Subúrbio Hospital PPP First Health PPP in Brazil

IFC Public-Private Partnerships in HealthJohannesburg, South Africa

4 March 2011

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Project Background

Brazilian Public Health Context SUS (Sistema Único de Saúde), the Brazilian Public Health

Program, covers about 78% of the population (mostly poor people) while private health plans cover 22%(1)

Quality and access are important issues

(1) Source: ANS (National Health Agency), 2009

First Health PPP Project in Brazil PPP legal framework: concessions with payments (total or

partial) from the public sector

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Project Background

Bahia State Context Public health management (before Subúrbio):

(i) direct administration(ii) not-for-profit service providers(iii) services outsourcing

Bahia Government was already building Subúrbio Hospital when decided to structure it as a PPP

The main objective to be achieved through the PPP model was to provide high quality services to the population, comparable to the best private hospitals in the Country, creating a new benchmark for public health

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• This project was developed through Brazil PSP – Private Sector Participation Facility, established in 2008, to foster private investment in infrastructure projects

• Jointly funded (BNDES, IFC and IDB). Funds cover studies, consultants and IFC staff costs

• Success fees are reinvested in the facility• IFC leads all aspects of deal execution with BNDES support

Project Background

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Project Overview

• Suburbio Ferroviario – Salvador, Bahia State

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Project Overview • Emergency Hospital located in underserved area of Salvador:

over 1 million people with no access to emergency care in the area (UN HDI of 0.668)

• 298 beds (30 home care)Areas Beds

Adult– Clinical Beds 86

Adult– Surgical Beds 58

Pediatric - Beds 64

Adult– Intensive-Care Unit 20

Pediatric – Intensive-Care Unit 10

Adult– Semi-intensive 20

Pediatric – Semi-intensive 10

Home Care 30

TOTAL 298

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Project Overview

Project Client is Bahia State Government PPP involves private partner equipping, financing and

providing full services (construction under separate public contract)

Total project cost of: US$ 27 million construction (Bahia Government) US$ 32 million equipping (private partner), of which US$ 23

million in 1st year Maximum annual Government payment ~ US$ 58 million

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Project Overview

Structure 10- year concession contract (renewable for additional 10

ys) Operator to receive global budget: 70% paid if quantitative

indicators (volume) are met; 30% paid on achievement of qualitative indicators. Indicators are quarterly audited

Must achieve accreditation within 24 months Bidding was conducted at Bovespa Stock Exchange

(transparency)

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Project Overview

Results Bidding process completed on Feb 26th, 2010 Consortium of Promedica (Brazil)/Dalkia (France) selected Contract signed on May 2010 Operation started on September 2010

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Project Overview

FPE: “Fundo de Participação dos Estados” (States Participation Fund), which will provide federal funds to the Payment Flow in accordance with the Trustee Contract to be signed with Banco do Brasil (as Trustee)

Bahia State Government

Special PurposeCompany (SPC)

PPP ContractAuditing

firm

Investors

PaymentFlow

FPE

Population

ClinicalandNon-clinicalservices

Banco do Brasil(“Trustee”)

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Payment mechanism• Linked to performance indicators• Discounts are applied for under performance based on 2 sets of

indicators: Quantitative Indicators (volume) include 3 categories:

Inpatients (about 72%), Emergency/ Urgency/ Outpatient care (about 21%), Diagnostic services (about 7%) and each weight is defined based on cost contribution to total hospital cost

There are 31 Qualitative Indicators. Accreditation represents 20% of Qualitative Indicators after year 3

• Payment formula:

• Discounts aims at penalizing equity returns• Contract includes ordinary and extraordinary revisions

Government Payment (GP)=

70% x (1 - % discount Quantitative Indicators) x Max. GP

+ 30% x (1 - % discount Qualitative Indicators) x

Max. GP

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Project Timeline

• Project executed in 14 months from mandate to signing (March 2009/ May 2010). Operations started September 2010

March 2009

Mandate Signing

May 2010

Contract Signing

Feb. 2010

Auction at Bovespa

Dec. 2009

Bid doc. issued

Oct. 2009

Public Consultation/ Road Show

Sep. 2009

Approval of Project

Structure

July. 2009

Consultant delivered

initial reports

March. 2009

Consultants hired

Sep. 2010

Start-up of Hospital activities

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Expected Development Impact

Indicators Impact

Total patients annually 175,000

Private Investment Mobilized

$32 MM

Direct Jobs 1,600

In addition, the Project has

a considerable

demonstration impact

for new health PPPs and as

a benchmark for the public

health sector (e.g. Rio de

Janeiro State and São

Paulo and Belo Horizonte

municipalities)

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Lessons 1) Not easy to shape a new market (not easy to find investors, higher

risk premium required) market soundings and road show are key

2) Not easy to define proper indicators in such a dynamic context as health frequent revisions

3) Private sector will not take risks related to changes in demand, health patterns or related to the Health network frequent revisions, economic equilibrium clause

4) Need to find a balance between flexibility in contract and stability

5) Monitoring and proper reporting systems are essential Independent auditor

6) Contract Management should start as early as possible

7) Relevance of primary care to reduce hospital risks and ensure higher quality

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and more pictures…