Improving Health and Education Service Delivery in India through Public–Private Partnerships

Anouj Mehta, Aparna Bhatia, Ameeta Chatterjee

• Publisher: Asian Development Bank
• Year: 2010
• Print ISBN: 9789290920250
• eBook ISBN: 9789290920267
• Edition: 1
• Topic: Medicine
• Subtopic: Health Care Delivery

Public–private partnerships (PPPs) have shown their ability to meet some of the challenges in the health and education sectors both in India and overseas. The Asian Development Bank (ADB) has been assisting the Government of India since 2006 to develop PPPs across sectors in India, through a programmatic joint PPP Initiative, Mainstreaming PPPs in India. Under the initiative, a special task team of the ADB, together with the Government of India's Ministry of Finance and KPMG consultants undertook a rapid assessment study to develop possible PPP solutions for meeting the challenges of India's health and education sectors. Assessments of local PPP projects in the sector, consultations with state government officials in India, and best practice examples from the United Kingdom and other countries, have led to the development of this report. This report will therefore provide a quick guide to international and national PPP cases in the sectors as well as practical ideas and suggested models to interested project sponsors, especially within government bodies responsible for sector development. Development of possible PPP projects based on some of the models and ideas suggested herewith will hopefully spur investment and efficiency gains in health and education infrastructure and service delivery mechanisms of the country.

Appendixes

APPENDIX 1
Proposed Public–Private Partnership Models: Concept Notes

Concept Paper on Proposed Public–Private Partnership Models for Health

Proposed Model:

I. Hospital Private Finance Initiative (PFI) Model

Background

Health spending in India at around 4.8% of GDP is not considered at par with spending in Organisation for Economic Co-operation and Development member countries. Therefore, while there has been considerable success in developing physical infrastructure and coverage of primary health care provision, significant challenges remain across the country in health care provision, especially in terms of accessibility, coverage, rural areas, ineffective management, and inadequate quality and availability of health care professionals.

Public–private partnership (PPP) models have been successful internationally in helping alleviate some of these challenges. Through research (on global and domestic experiences) followed by consultations with stakeholders in five states, a number of PPP models have been proposed for the health care sector including this one. The aim is to structure a pilot project around this proposed PPP modality to demonstrate its effectiveness in meeting some of the existing challenges in India’s health care.

Sector overview and key challenges

Unlike primary health care, where public facilities are generally underutilized (especially at PHC level), the secondary and tertiary public health facilities (hospitals) are in high demand. Public hospitals are unable to meet the growing demand, and the infrastructure is either inadequate or unable to cope with the pressure of demand. In addition, quality of services provided in secondary and tertiary care and improved efficiencies are also much desired. Due to demand outrunning supply, and with constraints on public expenditures, there is need for innovative PPPs to improve efficiencies, quality, and address financing gap in secondary and tertiary health care. However, given the complexity of services rendered for hospital care, it might be better to unbundle the complex services to manageable level and contract out some of them. Based on global experiences, some of the aspects of hospital value chain (listed below) can be unbundled and implemented through a PPP.

Brief project description

Objective: The PFI model is aimed at public sector hospitals and for delivering (i) hard infrastructure (new or refurbished facilities), (ii) associated hard infrastructure lifecycle maintenance services, and (iii) "soft" or operational services such as cleaning, catering, and facilities management services.

Proposed Project Structure: A partnership between private and public sectors where the private sector is responsible for providing the above facilities and services. In return, the public sector pays for these facilities and services, with the payment linked to the private sector’s performance and benchmarked against the public sector’s own previous cost in providing these facilities and services. The contract could be structured over 25–30 years.

(i) Private Sector Role

Under the PPP Hospital PFI contract, the following could be included:

• New build and/or partly new build and/or refurbishment and minor works of the hospital building.

• Installation, commissioning, and lifecycle maintenance of hospital equipment.

• Provision of information management and technology solutions.

• Facilities management such as cleaning, laundry and linen services, catering, security, and medical waste disposal management.

• Helpdesk and reception management.

(ii) Public Sector Role

It sets performance parameters for the private sector player’s role, monitors these parameters, and makes payments as per contract. The public sector will link the payment for services to risks transferred, its own cost structures, and experiences.

(Note: A health PFI model can also be considered for setting up medical colleges through a partnership between district hospitals and a private sector player.)

The model will have several issues and criteria that will only be determined when a specific project commences, and will be structured based on local conditions. See below.

Technical issues

Each PFI project is different depending on local circumstances. However, some common features that hospital PFIs share are (i) the public sector authority signs a contract with a private sector “operator;” (ii) during the period of the contract, the operator will provide certain services, which are currently provided by public hospital authorities; (iii) the operator is paid for the work over the course of the contract and on a “no service no fee” performance basis; (iv) the procuring authority will design an “output specification,” which is a document setting out what the operator is expected to achieve; (v) if the operator fails to meet any of the agreed standards, it would lose an element of its payment until standards improve; (vi) if standards do not improve after an agreed period, the public sector authority is entitled to terminate the contract; and (vii) PFI is therefore dependent on both the standard of contracts used and the determination of the parties to enforce them.

Financing plan issues

• The payment is typically structured as an annual charge payable only on commencement of the entire hospital facilities and adjusted for performance and service availability standards. The key principles include:

Commencement of payment only on completion of the construction phase and commissioning of the building and equipment. In case of phased completion, payment triggers are set at the end of each phase.

Private sector is entitled to an annual charge on the commissioning of the entire hospital facility. The payment mechanism provides for deduction due to performance shortfalls and unavailability of rooms and/or space in the hospital.

• A limited third-party revenue may be generated. The private sector may consider options such as leasing of space for retail operations, paid catering facilities, car parking facilities, paid nursery and/or day care facilities.

• A typical PFI contract is structured over 25–30 years, although a number of contracts have extended up to 40 years, largely to make the annual charge more affordable.

Institutional structuring issues

The typical PFI provider has three parts or legal entities: a holding company (HC), a capital equipment or infrastructure provision company (CEC), and a services or operating company (OC). The main contract is the concession contract between the government and HC. The HC then flows down requirements to CEC and OC, with legal contracts to enforce. These two legal entities then typically flow down their requirements to subcontractors, again with contracts to match. Typically the main subcontractors are the same companies as the shareholders of the HC. Large PFIs are often let to consortiums of companies rather to individual firms. The CEC may not be a separate legal entity but rather one of the prime shareholders taking on the responsibility to provide the capital equipment (e.g., the hospital).

Potential private sector players expected to respond

• Existing hospital management companies.

• Large construction and service provider companies.

• Specialized private companies—hospitality, cleaning, catering, and others.

Expected outcomes of the project

• Improved quality.

• Improved efficiencies—in both delivering facilities on time as well as in facilities maintenance and management.

• Increased private sector investments (upfront investments, which are paid back on an annuity basis).

Proposed PPP modalities to be considered and key structural issues

PPP modality would be build-own-operate-transfer (BOOT) or design-build-finance-operate (DBFO) or some variant of these.

Value addition from AD...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Foreword
• Acknowledgements
• Abbreviations
• Executive Summary
• Study Methodology and Public-Private Partnership Frameworks
• Overview of Global Public-Private Partnership Practices
• Health Care Sector in India: General Sector Assessment and State-Specific Findings
• Education Sector in India: General Sector Assessment and State-Specific Findings
• Recommendation and Next Steps
• Appendixes
• Back Cover