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Building Public/Private Partnership for Health System Strengthening Hospital Contracting Professor EK Yeoh School of Public Health and Primary Care The Chinese University of Hong Kong Bali Hyatt Hotel, Sanur , Bali 21-25 June 2010. Objectives.

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Building Public/Private Partnership

for Health System Strengthening

Hospital Contracting

Professor EK Yeoh

School of Public Health and Primary Care

The Chinese University of Hong Kong

Bali Hyatt Hotel, Sanur, Bali

21-25 June 2010

  • Understanding the nature of hospital contracting and context under which hospital contracting may be considered;
  • Knowledge of different models and options of hospital contracting;
  • Understanding why and how hospital contracting works; and
  • Developing a framework for hospital contracting


  • Discussing nature and rationale of hospital contracting
  • Different models and options of hospital contracting from the experience of a number of countries
  • Discussing the issues, logistics and application of hospital contracting in different countries
  • Discussing the challenges and issues of hospital contracting and PPP programmes in the context of the health care system of Hong Kong
  • Discussing a framework for hospital contracting


What is Contracting?

Contracting is a mechanism for a financing entity (such as a government ministry) to acquire a specified set of services, with specified objectives, of a defined quantity, quality, and equity, in a particular location, at an agreed-on price, for a specified period, from a particular nonstate provider (such as an NGO, private sector firm, or private practitioner).

Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008


What is Performance-Based Contracting?

A form of contracting that explicitly includes a clear definition of a series of objectives and indicators by which to measure contractor performance, collection of data on the performance indicators, and consequences for the contractor based on performance such as provision of rewards (such as performance bonuses or public recognition) or imposition of sanctions (such as termination of the contract or public criticism).

Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008







Clearly defined



Difference between Grant, Contracting and Performance-based Contracting





Defining services

Performance monitoring


contracting for health service delivery in developing countries
Contracting for Health Service Delivery in Developing Countries

“the impetus for all the contracting initiatives [studied] was the inadequate quality and coverage of government services, especially for poor people.”

Benjamin Loevinsohn, April Harding. Buying results? Contracting for health service delivery in developing countries.

Lancet 2005; 366: p. 680.


nature of hospital contracting
Nature of Hospital Contracting
  • Performance-based

- clear objectives and indicators,

- systematic data collection of the progress of the selected indicators

- rewards or sanctions based on performance.

  • Services

- primary healthcare; hospital surgeries; establishing a health insurance system; setting up and operating a voucher project; providing ancillary services such as equipment maintenance, cleaning, waste management, food preparation, and security, etc.

  • Typology

- a management contract and a service delivery contract approaches

- context and services specific

  • Pay-for-Performance

- focus on important objectives and uses financial rewards to reinforce good performance. Specific explicit, measurable outcomes and allows for termination of the contract for nonperformance.


typology of service delivery arrangement
Typology of Service Delivery Arrangement

Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008


types of pay for performance and their relationship to contracting

Who receives

What the funds can

Who provides

Relationship to

Type of P4P

the funds

be used for

the funds


1. Rewards for local


Programs of local


Performance agreements





rarely true contracts

2. Rewards


Programs of national


Not related

to national





3. Payment per


Personal uses


May be easier to introduce

service (fee for

health workers

individuals, or

in the context of contracting



with NSPs

4. Performance


Other programs or at


Sometimes used in health


the discretion of the

care contracting


5. Performance-


At discretion of the


Can be incorporated fairly

based payment


easily into contracts




DPT3 = third dose of diphtheria/pertussis/tetanus vaccine; GAVI Alliance = formerly the Global Alliance for Vaccines and Immunization; NGO = nongovernmental

organization; NSP = nonstate provider.

Types of Pay for Performance and Their Relationship to Contracting

Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008


models of public private partnership in hospital provision
Models of Public–Private Partnership in Hospital Provision
  • Franchising Public authority contracts a private company to manage existing hospital
  • DBFO (design, build, finance, operate) : Private consortium designs facilities based on public authority’s specified requirements, builds the facility, finances the capital cost and operates their facilities
  • BOO (build, own, operate) Public authority purchases services for fixed period (say 30 years) after which ownership remains with private provider
  • BOOT (build, own, operate, transfer): Public authority purchases services for fixed period after which ownership reverts to public authority
  • BOLB (buy, own, lease back) Private contractor builds hospital; facility is leased back and managed by public authority
  • Alzira model Private contractor builds and operates hospital, with contract to provide care for a defined population

Martin McKee, Nigel Edwards, & Rifat Atun, Public–private partnerships for hospitals. Bulletin of the World Health Organization, November 2006; 84 (11)


critical policy issues regarding hospital contracting
Critical Policy Issues Regarding Hospital Contracting
  • Universal access. To ensure that all public patients, particularly the poor and uninsured, have access to adequate hospital care, most contracts for private management of public hospitals require the provider to continue service to all public patients.
  • Funding. Governments generally fund public hospitals through budgetary payments or public health insurance programs, shifting the basis for payments from historical or input costs to the clinical mix of patients to be treated.
  • Consolidation. Many countries, particularly in Eastern Europe, have too many public hospitals and will need to downsize, consolidate, and close some facilities. Public-private partnerships can spur consolidation of services.
  • Competition. Competition between hospitals stimulates improvements in the quality and efficiency of service.
  • Regulation.Public-private partnerships may impose additional public policy obligations that require monitoring, sanctions for noncompliance, and dispute resolution procedures.


other issues relating to hospital contracting
Cost:There are significant costs for the firms bidding for a public–private partnership and for the health-care provider.

Quality:Trade off between cost, time and quality. Priority has been to meet the specifications agreed in the initial contract, with a reluctant acceptance that the project may go over time or budget.

Flexibility:Public–private contracts are often specified in details with large penalties for introducing changes, leading to a lack of flexibility. Some hospitals has been out of date by the time they are opened in a changing environment.

Complexity:Projects involve many different types of stakeholders, such as universities and research funders. The difficulties in reaching agreement with all of the stakeholders, combined with the high costs of the projects, may eventually lead to collapses in the project.

Other Issues Relating to Hospital Contracting


examples for hospital contracting in low income countries
Examples for Hospital Contracting in low Income Countries
  • Contracting out dietary services (Bombay)
  • Contracts to hospital security and cleaning, and ambulance services (Port Moresby, Papa New Guinea)
  • Contract for major items, such as CT scanners (Bangkok)
  • Contract for rural district hospitals (Africa)
  • Contact with a mining companies for the use of their hospitals to provide hospital services in district (Zimbabwe).

Source: Anne Mills To contract or not to contract? Issues for low and middle income countries. Health Policy and Planning; 1998; 13(1): 32-40.


corresponding reasons for hospital contracting in low income countries
Corresponding Reasons for Hospital Contracting in Low Income Countries
  • Reduction of the workload on management; expected to be cheaper; reduces wastage and pilferage; avoid service interruption (type: catering; place: Bombay)
  • Obtain cheaper; better quality service (type: cleaning; place: Bangkok)
  • Obtain latest equipment; avoid difficulty and delays in getting government approval and funds; overcoming difficulties of maintenance (type: medical equipment; place: Thailand)
  • Make use of private sector capital (type: building district hospital; place: South Africa)
  • Lack of government capacity (type: contract with private hospitals with spare capacity; place: Zimbabwe)


objective conditions for hospital contracting in low income countries
Objective Conditions for Hospital Contracting in Low Income Countries
  • Sufficient private sector capacity for efficiency gain
  • Government offers an attractive business market
  • Failure for the government to provide efficiently
  • Inflexible and inefficient public provision
  • Social, political and economic environment such as functioning legal, banking, and government procedure, resistant to corruption and patronage


some problematic issues regarding hospital contracting
Some Problematic Issues regarding Hospital Contracting
  • Unclear responsibilities for contract design and for monitoring contract performance.
  • Unclear specification of services to be contracted out
  • Unclear incentive schemes to motivate performance


other motivations for contracting
Other Motivations for Contracting
  • Strengthening healthcare financing
  • Cost containment and efficiency gain
  • Improve healthcare quality (such as reduce waiting time) and patient safety
  • Development of regional medical hub


steps to contract
Steps to Contract

Step 1: Conduct Dialogue with Stakeholders

Step 2: Define the Services

Step 3: Design the Monitoring and Evaluation

Step 4: Decide how to select contractors and establish the price

Step 5: Arrange for contract management and develop a contract plan

Step 6: Draft the contract and bidding documents

Step 7: Carry out the bidding Process and Manage the contract

Source: Benjamin Loevinsohn, Performance-Based Contracting for Health Services in Developing Countries: A toolkit. World Bank, 2008


complexity of hospital contracting
Complexity of Hospital Contracting

Specify outputs

Payment method

Price/rate determined

Delivery monitored


Conflict resolution

Incentives to induce participate

Risk sharing arrangements

Managing uncertainty

Cost recovery and profit


politics of hospital contracting
Politics of Hospital Contracting

a) the decision to contract;

b) the process to contract;

c) the relationship between government, public sector employees, non-government providers, and citizens



Why Contracting work?

  • Focus on Results. The very act of drafting a contract can help the purchaser define exactly what services are needed and help make objectives explicit.
  • Flexibility. NSPs have the important advantage of being less constrained by “red tape” (excessive regulation), bureaucratic inertia, and unhelpful political interference. In many circumstances, this is the largest advantage of NSPs over government delivery of the same services.
  • Reduction of Important Aspects of Corruption. Contracting appears to reduce some aspects of corruption that plague public health care systems, such as absenteeism, theft of drugs, selling of positions, leakage of funds on their way to peripheral health facilities, and informal payments to providers.
  • Constructive Competition. Contracting uses constructive competition to increase effectiveness and efficiency. Nonstate providers are impelled through competition to develop the most effective and efficient ways of delivering services, both during the bidding process and during implementation.



Why Contracting work?

  • Improved Absorptive Capacity. Nonstate providers are usually better at overcoming “absorptive capacity” constraints that often plague government health care systems and prevent them from effectively using the resources made available.
  • Better Distribution of Health Workers. As a result of greater flexibility and innovative approaches, NSPs can often improve the distribution of health workers and help ensure that skilled health workers are available and working in underserved areas.
  • Managerial Autonomy. Contracts, if drafted properly, provide managerial autonomy and decentralize decision making to managers closest to the ground.
  • Government Focus on Stewardship Role. Contracting provides a greater opportunity for government to focus on roles that it is uniquely placed to carry out, such as planning, evaluation, standard setting, financing, and regulation.


asian ppp experiences
Asian PPP Experiences
  • Singapore – Exploring the role of PPP in healthcare delivery and financing
  • Malaysia – PPP in healthcare financing via private health insurance
  • Hong Kong – mainly for healthcare delivery



Case Study

PPP in Hong Kong’s Healthcare System


hong kong s health policy
Hong Kong’s Health Policy

“no one should be denied adequate medical treatment through lack of means”


Hong Kong’s Healthcare System

“Dual” health care system

Public sector

Private sector

Food & Health Bureau

Department of Health

Hospital Authority

  • Execute health care policies & statutory functions
  • Statutory body responsible for management of public hospitals


delivery of services
Delivery of Services

Primary care

Health promotion & disease prevention services mostly provided by the public sector

Primary care curative services

Service provided by Out-Patient departments of HA hospitals (26%)

Service provided by private Western medicine doctors (57%)

Service provided by private Chinese medicine practitioners (13%)

Secondary & tertiary services

Public sector is the dominant provider (79%)

Source: Thematic Household Survey 2008


healthcare expenditure
Healthcare Expenditure

Total health care expenditure (2005/06 figures)

5.1% of Gross Domestic Product (GDP)

Public sector (52%)

Private sector (48%)

Source:Hong Kong’s Domestic Health Accounts, 1989/90-2005/06


sources of funding
Sources of Funding

Tax-based Financing

Sources: Hong Kong’s Domestic Health Accounts, 1989/90-2004/05


healthcare funding
Healthcare Funding

Public sector: heavily subsidized (2006/07 figures)

Private sector: fee-for-service, free market


hospitals in hong kong
Hospitals in Hong Kong

- Pre-Hospital Authority era

- Establishment of Hospital Authority

- Post-Hospital Authority era


pre hospital authority era
Pre-Hospital Authority Era

A mix of public hospital services provided by government departments and 15 Non-government Organisations on a subvented basis

Overseen by the Medical and Health Department

Lack of explicit services agreement and contracting

Problems: over-centralization, lack of financial incentives, inflexibility, low staff moral, lack of courtesy to patients, long waiting time, over-crowding, poor coordination between government and subvented hospitals


establishment of the hospital authority ha
Establishment of the Hospital Authority (HA)

The HA was found in 1990.

Establish governance and management systems across all constituent hospitals.

Manage HK’s public healthcare services including hospitals, specialist out-patient clinics and general out-patient clinics


post hospital authority era
Post-Hospital Authority Era

A single corporation that manages the public hospitals in HK

Explicit services agreement


ppp general principles
PPP: General Principles

Public Private Partnerships (PPPs) are arrangements where the public and private sectors both bring their complementary skills to a project, with varying levels of involvement and responsibility, for the purpose of providing public services or projects.

Source: Efficiency unit, HKSAR Government


characteristics of ppp
Characteristics of PPP
  • Large scale expensive long-term projects usually involving the construction of a new facility designed to deliver particular services;
  • The Government defines the quality and quantity of services, and the timeframe in which they are to be delivered;
  • The private sector is responsible for delivering the defined service while the government is mainly involved in regulation and procurement;
  • A long term relationship is established, typically between 10 years and 30 years, depending on the nature of the facilities, assets or services to be delivered

Source: Efficiency unit, HKSAR Government


characteristics of ppp1
Characteristics of PPP
  • Responsibilities and risks are allocated to the party best able to manage them;
  • The private sector and/or the Government finances the project (wholly or in part). The private sector and/or the Government would recoup its investment from charges on end-users or payments made by the Government during the life of the contract;
  • The private sector is encouraged to make use of its innovation and flexibility to deliver good quality, cost-effective services throughout the project lifecycle; and
  • The different functions of design, construction, operation and maintenance are integrated / use a whole-of-life approach.

Source: Efficiency unit, HKSAR Government


healthcare financing reform proposals
Healthcare Financing Reform Proposals
  • Financial pressures on the government provision of public healthcare
  • Aging population
  • Medical technology
  • Social expectation
  • Continued reliance entirely on public supply and funding - sustainable?
  • Any alternatives: financing system; expanding the role of PPP, enhancing public-private interface


examples of ppp in hk
Examples of PPP in HK
  • Cataract Surgeries Programme
  • Haemodialysis Public Private Partnership Programme
  • General Outpatient Clinic Public Private Partnership Programme
  • Shared Care Programme
  • Development of private hospitals - North Lantau Hospital Phase 2 Public-Private Partnership Project 

Hong Kong Hospital Authority:



Cataract Surgeries Programme (starting from February 2008)

To shorten waiting time for cataract surgery in public hospitals


cataract surgeries programme
Cataract Surgeries Programme
  • Target Group

Patients who have been on the HA routine cataract surgery waiting list as at 1 Feb 2008

  • Financial incentives

A One-off funding (HK$ 40million) by the Government for implementation– Providing subsidy to patients to receive cataract surgery in private sector

  • Fees and Charges
    • A maximum subsidy of HK$5,000 to patients for cataract surgery provided by private ophthalmologists.
    • Co-pay not more than HK$8,000
    • Consists of 1 pre-op assessment, the intraocular lens in the surgery and 2 post-op checks


cataract surgeries programme1
Cataract Surgeries Programme


  • Shorter waiting time: reduce from 35.5 months to 31 months (Dec 2009)
  • 91% of patients are satisfied with the Programme
  • 98% of patients say:

- Easy to select a suitable ophthalmologist from the pool of participating private ophthalmologists,

- The Programme has helped them to receive surgery earlier.

  • Smooth cooperation between the public and private sectors in arranging surgeries and providing follow up support service



Haemodialysis Public Private Partnership Programme

(3-year pilot starting from March 2010)

  • To enhance HD service for ESRF patients
  • To enhance patients’ self care capacity and improve QoL
  • To enhance collaboration between HA & community medical organizations


haemodialysis public private partnership programme
HaemodialysisPublic Private Partnership Programme
  • Target Group

Patients on haemodialysis (HD) in HA hospitals with stable conditions

  • Arrangement

HA will collaborate with community medical organisations to provide options for patients to receive HD in the community

    • Nephrologists assess patients conditions and invite suitable patients
    • Patients complete and sign consent
    • Patients enroll in the “Public-Private Interface-Electronic Patient Record Sharing Pilot Project”
    • Patients receive HD in the community; HA will provide follow-up, medications and examinations.
  • Fees & Charges

Patients pay the community HD centres the same fee as charged by HA

  • Outcome

To be evaluated



General Outpatient Clinic (GOPC) Public-Private Partnership Programme

  • Tin Shui Wai Primary Care Partnership Project

(a pilot starting from June 2008)

To expand GOPC services in districts with increasing demand for GOPC services by piloting a PPP model for the delivery of primary care service and promote the family-doctor concept in the community


gopc ppp programme
GOPC PPP Programme
  • Target Group

Patients suffering from specific chronic diseases such as DM, HT, COAD, etc. with stable medical conditions and in-need of long-term follow-up treatment at GOPCs

  • Arrangement
    • HA to purchase primary care services from private medical practitioners
    • Patients to receive a maximum of 10 subsidized visits to a private doctor for treatment of specific chronic illness and episodic illnesses per each 12 month period of participation
  • Fees & Charges
    • Patient pay for private GP services at the same fee that they currently pay for GOPC services. Outside the 10 subsidized visits, the patient can choose to be treated by private doctor at his/her own cost or attend GOPC for follow up.


gopc ppp programme1
GOPC PPP Programme
  • Outcome
    • Over 1,000 patients have been enrolled
    • High satisfaction rate from both participating patients and PMPs.

An extension phase of the GOPC PPP pilot is under consideration.



Shared Care Programme

(Pilot to be started in mid 2010 at Sha Tin and Tai Po districts)

  • To test a service model for public-private shared care for chronic disease patients in the primary care settings
  • To provide patients with choices of private services outside the public healthcare system
  • To establish long-term patient-doctor relationships in order to achieve the objective of continuous and holistic care


shared care programme
Shared Care Programme
  • Target Group

Clinically stable DM and/or HT patients who are currently taken care of by the public healthcare system

  • Financial Incentives

Subsidy in the form of electronic health care vouchers to patients to use the primary care services from private medical practitioners


shared care programme1
Shared Care Programme
  • Arrangement
    • Patients: (a maximum subsidy of HK$1,400 per year)

(i) A subsidy of HK$1,200 for at least 4 consultations/case management per year at an interval of not more than 4 months apart and drugs for treating DM and/or HT;

(ii) An incentive of up to HK$200 per year for patients who can meet the preset health outcome indicators and complies with the care requirements prescribed by their private medical practitioners

    • Private Medical Practitioners: Quality incentive of HK$200 each year for each patient under his/her care in the Programme. They must meet all process indicators in order to receive the payment.
  • Outcome

To be evaluated



Development of Private Hospital

- North Lantau Hospital Phase 2 Public- Private Partnership Project

(to commence in early 2010)

To increase the overall capacity of the healthcare system of Hong Kong and facilitate the development of the medical industry through the promotion of private hospital development


development of private hospitals
Development of Private Hospitals
  • To address the imbalance between the public and private sector
    • 39 Public vs. 13 Private Hospitals
    • Over reliant on public service
    • Limited competition and collaboration and choice for patients
    • Threat to long-term sustainability of healthcare system

Development of private hospitals at sites at Wong Chuk Hang, Tseung Kwan O, Tai Po and Lantau

Source: Invitation for Expression of Interest – Development of private hospitals at sites HKSAR 2009



Development of Private Hospitals

  • Government to facilitate the development of private hospitals through enhanced support in hardware and software


north lantau hospital project
North Lantau Hospital Project
  • Phase one – To build a public hospital with 180 beds to meet the needs of the local community on Lantau Island
  • Phase two – To explore the introduction of PPP for private sector to provide other medical services and facilities in the available area in the hospital site


possible ppp models
Possible PPP Models
  • The following models are ruled out:
    • Financing: Private provider to finance the building of the public hospital.
    • Ownership: The Government and the private provider to share the ownership of a hospital building.
    • Operation of services: Private provider to deliver all public clinical services through a contracting-out arrangement.


possible co location models
Possible co-location Models
  • Co-location of public and private components within the same buildings (i.e. vertical co-location) or in separate buildings on adjacent sites (i.e. horizontal co-location)


horizontal co location
Horizontal co-location
  • The private provider will finance, design, build, own and operate the private component on the land acquired from the Government.
  • To transfer the ownership and operation of the private facilities to the Government after a pre-determined fixed period of time.
  • Government may entrust the private provider to design and build the public component in tandem with the private development. The Government will bear the costs for the public component.


vertical co location
Vertical co-location
  • The land and the hospital building to be built thereon will remain the property of the Government.
  • Part of the building (e.g. a number of floors) will be let to the private provider to operate and provide private services.
  • The Government may entrust the private provider to design and construct the hospital building, where both the public and private components will be accommodated.


collaboration between 2 sectors
Collaboration Between 2 Sectors
  • Purchase of services
    • Clinical and allied health services
    • Clinical supporting services
  • Other contracting-out arrangements
    • Management and administration (e.g. accounting, information technology)
    • Building arrangement (e.g. maintenance, cleansing, security)
    • Other ancillary services (e.g. catering, laundry, portering)
  • Staff arrangements
    • Cross-attachment of staff between the public and private
  • Land disposal arrangements



Framework for Hospital Contracting

  • Context
    • Health Systems
      • Policies
      • Organisation
      • Financing and payment
    • Capacity
      • Government
        • Technical
        • Political
      • Private Sector
    • Human resources
    • Social-economic-political environment
    • Societal values


framework for hospital contracting
Framework for Hospital Contracting
  • Issues
  • Priorities
  • Objectives of contracting
framework for hospital contracting1
Framework for Hospital Contracting
  • Consider alternatives to contracting
  • Beside options for contracting
  • Assess impact of contracting options
  • Seven-steps to contracting
  • Monitoring and evaluation