international experience in improving public hospital performance through ppps and the case of oss...

International Experience in International Experience in Improving Public Hospital Improving Public Hospital

Performance Through PPPsPerformance Through PPPsandand

The Case of OSS Hospitals in Sao Paulo, The Case of OSS Hospitals in Sao Paulo, BrazilBrazil

National Conference on Emerging Health Care Models:National Conference on Emerging Health Care Models:Engaging the Private Health SectorEngaging the Private Health Sector

CEHATCEHAT

Mumbai, Sept. 26, 2009Mumbai, Sept. 26, 2009

Jerry La ForgiaJerry La ForgiaWorld Bank/New DelhiWorld Bank/New Delhi

OverviewOverview

Part 1: Typology of hospital Part 1: Typology of hospital governance modelsgovernance models Some examples of international Some examples of international

experience with focus on PPPsexperience with focus on PPPs Part 2: The case of São Paulo, BrazilPart 2: The case of São Paulo, Brazil

Model, impact, ingredients for successModel, impact, ingredients for success

Many countries are searching Many countries are searching for alternatives to direct for alternatives to direct

government management of government management of public hospitalspublic hospitals

But . . . Privatization (sale of assets) But . . . Privatization (sale of assets) is generally not a politically feasible is generally not a politically feasible option in many countries, and may option in many countries, and may place at risk social mission of public place at risk social mission of public hospitalshospitals

Are there “middle-ground” Are there “middle-ground” alternatives?alternatives?

How to generate the incentives and How to generate the incentives and accountabilities to raise performance, yet accountabilities to raise performance, yet retain the public mission and “social retain the public mission and “social benefits functions” of public hospitals?benefits functions” of public hospitals?

How to move public hospitals out of the How to move public hospitals out of the public bureaucracy and transform them public bureaucracy and transform them into more independent entities with into more independent entities with accountability for performance?accountability for performance?

Why Reform Public Hospitals?Why Reform Public Hospitals?Driving forces for reformDriving forces for reform

Problems with public sector deliveryProblems with public sector delivery Quality, patient dissatisfaction, low productivity, low Quality, patient dissatisfaction, low productivity, low

value for money, inefficiency, poor control of HRvalue for money, inefficiency, poor control of HR Politicians – “get the hospiitals off the front page of Politicians – “get the hospiitals off the front page of

newpaper”newpaper” Fiscal problems Fiscal problems

High hospital spendingHigh hospital spending Political interferencePolitical interference

Managers – “let us run the hospital!” Managers – “let us run the hospital!” Experience from other sectorsExperience from other sectors

Wider public sector reforms build pressure to apply Wider public sector reforms build pressure to apply governance and management models to health governance and management models to health

Successful PPP models Successful PPP models Changing views on role of the stateChanging views on role of the state

Provider, purchaser, regulator ???Provider, purchaser, regulator ???

Elements of Hospital Elements of Hospital GovernanceGovernance

A Template for Assessing and Developing A Template for Assessing and Developing Policies and PracticesPolicies and Practices

Autonomy -- decision-making Autonomy -- decision-making authorityauthority

Accountability arrangementsAccountability arrangements Market exposureMarket exposure Residual claimant statusResidual claimant status Social functionsSocial functions Information environmentInformation environment

Simplified Typology of Hospital Simplified Typology of Hospital Governance ArrangementsGovernance Arrangements

Budgetary UnitBudgetary Unit Semi-autonomous UnitSemi-autonomous Unit Fully-autonomous UnitFully-autonomous Unit

Public Public Private/non-profit/for-profit (PPP)Private/non-profit/for-profit (PPP)

Budgetary Semi-autonomous Fully Autonomous

Examples: Governance Structures Examples: Governance Structures and Legal Framework: Public and Legal Framework: Public

TypesTypesTypeType TypicalTypical

StructuresStructuresLegal and Legal and Contract Contract

ArrangementArrangementss

Nomen-Nomen-clatureclature

ExamplesExamples

RemarksRemarks CountryCountry

ExamplesExamples

BudgetarBudgetaryy

(public)(public)

None: None: directly directly administereadministered by d by governmentgovernment

No No independent independent legal statuslegal status

Direct Direct admin.admin.

Direct Direct manage-manage-mentment

Least Least autonomouautonomouss

Many Many public public systemssystems

Semi-Semi-Autono-Autono-mousmous

(public)(public)

Separate Separate board w/i board w/i governmentgovernment

Entity (all Entity (all board board members members from gov.)from gov.)

With and With and without legal without legal status and status and contractual contractual agreement agreement with gov.with gov.

““indirect indirect admin.”admin.”

HR follows HR follows civil civil service service rulesrules

-Colombia -Colombia (ESEs)(ESEs)

-Brazil-Brazil

-Boston -Boston City Hosp. City Hosp.

Fully-Fully-autono-autono-mousmous

(public)(public)

Separate Separate public public entity, entity, usually w/ usually w/ board, board, independent independent of of governmentgovernment

With legal With legal status but status but usually with usually with contratual contratual agreement agreement with gov.with gov.

-Hospital -Hospital AuthorityAuthority

-Public -Public CorporatioCorporationn

-Trust-Trust

-Public -Public FoundatioFoundationn

May be May be subject to subject to gov. civil gov. civil service service system system which which could could compromiscompromise e autonomyautonomy

-New York -New York City City

-UK -UK Foundation Foundation TrustsTrusts

-Spain-Spain

TypeType TypicalTypical

StructuresStructuresLegal and Legal and Contract Contract

ArrangemenArrangementsts

Nomen-Nomen-clatureclature

ExamplesExamples

RemarksRemarks CountryCountry

ExamplesExamples

Fully Fully autono-autono-mousmous

(Non-(Non-

Profit) Profit)

Special non-Special non-profit profit corporation corporation (public or (public or private), private), usually with usually with a boarda board

With legal With legal status under status under private law, private law, but often but often under under contractual contractual agreement agreement with with governmentgovernment

-Social -Social Health Health OrganizatioOrganizationn

-Holding -Holding CompanyCompany

- Joint - Joint “Public” “Public” Stock Stock Company Company

-Non-profit -Non-profit FoundationFoundation

-Operating -Operating contract (most contract (most common)common)

-All services -All services managed by managed by non-profit non-profit organizationorganization

-São Paulo-São Paulo

-Colombia-Colombia

-Austria-Austria

-Spain-Spain

-Estonia-Estonia

Fully Fully autono-autono-mousmous

(For-(For-profit)profit)

Corporate Corporate board (in board (in most cases)most cases)

Gov. board Gov. board in Panamain Panama

Lease, Lease, franchise or franchise or management management agreement;agreement;

May involve May involve separate or separate or PPP PPP framework framework legislationlegislation

-Contract -Contract managemenmanagementt

- - FranchisingFranchising--Leasing-Leasing---Contracting Contracting outout---OutsourcingOutsourcing

-Operating -Operating contractcontract

-Specific -Specific service service purchasing purchasing (clinical or (clinical or non-clinical)non-clinical)

-All contracted -All contracted services services managed by managed by for-profit firmfor-profit firm

Many Many examplesexamples

-San -San Miguelito Miguelito Hospital in Hospital in PanamaPanama

-Spain-Spain

-Sweden-Sweden

-US-US

-India-India

Examples: Governance Structures Examples: Governance Structures and Legal Framework: PPP typesand Legal Framework: PPP types

Elements of Governance in Elements of Governance in PPPsPPPs

Rapid Review of International Rapid Review of International ExperienceExperience

Accountability Arrangements Accountability Arrangements for PPPs in São Paulo and Spainfor PPPs in São Paulo and Spain Management contract Management contract

Performance targets: production, quality, and Performance targets: production, quality, and user satisfactionuser satisfaction

But . . . requires strong contract monitoring But . . . requires strong contract monitoring and enforcementand enforcement

Payment Mechanism (transfer of risk)Payment Mechanism (transfer of risk) Activity/quality-based financing Activity/quality-based financing

RewardsRewards SanctionsSanctions

Performance indicators specified in contractPerformance indicators specified in contract

Decision-making AuthorityDecision-making Authority

All PPP models:All PPP models: Human Resources: recruitment, hiring, Human Resources: recruitment, hiring,

dismissal, salary policydismissal, salary policy Procurement: consumables, equipmentProcurement: consumables, equipment Outsourcing: clinical, maintenance, hotel Outsourcing: clinical, maintenance, hotel

servicesservices Capital improvementsCapital improvements Service mix: open new service, expand Service mix: open new service, expand

existing service, eliminate a serviceexisting service, eliminate a service Financial: budgeting, borrowing, Financial: budgeting, borrowing, Negotiation: private third-party payersNegotiation: private third-party payers

Market Exposure (PPPs)Market Exposure (PPPs) São PauloSão Paulo

Not permitted to charge fees of any kindNot permitted to charge fees of any kind Not permitted to sell services to private insurersNot permitted to sell services to private insurers May outsource clinical, diagnostic and hotel May outsource clinical, diagnostic and hotel

services w/o government permissionservices w/o government permission San Miguelito Hospital, Panama CitySan Miguelito Hospital, Panama City

Nominal user fees charged, but similar to those Nominal user fees charged, but similar to those charged in other public hospitalscharged in other public hospitals

Not permitted to sell services to insurers or Not permitted to sell services to insurers or “private” patients“private” patients

Outsourcing of all medical, diagnostic and hotel Outsourcing of all medical, diagnostic and hotel services to private firms through competitive services to private firms through competitive biddingbidding

SpainSpain (Madrid) (Madrid) Compete for public patientsCompete for public patients CashlessCashless

Residual ClaimantResidual Claimant

Most models allow for:Most models allow for: Retaining “savings” from budget, but there are Retaining “savings” from budget, but there are

limits on uselimits on use Investing “savings” in capital marketsInvesting “savings” in capital markets Borrowing in capital markets, usually within limits Borrowing in capital markets, usually within limits

(hospital held liable for an deficit)(hospital held liable for an deficit)

Some models allow forSome models allow for:: ““Selling shares” (joint “public” stock co. – Austria, Selling shares” (joint “public” stock co. – Austria,

Estonia)Estonia) Seeking private investors (Spain)Seeking private investors (Spain) Forming business joint ventures with laboratories, Forming business joint ventures with laboratories,

physician groups, etc. (US)physician groups, etc. (US)

Information EnvironmentInformation Environment

Good and timely information underlies all Good and timely information underlies all governance arrangements, enabling . . .governance arrangements, enabling . . . Contract definition, performance monitoring, Contract definition, performance monitoring,

and enforcementand enforcement EvaluationEvaluation Design of budget and/or payment mechanismDesign of budget and/or payment mechanism Effective cost controlEffective cost control Transparency: patients, communities, payers Transparency: patients, communities, payers

and regulatorsand regulators

Social FunctionsSocial Functions

Nearly all modelsNearly all models Retain public ownership, but may be shared Retain public ownership, but may be shared

among different public entities (different among different public entities (different towns, state, municipal corporation)towns, state, municipal corporation)

Retain public mission (social safety net facility)Retain public mission (social safety net facility) Make explicit hospital’s beneficiaries in a Make explicit hospital’s beneficiaries in a

management contract, e.g., serve “public” management contract, e.g., serve “public” patientspatients

Make explicit type and volume of services Make explicit type and volume of services (specified in contract)(specified in contract)

State of São Paulo, BrazilState of São Paulo, Brazil

Example of a Successful PPP Example of a Successful PPP ModelModel

Fully-autonomous Privately-Operated (non-Fully-autonomous Privately-Operated (non-profit)profit)

Public Facility Public Facility

Understanding the Hospital Context in Understanding the Hospital Context in Brazil Brazil

Three Publicly-supported Sub-systems w/ Three Publicly-supported Sub-systems w/ Different Governance ArrangementsDifferent Governance Arrangements

Direct administrationDirect administration (35% of all hospitals, (35% of all hospitals, but 97% of public hospitals)but 97% of public hospitals) Public financing, ownership and management Public financing, ownership and management

of public providersof public providers Indirect AdministrationIndirect Administration (2% of all (2% of all

hospitals)hospitals) Semi-autonomous modelSemi-autonomous model

Traditional PPP arrangementsTraditional PPP arrangements: (47% of all : (47% of all hospitals)hospitals) Public financing of non-profit and for-profit Public financing of non-profit and for-profit

private hospitalsprivate hospitals

Summary differences Summary differences between the three modelsbetween the three models

Direct AdministrationDirect Administration Command and control system where Command and control system where

state/municipal health secretariat hires and state/municipal health secretariat hires and manages staffs, builds and operates facilities, and manages staffs, builds and operates facilities, and organizes purchases and distribution of all inputs. organizes purchases and distribution of all inputs.

Indirect Administration Indirect Administration Same as Direct Administration except for Same as Direct Administration except for

decentralized procurementdecentralized procurement Contracting of Private Facilities (Traditional Contracting of Private Facilities (Traditional

PPP)PPP) Autonomy over inputs Autonomy over inputs Payment mechanisms varyPayment mechanisms vary Agreement-basedAgreement-based

Weak Accountability for PerformanceWeak Accountability for Performance (Direct Administration) (Direct Administration)

Absence of link between financing and Absence of link between financing and performanceperformance Input orientation - historical line item budgets Input orientation - historical line item budgets Vaguely defined objectives and targets (“provide Vaguely defined objectives and targets (“provide

assistance”)assistance”) Political InterferencePolitical Interference

High turnover of managersHigh turnover of managers Meddling in HR recruitment, postings, transfersMeddling in HR recruitment, postings, transfers

Centralization of input managementCentralization of input management Complex public procurementComplex public procurement

Ill-defined supervisory structureIll-defined supervisory structure Pro-forma, formalistic monitoring (feed the database)Pro-forma, formalistic monitoring (feed the database) ““Firefighter” supervisionFirefighter” supervision

Weak Information EnvironmentWeak Information Environment Lack of useful and timely information about costs, quality, Lack of useful and timely information about costs, quality,

efficiency, production and outcomes underlies all issues at efficiency, production and outcomes underlies all issues at all levelsall levels

Weak Accountability Weak Accountability Human Resource ManagementHuman Resource Management

(Direct Administration)(Direct Administration)

Few incentives for productivity and Few incentives for productivity and efficiencyefficiency

No DM authority over HR for recruitment, No DM authority over HR for recruitment, dismissal, promotion, remuneration, staffing dismissal, promotion, remuneration, staffing mix, promotionmix, promotion Low qualifications and lack of “organizational fit”Low qualifications and lack of “organizational fit”

Selection by multiple-choice testSelection by multiple-choice test Non-transparency of postings and transfersNon-transparency of postings and transfers

Outdated definition of positionsOutdated definition of positions Long intervals between recruitment processes Long intervals between recruitment processes

Weak AccountabilityWeak Accountability((Traditional PPP Arrangement)Traditional PPP Arrangement)

Payer to providerPayer to provider No contract pressures - “Air” contractsNo contract pressures - “Air” contracts Distortions in provider payment mechanismsDistortions in provider payment mechanisms Historically (and politically) determined Historically (and politically) determined

financial allocations financial allocations Little competitive pressureLittle competitive pressure

Except for large facilities in urban areasExcept for large facilities in urban areas Informality of governance and Informality of governance and

managementmanagement Physician workshopsPhysician workshops

Little oversightLittle oversight Formalistic reporting and monitoringFormalistic reporting and monitoring

Questions Faced by São Paulo Questions Faced by São Paulo State AuthoritiesState Authorities

How to avoid the problems of Direct How to avoid the problems of Direct Administration while avoiding the Administration while avoiding the pitfalls of traditional PPP?pitfalls of traditional PPP?

What type of governance What type of governance arrangement(s) for hospitals can arrangement(s) for hospitals can provide the accountabilities and provide the accountabilities and incentives for performance?incentives for performance?

São PauloSão Paulo

39 million (21% of Brazil’s population)39 million (21% of Brazil’s population) 93% urban93% urban Large health sectorLarge health sector

962 hospitals (13% of national total)962 hospitals (13% of national total) 21% of total beds21% of total beds

Very strong private sectorVery strong private sector Considerable managerial experienceConsiderable managerial experience 75% of beds private75% of beds private

OSS: The BasicsOSS: The Basics 1998 - 20081998 - 2008 25 mostly new facilities: avg. 200 25 mostly new facilities: avg. 200

beds p/hospitalbeds p/hospital Secondary facilities: 4 basic specialties Secondary facilities: 4 basic specialties

+ psychiatric care, ICU, ambulatory + psychiatric care, ICU, ambulatory surgery, neonatal units.surgery, neonatal units.

Located in low-income, heavily Located in low-income, heavily urbanized slum areasurbanized slum areas

Major Characteristics of Hospitals Under Major Characteristics of Hospitals Under Social Organization ArrangementSocial Organization Arrangement in the State in the State

of São Paulo, of São Paulo,

Legal Legal FrameworkFramework

OSS arrangement established under state lawSupported by Federal framework lawOSS bound by civil law (direito privado)

OwnershipOwnership Public: State Government of São Paulo

Responsible Responsible EntitiesEntities

State government is financier, but legally responsible for property and service delivery system.Facility operations are responsibility of contracted private, non-profit organizations, known as EPLN (usually a university or philanthropic organization)

Selection of operator

Competitive tendering with specified selection criteria



Decision-making Autonomy

All inputs except capital investments All managerial processesAll contracts with suppliersHR – hiring, dismissal, salaries (private labor law)

Market Exposure

Not permitted to charge fees or sell services to private patients or to insurance plans Can outsource clinical, diagnostic and hotel services w/ government permission

Residual Claimant

Retain and invest “savings” in capital markets, but cannot provide bonuses to managers who receive fixed salariesUnable to sell “shares” or seek outside investors


of São Paulo,of São Paulo,

Accountability:Contract specs and enforcement

Contract specifies production, spending, and qualityContract management unit w/i health secretariatContract cancellation for continuous non-performance

Accountability:Performance-based financing

Production targets and performance indicators specified in contract w/ financial risks

90% of financing linked to production (variable)Retention fund: 10% of financing retained against quality and efficiency performance indicatorsCapital financing/depreciation excluded from global budget



Accountability:Stakeholders

Trustees (EPLN governance board): for operations and overall performance, compliance with state law, and contractual termsPayers/owners (state health secretariat): for performance indicators and financial reporting requirements specified in contractRegulators (state auditing agency): for spending and management of public funds Patients: no organized body, but contract mandates annual patient satisfaction survey

Monitoring, Information

Robust information environment: quarterly reports on production, spending and costs; Quarterly reviews of compliance with production and quality targetsStandardized cost accounting systems implemented in all OSSs -- Basis for annual contract negotiationsComparative benchmarking on costs and production

Public mission

Legal and contractual mandate to serve “public” patients only

facilities located in poor neighborhoodsPublic objectives

All services are freeReference facilitiesContribute to development of municipal primary care network


of São Pauloof São Paulo

Examples of Performance Indicators Linked to Examples of Performance Indicators Linked to 10% “Retention Fund” of Global Budget, 10% “Retention Fund” of Global Budget,

Social Organizations Hospitals, State of São Social Organizations Hospitals, State of São PauloPaulo, , 20042004

Category Indicators Weight

Quality of Information

Medical records contain secondary diagnosesPlace of residence codes completed in patient recordsReason for caesarian sections provided

0.10

Efficiency ALOS for specific services (without secondary diagnoses) remain within pre-defined ceilings

0.10

Quality Mortality, medical record and infection commissions are fully operational% of deaths analyzed by mortality commission% reduction in infection hospital rate

0.70

Patient Satisfaction

% percent of patient complaints addressedRealization of patient satisfaction survey

0.10

What About Performance?What About Performance?Impact EvaluationImpact Evaluation

Matched 12 OSS with 12 direct Matched 12 OSS with 12 direct administration facilitiesadministration facilities

Matched on: bed size, discharges, Matched on: bed size, discharges, physicians per bed and complexityphysicians per bed and complexity Complexity: AIH general, AIH surgery, % Complexity: AIH general, AIH surgery, %

patients >60, ratio male/female patients >60, ratio male/female patients, total spendingpatients, total spending

Results of Impact EvaluationResults of Impact Evaluation

OSS scored significantly better on:OSS scored significantly better on: Efficiency measures (bed turnover rate, Efficiency measures (bed turnover rate,

occupancy rate, ALOS, bed substitution occupancy rate, ALOS, bed substitution rate, discharges per bed, expenditures rate, discharges per bed, expenditures per discharge)per discharge)

Selected mortality ratesSelected mortality rates 60% of OSSs are accredited compared to <1% 60% of OSSs are accredited compared to <1%

of hospitals nationwideof hospitals nationwide

CONCLUSIONCONCLUSION

What Are the Ingredients of What Are the Ingredients of SuccessSuccess

of the OSS Model?of the OSS Model?

Ingredients of SuccessIngredients of Successof the OSS Modelof the OSS Model

Decision-making authorityDecision-making authority Nearly all inputsNearly all inputs

Accountability arrangements Accountability arrangements (Government-(Government-driven)driven) Strategic contractingStrategic contracting

Performance and accountability built into well-formulated contractPerformance and accountability built into well-formulated contract

Contract enforcementContract enforcement Accountability is meaningful due to effective enforcementAccountability is meaningful due to effective enforcement

Financing linked to performanceFinancing linked to performance Financing reinforces performance and accountabilityFinancing reinforces performance and accountability

Independent audits/reviews – financial and technical Independent audits/reviews – financial and technical Grievance procedure – specified in contractGrievance procedure – specified in contract Emphasis on standards - accreditationEmphasis on standards - accreditation

Ingredients of Success Ingredients of Success of the OSS Modelof the OSS Model

InformationInformation Information reinforces financing, purchasing, and Information reinforces financing, purchasing, and

enforcementenforcement Comparative benchmarking of facilities – 17 indicators of Comparative benchmarking of facilities – 17 indicators of

costs, production, quality, efficiency, etc.costs, production, quality, efficiency, etc.

Market exposure: limited butMarket exposure: limited but . . . . . . Selection of Operators – competitive biddingSelection of Operators – competitive bidding

Residual claimantResidual claimant Retain savings and assume debt for bugetary overrunsRetain savings and assume debt for bugetary overruns

Well-defined social functionsWell-defined social functions Public mission retainedPublic mission retained

Thank YouThank You

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