49517 JULY 2009 Breaking New Ground: Lesotho Hospital ABOUT THE AUTHORS Public-Private Partnership--A Model for CARLA FAUSTINO COELHO is an Investment Officer in Integrated Health Services Delivery IFC's Infrastructure Advisory Services Department, works on health, education, and water sector projects in For many years, Lesotho has urgently needed Sub-Saharan Africa. to replace its main public hospital, Queen Elizabeth II. In 2006, to maximize the use of CATHERINE O'FARRELL limited resources and ensure long-term is a Senior Investment Officer improvement in facilities and services, the in IFC's Infrastructure Advisory Services Department, works government adopted the public-private on health and education partnership (PPP) approach for a new hospital. projects in Sub-Saharan Africa IFC's Infrastructure Advisory Services and other regions. Department advised the government in structuring a PPP for the design and APPROVING MANAGER construction of a new 425-bed hospital and Robert Taylor, Principal adjacent gateway clinic, the renovation of Financial Analyst, Infrastruc- three strategic filter clinics, and the ture Advisory Services management of facilities, equipment, and Department. delivery of all clinical care services for 18 years. The project has a capital value of over $100 million, and the private operator--the Tsepong consortium headed by Netcare, a The 100-year-old Queen Elizabeth II Hospital, an leading South African health care provider-- aging facility functioning at a minimal level, will has significant local ownership: 40 percent of be replaced by a new facility. shares held by Lesotho-owned businesses, increasing to 55 percent during the project nurses, and other health professionals, and term. This SmartLesson describes this provision of all medical equipment and all pioneering PPP project, and shares some pharmaceuticals necessary for clinical services lessons we've learned from it. delivery. In addition to the new facility, which will operate as the national referral hospital as What Makes This Project Different well as the district hospital for the greater Maseru area, Tsepong will be responsible for PPPs in the health sector typically range from the refurbishment, re-equipping, and simple outsourcing of support services (such as operation of three primary health care clinics catering or laundry) to the more complex at Qoaling, Mabote, and Likotsi in the greater design, build, and facilities management of Maseru area, allowing it to 1) manage a mini­ hospitals. To our knowledge, the Lesotho PPP health care network, and 2) filter and treat structure is a first for Africa--and one of only less severe cases at the clinic level, freeing up a handful of similar projects worldwide. In as much hospital capacity at possible. addition to the design, build, and full operation of the hospital and associated 2. Service Payment health care facilities, the Tsepong consortium will deliver all clinical services, with the The private operator delivers budget certainty objective of providing vastly improved, high- as well as patient-centered care, assuming full quality health care services at an affordable patient risk from project inception and cost. Here are some key differences from other agreeing to treat all patients who present at hospital PPPs: the hospital and filter clinics, regardless of the type of condition, up to a maximum of 20,000 1. Complete Health Care Services Delivery inpatients and 310,000 outpatients per annum--with very few clinical exceptions. The Tsepong is responsible for delivery of all clinical government provides Tsepong an annual fixed services, including recruitment of doctors, service payment for delivery of all services, IFC SMARTLESSONS -- JULY 2009 1 escalated only by inflation annually. We know of only one monitor is a consortium of companies with specialized similar full PPP project in a developing country, and that experience in PPPs, clinical services, hospital operation private operator opted for a direct-cost-plus-margin andmanagement,medicalandnonmedicalequipment, payment basis for the first few years (until patient profiles information management and technology, and soft and disease patterns could be studied) before committing and hard facilities management. to a fixed cost for clinical care. · Theprivateoperatorisrequiredtoobtainandmaintain 3. Performance Monitoring accreditation from the Council for Health Services Accreditation of Southern Africa, and failure to do so The Lesotho PPP agreement includes typical performance can result in termination of the agreement. monitoring--such as payment and penalty mechanisms related to facilities management, equipment, and other · The project provides for a Joint Services Committee, nonclinical service outcomes, as well as independent established by the government and the private certification of delivery of facilities and equipment. But it operator, to review performance and discuss and also requires additional monitoring: develop mechanisms, procedures, or protocols to improve the services at the hospital and filter clinics. · The Lesotho agreement includes a detailed list of both Given the long-term nature of the project, this clinical and facilities performance indicators that the committee provides a mechanism for altering the private operator must meet in order to receive full hospital's services, by agreement, to address new payment from the government. Failure to meet a disease patterns, new technologies, or new national performance indicator will result in a severe penalty priorities, thereby ensuring that the project remains deduction (a percentage of the total service payment). relevant for the country. The relative importance of clinical versus facilities performance indicators is reflected in the percentages Lessons Learned deducted. For example, failure to comply with the infection-control measures (clinical indicator) draws a 1) The baseline study is important throughout the 1.00 percent penalty; whereas failure to comply with project. linen and laundry service standards (facilities indicator) bringsonlya0.25percentpenalty.Aratchetmechanism During project preparation, IFC realized that the for repeated service failure for the same problem expectations of the government and general public were increases the penalty deduction for each repeated high: a new facility with better equipment and vastly failure, and service failure that is not remedied can improved services. However, there were many questions as result in termination of the agreement. to whether the country (and the average patient) could afford new facilities and better public care. What services · The Lesotho project has an independent monitor--a would be offered? Could service delivery by a private unique role specifically created for this project and operator be affordable? jointly appointed by the government and the private operator--to perform a quarterly audit of the private To answer these questions, IFC produced a detailed baseline operator's performance against the contractual study of health care costs and services at the existing Queen performance indicators (clinical and nonclinical) and, ElizabethIIhospitalandtherelatedfilterclinics.Thebaseline where performance has not been achieved, determine significantly shaped the project design, helped set the the penalty deduction that applies. The independent performance indicators in the PPP agreement, and improved the government's understanding of what was currently being delivered and what improvements the PPP could bring. The performance indicators are also aligned with the Millennium Development Goals (MDGs) for Lesotho. The baseline study will also be useful for IFC's own monitoring and evaluation work on the project going forward. 2) Evaluation of bids serves to enhance outcomes and affordability. The challenge was to come up with a bid evaluation structure to accommodate three competing objectives: 1) to procure as many services for as many people at the hospital and filter clinics as possible; 2) to improve the quality of services; and 3) to do so within the government's affordability limit. The best structure we could An architect's drawing of the design for the new hospital. devise to balance these objectives involved (Photo courtesy of Netcare) dividing the technical evaluation into three areas: 2 IFC SMARTLESSONS -- JULY 2009 · Service Coverage: Bidders were required to confirm 4) Integrated service delivery is essential at every level. which services they could feasibly provide within the service payment, taking into consideration patient Since the private operator is responsible for complete volumes. Services listed by the government in the health care service delivery at the hospital and filter clinics, bidding documents included "mandatory" and it was important to ensure that it could actually deliver all "optional." For example, orthopedic surgery (general services--pharmaceuticals, for example. The current and trauma) was a minimum requirement, but bidders national referral hospital is a significant client of the who also offered hip-joint replacements within the National Drug Supply Organisation (NDSO), the central service payment received additional points. Similarly, pharmaceutical and medical-supplies procurement entity diagnostic imaging (radiology, digital X-ray, CT, for the government. On the one hand, if the private mammography) was a minimum requirement, but operator were no longer required to use NDSO as a bidders who offered magnetic resonance imaging pharmaceuticals supplier, NDSO would lose significant (MRI) services received additional points. The winning bargaining leverage for the country. On the other hand, if bidderagreedtoprovideallmandatoryservices,plus95 the government forced the private operator to use NDSO, percent of all additional optionalservices within the and if NDSO failed to deliver the right drugs on time, the service payment. private operator could claim cause for failure to treat a patient. Solution: The private operator entered into a · Patient Volumes: The government stipulated services service-level agreement with NDSO, as well as a capacity- to a minimum of 16,500 inpatients and 258,000 building initiative that will enhance NDSO supply and outpatients at the hospital and filter clinics. Bidders logistics capability, thereby ensuring better service delivery had to commit to a maximum number of inpatients not only to the PPP but also to the broader public health and outpatient visits, and the bidder offering the system. highest number of patients received maximum points. The winning bidder committed to delivery of services 5) Value for money is about more than just project cost to 20,000 inpatients and 310,000 outpatients per and risk transfer. annum. PPPs generally focus on the concept of value for money, · Service Delivery Plan: Bidders were evaluated on their which typically assesses the affordability and risk transfer of approach to quality, effectiveness, and efficiency of the a project. By this standard, the Lesotho project is affordable services to be provided; compliance with service for the government. On an operational cost comparison, standards; and how realistic their plans were. This the government will not pay much more for the PPP than it element was evaluated by a multidisciplinary team currently spends on the Queen Elizabeth II, yet it will receive from the Ministries of Health and Social Welfare and vastly improved facilities, medical services, and patient care. Finance and Development Planning, and IFC. From a patient perspective, services at the new hospital and filter clinics are affordable and will cost the same as at any Thetechnicalandfinancialoffersweresubmittedseparately, other public health facility in Lesotho. The project has also with the financial offers opened only after the technical ensured maximum risk transfer to the private operator, evaluation was completed. protecting the government from most of the financial, operational, and legal risks inherent in a project of this 3) Defining clinical services is necessary, even if it has to nature. be a highly consultative process. The service-coverage list developed for the bidding documents was a key element of the bid evaluation, but the definition of that list was a highly consultative process, including Ministry of Health staff, clinicians at the Queen Elizabeth II hospital, private practitioners in Lesotho, and IFC's technical experts. These discussions were complicated by the inevitable need to balance affordability and expansion of services currently not provided in Lesotho. The parties eventually reached agreement on the minimum types of services believed to be deliverable within the affordability limit by any private operator. To progress smoothly, such a highly visible, important national project had to be seen as having the support of all key stakeholders. Wide support would not have been there withouttheconsultativeprocess.Akeytogettingagreement was finding a balance between services perceived to be essential versus services that would be good to have but not essential--plus a constant reference to affordability. A A benefit of the new facility is the attraction bidding structure that allowed bidders to include optional and retention of qualified health professionals. extras was also helpful in reaching agreement. IFC SMARTLESSONS -- JULY 2009 3 Other significant value-added elements that address MDGs and the critical shortage of include: health professionals--key constraints for many developing countries. · Development of Human Resources: Lesotho, like many other developing countries, Although the project is still in its early stages struggles to attract and retain professional and the expectation of success is high, there health staff. In this project, the private will certainly be challenges and obstacles for operator is responsible for recruitment of all the private operator and the government to staff at the new hospital and filter clinics, and overcome. A key risk is the high probability has greater freedom to pay staff salaries that that the hospital will reach maximum capacity reflectthescarcityoftheirskills,withoutbeing very early in the project term, requiring the constrained by government salary policies. government to rapidly improve the service This project also allows the private operator to offering at other hospitals to relieve the create a platform for doctors to serve both the pressure on the national referral hospital. private and public sectors in a controlled Another risk is whether the private operator manner. The project will also create a working will be successful in attracting and retaining environment that encourages high-quality, the numbers of doctors and nurses necessary patient-centered treatment with the use of to ensure effective service delivery. The key modern equipment and greatly improved factor for the success of this project is the facilities--one of the key factors in retaining commitment and support of the government health sector staff. demonstrated throughout the project process, from procurement, during negotiations, and · Training: The new referral hospital will be to financial close. Government firmly believes the country's main teaching hospital for this project will deliver meaningful results for physicians undergoing postgraduate training, the country. medical students, nurses and other health professionals, and staff from other public health facilities. These students will have access to equipment and facilities not previously available in Lesotho. This training component is also expected to assist in retaining qualified health sector staff. · Referrals: The government currently refers most complicated cases outside the country, sincethecurrentfacilitiesatQueenElizabethII cannot accommodate them. The new hospital will address many of these cases. Human resource (HR) and training costs are built into the financial model, and the private operator commits to spending the amounts allocated to HR and training annually-- making these elements part of the overall cost of the project. DISCLAIMER Conclusion IFC SmartLessons is an awards program to share lessons learned The PPP agreement for this project was signed in development-oriented advisory by the government and the private operator services and investment operations. The findings, on October 27, 2008. Financial close occurred interpretations, and conclusions on March 20, 2009, and construction began on expressed in this paper are those March 23, 2009. The filter clinics are expected of the author(s) and do not to be operational at the end of 2009, and the necessarily reflect the views of IFC new hospital in July 2011. or its partner organizations, the Executive Directors of The World Bank or the governments they The Lesotho Hospital PPP has demonstrated represent. IFC does not assume that it is possible in a low-income country to any responsibility for the embark on a very ambitious project that is completeness or accuracy of the information contained in this affordable for the country and patients, is document. Please see the terms attractive to top-quality private investors, and conditions at www.ifc.org/ expands services to more people, and has the smartlessons or contact the potentialtodeliverhigh-qualityhealthservices program at smartlessons@ifc.org. 4 IFC SMARTLESSONS -- JULY 2009