8. Lessons Learned from the Cascais twin-SPV integrated PPP hospital model The lessons learned from.

8. Lessons Learned from the Cascais twin-SPV integrated PPP hospital model The lessons learned from the “twin-SPV Cascais model” thus far can be ordered according to the basic PPP project phases, preparation, execution and monitoring. The decision to replace existing hospitals and take over SNS staff added complication but served to mitigate the risk of excess capacity. The impact of the novelty of the integrated hospital model, in contrast with the simpler infrastructure-only PFI model was certainly underestimated. This contributed to delays as solutions had to be found for dealing with clinical risks, and some potential international sponsors and creditors may have been put off (Project Finance Magazine 2011). The consequences of these options could have been made more clear with earlier in the process of international market consultations regarding risk appetite. Ultimately, the choice of any PPP model, and the inherent risks, is greatly dependent on the risk appetite and risk absorption capacity of the sponsors and the banks. To be fair, health PPPs rely mostly on local rather than cross-border investors and creditors. In a small country, non-standard risk profiles may imply that health PPP projects can attract only local sponsors and local banks, even in the less risk-averse times of the last decade. ? Actual execution of the Cascais procurement process was problematic, stretching to a total of 65 months. But there was a good number of bidders (4), mostly local national, and bid prices offered a modest but acceptable value for money of 8% under the PSC. In terms of execution, policy continuity, even in the face of five Government changeovers, proved essential, especially since this was innovative “pilot” project which required a lot of clarifications and negotiations; ? In the post-completion phase, monitoring presented challenges as the Cascais clinical operator reported losses. The possibility of the banks stepping-in was not raised since the lead creditor was also the lead shareholder in CliniCo, and remedies had to be found in-house rather than through the exercise of bank step-in rights; ? In 2011, CGD had to recognize impairment of its investment in HPP because of the hospital losses (CGD Notes to Financial Statements 2011), and it was required to sell its health (and insurance) operations in order to concentrate on its core banking business. A financial rather than strategic investor may be necessary in small countries, in the absence of potential local sponsors with relevant health sector experience, but this may require adjustments in the shareholder groups in time. Challenges in the Cascais PPP Hospital Solution Banks’ unwillingness to accept clinical risks posed problems in attracting international investors and creditors. Creation of two SPVs, with separate concession and finance contracts and different durations, and the provision of shareholder support for the financing of the CliniCo hospital operator. Refusal of the Court of Auditors approval due inconsistencies between the clinical contract and the Resolved with a special arrangement with another SNS hospital. Health and Economics Analysis for an Evaluation of the Public Private Partnerships in Health Care Delivery across EU 93 Challenges in the Cascais PPP Hospital Solution original terms of reference with respect to the scope of services. Staffing plans were subject to the contractual requirement to recruit 95% of the staff from the SNS.. Contrary to expectations imbedded in the base case, few of the SNS staff accepted to transfer from their existing “public functions” to individual labour contracts with exclusivity. This had negative implications for staff management and staff cost control. Hospital operators had to adjust staffing practices. On the other hand, since HPP – Parcerias Saúde, SA the CliniCo was controlled by the Stateowned Bank Caixa Geral de Depositos, it was obliged to apply the salary reductions dictated by austerity program from 2012 until recently, when the company was sold to AMIL a Brazilian operator in February 2013, which contributed to improving financial performance in 2012. (HPP 2011). The rapid ramp-up in demand as patients flocked to the new hospital in after it opened in early 2010 created a temporary over-flow problem requiring excess production and the accumulation of losses leading to negative net worth of €30 million as of the end of 2011. ARSLVT paid for some increases in treatment, but then used its contractual right to set production quotas unilaterally. After a change of management, and a SNS-wide increase in the moderating charges or co-payments under the austerity program, the Cascais clinical operator was able to bring performance closer in line with the contract, though its financial condition remains a concern. An increase in VAT from 19% to 23%, as well as various other austerity measures, also added to a real live “combination downside” scenario. Like every other company in Portugal, the hospital operator is having to cope with adverse macro conditions. 9. Sources – ARSLVT, Health Profile of Lisbon and Tagus Valley Region http://pns.dgs.pt/planeamento-saude/files/2010/02/Perfil-deSa%C3%BAde-da-Regi%C3%A3o-de-Lisboa-e-Vale-do-tejo.pdf, accessed on 13-March-2013; – ARLVT (2008), HPP Parcerias da Saúde, SA, TDHOSP, SA Hospital Management Contract ; – ACSS (2012), Health Sector PPP Portugal October 2012; – ACSS Monthly Monitoring Reports, accessed on 26-March-2013 http://www.acss.minsaude.pt/DownloadsePublica%C3%A7%C3%B5es/SNS/Monitoriza%C3%A 7%C3%A3oMensal/tabid/533/language/pt-PT/Default.aspx; – Barros, P.P., Simões, J & Temido J, Public-private partnerships in the Portuguese Health Sector, Official Journal of the International Hospital Federation, vol 6, 2010, pg 6;

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