The Health Network PPP
Lesotho is a small mountainous country in Southern Africa of about two million people. The country has been beset by a health crisis since the 1990s. Today, Lesotho has the second-highest HIV prevalence and the highest incidence of tuberculosis in the world. Lesotho also has a 74% HIV/TB co-infection rate; nearly one in nine children die before their fifth birthday; and between 1990 and 2010, average life expectancy in the country fell from 60 to 47.5 years. It has recovered to age 50 today.
According to the World Health Organization, Lesotho is facing formidable public health challenges, including low coverage of essential public health services and weak public health institutions.
In this context, in 2005, the government decided to pursue a public-private partnership to replace the run-down 100-year old Queen Elizabeth II hospital, build a new filter clinic, and upgrade of three other primary-care clinics. Together these health centers provided care to more than 25% of Lesotho’s population.
Through this public-private partnership (PPP) initiative, the Government of Lesotho sought to transform the operation of the facilities, improve the quality of care they provided, and to build capacity in the public health system.
PPPs are long-term contracts between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility. The Queen Mamohato Memorial Hospital (QMMH), and 4 primary care clinics that make up the Lesotho health network PPP, have now been operational for nearly five years. In this time, it has succeeded in delivering improved health outcomes, but has also impacted the country’s health budget, causing the relationship between the public and private partners to deteriorate.
This brief examines the background to the PPP, the health results it has achieved, critical challenges facing the health network and the impact they are having on the national health budget, lessons emerging from the project, and what can be done moving forward to preserve the benefits of the health network PPP, while helping ensure it is fiscally sustainable.
Why a PPP
The Government of Lesotho had contemplated options for a new national hospital since the 1970s. In 2000, as part of Lesotho’s health reform program, the government explored options for replacing the Queen Elizabeth II’s (QEII) hospital, but instead invested heavily in refurbishing it, almost tripling QEII’s annual budget in the process. Dissatisfied with the results, and what the government saw as chronic problems in the management and operation of QEII, they reached out to the WBG in 2005 to consider how the private sector could help develop critical public health facilities that would function more effectively and provide people with more efficient, higher quality care and services.
In 2005, IFC was mandated to be the transaction advisor, assisting the government in structuring a PPP that included constructing a new 425-bed national referral hospital and gateway clinic, and refurbishing and re-equipping three primary care clinics. The government’s goal for the PPP was to achieve better health outcomes by contracting out the building and operation of an integrated health network, increase accountability for service delivery and quality of care through a performance-based contract, while maintaining the government’s important role as steward of the health sector.
World Bank Group Support
The International Finance Corporation (IFC) undertook extensive technical, legal, and financial due diligence and advised the government on the feasibility, structuring, tendering, and implementation of the PPP. As part of this process, IFC commissioned a baseline study to document the service levels and conditions of the existing facilities. This study provided the basis for future evaluation and comparison and gave potential bidders realistic operating data to use in preparing their bids. IFC also worked closely with the government to improve its understanding of PPPs and build its implementation capacity. Finally, IFC developed the bidding documents and the PPP agreement, and supported the government through the tender process.
In December 2007, after an open and competitive bid process, Netcare (South Africa) was awarded the contract. Netcare formed a consortium with local companies, and in October 2008 an 18-year PPP agreement was signed between the Government of Lesotho and the new company, Tsepong. The three refurbished primary care clinics opened in May 2010.
The World Bank supported the initial design and operation of the PPP clinics from 2009 to 2012 through a $6.25 million grant. The grant provided bridge financing to help Tsepong and the Government of Lesotho meet additional costs, and finance services provided at the clinics under the PPP agreement. The modern Queen Mamohato Memorial Hospital (QMMH) and its new filter clinic opened in October 2011.
Through this health network, the Ministry of Health in Lesotho is providing much better quality of care. It is achieving better health outcomes for a larger number of patients, including providing more advanced medical technologies than were previously available in Lesotho.
Evidence from the 2007 baseline study and 2012 endline study conducted by Boston University’s Center for Global Health and Development documented the changes. Improvements highlighted by the Boston University study included:
Maternal and child health results have dramatically improved through the QMMH PPP network, which has greatly surpasses the health outcomes provided by the previous facilities.
- The overall death rate at the PPP facilities fell by 41% compared to QEII.
- Maternal deaths at the facilities fell by 10%.
- There has been a 17% decline in hospital deaths within 24 hours indicating better access to life saving medicines, surgery, and emergency care
- The paediatric pneumonia death rate at the new facilities dropped by 65% between 2007 (before the PPP) and 2012
- Still births were down 22%.
- 70% of extremely low birth weight babies survived, while virtually all died before the PPP was initiated
The health network is treating far more people than previous facilities:
- 30% increase in the number of patients seen every day
- 110% increase in total annual outpatient visits
- 45% increase in deliveries
The health network is operating more efficiently and caring for more patients at less cost per patient.
- Boston University estimates that in comparison with the previous facilities, the new health network is 22% more cost efficient on a per patient basis.
The clinics and the hospital are fully accredited by The Council for Health Service Accreditation of Southern Africa (COHSASA) – a globally recognized accreditation body – joining a small group of public healthcare facilities in sub-Saharan Africa that have achieved this recognition. Other considerable improvements include:
- Availability of most laboratory results within 1 hour
- 84% of patients are triaged within 5 minutes of their arrival at the casualty department
- Improved cleanliness of facilities for less infection-risk to the patients, staff and visitors
- Better and adequate equipment for staff which results in improved diagnoses
Challenges Facing the PPP
Despite these substantial improvements, the health network is also facing numerous challenges and has become a considerable financial burden for the Government of Lesotho. Recognizing these challenges and finding ways to overcome them will be critical to maintaining important health gains, while ensuring its financial sustainability for the government and people of Lesotho.
Managing High Demand: Based on Ministry of Health records, the PPP has absorbed an average of 34.8% of the total government recurrent budget for the health sector for 2012-15, below the upper estimate of 37%. Between 35-37% of the health sector budget was absorbed by comparable services from 1995-2005. Meanwhile, the new facility has served greater than envisioned public demand. Under the PPP agreement, Tsepong agreed to treat up to 20,000 inpatients and 310,000 outpatients per year in exchange for a lump sum payment. However, these numbers have been exceeded each year since the PPP became operational, with more than 27,000 inpatients and nearly 350,000 outpatients treated in 2015 alone. This high demand is the result of different factors.
Quality of Care: The better quality of care provided through the primary care clinics and QMMH has led many patients to seek treatment directly through the health network PPP, bypassing other hospitals. As Lesotho provides universal health coverage for its citizens, people pay the same fees for care at QMMH and its clinics as they do at any other hospitals in the country. Given the choice, people are seeking to be treated through the PPP health network.
Inadequate Primary Care Facilities: From the beginning, IFC and the Government of Lesotho recognized that providing significantly improved health services through the network would increase patient demand at the facilities. So the health network PPP was developed in parallel with an initiative to refurbish primary care facilities across the country with the Millennium Challenge Corp. However, there was a significant gap between the health network PPP and these improved facilities coming online leading many patients to seek treatment through the PPP facilities. Today, even though the health infrastructure has been improved outside of Maseru through MCC funding, there are inadequate numbers of specialists, equipment and supplies, which continues fueling demand for services through QMMH and its primary care clinics.
Inadequate Referral System: The lack of an effective referral system has facilitated this as patients have been free to self-refer to the health network PPP. It is estimated that roughly 70% of all cases treated at QMMH bypass primary care. This means there is no effective system to filter patients and treat non-severe cases at the primary level.
The cost of treating these extra patients has a direct impact on the health budget. Other factors contributing to the rise in cost of the health network include:
Variation Orders: There has been a lack of monitoring and oversight of “variation orders”, which have added to costs. Variation orders are operator requested services or expenses, which were not included in the original service agreement. Examples include blood cross matching, patient transport, neurosurgery, or building of residential facilities for QMMH doctors. Some payments are being made to operator without proper vetting.
Inflation Indexation: When the contract was signed it was agreed that, in addition to the adjustment to the Lesotho CPI index, the service payment to the operator would be adjusted to a measure of medical inflation. But since Lesotho does not have such an indicator, it was agreed to use the South African Composite Med Index. However, there has been longstanding disagreement between the partners concerning the base price upon which each year further inflation adjustments should be calculated. This has significant financial implications for both partners and needs to be resolved as it has become a significant thorn in the side of the partnership.
Increased Referrals to South Africa: In the original contract, there is a list of eight excluded services, which notably includes all invasive cardiac care and cancer treatment. Since 2011 staff in QMMH has referred patients showing up with these symptoms to public hospitals in Bloemfontein, South Africa. However, the PPP contract does not establish a clear, practical procedure for “authorizing” such referrals by the Ministry of Health, and so Tsepong has not informed the ministry of many of these referrals. As a result, there is now a backlog of unpaid referrals to the South African hospital which were not explicitly approved.
This has become an issue between the partners and must be resolved for the partnership to continue to provide the greatly improved health services, which were the primary goal of the Government of Lesotho at the outset.
A number of critically important lessons have emerged from these challenges.
First is that providing significantly improved health services will create massive demand. Knowing this, the World Bank Group’s support to health PPPs should be embedded in a larger sector-wide program of action that helps not only provide an effective network of health facilities, but also helps strengthen referral processes, track and evaluate expenditure patterns, finance other important health initiatives, and help unblock bottlenecks within health care financing. A PPP should not be implemented in isolation, and in a context such as Lesotho, should be part of a package of support and timed appropriately with other initiatives to avoid unmanageable demand.
At the same time, health PPPs should be integrated into the health system more effectively for them to meet government objectives and help drive improvements in the rest of the health system. In Lesotho, for example, the new management and clinical practices introduced through the health network PPP could be used to influence and improve the management of other public health facilities. This require clear policy directives for integrating PPP services into a broader health plan. Supporting the government in this approach could help address some of the quality of service problems being experienced in the wider health system.”
Another key lesson is the need to build and maintain government capacity to manage a PPP, and to monitor and enforce the terms of the contract. PPPs do not eliminate, but rather change and intensify the need for a government’s continuous involvement in monitoring performance in service delivery. The absence of strongly improved government capacity coupled with strong private facility and contract management creates an imbalance that can lead to misunderstandings, and negative public perceptions about governance or profiteering. Mechanisms to continue monitoring and evaluation for the life of the project need to be established and maintained to ensure improvements in quantity and quality of services.
It is critical in cases like Lesotho to provide continuous support in contract management, especially when government personnel turn over regularly and capacity is lost.
The World Bank Group is committed to helping the Government of Lesotho strengthen its public health system to provide quality essential care for its citizens. In order to realize the full benefits of the health network PPP, and ensure its financial sustainability, it will be important to work to resolve core disputes and address other areas of concern in the public health system.
Foremost, the matters under dispute need to be urgently resolved. The PPP contract sets out clear dispute resolution procedures, and those need to be applied, including evaluating options for renegotiating some contractual clauses to make sure that the PPP scheme remains fiscally sustainable.
To help address these issues, the World Bank Group is in discussions with the Government of Lesotho about providing technical assistance on contract management. This initiative would support the Ministry of Health in day to day contract management, help the two partners sort out contract disputes, and, if needed, support contract renegotiation to ensure the sustainability and continued effectiveness of the health network PPP in delivering substantial health benefits to the country.
At the same time, the World Bank Group is also carrying out a number of key evaluations, the data from which will help better target health funding for the public health sector. This includes undertaking a detailed Public Expenditure Review (PER), a Public Expenditure Tracking Survey (PETS) and a Quantitative Service Delivery Survey (QSDS), which will track and shed light on the flow of health funds, leakages, and bottlenecks within the health care financing system. All of these initiatives should help provide a clearer picture of health expenditure and services in the country and identify where financing is most needed.