PPP in Australia: Hospital Sector Case Study

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1 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 Asia Seoul, May 19-21, 2009

2 Agenda Healthcare in Australia History of PPP in the State of Victoria Lessons learned from early PPP hospital projects in Victoria Applying the lessons learned - The Royal Women s Hospital

3 Healthcare in Australia Public hospitals Directly funded by government Provide most acute care, emergency outpatient services and more complex 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.

4 Agenda Healthcare in Australia History of PPP in the State of Victoria Lessons learned from early PPP hospital projects in Victoria Applying the lessons learned - The Royal Women s Hospital

5 History of PPP in Victoria 1980s: Focus on achieving off balance sheet financing 1990s: Belief that increased private sector involvement in infrastructure services 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

6 Agenda Healthcare in Australia History of PPP in the State of Victoria Lessons learned from early PPP hospital projects in Victoria Applying the lessons learned - The Royal Women s Hospital

7 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projects with similar characteristics: Regional hospital projects, multiple service locations Capital cost below $60m Outdated facilities resulting in inefficient service delivery Build, Own, Operate contracts Demand, supply and price risk transferred to the private company Winning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

8 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 Owner separate entities under the contract structure Reverted to public management Mildura Base Hospital Opened 2000 Experienced operator appointed Operator has modest risk appetite A financially robust contract

9 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 imply expertise in delivering public services

10 Agenda Healthcare in Australia History of PPP in the State of Victoria Lessons learned from early PPP hospital projects in Victoria Applying the lessons learned - The Royal Women s Hospital

11 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

12 The Royal Women s Hospital

13 The Royal Women s Hospital 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 the project cost

14 The Royal Women s Hospital New Hospital Site Plan

15 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

16 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

17 Summary PPP model for healthcare has developed over 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

18 Thank you