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PPP: Hit or Miss?

Some PPPs become a roaring success, while some bite the dust. Sonal Vij analyses factors that determine the fate of PPPs

With healthcare expenditure of USD 53 billion, India has one of the lowest healthcare expenditures per capita amongst other emerging markets. Per capita healthcare expenditure is expected to grow at 10 per cent CAGR from USD 45 in 2008 to USD 66 by 2012.With an increase in expenditure by the public sector, commitments by state and central Government, the PPPs are expected to act as catalysts for this sector.

In 2008-09, the central Government had set aside USD 3.86 billion for healthcare in annual budget, an increase of 12.3 per cent from the previous budget Also, in April 2008, in order to reduce the overall burden of disease, the Government of India rolled out a healthcare insurance scheme for those living below the poverty line. Essential medicines such as antibiotics and painkillers will be provided free of charge and an estimated 12 million individuals will benefit annually.

Highlighting the untapped potential in PPPs, Pradip Kanakia, National Head of Markets, KPMG India, explains, "Assuming the GDP growth remains at seven per cent till 2015, the GDP is likely to grow to Rs 98 lakh crore and the total healthcare expenditure at five per cent will grow to Rs 4.9 lakh crore. Assuming that public healthcare expenditure is at one per cent of the GDP (ie 98,000 crore) and the private and public health insurance funding amount to Rs 1,68,000 crore, the OPE element is left at Rs 3.75 lakh crore or 77 per cent of total healthcare expenditure. If the OPE element is to be reduced to say 60 per cent, the gap in healthcare funding would be approximately Rs 81,000 crore which will need to be met by a combination of public and private funding."

Why a PPP?

"PPPs will survive only if the interests of all stakeholders are taken into account" - Pradip Kanakia National Head of Markets KPMG India

"We need a central approach to execution of PPP projects to create some level of standardisation" - Vishal Bali CEO Wockhardt Hospitals

"One size cannot fit all. The scale and magnitude of PPPs are different at each level" - Murli Nair Partner, Business Advisory Services Ernst & Young

So why are healthcare players so keen to enter a PPP? According to experts, for a private player, PPP is the easiest and the quickest way to enter any market. An expert remarked, "It's a safe route. It also helps to take healthcare cheaper and faster to a much wider population."

As of today, the private sector accounts only for 29 per cent of the beds in the hospitals as per a report on task force on medical education, MoHFW and cater to 78 per cent of the patients in rural areas and 82 per cent in urban areas (Source: NSSO 60th round report). "This indicates very low bed utilisation in the public sector. Hence both the sides recognise the need for PPP as a tool for augmenting public health system by ensuring optimum utilisation," says Murali Nair, Partner, Lifesciences, Business Advisory Services, Ernst & Young.

PPP also serves as a smart strategy to expand in a lesser time. The private players have infrastructure constraints. "Through PPPs they would be able to address this challenge effectively by leveraging existing public assets," points Nair. He further elaborates that since manpower availability is a constraint across the healthcare sector, the private player can benefit by utilising public healthcare infrastructure, especially medical colleges, to train and generate ready to use manpower. It also helps the private players in strengthening their relationship with the Government and seek greater involvement in policy making.

Determining Factors

Kanakia elaborates that a successful PPP model is one which has a clear definition of the 'beneficiary,' clarity of the respective roles of public player and private player, transparent and equitable tariff determination, key success factors for evaluating the performance of the private player, road map for scalability, identification of key risks and mitigation plans, dispute resolution mechanism and exit options for private player, without causing hardship to intended beneficiaries. Thus, a successful PPP has to address the priorities of service provider, patient and government.

Clarity in clause: Reportedly, a leading corporate hospital in Delhi entered into a PPP with the Government of Delhi when it was commissioned in 1996. The land was provided on lease at one rupee per month. Reportedly, one third beds were supposed to be reserved for poor patients and they were to be provided free treatment. There was a provision of free medical, diagnostics and other facilities for not less than 40 per cent of OPD patients. Reportedly, only a handful of poor cases per month are treated. Out of which more than fifty per cent patients treated free are internally referred and nearly 40 per cent are referred by the Government. A researcher informs the poor patients have to bear out of pocket expenses on drugs and consumables.

Researches believe that the memorandum of association lacked the definition of free- what all will be free to the patients. Also, there was no clear definition of "poor". There are no performance indicators, no rights of patients, any (clarity on) risks and responsibilities. Also, there is a lack of key performance indicators.

Programmes targeting BPL beneficiaries have not been up to the mark. Nair affirms, "In many PPP programmes, special clauses have been added to provide privileges / cost advantages to BPL Patients." Examples are SMS Hospital (Jaipur), Yeshaswini Health Scheme (Karnataka), Arpana Swasthya Kendra (Delhi) and mobile Health Clinic (Uttaranchal).

Chiranjeevi Project in Gujarat

This Chiranjeevi Yojna Scheme was announced by the Government in April 2005 to target group is women living below poverty line who face social and economic hardships due to complications during delivery. The scheme allows the families living below poverty line to use either public or private facilities for free and covers others expenses like travel. The families having BPL card or which have been certified by the designated village leader can avail this facility. The scheme also promotes follow-up during pre-natal and post-natal period. Implementation A beneficiary of the project The scheme was implemented in December 2005 as a one year pilot project in five districts, namely Bansakantha, Dahod, Kutch, Panchmahals and Sabakantha. The scheme was implemented by creating a network of private practitioners in providing maternity services to the BPL population living in remote areas of the states, having the highest maternal and infant mortality rates. The private practitioners were chosen by the district health centers after a detailed survey of their infrastructure assess their conditions of services. "Professional bodies such as the Federation of Obstetrics and Gynecology Societies of India and the Society of Welfare and Action-Rural were included for meeting and consultations with the private providers for deciding the maternity care service package and fees," says Dr Amarjit Singh, Secretary, Department of Health & Family Welfare. Government of Gujarat. The contracted practitioners were reimbursed through a capitation payment basis under they are paid for each delivery at a fixed rate. They are paid for a batch of 100 deliveries with an amount of Rs 1,79,500 for hundred deliveries including normal as well as those with complications. "Each doctor associated is paid an advance fee of Rs 25,000 to start the services and the remaining is replenished at regular intervals. This helps in building trust. The doctors are assured that the Government doesn't owe them money, in fact, they may owe us money," says Singh, Performance The pilot project covered 31,641 deliveries. 61 per cent of the private practitioners in the area have been networked and each performed an average of 238 deliveries in one year. The results were very encouraging: Institutional deliveries in the five states increased from 38 to 59 per cent No maternal deaths and only 13 infants death. Only 4.7 per cent caesarean operations as compared to average of 15 per cent included in financial calculations. The doctors are given a fixed amount including the cases with caesarean. Singh adds, in case a larger amount was promised for caesarean cases, it may lead to some doctors performing surgeries even when not required. Reasons for Success Kanakia observes, "The scheme is clearly defined, aims at addressable population, has a transparent pricing mechanism and involves a network of private practitioners, thereby ensuring a good service standard. " The scheme is simple. As soon as the pregnant women is identified, she is given the list of doctors available. She has to produce a BPL card. She is provided Rs 200 by the doctor. There are cases when poor women come to doctors and they did not have a BPL card. In those cases special certificates are issued to these women which helps them to avail this scheme. "The scheme is well framed, we have built trust with doctors by ensuring regular payments and there is constant monitoring of the programme. The success parameters are clearly defined. We need to appreciate that even the private parties too want to contribute to the nation," concludes Singh.

Nair further explains, there is inability to identify and verify veracity of BPL patients and the staff faces pressures for providing services reserved for BPL patients, especially if the cost of the services in high. He adds, "In many programmes, identification and verification of BPL patients is left to the discretion of the project administrators." He concludes that clearly there is a need in such cases to improve the inter-linkages between the PPP and the communities being targeted. A sense of accountability needs to be brought in ensure fairness in delivery of healthcare services.

Commercial Viability: According to analysts, a successful PPP model has to be based on financial/ commercial viability. Says Vishal Bali, CEO, Wockhardt Hospitals Group, "A successful PPP model has to be based on commercial viability that will ensure the continuity of the engagement. It needs to be quantifiable and must have clarity of execution and timelines to that execution." Wockhardt's Joint Venture (JV) with Maharashtra Government in 2001 for setting up a super speciality hospital at GT Hospital in South Mumbai with an investment of Rs 87 crore has failed.

Understanding Priorities: Recently, Wockhardt Hospitals' PPP with the Government of Gujarat to take over the management of the Government-owned Civil Hospital in Palanpur (Gujarat) did not meet success as the agreement did not address the priorities of the private sector. A researcher (who didn't want to be named), elaborated, "The problem is that the agreement was not attractive enough. There was a lack of consideration of the priorities of the private sector." He further explains that the amount which is generally offered by the Government is the sum total of the salaries paid to the existing staff. "When the private sector steps in, the expectations and standards become higher. The salary has to increase for that. Since it does not, the model is not financially viable," he adds.

Clash of Opinion: However, the biggest challenge is the mindset of Government, which is keen on providing healthcare to poor but expect the corporates not to make profit. A researcher points out, "The Government thinks profit is a dirty word. More and private players opine that this mindset needs to change to untap the huge potential in PPPs in healthcare industry."

Rajiv Aarogyasri Health Insurance Scheme in AP

The scheme runs in partnership with a private sector insurance company. The state pays an insurance premium of Rs 210 per household per annum and each of the households can claim health expenses in relation to certain critical diseases (such as heart and cancer treatment, neurosurgery, renal diseases, etc) up to Rs 2 lakh for procedures and medical expenses. Kanakia explains, "The scheme is supported by a well developed ID card and IT system that tracks, monitors and approves medical treatment for all covered families." While the health insurance company is responsible for claim processing and maintaining the database, the medical claim is approved by the Government doctors. The scheme currently covers over 85 per cent of the households in the State. Till date, 75 hospitals have signed up for this scheme. Performance Patients can claim upto Rs 2 lakh under this scheme Health affordability for the patients has increased. The scheme has proven to be useful to the targeted beneficiaries. The scheme is easily scalable once the claim processing and monitoring mechanism is in place. Reasons for Success According to experts, the Government has managed to cover BPL patients with critical diseases. The premium per house is low, but the number of households insured is more. This makes the scheme financially attractive. According to Babu A, CEO, Aarogyasri Trust, the ID cards issued by the Government prevent misuse. Kanakia attributes the success of the programme to strong technology platform that tracks, monitors and approves medical treatment for covered beneficiaries. He adds that the scheme is easily scalable as the claim processing and monitoring mechanism are in place. It also includes the post operational care up to 10 days. PK Agarwal, Principal Secretary to Government, Health, and Medical & Family Welfare department, advices, "Government should restrain from interfering in the operation autonomy of the project, so long as the MoU between the Government and the private sector is adhered to."

Opines PK Agarwal, Principal Secretary to Government, Health, Medical & Family Welfare department, Government of Andhra Pradesh (AP), "Private players should not look at PPP in social sector as a source of earning revenue. The aim has to be to fulfill social responsibility. "

Daljit Singh, President- Strategy & Organisational Development stresses that the PPP agreement has to be financially sound. The terms and conditions have to be very clear, there should be monitoring as well as parameters to measure success. According to him, the private players don't expect to make huge profits out of a PPP, but expects marginal profits.

Fortis Healthcare is running two PPPs - one in Navi Mumbai and the other in Raipur. Reportedly, these two PPPs are different. While Fortis has been allowed to run a 45-bedded hospital in Raipur, it has also been given charge of a privately-developed tertiary hospital attached to a Government municipal hospital in Mumbai. In both cases, there are clauses that provide for free beds. An expert called these projects, "passion of Fortis." Singh elaborates, "Once the PPP is in place, the challenge for the private sector is to ensure that it fulfills all the obligations that it has committed to by the Government."

Operational and payment issues: Often, there are operational and structural issues which act as a deterrent for the private players to enter a PPP. The structure issues are lack of enabling infrastructure, lack of project management framework and lack of shared decision making and risk taking. The operational issues are sense of inequality amongst partners, lack of mutual commitment to goals, lack of appropriate governance mechanism for accountability and delayed payments by the Government.

However, the Government feels that the private sector should be prepared to face this challenge. "Delay in release of funds for the project(s) should not affect its progress. To that extent, the private sector should be willing to temporarily fill liquidity gap," advises Agarwal.

Standardisation- The Road Ahead?

Right now, there is no standardisation of PPP model in healthcare. It varies from state to state since health is a state subject. Analysts stress the need for a standard template. "In any PPP model, there should be a model framework which acts as a policy document. Thereafter depending upon the nature of each PPP model and the priorities of the stakeholders, the specific agreement for each PPP can be tailored around the broad policy document," explains Kanakia.

Every state has a different approach to PPP. Bali further explains its need. "We need a central approach to execution of PPP projects in healthcare to create some level of standardisation in their execution. While the components of the model may differ from state to state the basic template of the model should be standardised," stresses Bali.

However, according to Nair, "One size cannot fit all. PPPs are happening at both state level and at national level and at various points of the value chain. However, the scale and magnitude are different at each level.”

There are multiple parties involved including Government, NGOs trust, and private players. Each PPP model has its own set of requirements and partner expectations.

Standardisation of model would embolden major healthcare players to venture in PPPs in a big way.

sonal.vij@expressindia.com