1. Hospital Contracting Building Public/Private Partnership
for Health System Strengthening
Hospital Contracting
Professor EK Yeoh
School of Public Health and Primary Care
The Chinese University of Hong Kong
Bali Hyatt Hotel, Sanur, Bali
21-25 June 2010

2. Objectives
Understanding the nature of hospital contracting and context under which hospital contracting may be considered;
Knowledge of different models and options of hospital contracting;
Understanding why and how hospital contracting works; and
Developing a framework for hospital contracting 2

3. Outline Discussing nature and rationale of hospital contracting
Different models and options of hospital contracting from the experience of a number of countries
Discussing the issues, logistics and application of hospital contracting in different countries
Discussing the challenges and issues of hospital contracting and PPP programmes in the context of the health care system of Hong Kong
Discussing a framework for hospital contracting 3

4. What is Contracting?
Contracting is a mechanism for a financing entity (such as a government ministry) to acquire a specified set of services, with specified objectives, of a defined quantity, quality, and equity, in a particular location, at an agreed-on price, for a specified period, from a particular nonstate provider (such as an NGO, private sector firm, or private practitioner).
Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008 4

5. What is Performance-Based Contracting?
A form of contracting that explicitly includes a clear definition of a series of objectives and indicators by which to measure contractor performance, collection of data on the performance indicators, and consequences for the contractor based on performance such as provision of rewards (such as performance bonuses or public recognition) or imposition of sanctions (such as termination of the contract or public criticism).
Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008 5

6. Difference between Grant, Contracting and Performance-based Contracting
“Loosely”
defined
Clearly defined
Defining services
Performance monitoring
Insufficient
Sufficient
Turkey like many middle income countries took a gradual approach to extending full social insurance coverage to the informal sector and the poor. During the transition, these groups relied on MOH hospitals but faced user charges for items not fully financed by the budget . Many doctors in MOH hospitals had dual private practice. As Turkey extended social insurance coverage both in breadth (population covered) and depth (adequacy of benefits package and provider payment, and reduction of copayment), it had to find some way of enabling its public hospitals to benefit from this increase in revenue and to manage these payments to motivate hospitals and doctors more effectively. It did this by adopting regulations to allow hospitals to set up a revolving fund to manage SHI payments and user fees in a formalized way. RFs had completely separate, parallel systems of financial control, allocation, accounting, and reporting from those used for the budget. However, the RF system allowed the MOH and hospital managers to introduce regulation and control into private and SHI payments for health service – in place of previous practice in which individual doctors in public hospitals supplemented their income through private fee-for-service practice or informal payments. Hospital managers had considerable freedom over how they allocated the revolving fund revenues. The MOH developed regulations about how the RF revenue could be allocated, including regulations to pay a share of RF revenues to staff as output-based salary supplements. Finding that this perpetuated some of the undesirable incentives of fee-for-service medical practice, the MOH developed regulations to pay medical staff on a more sophisticated performance-based scheme that included a mix of individual and organizational performance indicators.
Weak
Strong
Sanction

7. Contracting for Health Service Delivery in Developing Countries
“the impetus for all the contracting initiatives [studied] was the inadequate quality and coverage of government services, especially for poor people.”
Benjamin Loevinsohn, April Harding. Buying results? Contracting for health service delivery in developing countries.
Lancet 2005; 366: p. 680. 7

8. Nature of Hospital Contracting
Performance-based
- clear objectives and indicators,
- systematic data collection of the progress of the selected indicators
- rewards or sanctions based on performance.
Services
- primary healthcare; hospital surgeries; establishing a health insurance system; setting up and operating a voucher project; providing ancillary services such as equipment maintenance, cleaning, waste management, food preparation, and security, etc.
Typology
- a management contract and a service delivery contract approaches
- context and services specific
Pay-for-Performance
- focus on important objectives and uses financial rewards to reinforce good performance. Specific explicit, measurable outcomes and allows for termination of the contract for nonperformance. 8

9. Typology of Service Delivery Arrangement
Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008 9

10. Types of Pay for Performance and Their Relationship to Contracting
Who receives
What the funds can
Who provides
Relationship to
Type of P4P
the funds
be used for
Contracting
1. Rewards for local
Local
Programs of local
National
Performance agreements
governments
government
rarely true contracts
2. Rewards
Programs of national
Development
Not related
to national
partners
3. Payment per
Individual
Personal uses
Government,
May be easier to introduce
service (fee for
health workers
individuals, or
in the context of contracting
service)
NSPs
with NSPs
4. Performance
NSP
Other programs or at
Purchaser
Sometimes used in health
bonuses
the discretion of the
care contracting
5. Performance-
At discretion of the
Can be incorporated fairly
based payment
easily into contracts
Source:
Author.
Note:
DPT3 = third dose of diphtheria/pertussis/tetanus vaccine; GAVI Alliance = formerly the Global Alliance for Vaccines and Immunization; NGO = nongovernmental
organization; NSP = nonstate provider.
Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008 10

11. Models of Public–Private Partnership in Hospital Provision
Franchising Public authority contracts a private company to manage existing hospital
DBFO (design, build, finance, operate) : Private consortium designs facilities based on public authority’s specified requirements, builds the facility, finances the capital cost and operates their facilities
BOO (build, own, operate) Public authority purchases services for fixed period (say 30 years) after which ownership remains with private provider
BOOT (build, own, operate, transfer): Public authority purchases services for fixed period after which ownership reverts to public authority
BOLB (buy, own, lease back) Private contractor builds hospital; facility is leased back and managed by public authority
Alzira model Private contractor builds and operates hospital, with contract to provide care for a defined population
Martin McKee, Nigel Edwards, & Rifat Atun, Public–private partnerships for hospitals. Bulletin of the World Health Organization, November 2006; 84 (11) 11

12. Other Private Participation in Hospitals
Private sector responsibility 12

13. Other Private Participation in Hospitals13

14. Critical Policy Issues Regarding Hospital Contracting
Universal access. To ensure that all public patients, particularly the poor and uninsured, have access to adequate hospital care, most contracts for private management of public hospitals require the provider to continue service to all public patients.
Funding. Governments generally fund public hospitals through budgetary payments or public health insurance programs, shifting the basis for payments from historical or input costs to the clinical mix of patients to be treated.
Consolidation. Many countries, particularly in Eastern Europe, have too many public hospitals and will need to downsize, consolidate, and close some facilities. Public-private partnerships can spur consolidation of services.
Competition. Competition between hospitals stimulates improvements in the quality and efficiency of service.
Regulation. Public-private partnerships may impose additional public policy obligations that require monitoring, sanctions for noncompliance, and dispute resolution procedures. 14

15. Other Issues Relating to Hospital Contracting
Cost: There are significant costs for the firms bidding for a public– private partnership and for the health-care provider.
Quality: Trade off between cost, time and quality. Priority has been to meet the specifications agreed in the initial contract, with a reluctant acceptance that the project may go over time or budget.
Flexibility: Public–private contracts are often specified in details with large penalties for introducing changes, leading to a lack of flexibility. Some hospitals has been out of date by the time they are opened in a changing environment.
Complexity: Projects involve many different types of stakeholders, such as universities and research funders. The difficulties in reaching agreement with all of the stakeholders, combined with the high costs of the projects, may eventually lead to collapses in the project. 15

16. Context Under which Hospital Contracting may be Considered
Limited health services but with “mission” clinics or other faith-based organizations
Poorly performing districts, provinces, or states with existing government health services
Uncoordinated NGO-delivered services with multiple donors (for example, post- conflict situation)
Few services of any kind, or new kinds of services required (for example, HIV prevention, nutrition services, early childhood development services)
Existing government services where improved management is needed or innovations are required
Urban health services with many different providers but limited coverage of preventive services for the poor 16

17. Examples for Hospital Contracting in low Income Countries
Contracting out dietary services (Bombay)
Contracts to hospital security and cleaning, and ambulance services (Port Moresby, Papa New Guinea)
Contract for major items, such as CT scanners (Bangkok)
Contract for rural district hospitals (Africa)
Contact with a mining companies for the use of their hospitals to provide hospital services in district (Zimbabwe).
Source: Anne Mills To contract or not to contract? Issues for low and middle income countries. Health Policy and Planning; 1998; 13(1): 17

18. Corresponding Reasons for Hospital Contracting in Low Income Countries
Reduction of the workload on management; expected to be cheaper; reduces wastage and pilferage; avoid service interruption (type: catering; place: Bombay)
Obtain cheaper; better quality service (type: cleaning; place: Bangkok)
Obtain latest equipment; avoid difficulty and delays in getting government approval and funds; overcoming difficulties of maintenance (type: medical equipment; place: Thailand)
Make use of private sector capital (type: building district hospital; place: South Africa)
Lack of government capacity (type: contract with private hospitals with spare capacity; place: Zimbabwe) 18

19. Objective Conditions for Hospital Contracting in Low Income Countries
Sufficient private sector capacity for efficiency gain
Government offers an attractive business market
Failure for the government to provide efficiently
Inflexible and inefficient public provision
Social, political and economic environment such as functioning legal, banking, and government procedure, resistant to corruption and patronage 19

20. Some Problematic Issues regarding Hospital Contracting
Unclear responsibilities for contract design and for monitoring contract performance.
Unclear specification of services to be contracted out
Unclear incentive schemes to motivate performance 20

21. Other Motivations for Contracting
Strengthening healthcare financing
Cost containment and efficiency gain
Improve healthcare quality (such as reduce waiting time) and patient safety
Development of regional medical hub 21

22. Steps to Contract Step 1: Conduct Dialogue with Stakeholders
Step 2: Define the Services
Step 3: Design the Monitoring and Evaluation
Step 4: Decide how to select contractors and establish the price
Step 5: Arrange for contract management and develop a contract plan
Step 6: Draft the contract and bidding documents
Step 7: Carry out the bidding Process and Manage the contract
Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008 22

23. Complexity of Hospital Contracting
Specify outputs
Payment method
Price/rate determined
Delivery monitored
Compliance
Conflict resolution
Incentives to induce participate
Risk sharing arrangements
Managing uncertainty
Cost recovery and profit 23

24. Politics of Hospital Contracting
a) the decision to contract;
b) the process to contract;
c) the relationship between government, public sector employees, non-government providers, and citizens 24

25. Why Contracting work?
Focus on Results. The very act of drafting a contract can help the purchaser define exactly what services are needed and help make objectives explicit.
Flexibility. NSPs have the important advantage of being less constrained by “red tape” (excessive regulation), bureaucratic inertia, and unhelpful political interference. In many circumstances, this is the largest advantage of NSPs over government delivery of the same services.
Reduction of Important Aspects of Corruption. Contracting appears to reduce some aspects of corruption that plague public health care systems, such as absenteeism, theft of drugs, selling of positions, leakage of funds on their way to peripheral health facilities, and informal payments to providers.
Constructive Competition. Contracting uses constructive competition to increase effectiveness and efficiency. Nonstate providers are impelled through competition to develop the most effective and efficient ways of delivering services, both during the bidding process and during implementation. 25

26. Why Contracting work?
Improved Absorptive Capacity. Nonstate providers are usually better at overcoming “absorptive capacity” constraints that often plague government health care systems and prevent them from effectively using the resources made available.
Better Distribution of Health Workers. As a result of greater flexibility and innovative approaches, NSPs can often improve the distribution of health workers and help ensure that skilled health workers are available and working in underserved areas.
Managerial Autonomy. Contracts, if drafted properly, provide managerial autonomy and decentralize decision making to managers closest to the ground.
Government Focus on Stewardship Role. Contracting provides a greater opportunity for government to focus on roles that it is uniquely placed to carry out, such as planning, evaluation, standard setting, financing, and regulation. 26

27. Asian PPP Experiences
Singapore – Exploring the role of PPP in healthcare delivery and financing
Malaysia – PPP in healthcare financing via private health insurance
Hong Kong – mainly for healthcare delivery 27

28. Case Study
PPP in Hong Kong’s Healthcare System 28

29. Hong Kong’s Health Policy
“no one should be denied adequate medical treatment through lack of means”

30. “Dual” health care system
Hong Kong’s Healthcare System
“Dual” health care system
Public sector
Private sector
Food & Health Bureau
Department of Health
Hospital Authority
Execute health care policies & statutory functions
Statutory body responsible for management of public hospitals 30 30

31. Delivery of Services Primary care Secondary & tertiary services
Health promotion & disease prevention services mostly provided by the public sector
Primary care curative services
Service provided by Out-Patient departments of HA hospitals (26%)
Service provided by private Western medicine doctors (57%)
Service provided by private Chinese medicine practitioners (13%)
Secondary & tertiary services
Public sector is the dominant provider (79%)
Source: Thematic Household Survey 2008 31

32. Public Sector Private Sector
Hospital Authority (HA) operates 74 general outpatient clinics and 48 specialist outpatient clinics throughout the territory
Around 3,500 private clinics providing primary & specialist medical care
HA manages 27,555 hospital beds in 38 public hospitals
12 private hospitals, operating a total of 3,438 beds
Source: Hospital Authority Statistical Report 32

33. Healthcare Expenditure
Total health care expenditure (2005/06 figures)
5.1% of Gross Domestic Product (GDP)
Public sector (52%)
Private sector (48%)
Source: Hong Kong’s Domestic Health Accounts, 1989/ /06 33

34. Sources of Funding Tax-based Financing 2001 (%) 2004
As percentage of total expenditure on health
(All figures refer to calendar year)
2001
(%)
2004
General Government
56.9
55.7
Social Security Funds
Private household out-of-pocket expenditure
29.5
31.1
Private insurance
12.1
12.3
All other source
1.4
1.0
Sources: Hong Kong’s Domestic Health Accounts, 1989/ /05 34

35. Healthcare Funding Public sector: heavily subsidized (2006/07 figures)
Private sector: fee-for-service, free market
Public Hospitals & Clinics
User Fees ($)
Cost
($)
Government Subsidy (%)
In-patient
(ward level – per day)
100
3,290
97.0
A&E (per visit)
700
85.7
SOPC (per visit)
- first visit
- subsequent visits 60
740
86.5
91.9
GOPC (per visit) 45
260
82.7
In-patient cost represents general in-patient services, excluding infirmary, mentally handicapped and psychiatric services (Sources: Healthcare Reform Consultation Document, FHB 2008) 35

36. Hospitals in Hong Kong - Pre-Hospital Authority era
- Establishment of Hospital Authority
- Post-Hospital Authority era 36

37. Pre-Hospital Authority Era
A mix of public hospital services provided by government departments and 15 Non- government Organisations on a subvented basis
Overseen by the Medical and Health Department
Lack of explicit services agreement and contracting
Problems: over-centralization, lack of financial incentives, inflexibility, low staff moral, lack of courtesy to patients, long waiting time, over- crowding, poor coordination between government and subvented hospitals 37

38. Establishment of the Hospital Authority (HA)
The HA was found in 1990.
Establish governance and management systems across all constituent hospitals.
Manage HK’s public healthcare services including hospitals, specialist out-patient clinics and general out-patient clinics 38

39. Post-Hospital Authority Era
A single corporation that manages the public hospitals in HK
Explicit services agreement 39

40. PPP: General Principles
Public Private Partnerships (PPPs) are arrangements where the public and private sectors both bring their complementary skills to a project, with varying levels of involvement and responsibility, for the purpose of providing public services or projects.
Source: Efficiency unit, HKSAR Government 40

41. Characteristics of PPP
Large scale expensive long-term projects usually involving the construction of a new facility designed to deliver particular services;
The Government defines the quality and quantity of services, and the timeframe in which they are to be delivered;
The private sector is responsible for delivering the defined service while the government is mainly involved in regulation and procurement;
A long term relationship is established, typically between 10 years and 30 years, depending on the nature of the facilities, assets or services to be delivered
Source: Efficiency unit, HKSAR Government 41

42. Characteristics of PPP
Responsibilities and risks are allocated to the party best able to manage them;
The private sector and/or the Government finances the project (wholly or in part). The private sector and/or the Government would recoup its investment from charges on end-users or payments made by the Government during the life of the contract;
The private sector is encouraged to make use of its innovation and flexibility to deliver good quality, cost- effective services throughout the project lifecycle; and
The different functions of design, construction, operation and maintenance are integrated / use a whole-of-life approach.
Source: Efficiency unit, HKSAR Government 42

43. Healthcare Financing Reform Proposals
Financial pressures on the government provision of public healthcare
Aging population
Medical technology
Social expectation
Continued reliance entirely on public supply and funding - sustainable?
Any alternatives: financing system; expanding the role of PPP, enhancing public-private interface 43

44. Examples of PPP in HK Cataract Surgeries Programme
Haemodialysis Public Private Partnership Programme
General Outpatient Clinic Public Private Partnership Programme
Shared Care Programme
Development of private hospitals - North Lantau Hospital Phase 2 Public-Private Partnership Project 
Hong Kong Hospital Authority: 44

45. Cataract Surgeries Programme (starting from February 2008)
To shorten waiting time for cataract surgery in public hospitals 45

46. Cataract Surgeries Programme
Target Group
Patients who have been on the HA routine cataract surgery waiting list as at 1 Feb 2008
Financial incentives
A One-off funding (HK$ 40million) by the Government for implementation– Providing subsidy to patients to receive cataract surgery in private sector
Fees and Charges
A maximum subsidy of HK$5,000 to patients for cataract surgery provided by private ophthalmologists.
Co-pay not more than HK$8,000
Consists of 1 pre-op assessment, the intraocular lens in the surgery and 2 post-op checks 46

47. Cataract Surgeries Programme
Outcome
Shorter waiting time: reduce from 35.5 months to 31 months (Dec 2009)
91% of patients are satisfied with the Programme
98% of patients say:
- Easy to select a suitable ophthalmologist from the pool of participating private ophthalmologists,
- The Programme has helped them to receive surgery earlier.
Smooth cooperation between the public and private sectors in arranging surgeries and providing follow up support service 47

48. Haemodialysis Public Private Partnership Programme
(3-year pilot starting from March 2010)
To enhance HD service for ESRF patients
To enhance patients’ self care capacity and improve QoL
To enhance collaboration between HA & community medical organizations 48

49. Haemodialysis Public Private Partnership Programme
Target Group
Patients on haemodialysis (HD) in HA hospitals with stable conditions
Arrangement
HA will collaborate with community medical organisations to provide options for patients to receive HD in the community
Nephrologists assess patients conditions and invite suitable patients
Patients complete and sign consent
Patients enroll in the “Public-Private Interface-Electronic Patient Record Sharing Pilot Project”
Patients receive HD in the community; HA will provide follow-up, medications and examinations.
Fees & Charges
Patients pay the community HD centres the same fee as charged by HA
Outcome
To be evaluated 49

50. General Outpatient Clinic (GOPC) Public- Private Partnership Programme
Tin Shui Wai Primary Care Partnership Project
(a pilot starting from June 2008)
To expand GOPC services in districts with increasing demand for GOPC services by piloting a PPP model for the delivery of primary care service and promote the family-doctor concept in the community 50

51. GOPC PPP Programme Target Group Arrangement Fees & Charges
Patients suffering from specific chronic diseases such as DM, HT, COAD, etc. with stable medical conditions and in-need of long-term follow-up treatment at GOPCs
Arrangement
HA to purchase primary care services from private medical practitioners
Patients to receive a maximum of 10 subsidized visits to a private doctor for treatment of specific chronic illness and episodic illnesses per each 12 month period of participation
Fees & Charges
Patient pay for private GP services at the same fee that they currently pay for GOPC services. Outside the 10 subsidized visits, the patient can choose to be treated by private doctor at his/her own cost or attend GOPC for follow up. 51

52. GOPC PPP Programme Outcome Over 1,000 patients have been enrolled
High satisfaction rate from both participating patients and PMPs.
An extension phase of the GOPC PPP pilot is under consideration. 52

53. Shared Care Programme
(Pilot to be started in mid 2010 at Sha Tin and Tai Po districts)
To test a service model for public-private shared care for chronic disease patients in the primary care settings
To provide patients with choices of private services outside the public healthcare system
To establish long-term patient-doctor relationships in order to achieve the objective of continuous and holistic care 53

54. Shared Care Programme Target Group Financial Incentives
Clinically stable DM and/or HT patients who are currently taken care of by the public healthcare system
Financial Incentives
Subsidy in the form of electronic health care vouchers to patients to use the primary care services from private medical practitioners 54

55. Shared Care Programme Arrangement Outcome To be evaluated
Patients: (a maximum subsidy of HK$1,400 per year)
(i) A subsidy of HK$1,200 for at least 4 consultations/case management per year at an interval of not more than 4 months apart and drugs for treating DM and/or HT;
(ii) An incentive of up to HK$200 per year for patients who can meet the preset health outcome indicators and complies with the care requirements prescribed by their private medical practitioners
Private Medical Practitioners: Quality incentive of HK$200 each year for each patient under his/her care in the Programme. They must meet all process indicators in order to receive the payment.
Outcome
To be evaluated 55

56. Development of Private Hospital
- North Lantau Hospital Phase 2 Public- Private Partnership Project
(to commence in early 2010)
To increase the overall capacity of the healthcare system of Hong Kong and facilitate the development of the medical industry through the promotion of private hospital development 56

57. Development of Private Hospitals
To address the imbalance between the public and private sector
39 Public vs. 13 Private Hospitals
Over reliant on public service
Limited competition and collaboration and choice for patients
Threat to long-term sustainability of healthcare system
Development of private hospitals at sites at Wong Chuk Hang, Tseung Kwan O, Tai Po and Lantau
Source: Invitation for Expression of Interest – Development of private hospitals at sites HKSAR 2009 57

58. Development of Private Hospitals
Government to facilitate the development of private hospitals through enhanced support in hardware and software
Hardware
Reserving suitable sites for private hospital development
(4 sites situated in Wong Chuk Hang, Tsueng Kwan O, Tai Po and Lantau)
Software
Continue to enhance training and development of healthcare professionals; attract oversea talents to enhance sharing of expertise and raise service standards 58

59. North Lantau Hospital Project
Phase one – To build a public hospital with 180 beds to meet the needs of the local community on Lantau Island
Phase two – To explore the introduction of PPP for private sector to provide other medical services and facilities in the available area in the hospital site 59

60. Possible PPP Models The following models are ruled out:
Financing: Private provider to finance the building of the public hospital.
Ownership: The Government and the private provider to share the ownership of a hospital building.
Operation of services: Private provider to deliver all public clinical services through a contracting-out arrangement. 60

61. Possible co-location Models
Co-location of public and private components within the same buildings (i.e. vertical co- location) or in separate buildings on adjacent sites (i.e. horizontal co-location) 61

62. Horizontal co-location
The private provider will finance, design, build, own and operate the private component on the land acquired from the Government.
To transfer the ownership and operation of the private facilities to the Government after a pre-determined fixed period of time.
Government may entrust the private provider to design and build the public component in tandem with the private development. The Government will bear the costs for the public component. 62

63. Vertical co-location
The land and the hospital building to be built thereon will remain the property of the Government.
Part of the building (e.g. a number of floors) will be let to the private provider to operate and provide private services.
The Government may entrust the private provider to design and construct the hospital building, where both the public and private components will be accommodated. 63

64. Collaboration Between 2 Sectors
Purchase of services
Clinical and allied health services
Clinical supporting services
Other contracting-out arrangements
Management and administration (e.g. accounting, information technology)
Building arrangement (e.g. maintenance, cleansing, security)
Other ancillary services (e.g. catering, laundry, portering)
Staff arrangements
Cross-attachment of staff between the public and private
Land disposal arrangements 64

65. Framework for Hospital Contracting
Context
Health Systems
Policies
Organisation
Financing and payment
Capacity
Government
Technical
Political
Private Sector
Human resources
Social-economic-political environment
Societal values 65

66. Framework for Hospital Contracting
Issues
Priorities
Objectives of contracting

67. Framework for Hospital Contracting
Consider alternatives to contracting
Beside options for contracting
Assess impact of contracting options
Seven-steps to contracting
Monitoring and evaluation

68. Thank You! 68