February 24, 2013

Building Public-Private Partnerships in Healthcare – The Way Forward for GCC States

With GCC Governments set to face significant challenges in managing future healthcare spending, Booz & Company evaluates the need for these countries to adopt the Public-Private Partnership mechanism as a means to alleviate rising costs.

In the years to come, growing healthcare spending will impose a hefty burden on Gulf Cooperation Council (GCC) Governments. As we enter 2013, healthcare costs continue to increase in the region – partly due to the high prevalence of chronic diseases. Today, thanks to systemic transformation, strategic planning, and population screening programs, GCC governments recognize that the current model – in which the state shoulders most of the direct healthcare costs – is unsustainable over the long term. In light of this, management consulting firm Booz & Company found that these governments must use a Public-Private Partnership (PPP) approach in order to tame expenditure, improve quality of service, and provide further access to expertise.


A System Riddled with Challenges

In recent years, GCC healthcare systems have achieved myriad accomplishments, including widespread provision, rising professional standards and regulation, generous funding, and growing levels of investment. Population screening programs, impressively rapid system-wide transformation programs and long-range strategic planning efforts have also placed these countries at the forefront of the healthcare industry.

Furthermore, as part of their national development programs, GCC governments are currently engaged in major efforts to improve accessibility and quality of care. In effect, major expansions in care provision are occurring across the region. These state-funded investments aim to close the supply-demand gap for inpatient and outpatient services as well as reinforce trust in local healthcare provision and reduce outbound medical tourism. GCC countries have also recently begun to introduce mandatory health insurance.

Industry-Specific Obstacles: “Yet, the truth remains that these forward-looking initiatives will be most effective if the region can find a new way to pay for its future healthcare needs and build its health systems’ capabilities,” said Gabriel Chahine, a Partner with Booz & Company. “Their goals can only be reached if adequate and long-term strategic plans are formulated. After all, GCC healthcare systems are still struggling with capacity gaps and inconsistent quality of care. In addition, there is a shortage of healthcare professionals, limited availability of competent specialized services and an elevated rate of non-communicable diseases.”

These ongoing healthcare challenges, and in particular the aging of the current young generation, will force governments to spend more on healthcare services.

“While expenditure is currently below international benchmarks when compared to developed countries on a per capita basis, this will undoubtedly change,” explained Jad Bitar, a Principal with Booz & Company. “As a result, governments will logically seek more private-sector participation, but this must be introduced in a controlled manner.”

A Regulated Approach: Without proper regulation, private companies will compete with each other and the government for manpower in a market with a limited supply of skilled labor – thereby escalating costs.

To avoid such situations, governments must take a regulated, multidimensional, multi-stakeholder approach that will ensure that the private sector brings complementary capabilities to the table. “Given the complexity of the GCC’s healthcare challenge, and how it differs among the six countries, it is important to recognize that there is no silver bullet,” said Dr. Nikhil Idnani, a Senior Associate with Booz & Company. “Instead, the careful and targeted use of partnerships between public and private stakeholders can begin to address the core issues of accessibility, quality, and affordability.”


A Win-Win Situation

The most effective method for combining the complementary capabilities of public- and private-sector players is through PPPs. GCC countries can use PPPs as a means of managing rising healthcare costs, as a mechanism to enhance the capabilities of the healthcare system, and as part of a program of systemic transformation of the sector.

Mutually-Beneficial Partnerships: The public and private sector each bring different strengths to the table. As the licensors of the health sector, governments can identify healthcare gaps from the perspectives of accessibility and quality. More importantly, they have the power to regulate the market, introduce incentives, and sometimes simply enforce reform.

“From its side, the private sector can improve the efficiency and effectiveness of health operations by leveraging its expertise in fields such as clinical, administrative, or support services,” added Chahine. “Moreover, the private sector can call on financial resources to inject capital into profitable opportunities, and mobilize entrepreneurship to spur innovation.”

The nature of the collaboration between the private and public sector can range from service delivery to full ownership of healthcare assets. “On the lighter end of the spectrum – in terms of what PPPs encompass – are management contracts,” said Bitar. “At the other end of the spectrum, the private partner takes on the financing, building, operating, and ownership of the facility, gradually selling it to the government over the long term. This PPP model allows the government to avoid the large up-front capital costs involved in healthcare investment.”

A Customized Approach: GCC governments should take an approach that customizes PPPs, according to their particular economic circumstances.

“They should be careful to ensure that their interests are protected while at the same time consider the privatization of public healthcare facilities,” said Dr. Idnani. “PPPs need to be tailored to the specific requirements of the particular GCC member state and its healthcare system.”

Opportunities for the Private Sector: A healthcare sector model indicates that the public sector is responsible for regulation, licensing, and monitoring. In turn, the private sector can provide services with commercial value such as cardiac surgeries and medical equipment manufacturing.

Services that are the furthest from patient contact and with the greatest commercial value are well suited for PPPs. Services with mostly social value, such as health education for the population, should be retained in the public sector.

In terms of healthcare subsectors, opportunities lie in provision, payment, supplies, and education spaces in individual GCC countries rather than across the whole GCC.

Opportunities for PPPs across the different players include:

  • Providers: Healthcare providers have an opportunity to develop robust rural care systems as well as deliver robust patient transportation systems or emergency medical services. Other provision opportunities exist in areas demanding considerable capital investment; those include specialized care facilities and centers of excellence.

  • Payors: Private companies looking at payor opportunities will require a minimum volume for the projects to be clinically and financially viable. An important payor opportunity stems from the introduction of mandatory health insurance schemes; these programs will need private companies that can offer services for front, middle, and back office functions.

  • Suppliers: The private sector’s expertise allows for the supply of reliable and low-cost healthcare necessities to the public sector. An opportunity is carving out diagnostic services for GCC healthcare systems as well as improving services in medical procurement and facilities management.

  • Educators: They have an important role to play as the GCC needs a large number of healthcare professionals. GCC countries have to meet the demand for provision of care and have more nationals enter healthcare as part of their national education and skills goals.


Laying the Foundations for PPPs

In actuality, in the GCC, the potential of PPPs is limited by challenges in the institutional setup, the enabling environment, and the process for developing opportunities. GCC countries often lack the institutional framework to govern the development and promotion of PPPs.

GCC governments need more robust processes to identify and advertise PPP opportunities. In order to achieve this, they need to adopt a holistic understanding of healthcare needs.

To establish the foundations needed for PPPs, governments must:

  • Set-up the Institutional Framework: Governments can address these problems through capabilities that ensure optimal governance of PPPs. They also need highly trained cross-sectoral PPP management offices and investment promotion entities that can initiate, execute, and supervise PPPs.

  • Create a PPP Enabling Environment: Governments need to focus on three areas to create a favorable environment for PPPs in healthcare: the legal and regulatory, the operational, and the financial. Governments should establish the necessary laws and regulations to attract private investors through PPPs. Operationally, GCC healthcare entities will need to decide where to place their efforts to clear the way for private entrants. In terms of financial enabling, governments can provide direct guarantees that allow the private sector to raise financing for projects. Similarly, they can pledge minimum volumes of usage or revenues, which would mitigate any damage to profits should the anticipated level of demand not materialize. And, they may even choose to make low interest rate loans available.

  • Develop the Opportunity Pipeline: Governments will need a structured process to plan and implement healthcare PPPs. The first phase is a system-level capacity plan that identifies current and future opportunities to fill gaps in healthcare coverage. The second system-level phase carves out a subset of these opportunities for the private sector based on the healthcare sector model. The process then moves to the operational level. The third phase develops a PPP framework that defines the objectives, roles and responsibilities and performance management model. From there, the PPP can move into the fourth and fifth phases of the process: these involve drawing up the implementation plan and then actually executing it.

To conclude, the GCC should use the PPP mechanism to cope with soaring and imminent healthcare costs. By determining the role of the public sector and PPP-appropriate opportunities, governments can overcome institutional obstacles, build their own capabilities, and encourage private-sector participation. The task of making PPPs deliver healthcare that is accessible, high quality, and affordable does not, however, fall to governments alone. The private sector should be equally proactive, conduct its own analyses and share market intelligence with the public sector. By feeding into the PPP process in this manner, the private sector can assist governments and create opportunities for PPPs through a cooperative relationship based on trust.