8foster Anastasi Presentation

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PPP in Australia: Hospital Sector

Case Study

Richard Foster

Executive Manager, Partnerships Victoria

Kylee Anastasi

Consultant, World Bank Institute

Knowledge Sharing on Infrastructure -

Public Private Partnerships in AsiaSeoul, May 19-21, 2009



Agenda

Healthcare in Australia

History of PPP in the State of Victoria

Lessons learned from early PPP hospitalprojects in Victoria

Applying the lessons learned - The RoyalWomen’s Hospital




Public hospitals – Directly funded by government

– Provide most acute care, emergency outpatient services and morecomplex types of hospital care

– Long waiting times for elective surgery

Private hospitals – For-profit or not-for-profit organisations

Large corporate operators, religious operators, private health

insurance funds – Shorter waiting times, but costly

May be covered by private health insurance

– Traditionally provided less complex non-emergency care, such as

simple elective surgery – Increasingly providing complex, high technology services.



Agenda







History of PPP in Victoria

1980s: – Focus on achieving off balance sheet financing

1990s:

– Belief that increased private sector involvement in infrastructureservices could drive growth and efficiency Economic and financial outcomes were largely positive Desire for maximum risk transfer and private sector efficiencies led

to some projects being unsustainable

2000: – Partnerships Victoria Policy is launched

Framework for integrating private investment in public infrastructure Value for money in the public interest Optimal risk allocation Whole of life approach to costs No presumption of private sector efficiencies



Agenda







Early PPP Hospital Projects

Two hospital projects with similar characteristics: – Regional hospital projects, multiple service locations

– Capital cost below $60m

– Outdated facilities resulting in inefficient service delivery

– Build, Own, Operate contracts

– Demand, supply and price risk transferred to the private

company – Winning contractor accepted all risks transferred



Early PPP Hospital Projects

Latrobe Regional Hospital Opened 1998 Operator Issues

– Limited experience in public

service delivery – Staff levels and cost – Service level and efficiency

targets – Tax implications

Operator and Ownerseparate entities under thecontract structure

Reverted to public

management

Mildura Base Hospital Opened 2000 Experienced operator

appointed Operator has modest risk

appetite A financially robust contract



Key Lessons Learned

Separation of owner and operator creates difficulties – Government should have a single point of contact

Contract must be sustainable – Thorough Due Diligence is required

Pick your partner carefully

Private sector experience does not necessarily implyexpertise in delivering public services



Agenda







The Royal Women’s Hospital

Delivered under the Partnerships Victoria Policy Design, Build, Finance, Maintain contract Capital cost $235m, 3 year limit on construction Total NPV of PPP Contract $360m 25 year operating period

– Facility maintenance, cleaning, pest control, security,grounds, car park, help desk

– State provides clinical medical services State funding for additional works Tender commenced November 2003

Financial Close June 2005 Hospital opened June 2008




Relocation of two hospitals – Royal Women’s Hospital: Major public hospital for women

and newborn babies

– Frances Perry House: A 60 bed co-located private hospital Specialist hospital with consulting, teaching and

research facilities

Relocated next to a large public hospital – Integrated operations e.g. linen, meals

– Within a major medical precinct

Enabling works at new site to facilitate relocation

Sale of old site with proceeds contributed to theproject cost




New Hospital Site Plan



Applying the Lessons Learned

Qualitative and quantitative assessment – Due diligence required by both parties

– Scope for innovation in delivery

– Opportunity for commercial opportunities e.g. retail, car park Interactive tender process

– Knowing the bidders

– Understanding of government requirements

– Initiated the partnering relationship

Optimal risk allocation – State retained risk of enabling works as it could best

manage these risks – Consideration of brownfield risks reflected in the PPP

contract



Successful Outcomes

Qualitative Value for Money – Innovative design

Accommodates future operational changes

Increased perimeter light Ecologically sustainable development

Improved ventilation

– Asset Utilization

Approximately 30% more Gross Floor Area

Quantitative Value for Money – Bid $2.5m or 0.67% lower than PSC

– Delivered on time, on budget

Project considered a successful PPP



Summary

PPP model for healthcare has developedover time

Key changes in approach: – Drivers for private sector participation

– Risk allocation

– Efficiency expectations of the private sector

– Experience required to deliver public services

Change supported by policy



Thank you

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