Build and Beyond: The (R)evolution of Healthcare PPPs May 2011

www.pwc.com

PwC

Agenda & Speakers

Dinah Rowe-Roberts, Director, Health

Paul Clifford, Director, Infrastructure Advisory

• Introduction & Key Findings

•The Evolution

•The (R)evolution

2

PwC

Introduction

3 3

PwC

About the research

Findings and estimates are based on:

• In-depth interviews with global thought leaders and executives from the healthcare and PPP industry

• Review of literature, reports, and publications

• An advisory group of 15 professionals from PwC’s health industries advisory, tax and assurance practices

• Economic analysis based on publicly available data sources

4

PwC

The Evolution

5 5

PwC

Level-setting: PPPs offer a mechanism for governments to finance better healthcare infrastructure and clinical service delivery

• Public-private partnerships (aka, P3, PPP, PFI) establish a contractual partnership between two public and private sector entities where the skills and assets of the private sector are mobilised by the public sector to deliver services and/or infrastructure (e.g., facilities) to the general public.

• Each one does what it does best in the partnership.

PPPs can be structured around any or all of the following areas:

• Infrastructure – hospitals and clinical facilities

• Clinical services – delivery of medical care, including doctors, nurses, and know-how

6

PwC

In the beginning: Healthcare PPPs started as a way for governments to build new or revamp crumbling infrastructure

United Kingdom

• Upgraded decaying hospital facilities

• Surgical service PPPs injected competition into market & improved access

Australia

• Focus is on developing / modernising hospital infrastructure and providing support services

Drivers of Healthcare PPPs

• Investment need • Government budget constraints • Better procurement • Access to skills and knowledge • Service capacity

Examples

“The fact that infrastructure PPPs were a success gave government confidence that the private sector could deliver.”

-Peter Coates, Department of Health, England

7

PwC

Recently: Healthcare PPPs started to take on a broader scope…in response to broader problems

• The sustainability of health systems around the globe is threatened by growing spending and challenging demographic and epidemiological trends.

• More efficient, value-based models of infrastructure development and care delivery are needed now more than ever.

• PPPs have evolved over time from a primarily infrastructure-oriented model to a clinical services delivery model, increasing in complexity. Some include both.

Traditional infrastructure –based

model

Clinical services–based model

Integrated model – combines both infra &

clinical service

Evolution

8

PwC

Metrics to gauge success of PPPs are evolving

Infrastructure PPPs are measured by:

PPPs that include clinical services are measured by:

Value for Money Calculation

Estimated cost of the public sector delivering the project ($100 million) (minus) Expected cost of private sector delivering the project ($95 million) Difference in cost ($5 million) Value for money = 5%

Operational benchmarks Clinical benchmarks

Workforce productivity Patient outcomes

Wait times Patient satisfaction

9

PwC

The Revolution

10

“The world’s health systems will, within the next 15 years, find themselves in an unsustainable situation if they do not carry out a

number of important changes in their health policies.” -Alberto de Rosa

Ribera Salud Grupo, Spain

PwC

Today: The healthcare PPP revolution as told by numbers • Spending on health as a % of GDP is growing in all mature and developing economies (includes OECD and

BRIC nations, see graph below)

• In all cases, growth in health spending outpaces growth in GDP

• Governments are under pressure to consider new methods of financing and access private sector expertise and efficiency if they want to have any chance of sustaining required investment levels

11

PwC

Sizing the market: Health spending is expected to increase by 65.5% between 2010 and 2020

• As health spending in OECD and BRIC nations grows, so will the need for alternative methods of financing and care delivery

• PPPs can revolutionise traditional approaches toward cutting costs and improving efficiencies

12

PwC

The more the merrier (and cheaper)

The more aspects of healthcare that are included in the PPP, i.e., infrastructure + clinical services, the more the potential for savings increases

Drugs, devices, home, long-term care

Primary care

Hospital - non-clinical services and

clinical services

Infrastructure 2-5%

Estimated cumulative healthcare spending for OECD/BRIC countries, 2010-2020

Healthcare services/products (non- infrastructure)

$68.1 trillion

Infrastructure $3.6 trillion

15-25%

45%

*Percent of total health spending

Po

ten

tia

l fo

r s

av

ing

s &

e

ffic

ien

cy

ga

ins

13

25-45%

PwC

Today: The revolution as told by the PPP players themselves Case Study: Independent Sector Treatment Centers, UK

• Initiative to create competition, reduce wait times and increase workforce

• Includes infrastructure and clinical services for elective surgery (including mobile solutions)

• NHS pays the hospital operator per procedure undertaken

• Initially provided volume and income guaranteed to providers (set-up cost)

• Second wave undertaken at NHS prices

• Procurement evolved to drive performance for both private and NHS providers

Critical roles for PPP players

Complexity increases with number of partners, financial terms, definition of value

14

PwC

Today: The revolution as told by the PPP players themselves

Case Study: Health Authority Abu Dhabi

• Initiative to drive a step–change improvement in quality of hospital services

• HAAD contracted with leading international providers for the management of all public hospitals

• Providers included Cleveland Clinic, Johns Hopkins, Bumrungrad, University of Vienna (VAMED)

• Limited risk passed to private sector due to lack of reliable historical data

• 5 – 7 year contracts with aim to pass more risk to private sector in next round

15

• Providers playing key role in design of new facilities

PwC

Key findings – the (R)evolution of Healthcare PPPs

• Globally new funding sources need to be identified for healthcare and PPP’s are a possible solution.

• PwC has estimated that between 2010 and 2020 spending on healthcare in the OECD and BRIC nations will increase from US$5.3 trillion in 2010 to US$7.94 trillion in 2020.

• Cumulative investment in capital will total US$3.6 trillion over that period.

• PPPs in healthcare have traditionally been infrastructure projects – they are now evolving to include clinical service delivery as well.

• Success in PPPs is evolving toward health outcomes and performance as well as value for money.

16

Thank you! Q&A

CF10397.