare PPP/PSP Models
Despite the positive experiences with PPP/PSP models for other types of infrastructure, the structuring and implementation of PSP/PPP agreements in healthcare in GCC are not without challenges –
However, given the GCC governments’ constraints to continue to fund and expand provision of care, and the growing recognition to separate licensing, regulating and funding functions from the delivery of services, the growth of PPP/PSP models is a positive step that could help bring sustainable positive impact in the financing and delivery of health services. Also, given capacity constraints within the public health sector and the limited budget to meet rising healthcare demand create an unprecedented opportunity for the private sector to assess, re-design, optimise and improve performance and the delivery of care within public health facilities in the GCC.
Success Factors - Healthcare PPP/PSP Models
The following success factors are essential for PPP’s to deliver on the objective of lower cost and better quality:
PPP/PSP models could help GCC countries achieve their long-term goals of developing a sustainable and high quality health eco-system. For the public sector, this would lead to faster operationalisation of healthcare projects to address patient needs with reduced capital outlay and shared risk/reward with predictability of costs. It would also lead to a more efficient management of facility development and operations given the access to leading practices, technologies and commercial efficiencies.
For patients, PPP/PSP models could provide improved access to healthcare and choice over treatment and provider. This will bring greater confidence in health outcomes and trust in quality of care driven by reputed clinical operators bringing in experienced clinicians, thus leading to improved patient experience and bring down overseas spending on medical treatment.
For the growing private sector in the GCC and for international health service providers looking to enter the region, it gives immediate access and license to operate in a growing healthcare market with the opportunity to build brand and scale, take market share and attract talent. It also brings reputational benefits of association with public health services and government and government-backed performance incentives to support investment. As opposed to sporadic greenfield investments, it is a more sustainable source of revenue for long term through guaranteed volumes. And for the government at large, it helps contain cost of health services, build predictability in health system financing and improve quality as competition between bidders drives price down, while quality is maintained through performance agreements, measures, and incentive mechanisms.