| 4. In which ways is the initiative creative and innovative?
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The project was developed through a phased approach, divided in two phases. Phase 1 comprised the design of the transaction structuring. It included technical, environmental, financial and legal due diligence. Phase 2 comprised the drafting of transaction documents, promotion, the bidding process and auction, followed by contract award.
The structure of the Project followed the “BOT-Build, Operate and Transfer” model, which in this case excluded building, but included equipping, maintaining and operating all clinic and non-clinic services of the hospital through an administrative concession for a period of 10 years, renewable for another 10 years. The total amount of private investment was estimated in approximately US$ 32 million over the concession period.
The revenue model was based on Government payments, which were linked to the quality and availability indicators, measured through 31 performance indicators, with discounts for low performance.
The performance indicators were developed based on the following pillars: (1) operational auditing; (2) care performance; (3) quality of care; (4) clinical management; (5) inclusion in the health system; (6) management of people; (7) satisfaction surveys; (8) planning and coordination of patient care; and (9) accreditation of the hospital within 24 months, from the start of operations.
The project was awarded to Prodal Consortium, composed by ProMedica and Dalkia. ProMedica is a regional operator of medical services in the Northeast of Brazil and Dalkia is a French company managing infrastructure management services, including non-clinical services. The concession agreement was signed on May 28, 2010, and operations began in September 2012, after only 14 months since the PPP contract signing, which is considered a record time, when compared to other Brazilians infrastructure projects
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| 5. Who implemented the initiative and what is the size of the population affected by this initiative?
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In April 2009, the State Government, decided to grant to the Private Sector the provision of services of the HS. In order to structure the project, the Bahia Health Secretariat, signed a cooperation agreement with the International Finance Corporation (IFC) and the Brazilian National Development Bank (BNDES), which would support the Government in carrying the technical, financial and legal studies for the development of a hospital PPP project. The model was developed with the support of the Brazil PSP - Private Sector Participation Facility, a fund established in 2008.
IFC was appointed as the project’s lead advisor, thus supporting the Government in the development of the PPP structure, which included, among others, the following activities: technical, financial and legal studies and feasibility analysis, preparation of the draft and the final version of the bidding documents, mapping of potential investors and project promotion.
In order to promote transparency and seek for contributions from the civil society, the Government held Public Audiences and made available the drafts of the bidding documents in the project’s website. Since the HS PPP was the first to be implemented in Brazil, the Government was aware of the importance of engaging with the population at an early stage, sharing information with the population and the market.
With the support of the IFC, the Government also promoted Road Shows and market sounding, striving for an opened dialogue between the public and private sector. The Government was aware that the innovative nature of the project would demand closer interaction with investors, as a new market was being developed in the country. Therefore, meetings were held with several companies from the health sector, including Promédica, GE Capital and hospitals Sírio-Libanês and Albert Einsten. This engagement was crucial, especially in regards to the development of performance indicators and risk allocation.
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| 6. How was the strategy implemented and what resources were mobilized?
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The cooperation agreement within Bahia State Government and the IFC and BNDES, making an upfront payment of USD 145,000 to fund part of the technical, financial and legal studies for the structuring of the project. Once the project was tendered, the winning bidder, reimbursed IFC/BNDES for the remaining costs of US$1 million, charged as success fee. These fees financed the costs of specialized technical and legal consultants, as well as the staff and travel costs of the IFC team.
Besides the advisor team the Bahia State Government allocated twelve civil servants in the project to follow up the advisors products and to give inputs to the technical model. The governance of the project included: public advocacy, secretary of treasury, secretary of state, secretary of management, and secretary of health.
After assigning the contracted, the private partner got a loan to buy the equipments and to start running the services.
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| 7. Who were the stakeholders involved in the design of the initiative and in its implementation?
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Structuring the HS as a Public-Private Partnership generated important results for the health sector in Bahia, assessing most of the problems encountered before its implementation and considerably improving the overall efficiency of services provided to patients.
The 298-bed facility provides traditional emergency care as well as specialized treatment for trauma, orthopedic and cardiac emergencies, and other complex injuries. The hospital is equipped with a surgical center, one clinic, medical laboratories, one physical therapy unit, one hemodynamic unit, and one pharmacy.
The PPP model, implemented through a long-term contract, allowed an increase in governance, transparency and stability. It also contributed for the generation of a benchmark for the public sector; aligning interests between the public and private partners, with a clear risk allocation. The participation of the private sector resulted in higher quality and operational efficiency of the services provided in the hospital, ensuring technology maintenance and renewal.
In the first years of the concession, the hospital presented high performance levels, with a high solvability index, greater speed in performing emergency surgery, higher turnover of beds (a minimum of 4.9 is required and currently it is 23.6), low rate of hospital infections (6.5 per 1000 patients, considerably below the maximum rate required of 20), high level of user satisfaction (between 85% and 95%) and high professional qualification.
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| 8. What were the most successful outputs and why was the initiative effective?
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This is one of the few PPP health projects in the world that encompasses the performance indicators mechanism. There is a contract requirement for regular auditing by a qualified independent monitor of all the performance and volume indicators, which impacts the government annual payment to the private partner. The auditing process happens every 3 months and the private partner must provide all data and documentation needed. Evaluations are disclosed in the PPP website.
Financial statements auditing is also required in accordance with the higher standards in Brazil, which represents an innovation in terms of transparency.
Moreover, the private operator must provide the following services: implementation of a hospital information system, a help-desk system to report client complaints and accounting system, with minimum requirements, to ensure transparency and easier auditing of the performance indicators, as well as on-line access to the Health Department team and its independent monitors.
The secretary of health created a commission to track, monitor and supervise the service delivered, beyond this committee where there are discussions about the rebalancing of the contract, the secretariat of the farm is also involved in the analysis.
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| 9. What were the main obstacles encountered and how were they overcome?
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One of the challenges and concerns regarding the HS PPP was that the market would not be mature enough to undertake such transaction, ultimately resulting in an empty bid. In order to overcome this risk, the Government promoted several road shows and market sounding, thus making sure to provide all the necessary information to investors, endorsing a competitive and transparent bidding process. In addition, by engaging with the private sector, the Government concluded that the market was not willing to bear the risks regarding changes in demand, health patterns or the health network. With the objective of overcoming this issue, the Government included the provision of frequent revisions and the economic equilibrium clause.
Another major challenge was the dynamism of the health sector, which increased the complexity of defining proper indicators. In order to overcome this issue, the Government included frequent revision in the PPP agreement.
In Brazil, one of the main challenges of the public administration is to provide good payment guarantees that shall reduce the perceived default risk by operators and financiers. In view of this, a payment mechanism was put in place to enhance the project’s credit rating as well as leverage financing alternatives. This mechanism – approved by law - enables future state PPP concessionaires to receive state PPP government payments directly from the “States Participation Fund” (FPE), a constitutional fund created with the pool of federal taxes collected at the sub-national level. As per the approved law, 12% of the FPE resources disbursed to Bahia State are fully allocated to pay the PPP commitments. The funds are transferred to an escrow account at Banco do Brasil (a top credit Brazilian Federal bank) which has the responsibility to transfer the funds to the private partner when government payment becomes due. Excess funds are returned back to the State Treasury department.
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