Health System Innovation in Lesotho: Design and Early Operations of the Maseru Public- Private Integrated Partnership

Health System Innovation in Lesotho Design and early operations of the Maseru public-private integrated partnership Healthcare public-private partnerships series, No. 1 Copyright © 2013 PwC and The Regents of the University of California

The Global Health Group Global Health Sciences University of California, San Francisco 50 Beale Street, Suite 1200 San Francisco, CA 94105 USA Email: [email protected] Website: globalhealthsciences.ucsf.edu/global-health-group

PwC 300 Madison Avenue New York, NY 10017 Website: www.pwc.com/global-health

Ordering information This publication is available for electronic download from the Global Health Group’s and PwC’s websites.

Recommended citation Downs S., Montagu, D., da Rita, P., Brashers, E., Feachem, R. (2013). Health System Innovation in Lesotho: Design and Early Operations of the Maseru Public- Private Integrated Partnership. Healthcare Public-Private Partnerships Series, No.1. San Francisco: The Global Health Group, Global Health Sciences, University of California, San Francisco and PwC. Produced in the United States of America. First Edition, March 2013.

This is an open-access document distributed under the terms of the Creative Commons Attribution-Noncommercial License, which permits any noncommercial use, distribution, and reproduction in any medium, provided the original authors and source are credited.

Images Cover photo provided courtesy of Richard Feachem. Table of contents

Acknowledgements ...... 5 UCSF®/PwC report series on public-private partnerships ...... 6 About the UCSF® report series...... 6 About the Global Health Group...... 6 About PwC...... 6 About public-private partnerships ...... 6 About public-private integrated partnerships...... 7 Methodology...... 8 Audience ...... 8 Executive summary ...... 9 Introduction ...... 12 Country profile: Lesotho healthcare system and population health status. . . . 13 National population and health status...... 13 Healthcare system...... 13 Summary statistics: ...... 15 Health system need: Replacement of Queen Elizabeth II Hospital...... 16 PPIP procurement and contracting...... 19 Bid design ...... 19 Bid response ...... 22 Bid evaluation...... 23 PPIP contractual design...... 25 Financial terms...... 26 Capital expenditure ...... 26 Operating expense and financial model...... 27 Unitary payment ...... 27 User fees...... 29 Operational terms...... 29 Co-location of private services...... 29 Access to hospital services ...... 30 Excluded services...... 30 Employment ...... 31

Healthcare public-private partnerships series, No. 1 3 Broader impacts ...... 31 Health system strengthening...... 31 Local economic empowerment...... 32 Community development...... 32 Independent monitoring and certification...... 32 Construction and early implementation: Financial close to launch of hospital services ...... 36 Construction...... 36 Opening of the filter clinics...... 37 Transition from QEII to QMMH ...... 39 Queen ‘Mamohato Memorial Hospital: The first year...... 40 Human resources management...... 40 Staffing levels and recruitment...... 40 Policies and procedures ...... 41 Training...... 42 Change management...... 42 Information systems...... 43 Quality management and utilization management ...... 43 Supply chain management ...... 44 Independent monitoring of clinical operations...... 45 Partnership between Government and Tsepong...... 46 Public response...... 47 Ongoing and future initiatives in support of the PPIP ...... 48. Lessons learned ...... 50 Lessons learned: Appropriate expertise...... 50 Lessons learned: Leadership...... 51 Lessons learned: Plan early, plan often ...... 51 Lessons learned: PPPs are not a panacea...... 53 Lessons learned: Contractual flexibility...... 53 Opportunities for future evaluation ...... 54 Conclusion...... 55 References...... 56

4 Health System Innovation in Lesotho Acknowledgements

We are grateful for the expertise and experience so generously shared during the development of this report. While the report was prepared by the UCSF® Global Health Group and PwC, information and insights contained in the report were provided by the following organizations:

• Apparel Lesotho Alliance to Fight AIDS (ALAFA)

• Clinton Health Access Initiative (CHAI)

• Ditau Health Solutions

• The Healthcare Redesign Group

• Lesotho Boston Health Alliance (LeBoHA)

• Lesotho Ministry of Health and Social Welfare

• Lesotho Ministry of Finance and Development Planning

• Millennium Challenge Corporation

• Netcare Limited

• Partners in Health

• Tsepong (Pty) Ltd

• The World Bank Group

Healthcare public-private partnerships series, No. 1 5 UCSF®/PwC report series on public-private partnerships

About the report series Health Group has identified public- transport, infrastructure and energy. This report on the Queen ‘Mamohato private partnerships in general, and While starting considerably later and Memorial Hospital and the public- public-private integrated partnerships much more cautiously, a parallel trend private integrated partnership in particular, as a promising model has emerged in the health sector. In (PPIP) formed for the design, to improve health systems globally, the past ten years, there has been a construction and operation of the including in developing countries. rapid expansion and acceleration of hospital (including the provision of interest in public-private partnership clinical services) is the first in a series For more information about (PPP) models for health, across many of publications on public-private the Global Health Group, visit: continents and income levels. partnerships (PPPs) to be jointly globalhealthsciences.ucsf.edu/global- authored by the UCSF® Global Health health-group. PPPs are a form of long-term contract Group and PwC. This series aims between a government and a private to highlight innovative PPP models About PwC entity through which the government globally and to disseminate lessons PwC is one of the largest healthcare and private party jointly invest in the learned and leading practices for the professional services firms, advising provision of public services. Through benefit of current and future projects governments and private enterprises this arrangement, the private sector around the world. on every aspect of business takes on significant financial, technical performance, including: management and operational risks and is held accountable to defined outcomes. PPPs About the Global consulting, business assurance, tax, finance, advisory services, human can be applied across many sectors Health Group resources solutions, and business and typically seek to capture private The Global Health Group at the process outsourcing services. sector capital or expertise to improve University of California, San Francisco provision of a public service. (UCSF®), Global Health Sciences is an PwC’s Global Healthcare practice “action tank” dedicated to translating includes more than 5,000 health PPPs are characterized by the long- major new paradigms and approaches professionals with expertise in public- term nature of the contract (typically into large-scale action to positively private partnerships, medicine, 20+ years), the shared nature of the impact the lives of millions of people. bioscience, information technology, investment or asset contribution and Led by Sir Richard Feachem, formerly clinical operations, business the transfer of some risk from the the founding Executive Director administration and health policy. public to the private sector. These of the Global Fund to Fight AIDS, features distinguish a PPP from Tuberculosis and Malaria, the Global As healthcare becomes increasingly other contracts existing between Health Group works across a spectrum, interconnected with other industries, governments and the private sector, from research and analysis, through PwC’s global reach and resources help which might not be considered PPPs. policy formulation and consensus governments, businesses and industry building, to catalyzing large-scale players accomplish their missions in a PPPs provide governments with implementation of programs in dynamic and competitive environment. alternative methods of financing, collaborating low- and middle- infrastructure development and/or income countries. For more information visit www.pwc. service delivery. Ideally, PPPs also give com/global-health private parties the opportunity to “do One of the Global Health Group’s well while doing good.”Ref 9 PPPs can programmatic focus areas is the role About public-private make private capital investment more attractive to the private sector, reduce of the private sector in health systems partnerships strengthening. The Global Health the risk profile for private investment The past three decades have witnessed Group studies a variety of innovative in new markets or otherwise ease a growing tendency by governments delivery platforms that leverage the barriers to entry in new markets, all in of countries at all income levels to strengths of the private sector to service of defined public policy goals. seek out long-term partnerships with achieve public health goals. The Global the private sector in domains such as

6 Health System Innovation in Lesotho In healthcare, the public-private aim to be “cost neutral” to patients, A successful PPIP must exist for a partnership approach can be applied who incur the same out-of-pocket decade or more to give both public to a wide range of healthcare system payments, usually zero or minimal, and private partners sufficient time needs: construction of facilities, as they did in the previous, often to develop sustainable systems, provision of medical equipment or dilapidated and perhaps poorly run processes and overall operations supplies or delivery of healthcare public facilities. These facilities revert based on informed strategic services across the spectrum of care. to government ownership at the planning and improvement through While relatively simple “design, end of the contract term, ultimately feedback loops. build, finance and maintain” models, guaranteeing government ownership like the British hospitals built under of the facilities. Ref 7,23 • Risk transfer: Under the DBOD private finance initiatives (PFIs), model, the private partners, not remain the most commonplace, an PPIPs are characterized by the the government, are responsible increasing number of governments following four key attributes: for meeting defined service quality are experimenting with or considering benchmarks. In this way, the private • A design, build, operate and more ambitious models, including partners assume risk for delays and deliver (DBOD) model: The public-private integrated partnerships cost overruns in the construction private partner or consortium (PPIPs), which include the provision phase as well as ongoing operational designs, co-finances, builds, of clinical services within the private risk including human resource operates and delivers clinical care sector scope of the PPP. Ref 23 issues and failure to achieve in one or more health facilities, efficiency in service delivery. often including a tertiary hospital Governments remain involved in About public-private and surrounding primary and ensuring service quality through integrated partnerships secondary facilities. This model regulation, contract management This case study focuses on the Queen is commonly called a “DBOD”. and/or monitoring activities. Ref 7,23 ‘Mamohato Memorial Hospital, a PPIP Unlike other PPPs, PPIPs go beyond in the Kingdom of Lesotho. private investment in buildings and PPIPs are further characterized by maintenance, as the private partners their motivating policy goals: PPIPs are a special form of PPP, are also responsible for delivering designed to achieve significant and all clinical services at the facilities, • Quality of care: Improved quality sustainable improvements to health from surgery to immunization to of care for all at the PPIP facility and systems at national or sub-national ambulance services. possibly across the health system; levels through both capital investment and service delivery. Ref 7,23 • Government ownership of • Equity of access: Unrestricted assets: The healthcare facilities access to PPIP facilities by all, PPIPs position a private entity, or are ultimately owned by the regardless of income level or consortium of private partners, government upon termination social status; in a long-term relationship with a of the PPIP contract. government to co-finance, design, • Cost neutrality: No change in build and operate public healthcare • Long-term, shared out-of-pocket costs for patients facilities and to deliver both clinical investment: A PPIP comprises utilizing a PPIP healthcare and non-clinical services at those a long-term commitment by both facility and, in some cases, cost facilities for a long-term period. PPIPs the government and the private neutrality for the government’s enable governments to prudently partners to provide health services annual expenditure for the PPIP leverage private sector expertise and for a defined population. Both facilities and services relative to investment to serve public policy partners invest significant resources conventionally built and operated goals, specifically the goal of providing into the project, supporting long- facilities. Where both measures of high-quality and affordable preventive term dedication and a common cost neutrality are achieved, the and curative care to all citizens. PPIPs interest in successful outcomes. PPIP has achieved “cost neutrality squared,” or “(cost neutrality)2”;

Healthcare public-private partnerships series, No. 1 7 • Predictable government health budgeting departments) can ensure Methodology expenditures: Fixed payments to that upon completion, cost-efficiency Between January and October support predictability in healthcare and other data from the project are 2012, study researchers conducted budgeting and stability of national made available to the public. In qualitative interviews in Lesotho, health expenditures; and developing countries, project data South Africa, and the United States. have not been made publicly available, Participants included employees of • System-wide efficiency gains: but greater transparency should be an Tsepong (Pty) Ltd, Netcare Limited, High and transparent standards important goal for future projects. the Lesotho Ministry of Health and for service delivery and outcomes Social Welfare, the Lesotho Ministry with the potential for raising We hope that this report and of Finance and Development Planning, performance expectations and associated publications, including the World Bank Group and multiple accountability for the entire national future reports in this series, will non-governmental organizations Ref 7,23 healthcare system. enhance the literature and evidence (NGOs) with operations in Lesotho. base for PPIPs (and other innovative Finally, effective management of PPP models) and contribute to The authors of this publication also inherently complex PPIPs necessitates a growing understanding of this conducted grey and peer-reviewed careful monitoring being carried out important alternative for improving literature reviews on PPPs, PPIPs and independently when necessary. In healthcare infrastructure and clinical the Lesotho PPIP specifically to inform an ideal model, a jointly appointed delivery around the world. Some the development of this case study. independent monitor routinely have argued that PPIP solutions are Print and web references are listed at assesses project performance against not scalable or generally applicable, the back of this report, and citations metrics and outcomes mutually especially in very low-income settings. throughout the document refer to developed by both the public and While low income settings will require sources by the numbers established in private partners. Appropriate penalties careful specification of required this list of references. and/or rewards are clearly tied to services versus nonessential services assessed performance. Ref 7,23 In previous and careful consideration of the long- Audience publications, the Global Health Group term affordability of contract design, The primary audience for this report has noted that data collection around the example presented here clearly Ref 7 is the governments of low and middle- PPIPs is challenging. In general, demonstrates that a PPIP solution income countries (LMICs), including while showing a positive trend, the is possible even in a resource poor policymakers in ministries of health available academic literature is lacking environment. Still, each PPIP must and ministries of finance. This report analyses of—and even summary be tailor-made for its unique purpose may also be helpful to others studying information on—PPIPs. Often there and circumstances. There are common how best to leverage the private sector are commercial sensitivities and lessons and themes, but there are to strengthen health systems, including legalities that inhibit both public also myriad details which are site- donor agencies, non-governmental and private actors from revealing and context-specific. These details organizations, academic institutions financial data, health outcomes and matter and getting them right is, and and private health entities. other project details. In high-income will continue to be, at the heart of countries, political and regulatory success. Ref 7,23 factors (including national audit and

8 Health System Innovation in Lesotho Executive summary

After a decade-long planning effort, Following a competitive tender consortium contributed approximately Queen ‘Mamohato Memorial Hospital process, Tsepong (Pty) Ltd, a $500,000 in equity toward capital (QMMH) opened to serve the people consortium comprised of the private expenditures. Annual unitary of Lesotho on October 1, 2011. The South African hospital operator payments of approximately $30 project represented the first time a Netcare and various local partners, million, which reimburse Tsepong’s Public Private Integrated Partnership was selected as the preferred bidder capital and operating expenses, were (PPIP) was established in sub-Saharan and ultimately contracted with the not scheduled to begin until hospital Africa and, moreover, in a lower Government to design, build and construction was complete, so a $6.25 income country anywhere in the construct a 425-bed (390 public beds, million grant from the World Bank’s world. The project was also the largest 35 private beds) hospital and attached Global Partnership for Output-Based government procurement of health gateway clinic, refurbish and re-equip Aid (GBOPA) was arranged as part of services in Lesotho history. three urban filter clinics and then the PPIP contract. provide all clinical and non-clinical Lesotho is a small, mountainous nation services for the duration of the 18-year With the contract, the Government of 11,720 square miles (30,335 sq km) contract. Taken together, the hospital greatly expanded the scope, quality, entirely surrounded by the Republic and filter clinics formed a health and volume of services available of South Africa, with a population of district that supported application of through the new national referral around 2 million people. Lesotho’s integrated care to improve efficiency hospital with an approximate 7.5% greatest healthcare challenge is the and expand access to services for increase in annual operating cost as HIV/AIDS pandemic: 23% prevalence Maseru and the Kingdom of Lesotho. compared to QEII. User fees at QMMH in the adult population. The Lesotho This ambitious project placed were equal to fees at other public healthcare system is predominantly particular emphasis on health system hospitals, so patients paid no more for publicly funded (61% of total health strengthening and local economic significantly improved care at QMMH, expenditure, 57% public hospitals), development and, if successful, could which is accessible by referral only. and healthcare spending represents provide a template for similar projects Independent monitors were appointed 11.1% of GDP. across the African continent. to evaluate the quality of both In 2000, it became apparent that the The Government made significant construction and operations phases, national referral hospital and district up-front payments for hospital and formal structures were established hospital for Maseru (Lesotho’s capital), construction and construction in the PPIP contract for joint oversight Queen Elizabeth II (QEII) required site preparation (approximately by Tsepong and the Government. replacement. After conducting a US $58 million) so as to reduce feasibility study and evaluating the risk profile of the project and multiple alternatives, the Government reduce downstream annual unitary elected to proceed with a PPP solution payments. Approximately $95 million for hospital replacement. After in financing was arranged through engaging transaction advisors, the the Development Bank of Southern Government issued a tender for a Africa (DBSA) and the Tsepong PPIP project, posing the question to the private sector: for the same level of expenditure at QEII, how much more can the private sector provide in quality, breadth and volume of healthcare services?

Healthcare public-private partnerships series, No. 1 9 FigureFigure 1: 1—PPIP PPIP contractual contractual design design

Construction Operations

PD Naidoo Direct agreement Direct agreement Turner and Townsend and Associates • Independent monitor • Independent certifier

Direct agreement Direct agreement Independent monitor

Government of Lesotho

Lenders PPIP Regular inspections Payment direct agreement agreement Tsepong, LTD Review & final certifications Development Bank of Debt/equity • Netcare—40% South Africa • Excel Health—20% • Lender/Bank Capital/interest • Afri’nnai—20% • Women Investment Company—10% Financers/owners • D10 Investments—10% Payment Payment

RPP Lesotho 1 National hospital Facilities management Netcare hospitals Construction • Construction 1 Gateway clinic Clinical services • Clinical services contractor 3 Filter clinics • Soft facilities & Facilities equipment management management Clinical services

Botle Facilities Sub-contracting Management • Hard facilities Patients management

While the hospital had only been open • Significant cultural change for including improved clinical for one year at the time of our data nurses, physicians, and staff outcomes for patients and an collection visit, numerous lessons can working at QMMH; improved work environment for still be learned through the Lesotho employees. Operations at QMMH experience. Notable challenges to • Negative media reaction during the have been transformed through date include: project’s first months; application of strong management systems and leadership, installation • Challenges for physician • Significant, immediate demand of new equipment and current recruitment due to comparatively for healthcare services at the information technology. Early low salaries; and newly opened filter clinics and achievements include: hospital that has greatly exceeded • Delays in establishing PPP units in contract targets in the first year • Opening of the first Intensive Care the Government and strengthening of operations; Unit and Neonatal Intensive Care the Government’s contract Unit in Lesotho; • Payment delays (both the GBOPA management capabilities. grant and periodic unitary payments • Reported improvement in maternal Despite these challenges, both from the Government); and infant mortality, post-surgical public and private parties reported mortality, and clinical management significant early achievements, of HIV/AIDS and related diseases;

10 Health System Innovation in Lesotho • Establishment of guidelines and similar PPIP or PPP initiatives, • Build government capacity for incentives that have translated into including the need to: contract management from the improved staff performance; outset of the project. • Customize the PPP solution to local • Investment in significant training healthcare needs, as established Overall, the case study of QMMH programs to enhance the skills in comprehensive baseline or demonstrates the ability of a lower of QMMH employees and feasibility studies; income country to engage the private strengthen the broader Lesotho sector in new ways and, in a relatively healthcare system; • Access broad, appropriate expertise, short period of time, transform the including local knowledge; quality of care being provided to • Immediate reduction in costs its population. Future success will • Assign strong project leadership associated with drug purchasing depend on the project’s ability to and develop a pipeline of next and the treatment abroad weather changes in public and private generation of public and private program; and leadership and manage significant leaders early on; demand for healthcare services to • Formation of a strong partnership avoid allowing QMMH to become between public and private parties. • Develop extensive plans and training programs early in the “an island of excellence” within a Despite the early stage of the project, project effort; and struggling health system. Future the Lesotho experience already holds evaluation and greater availability and many lessons for others considering transparency of project data will be essential to establish the impact and success or failure of the project.

Figure 2: PPIP timeline Figure 2—PPIP timeline

October 2008: Contract execution/ commercial close, subject to financing clause

March 2009: October 2011: Financing clause QMMH and Gateway signed/financial Clinic open for Hospital replacement IFC retained as close. Construction business under need identified transaction advisors begins Tsepong management

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2026

Completion of May 2010: March 2026: initial feasibility Refurbished Completion of study to evaluate urban filter clinics 18-year contract options for open for business replacing QEII under Tsepong management Project tender October 2007: December 2007: documents Deadline for Preferred bidder issued vendor announced response/bid submission

Healthcare public-private partnerships series, No. 1 11 Introduction

After a decade-long planning effort, This report describes in detail the Queen ‘Mamohato Memorial Hospital history and structure of the Lesotho (QMMH) opened to serve the people PPIP, comments on the project’s early of Lesotho on October 1, 2011. experience and extracts “lessons The project was the first PPIP to be learned” for others considering similar established in sub-Saharan Africa and, initiatives to improve healthcare moreover, in a lower income country infrastructure and clinical services anywhere in the world. Ref 7 The through a PPP. While the project has project also represented the largest been described in snapshot documents government procurement of health and presented at conferences around services in Lesotho history. Ref 1 the world, this report presents for the first time a comprehensive description The PPIP replaced the aging national of the project design and outlines the referral hospital, Queen Elizabeth implementation experience to date. II (QEII), which also served as the district hospital for the population of Maseru, the capital city. Similar to QEII, the new hospital also serves as the major clinical teaching facility for all health professionals in Lesotho. The ambitious project places particular emphasis on health system strengthening and, if successful, could provide a template for similar projects across the African continent. While the hospital had only been open for one year during our data collection visit, numerous lessons can still be learned from the Lesotho experience, from project conception to early execution.

12 Health System Innovation in Lesotho Country profile: Lesotho healthcare system and population health status

National population and Lesotho’s greatest current healthcare Over time, with improved HIV/ health status challenge is the HIV/AIDS pandemic. AIDS treatment and continuing Lesotho is a small, mountainous nation Lesotho has the third-highest demographic trends, Lesotho’s of 11,720 square miles (30,335 sq km) HIV/AIDS prevalence rate in the health focus is expected to shift from entirely surrounded by the Republic world: 24% prevalence in the adult infectious to non-infectious diseases. Ref 26 of South Africa. It has a population population. The pandemic has In planning for replacement of the of around 2 million people (0.8% per also contributed to high rates of QEII hospital, the Government of annum population growth between tuberculosis infection (17% and Lesotho (“Government”) anticipated 1996 and 2006; 2.194 million people 14% among male and female adults, a rise in chronic diseases, including in 2011). Ref 26 Local currency is the Loti respectively) and a significant decrease diabetes, heart disease and chronic (plural, Maloti, abbreviated M), which in life expectancy, which has decreased treatment for HIV/AIDS patients who Ref 26 Ref 2 is pegged at a value equal to the South from 59 to 48 since 1990. live longer on advanced treatment. African Rand. Seventy percent of the Rising maternal and child mortality population is employed in agriculture rates are also a significant and Healthcare system (often subsistence agriculture). The Lesotho health system is funded increasing healthcare issue for Other local industry includes limited through a combination of domestic Lesotho. Although 92% of pregnant diamond mining and textile factories. government and international donor women receive prenatal care and The national unemployment rate is funds. Lesotho spends $109 per 62% of births are performed by 25.3% Ref 26 and many seek work in capita on health and the country’s medical professionals (up from 55% surrounding South Africa. Lesotho total expenditure on health is 11% of over the past five years), maternal earns a significant portion of its GDP. Ref 5, 26 and infant mortality rates (MMR and national revenue through a share in IMR, respectively) are the highest regional customs receipts distributed The Government is the major in southern Africa and appear to be through the Southern African Customs source of health funds, and has trending upwards (MMR is at 1200 Union (SACU) and the export of increased its contributions to health per 100,000 live births; IMR at 63 water from the Lesotho highlands to spending over the past decade. This per 1,000 live births).Ref 26 Under- South Africa. contributes to the health system’s five mortality is also on the rise at relative sustainability compared to Divided into 10 administrative 86 per 1,000 live births, with 80% other countries in southern Africa. districts, Lesotho varies from of deaths occurring in the first year While the Government provides western lowland river valleys to of life. HIV/AIDS is certainly one a high percentage of funding for foothills to high mountains, where significant factor in this trend. Low antiretroviral drugs, donors still much of the country is accessible rates of breast feeding and early provide the majority of funding for only via air or horseback. Lesotho is introduction of supplemental foods HIV/AIDS programs, thus making the mostly rural, with only 27% of the may also contribute to stunting and fight against HIV/AIDS vulnerable to population living in urban areas. Ref 26 malnutrition and impact health donor withdrawal. Ref 5 Approximately 225,000 people live status; 39% of children under age in or around Maseru, the capital city five experience stunted growth and and home to the new QMMH. Official 15% experience severely stunted Ref 26 languages are English and Sesotho; growth. Meanwhile, the fertility and the population is 99% Basotho rate has declined over the past three (singular Mosotho). decades, with a total fertility rate of 3.0, one of the lowest in sub-Saharan Africa. Ref 26

Healthcare public-private partnerships series, No. 1 13 Public and private expenditures as a Tertiary facilities in Lesotho, namely Lesotho has been an early adopter of percentage of total health expenditure the QEII, its successor the QMMH, the many programs and demonstrates a are 76% and 24% respectively, with Tuberculosis Hospital and the Mental willingness to innovate in response private expenditure being almost Hospital, are all located in Maseru. to existing and emerging healthcare entirely out-of-pocket (96%).Ref 5,26 challenges. In recent years, the The distribution of hospitals is also The Lesotho health system faces Ministry of Health has supported primarily in the public sector (57%), significant challenges in human new programs aimed at addressing with the non-profit and for-profit resources for healthcare (HRH). access problems due to challenging private sectors representing 38% There are insufficient numbers geography, new HIV/AIDS testing and 5%, respectively.Ref 5 Since 2007, of health professionals in several programs to support improved follow- Christian Hospital Association of cadres (pharmacists, medical up with patients who may test positive Lesotho (CHAL) non-profit hospitals doctors, dentists) and an inability and new contractual relationships have been financed primarily by the to produce select cadres of staff with private healthcare providers. The Government, such that these facilities (medical doctors, radiographers, QMMH PPIP is the most recent and, are effectively government-funded but physiotherapists, dental therapists) perhaps, the most striking example privately operated. in the country. Furthermore, regional of Lesotho’s willingness to innovate and international demand for through ambitious healthcare projects Each of Lesotho’s ten administrative HRH is causes scarce resources to to improve the delivery of care to districts has a district hospital emigrate. The lure of higher salaries its citizens. providing primary and some for healthcare professionals in secondary services. Each district South Africa is particularly serious also has a network of primary health for Lesotho given the proximity and care centers or local clinics. Ref 5 close economic ties between the Despite significant demand for two countries. The very high HIV hospital services, occupancy rates at prevalence rate and resulting increase the district and CHAL hospitals are demand for healthcare resources will regularly below 50%. Likely due to continue to exacerbate Lesotho’s HRH patients’ perceptions of service quality, shortage. Ref 5 occupancy rates at CHAL hospitals are consistently higher than at Ministry of Health-run district hospitals.Ref 2

14 Health System Innovation in Lesotho Summary statistics: Table 1: LESOTHO SUMMARY STATISTICS Population 2.194 million Median age Male: 22.8 years Female: 22.9 years Total: 22.9 years Percent urban / rural Urban 27% Rural 73% Unemployment rate 25.3% Adult literacy rate Women: 95% Men: 83% Gross national income per capita US $1,220 Per capita total expenditure on health US $109.00 Total expenditure on health as percent of gross domestic product 11% Private expenditure on health as percent of total expenditure on health 24% Life expectancy at birth (male / female) Male: 48 Female: 47 Maternal mortality rate (MMR) per 100,000 live births 1,200 Infant mortality ratio (IMR) per 1,000 live births 63 Under 5 mortality rate per 1,000 live births 86 Total fertility rate (TFR) 3.0 Pregnant women receiving prenatal care 92% Percent births attended by skilled health personnel 62 Prevalence of overweight in adults age 15+ Women: 71% Men: 30% HIV prevalence in adults age 15-49 24% TB prevalence rate (per 100,000 population) 402

Source Key Lesotho Bureau of Statistics: http://www.bos.gov.ls/ CIA The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/ World Bank: http://databank.worldbank.org/

Healthcare public-private partnerships series, No. 1 15 Health system need: Replacement of Queen Elizabeth II Hospital

In 2000 the Lesotho Ministry of Health Further, many services were existed. Only a single PPP project had undertook a comprehensive strategic unavailable through the Lesotho public been executed prior to groundbreaking planning exercise, which identified health system and required referral for on the hospital project: at the that the QEII hospital, the national treatment in South African facilities at suggestion of the Ministry of Finance, referral hospital and district hospital premium prices. In 2001 this treatment the Ministry of Health’s headquarters for the population of Maseru, required abroad program cost the Government were consolidated into a single either replacement or extensive M10 million ($1.2 million)1 and building that was constructed through refurbishment. The facility was periodic price increases at contracted a PPP and completed in November plagued by dilapidated infrastructure, Bloemfontein facilities indicated 2007. The project was deliberately poor management systems and human this program would fast become pursued as a testing ground for future resource shortages, all of which were unsustainable. Ref 2 PPP projects and was seen as a success: contributing to a significant decline the Ministry of Health’s headquarters in service quality. Spending was In response to this identified need, were notably of higher quality than inefficient and escalating at a fast the Ministry of Health commissioned similar buildings and supported more pace: the operating budget for QEII the Lesotho Boston Health Alliance efficient operations for the Ministry had grown by 50% between 1995 and (LeBoHA) to conduct a feasibility of Health without a significant up- 2000, during the same period that study to evaluate various options for front capital expenditure by the service volumes and quality were replacement of the aging facility. The Government. This initial success on declining.Ref 2 Rigid public service rules study confirmed the need to build a a smaller project and the experience undermined an effective, responsive new facility to replace QEII and noted gained through the process was operation that might have better the limited management capacity of sufficient to give the Government evolved to meet new healthcare the Ministry of Health, which was confidence to pursue a PPP option for challenges and correct operational judged insufficient to effectively replacement of the new hospital. inefficiencies. In the Lesotho Ministry operate a hospital as complex as the of Health, these challenges included national referral hospital. This initial At the outset of planning, the capital a highly centralized organizational study, finalized in 2002, suggested that cost for building a new hospital was structure that concentrated a private or parastatal entity should estimated at M120 million ($14.2 decision-making power in only a few be contracted to manage hospital million), but the annual Ministry of individuals, a slow and burdensome operations, and that an “arms-length” Health capital budget was only M80 personnel disciplinary process, a relationship between the Ministry and million ($9.5 million). Given this Ref 2 promotion and reward structure the new entity be established. capital constraint, four options for focused on educational credentials hospital replacement were considered: Prior to embarking on the QMMH and seniority rather than skill PPIP, Lesotho had limited experience 1. Finance the full capital sum from advancement, a slow accounts payable with public-private partnerships in any the Government domestic budget process that often led to significant sector. No PPP framework or policy with the Government overseeing delays in vendor payment and a weak the construction phase and data collection and reporting process 1 The OANDA currency calculator, available subsequently managing clinical to support planning and operations.Ref 2 at www.oanda.com, was used to convert project costs into US dollars. Currency and non-clinical services in the conversions are based on exchange rates in new facility. August 2012.

16 Health System Innovation in Lesotho 2. Borrow from the World Bank or other third party who might lend Transaction advisors money on concessional terms with the Government overseeing Transaction advisors are independent advisors often engaged construction and subsequently by governments embarking on complex PPP arrangements. managing clinical and non-clinical These advisors (individuals, firms or a consortium of firms and services in the new facility. individuals led by a primary advisor) can provide a government 3. Construct the new hospital with a range of transaction advisory services, including strategic building under a PPP arrangement planning, feasibility and market studies, project marketing, similar to the Ministry of Health tender issuance and evaluation support, financial and commercial headquarters project with the expertise and implementation and post-deal support. Transaction Government managing clinical and non-clinical services following advisors may also be engaged by private sector parties responding construction. to a tender. These private sector transaction advisors might support the private sector through feasibility studies, financial structuring, 4. Tender for a single operator to negotiation support, and implementation and post-deal services. design, build, partially finance and operate the hospital, including In the case of the QMMH PPIP, the IFC served as the primary full provision of clinical and non- transaction advisor and drew on technical experts, such as LeBoHA clinical services and employment researchers, as required to advise the Government throughout the of all personnel. Ref 24 PPP process. In 2006, after evaluating alternative options, the Government elected to proceed with a PPIP model (Option 4 • Government budget stability The decision to pursue a PPIP above) to replace QEII and engaged through defined and predictable approach was made by the Prime the International Finance Corporation expenditures over the long-term; Minister and his entire cabinet. (IFC) of the World Bank Group as While the project was initiated and transaction advisors. • Cost neutrality for patients; managed primarily by the Ministry of Finance and the Ministry of Health, • Transfer of risk to the private sector The decision to pursue a PPIP model the broader cabinet was consistently for construction delays or cost over- was bold given the Government’s updated on project progress and runs on a significant and complex limited experience in managing PPPs, educated on key issues related to building project; the lack of a legal framework for PPPs, the project. The Minister of Finance and the complexity of the project • Transfer of significant operational and Development Planning served under consideration. Nonetheless, the risk for a complex healthcare as a strong champion of the project, Government determined that a PPIP operation to the private sector, working to build broad government model would best serve the policy while capturing efficiencies from support for the initiative. Additionally, goals of the Government by offering: private sector management; and he led relations with major external parties such as the World Bank / • A comprehensive solution that made • Opportunities for Basotho-owned IFC and the Development Bank of capital expenditures affordable in businesses and local economic Southern Africa. the short-term; empowerment. Ref 19

Healthcare public-private partnerships series, No. 1 17 Table 2—Key players—Public sector & advisors: Organization Description Role Date of First Involvement Ministry of Health and The mission of the Ministry of Health and The Ministry of Health initiated the 2002 Social Welfare Social Welfare is “to facilitate an establishment assessment of alternatives replacement and system that delivers quality health care of QEII between 2002 and 2006. Once efficiently and equitably, and that will guarantee a PPIP approach was selected, the social welfare for all.” Ministry was extensively involved in planning for healthcare operations and (http://www.gov.ls/health/) delivery of care in QMMH. Now that the PPIP is operational, the Ministry provides primary operational oversight on behalf of the Government for QMMH operations. Ministry of Finance The Ministry of Finance and Development The Ministry of Finance was 2006 and Development Planning is a central coordinating Ministry in instrumental in advocating for a PPIP Planning charge of: solution for replacement of QEII and served as a major champion of the • Economic policy formulation, advice and project at the Cabinet level. During the analysis; tender process, Ministry representatives • Operation of public financial management spearheaded contractual negotiations and financial reporting; and financing and led relations with • Collection, analysis and dissemination of the World Bank/IFC and other external statistical data; stakeholders. Now that the PPIP is in • National development planning, monitoring operation, the Ministry participates and evaluation; in formal project oversight activities • Formulation and monitoring of Government with a focus on controlling costs and budget; ensuring project activities conform to • Private sector capacity building, pension and contractual requirements. medical aid scheme, maintaining a record of all government assets; • Provision of loan bursaries to students; and • Evaluation of internal controls and systems and advice. (http://www.finance.gov.ls/home/) Lesotho-Boston The collaboration of Boston University and Initially hired by the Ministry of Health 2002 Health Alliance Boston Medical Center activities in Lesotho is to evaluate various alternatives for (LeBoHA) officially known as the Lesotho-Boston Health replacing the QEII Hospital, LeBoHA Alliance (LeBoHA), a registered public trust in eventually became consultants to the Lesotho. IFC and the Government throughout the PPP process. From 2002 to 2010, LeBoHA aims to strengthen management, LeBoHA researchers developed policy, planning and clinical capacity in the multiple reports to establish health health sector of Lesotho. needs, health status baselines and cost (http://www.bu.edu/lesotho/) baselines for the health system. Their 2002 report laid the groundwork for the hospital facility and services design and suggested an “arms-length” relationship between the Ministry of Health and the hospital operator. International Finance IFC, a member of the World Bank Group, is a Engaged as transaction advisors to the 2006 Corporation (IFC) development institution focused exclusively Government, the IFC advisors consulted on the private sector in developing countries. on and facilitated contract creation Strategic priorities include addressing and financing arrangements. Following constraints to private sector growth in commercial and financial close, the IFC infrastructure and health in emerging markets. mobilized for consulting support and other arrangements to strengthen the (www.ifc.org) Government’s ability to manage the QMMH PPIP. 18 Health System Innovation in Lesotho PPIP procurement and contracting

Figure 3—PPP procurement process Generally, PPP procurements proceed according to the following process: Ref 6

Stage 1: Project identification

Government authority conceives PPP idea and Government sponsors engage external develops business case transaction advisors

Stage 2: Preparation

Government develops Government conducts Government develops Government issues public project plan risk assessment and tender document procurement notice and timetable financial and commercial analysis

Stage 3: Project selection

Vendors submit Government Vendors submit Government holds a Government pre-qualification selects short-list bid documents bidders conference evaluates tenders questionnaire of vendors to and engages in and identifies a receive an competitive dialogue preferred bidder invitation to tender

Stage 4: PPP contract and financial close

Government negotiates PPP Financial agreements conclude Deal consummates with financial contract details with the between Government and and commercial close preferred bidder preferred bidder

Bid design • To improve the quality of services; and making some tough decisions, such With IFC engaged as a transaction as the size of the PPIP hospital. While advisor, the Government finalized • To accomplish expanded access LeBoHA projections anticipated that its project concept and proceeded and improved quality within the demand for hospital beds at the new Ref 4 with the procurement process in Government’s affordability limit. PPIP hospital would reach 435 beds by 2006, and 653 beds by 2026,Ref 2 2006 and early 2007. Throughout the Throughout the initial planning the Government needed to balance bid design process, the Government process, the Government worked to this need against the affordability and its advisors balanced three ensure that the outcome of the tender of the project in the near and long- competing demands: process would be affordable for future term. In the end, the Government and budget allocations over the lifetime of • To procure as many services for as its advisors elected to plan for just the PPIP contract. Ref 4 This included many people at the hospital and 425 beds. filter clinics as possible;

Healthcare public-private partnerships series, No. 1 19 To define the clinical services that should be included in the project QMMH PPIP at a glance: Policy goals tender, the Government and the IFC consulted with a broad range of In concept and design, the bid request furthered multiple stakeholders that included Ministry of policy goals defined by the Government and its transaction Health staff, QEII clinical employees, advisors. Through the project, the Government hoped to address private practitioners in Lesotho and the following: international technical advisors (including LeBoHA researchers). Quality of Care: This process helped to build broad • Improvement in quality of services delivered to the population of Maseru and support for the project while balancing those referred to the national referral hospital from outlying districts; affordability with expansion of services. Ref 4 • Expansion of clinical services available in Lesotho; Cost Neutrality: In advance of formally issuing the tender, the Government and IFC • Fees for patients relatively equal to fees at all other Ministry of Health facilities; facilitated discussions with the private • Future healthcare expenditures at or near the current level of expenditure for sector to gauge and cultivate interest in QEII after adjusting for inflation; the project. The final tender document Efficiency to Expand Access: was further refined through this market research and conversations • Greater efficiency in deployment of healthcare resources, with the PPIP with private sector parties with hospital treating more patients per annum than QEII with a similar budget; previous PPP experience. • Expanded access to healthcare services and maximized value per healthcare dollar spent in the Maseru health district; The project was announced as a package comprising construction of Predictable Government Health Expenditures: a new 425-bed hospital and gateway • Future healthcare spending pegged to an annual unitary payment so other clinic, refurbishment of three existing government funds can be devoted to other programs urban filter clinics and provision of both clinical and non-clinical services System-wide Efficiency Gains: in these facilities over an 18-year • Remediation of national human resource shortages through improvement of contract (including the construction the healthcare work environment, long-term improvement in compensation period). The tender required that any and both improvement and expansion of healthcare training programs; international respondents partner with local businesses for the bid response, • Systemwide efficiency gains driven by private sector management practices with a goal of growing local private through training of health professionals, strengthening of national drug sector capacity through the project. supply system; • Local economic empowerment through project activity including capital expenditures, local private sector partner investment and escalating rates of local leadership at the new hospital.

20 Health System Innovation in Lesotho The project concept represented In their response, bidders were a significant shift in role for the required to propose a total package Government: the Government would of services (required service plus become a formal purchaser of health any selected optional services) and services rather than a provider of that propose maximum inpatient and care,2 with the goal of improving both outpatient volumes, all of which the value for money of government would be covered by the annual The project concept spending and the quality of services unitary payment established in the provided to the people of Lesotho. tender documents. Ref 4 In essence, the represented a significant With this shift in role, the Government question posed to the private sector shift in role for the faced an immediate need to increase through the tender documents was: for its role in private sector regulation, the same level of expenditure at QEII, Government: the which required skills and experience how much more can the private sector Government would become in contract management and provide in quality, breadth and volume a formal purchaser of performance monitoring - all relatively of healthcare services? new areas for both the Ministry of health services rather than Health and Ministry of Finance. a provider of that care, The final tender outlined an annual with the goal of improving unitary payment (roughly equivalent In essence, the question both the value for money to the QEII operating budget plus capital expenditures), minimum posed to the private of government spending patient volumes (16,500 inpatients sector through the tender and the quality of services and 258,000 outpatients per annum), documents was: for the provided to the people a minimum package of services, and quality parameters for each same level of expenditure of Lesotho. listed service.Ref 20 The tender also included a list of optional services. at QEII, how much more 2 In parallel to development of the PPIP, the can the private sector Government expanded its participation in provide in quality, breadth purchasing rather than delivering healthcare services: a Memorandum of Understanding and volume of healthcare with the Christian Health Association (CHAL) of Lesotho was established in 2007, services? whereby the CHAL facilities essentially function as public facilities and rely on the Ministry of Health for the majority of their budget. The facilities remain under private, not-for-profit management. This is a less comprehensive and defined arrangement than the QMMH PPIP, with far fewer performance standards and monitoring requirements established, but similarly reflects an expansion of the Ministry of Health’s health purchasing activities.

Healthcare public-private partnerships series, No. 1 21 Bid response While initial interest was significant Bid response expense: (the Government presented to 14 companies during an investors’ Responding to PPP tenders is an expensive investment for the conference during the tender private sector; costs can total millions of dollars per bid response, period),Ref 11 ultimately only two even for bidders that are not successful. As a result, prior to consortia, both anchored by private responding, private parties conduct multiple assessments of a PPP South African hospital operators, tender to evaluate strategic benefits against risks and costs. Having submitted full tender responses by the October 2007 deadline. a number of projects open for tender at a given time can distribute, and thereby reduce, the risk and expense of a failed bid. In the case of the QMMH PPIP, however, Lesotho issued a single, large project for tender. Thus, responding to the tender represented a high, concentrated risk for a private sector respondent. Given that this was the first project of its kind in Lesotho, and indeed across all of sub-Saharan Africa, the potential risk and cost for the responding bidders was particularly high, and almost certainly one driver of the limited number of vendor responses. An ongoing challenge for governments considering issuing PPP tenders will be balancing policy needs, vision and practical requirements against creation of conditions that facilitate broader private sector engagement. Some governments offer varying degrees of bid cost reimbursement to encourage bidding, while others position specific tenders as “pilot” projects or otherwise indicate a pipeline of projects that can give the private sector confidence that the risk in responding will be reduced by the possibility of future opportunities. These approaches should be assessed on a case-by-case basis and considered in the context of the specific market and related projects.

Netcare, a private South African healthcare company, together with an assembled local consortium, was one of the respondents. Netcare reported pursuing the project primarily driven by corporate responsibility goals. At both the corporate and individual levels, Netcare leadership identified the Lesotho tender as an opportunity to expand quality services to an underserved population by leveraging their prior experience with PPP arrangements in the United Kingdom (UK).

22 Health System Innovation in Lesotho Bid evaluation special purpose vehicle (SPV)3 formed multiple public-private partnerships To evaluate the bids, the Government specifically for the project, comprising within the UK National Health and its transaction advisors assembled a group of equity shareholders, Service. review committees comprising many of whom were also engaged as individuals with diverse skills and subcontractors for specific hospital • Excel Health (20%): An investment expertise selected from across the functions: company for doctors and medical Ministry of Health, the Ministry of specialists from Lesotho. Along with Finance and the IFC. These committees • Netcare Limited (40%): A for-profit, Afri’nnai, jointly responsible for evaluated each bid according to three publicly traded South African supplying specialist physicians for high-level technical criteria: healthcare company with operations QMMH operations. in South Africa and the UK, where • Service coverage: Bidders’ responses a subsidiary organization (General • Afri’nnai (20%): An investment stated their commitment to provide Healthcare Group) has operated company for doctors and medical all mandatory services as well specialists from South Africa. 3 Special purpose vehicles (SPVs), also as select optional services. The Along with Excel Health, jointly called special purpose entities (SPEs), responsible for supplying specialist winning bid proposed to include are legal entities formed to fulfill narrow, 95% of optional services. specific or temporary objectives related to physicians for QMMH operations. a specific project or investment, generally • Patient volumes: The bidder offering to insulate a parent company from the • Women Investment Company financial risk associated with the project. the highest maximum number of (10%): An investment company for SPVs also might be formed to allow Basotho women. Sub-contractor patients for the annual service other investors to share in the risk of the payment received maximum points. project, bring management and technical for soft facility management The winning bidder committed capacity and/or to protect the interests (e.g., housekeeping) and other of both lenders and investors. SPVs are services for QMMH. to delivery of services to 20,000 generally prohibited from undertaking inpatients and 310,000 outpatients business outside the defined project. • D10 Investments (10%): The per year. SPVs are a key feature of many PPPs. If both the government and the private investment division of the local • Service delivery plan: Bidders were party have invested in the SPV, then Chamber of Commerce. Sub- it is often considered a joint venture evaluated on their approach to contractor for transportation and Ref 25 Ref 24,7 quality, effectiveness and efficiency; arrangement. other services for QMMH. compliance with service standards; and the feasibility of the proposed Figure 4—Tsepong equity stakeholders: plans. Ref 4

Bidders were required to submit separate, sealed, technical and 10% financial proposals. Financial offers 10% Netcare Limited were opened only after technical evaluation was complete. Ref 4 40% Excel Health

Based on this evaluation process, Afri’nnai the Government selected Netcare’s 20% consortium, Tsepong (Pty) Ltd as the Women Investment Company preferred bidder in December 2007 D10 Investments (Tsepong means “a place of hope” or 20% “hope” in Sesotho). Tsepong was a

Healthcare public-private partnerships series, No. 1 23 The local partners joining Netcare Table 3—Key players—Private sector partners: in the consortium were identified through two avenues. In the early Organization Description stages of the bid process, the Ministry Netcare (Ltd) A publicly traded company incorporated and listed on the of Health hosted a bidders’ conference Johannesburg Stock Exchange in 1996, Netcare operates a private hospital group, primary care network and medical emergency service that assembled a wide range of in South Africa. potential partners to learn about the Netcare also provides private acute care hospital services in the project and allowed for connections United Kingdom and is an independent service provider to the UK among bidders. Additionally, a National Health Service (NHS). Netcare executive who had previously Before the Tsepong consortium, Netcare had prior experience worked in the Free State (the South partnering with governments on healthcare service delivery. In South African province that borders Lesotho Africa Netcare entered into PPPs with the Health Departments of the to the west; the capital of which Free State and Eastern Cape as well as a number of private public is Bloemfontein) and had local initiative (PPI) contracts relating to healthcare delivery in South Africa. Netcare UK has also fulfilled several PPP contracts since 2001 on connections in Lesotho was able to behalf of the UK National Health Service (NHS). call upon his professional network Excel Health An investment company formed by Lesotho-based general practitioners to identify potential partners for and specialists for the purposes of the Tsepong partnership. the project. Afri’nnai An investment company formed by Bloemfontein-based specialists To meet the requirements of the and general practitioners for the purposes of the Tsepong partnership. PPIP contract, over time, the equity Women An investment company for Basotho women established to encourage investment in Tsepong will shift from Investment Company business and professional women to invest in profit-making ventures and financial instruments, and to assist rural women and girls in Netcare to local partners through engaging in activities leading toward poverty eradication. purchase of Tsepong shares held by D10 Investments An investment arm of the Lesotho Chamber of Commerce and Netcare. Local investment began at Industry (LCCI), a non-profit institution, which aims to serve and 40% in Year 1, and will increase to promote the interests of the Lesotho business community by playing a 45% in Year 8, and 55% by Year 13. Ref 24 leading role in socio-economic development. Founded in 1976, LCCI is an independent and non-aligned Upon selection, the Government organization; its members come from all political backgrounds and Tsepong engaged in a 12-month and affiliations. negotiation process. Throughout (http://www.lcci.org.ls/) this process, both Tsepong and the Government continued to draw on Tsepong (Pty) Ltd The Tsepong consortium is governed by a Board comprised of directors from each of the investor organizations. a broad range of expertise across their respective organizations to discuss details of the financial model, clinical and operational design and In parallel, the Government, Initial interest rates had been other contractual aspects. Defined Tsepong and their advisors worked estimated at 7%, but after the global committees convened on specific to arrange capital finance through economic crisis emerged during topics met regularly, reporting to the Development Bank of Southern the course of negotiations, the final a central coordinating Committee, Africa (DBSA). Ultimately an M800 interest rate exceeded 9%. This which reported to the Prime Minister’s million ($94.9 million) loan was increased cost of borrowing added Cabinet through the Ministers of made to Tsepong, with a Direct more cost than initially anticipated Finance and Health to keep the Lender agreement signed by the during project planning. Cabinet apprised of project progress. Government to improve the project’s The parties reached agreement and risk profile. Financial close followed in commercial close on October 1, 2008. March 2009.

24 Health System Innovation in Lesotho PPIP contractual design

FigureFigure 1: 5—PPIP PPIP contractual contractual design design

Construction Operations

PD Naidoo Direct agreement Direct agreement Turner and Townsend and Associates • Independent monitor • Independent certifier

Direct agreement Direct agreement Independent monitor

Government of Lesotho

Botle Facilities Sub-contracting Management • Hard facilities Patients management

The October 1, 2008 contract defines the national referral hospital) to be together, the hospital and filter clinics the structure, requirements and independently managed by Tsepong formed a health district that supports incentives for an 18-year contract with oversight by the Government and application of integrated care and between the Government and Tsepong. independent monitors.Ref 3 Through population care principles to improve Totaling more than M2.2 billion the contract, Tsepong committed to efficiency of healthcare delivery and ($256.8 million)4 over the 18 years, design, build and construct a new expand inpatient hospital capacity in the contract represented 425-bed hospital and attached gateway the Maseru district.Ref 4 The hospital the single largest health procurement clinic, refurbish and re-equip three also provides an upgraded and by the Government in the nation’s urban filter clinics, and then provide comprehensive tertiary referral facility history.Ref 1 The contract structures all clinical and non-clinical services for the whole nation. a district health system (including for the duration of the contract. Taken

4 Calculated based on net present value from financial close based on a 9.5% discount rate.

Healthcare public-private partnerships series, No. 1 25 Financial terms Public capital expenditure • M800 million ($94.9 million): The terms of the PPIP contract included both capital contribution Loan to Tsepong from the DBSA require both public and private to construction costs and to with an approximate interest rate capital expenditure for construction, infrastructure improvements necessary of 9.5%; Tsepong is responsible refurbishment and equipping of to provide basic services to the for repaying the loan (largely or the hospital and the filter clinics hospital site: wholly from funds received from as well as ongoing payments from the Government via the unitary the Government to Tsepong for the • M400 million ($47.5 million): payment), but to secure financing operation of these facilities. Both Initial capital payment paid by for the project the Government capital and operating expenses are the Government to reduce project offered certain loan assurances to bundled into a single unitary payment debt (and, as a result, the unitary DBSA through a Direct Lenders that flows from the Government payment) and improve the project’s Agreement; and to Tsepong. risk profile for Tsepong; and • M4 million ($474,665): Equity • M86 million ($10.2 million): capital investment by Tsepong. Capital expenditure Additional expenditure for For local (non-Netcare) partners, Construction was jointly financed infrastructure improvements at the shareholder loans from DBSA and with public (37.7%) and private funds construction site (e.g., extension Netcare Ltd were arranged to assist (62.3%). Public funds were made of sewers, water, electricity), local partners in satisfying their available at the outset of the project commonly referred to as enabling equity requirements.Ref 24 to reduce the capital repayment works. Ref 24 portion of the downstream unitary

payments and therefore reduce future Private capital expenditure was largely government expenditure over the life funded through a loan from the DBSA, of the contract. with a small equity contribution by the Tsepong consortium:

26 Health System Innovation in Lesotho Figure 6—Capital investment:

Total private capital investment Total public capital investment

M 800,000,000 Initial capital investment for construction M 400,000,000 DBSA loan Total public capital investment Tsepong equity 37.7% investment (M 486,000,000)

Total private capital investment 62.3%

(M 804,000,000) Enabling works M 86,000,000

M 4,000,000

Capital cost over-runs due to construction delays or other issues are the responsibility of Tsepong.

Operating expense and Further details of the cost model Unitary payment financial model were not available for review during The contract defined an annual unitary The initial financial model for the preparation of this case study. payment of M255.6 million ($30.3 project was based largely on the results In general, only limited financial million) toward capital repayment of the LeBoHA baseline studies, with information about the PPIP operations and operating expenses. The contract total operating expense pegged to the and cost is publicly available at prescribes upward adjustments to annual recurring budget for QEII. this time. the annual unitary payment by an Tsepong expects to break-even on its annual inflation index and potential Perhaps due to limited availability deductions via performance penalties of data, there were no specifications investment between the 10th and 12th years of the contract. Any deductions based on quarterly independent within the financial model based on Ref 24 from the unitary payment based on monitor reports. The unitary services, case mix, or any other factors payment is based on treatment of a related to healthcare need or service performance penalties would impact dividends and therefore this break- maximum of 310,000 outpatients delivery. Rather, financial model cost Ref 4 even projection. and 20,000 inpatients per annum estimates for patient volumes bundled and the contract requires that any in the unitary payment (up to 310,000 treatment of additional volume outpatients and 20,000 inpatients per beyond these numbers be jointly annum) as well as for incremental fees approved with the Government before for treating patients above the agreed incremental payment according to upon service levels, were estimated negotiated rates. Minimum annual only by “inpatient” and “outpatient.” service levels for inpatients and outpatients (16,500 and 258,000, respectively Ref 4) were also specified in the contract.

Healthcare public-private partnerships series, No. 1 27 Unitary payment The apparent doubling of annual expense through the unitary payment (M255.6 million vs. M135 Those involved in the QMMH PPIP assert that million) reflects repayment of the capital outlay the operating budget at QMMH is approximately required for hospital construction and clinic equal to that of QEII, therefore achieving cost refurbishment, a capital expense that would have neutrality for the Government (and also cost been required under a traditional procurement neutrality2, given that user fees also have not method as well, had the Government undertaken increased in the transition between QEII and the project itself. Still, these capital expenses QMMH). The exact breakdown of the unitary (M110 million per year in addition to the M486 payment into capital and operating components million paid up front at financial close) represent is considered proprietary and confidential, but a significant outlay by the Government that may some basic assumptions on capital cost confirm pose a drain on future Ministry of Health budgets. that operating expenses between QEII and QMMH In 2007, operating expenditure at QEII alone, remain relatively flat, as designed and repeatedly excluding the filter clinics, represented nearly 40% stated by the Government and Tsepong. In 2009, of the Ministry of Health’s operating budget. Ref 13 the recurring budget for QEII and the filter clinics The QMMH budget will likely represent a similarly was M135 million per year.Ref 24 Assuming 9.5% large expenditure in the years to come. One interest on the capital expenditure, the operating important point of future evaluation will be component of the unitary payment would be whether this large expenditure at a single national approximately M145 million per year, or a 7% referral hospital impacts care in the broader increase from the 2009 budget. This 7% increase health system. These impacts might be negative covers a significant increase in the type, quality if too great a proportion of health spending is and volume of services provided to the people of directed to QMMH, or positive if Tsepong and Lesotho and also presumably provides some return the Ministry of Health can achieve some of the to the Tsepong consortium. health system strengthening goals outlined in the PPIP contract.

28 Health System Innovation in Lesotho Table 4—Budget and service levels: QEII vs. QMMH Taking our estimate of the operating component of the annual unitary payment as a proxy for operating budget at QMMH, we calculated that a 7.4% increase in the operating budget between QEII and QMMH yields a significantly larger increase in the volume of services provided through the application of a PPIP model.

QMMH— % Change— QMMH— % Change— Minimum Minimum Maximum Maximum QEII Service Levels Service Levels Service Levels Scenario Annual operating budget M135 million M145 million 7.4% M145 million 7.4% (estimated) (estimated) Annual inpatient admissions 15,465 16,500 6.7% 20,000 29.3% Annual outpatient encounters 165,584 258,000 55.8% 310,000 87.2% (Hospital outpatient+filter clinics)

Unitary payments were not scheduled interim period when the refurbished other public facility in the country, and to begin until the hospital opened on filter clinics were operating but the patients pay no more than they paid October 1, 2011, however; thus the hospital had not yet opened (May 2010 previously for services at QEII. Tsepong consortium was required to to October 2011). These funds were use its own funds to cover operating specifically arranged to improve the Incentives in the PPIP contract provide expenses at the filter clinics and all project’s risk profile for the private for a small percentage of QMMH other costs for nearly three years sector partner. and associated clinics’ user fees to be following commercial close. retained by Tsepong if target collection User fees rates are achieved. To address this gap and the risk it The contract required that user fees for presented, the parties arranged for Operational terms additional funding from the outset of all patients be charged in accordance the project. The World Bank-housed with Ministry of Health policy, under Co-location of private services Global Partnership for Output-Based which no user fees are collected for Of the 425 beds at QMMH, 390 are Aid (GPOBA)5 committed a grant primary care services accessed at public beds and 35 were built as private of $6.25 million intended to cover health centers. Generally, fees only beds in a separate private wing. As of Tsepong operating expenses during the apply to hospital or specialty services this case study’s publication, the private (e.g., dentistry, radiology). wing at QMMH had not yet opened. 5 The Global Partnership on Output-Based Aid (GPOBA) is a partnership of donors Under the terms of the PPIP contract, Private and public beds were intended and international organizations working Tsepong applies the Ministry of Health together to support output-based aid (OBA) to differ only in their amenities (e.g., approaches. GPOBA’s mandate is to fund, fee schedule, collects user fees on privacy, television) and source of design, demonstrate and document OBA behalf of the Ministry of Health and payment. Private and public patients approaches to improve delivery of basic returns these fees to the national are expected to utilize the same shared infrastructure and social services to the Treasury (per Government policy, user poor in developing countries. The goal facilities and medical staff. Specialists is to mainstream OBA approaches with fees are not retained by the Ministry of who visit patients in the private development partners, including developing Health), just as public district hospitals wing would also serve the patient country governments, international financial and health centers do. Thus, fees at population in the public hospital. institutions, bilateral donors and private QMMH remain the same as at any foundations. (http://www.gpoba.org/gpoba/ about).

Healthcare public-private partnerships series, No. 1 29 The contract allowed for some revenue Excluded services • All elective cardiac and great sharing with the Government through vessels surgery; a percentage revenue allocation for In certain cases, specific services use of shared services (e.g., radiology) were explicitly excluded from the • All chemotherapy and radiotherapy; by private patients. A rental fee for PPIP contract. Exclusions were based • In vitro fertilization (IVF) and private wing space was calculated on Ministry of Health assessment advanced fertility treatments; during contract negotiations and of cost and the utilization patterns for these services, largely based on reduced the unitary payment amount • Plastic surgery other than basic, the LeBoHA feasibility and baseline paid to Tsepong on a prospective basis. essential reconstructive surgery studies. In their 2002 report, LeBoHA with medical need; and Access to hospital services researchers analyzed the cost and volume of specific treatments being • Cosmetic dentistry. As established in the PPIP contract, referred to Bloemfontein, South Africa patients can be seen at QMMH only in 2002 and considered whether by referral, either from filter clinics Under the terms of the new PPIP patient volumes would support a local contract, the treatment abroad in the Maseru health district, or from Ref 2 treatment program in Maseru. They program administered through referral other district hospitals or private also considered ongoing operational practitioners. Because there is no to South Africa is jointly managed by costs of certain treatments (e.g., Tsepong and the Ministry of Health. gating system to access care at the chronic renal dialysis) and whether urban filter clinics and no fees are Both Tsepong leadership and Ministry these services could be supported of Health leadership review each assessed for clinic services, patients within Lesotho’s health system presenting for hospital services at case and both must approve referral expenditure limits. Largely based on for treatment to facilities in nearby QMMH must be first evaluated at the these studies, the Ministry of Health onsite QMMH gateway clinic, and Bloemfontein, South Africa. A review excluded a series of specific services process and referral protocols were be treated or referred to the hospital from the tender, including: based on clinical assessment. established in the contract. • All transplants other than corneal The QMMH referral system and filter transplants; The parties agreed that if treatment clinics designated to support it are abroad data demonstrated sufficient a key element of the PPIP design, • All joint replacement other than hip need for specific additional services, and were developed to support a replacements; services could be incorporated into population-based care approach the PPIP contract through the project • Chronic (end stage) renal disease variation process. that allocates care delivery to the treatment; most appropriate and cost-effective setting and provides a mechanism for managing demand for hospital services. Referral protocols and requirements are defined in the PPIP contract based on Ministry of Health policy and are consistent with other referral requirements across the health system.

30 Health System Innovation in Lesotho Treatment abroad programs at significant public expense, sometimes only for the most privileged citizens. In the Turks & While the treatment abroad budget that supported Caicos Islands for example, the large TAP was a referral care in South Africa was a factor during significant driver of that country’s PPIP project the Ministry of Health’s assessment of the need for and establishment of a national insurance a new replacement hospital, the initial feasibility scheme. Ref 23 study conducted by LeBoHA determined that “despite the total cost . . . the volume of cases sent Even in Lesotho, where the TAP was not a primary to any specific referral service in Bloemfontein is focus of the PPIP, the private management of relatively low . . . most currently referred services Tsepong has resulted in better management and are well below the critical volumes needed to stricter control over TAP spending. The PPIP support a standalone tertiary care service.” Thus, contract requires joint management of TAP in the final design of the PPIP contract, the Lesotho referrals by both Tsepong and the Ministry of Treatment Abroad Program (TAP) was not a Health, and Tsepong employees review invoices significant motivation for the PPIP project. received from the South African facilities providing TAP care. Through this review, Tsepong Many other countries, however, including most has identified errors in billing and overcharging small, lower income countries, do have significant and thereby reduced the cost of TAP care through TAPs. These are often overlooked or poorly tighter management control. understood programs that support overseas care

Employment ultimately the Government decided Broader impacts to require an open application process Under the contract, Tsepong has full Health system strengthening human resource responsibility for for all positions at QMMH, which The PPIP contract was designed employees of QMMH and the filter was described in the PPIP contract. to incentivize Tsepong to engage clinics, including hiring, termination Employees of the Ministry of Health in health systems strengthening and performance evaluation. Full- (across all facilities and departments, activities through and beyond QMMH time physicians are employees of not only QEII) were free to apply for operations. For example, QMMH and Tsepong. This arrangement differs posted positions at QMMH, as were associated clinics were required to from Netcare’s traditional business non-Ministry of Health employees purchase 80% of all pharmaceuticals, model under which the majority of (although priority was given to by price, through the Lesotho National their physicians in South Africa are current Ministry of Health employees). Drug Supply Organization (NDSO), independent contractors rather than Employees of QEII and the filter with the intention of strengthening salaried employees. clinics who did not wish to apply for positions at QMMH were transferred Lesotho’s national drug supply chain. While an automatic and wholesale to other Ministry of Health facilities transfer of QEII employees to the upon closure of the QEII and older employ of Tsepong was considered, filter clinics.

Healthcare public-private partnerships series, No. 1 31 The PPIP contract also required Thirty percent of all capital Independent monitoring Tsepong to sponsor one medical expenditures to be directed through and certification student’s fees and accommodation local enterprises. In Years 1-5, 50% of Independent monitors were costs each year in an effort to build operating expenditures to be directed established for both the construction human resource capacity for the through local enterprises, escalating phase (monitor: PD Naidoo and Lesotho healthcare system. Similarly, to 70% of operating expenditure in Associates) and the operations phase QMMH replaced QEII as the primary Years 6-10, and 100% of all operating (monitor: Turner & Townsend). The site for the training of healthcare expenditure in Years 11-18. independent monitors were jointly professionals in Lesotho. Nursing appointed by, and are responsible to students from Lesotho’s multiple Community development both Tsepong and the Government. nursing schools, pharmacists, The PPIP contract also required pharmacy technicians and other Tsepong to provide specific healthcare- The PPIP contract sets out a formal healthcare professionals all now related community development governance structure for the project complete their practical training at activities in addition to the broader and establishes two committees QMMH and its associated clinics. health systems strengthening and local for oversight and management of empowerment goals: project exceptions: the Joint Services Local economic empowerment Committee and Liaison Committee. From its initial issue of the project • Tsepong funds treatment of These Committees, which include tender, the Government clearly stated congenital heart disease, cleft lip representatives of Tsepong and the a requirement for local economic and palate defects to an agreed cost Government (Ministry of Health, empowerment (LEE) through the PPIP each year; Ministry of Finance), are charged with project. Contractual requirements reviewing the independent monitors’ • Extending the Netcare “Sight for defined specific targets for LEE reports, overseeing the quality of You” program, Tsepong provides performance, which escalated over project operations and revising ophthalmology services to the local the duration of the 18-year contract. contract terms as required over the community; and Across all contract years, 80% of staff course of the contract. They meet at least quarterly. employed at QMMH were required to • At its own cost but in cooperation be local. By Year 2 of the contract, 50% with the Government, Tsepong of management staff were to be local, maintains and operates a Women increasing to 80% by Year 5. Further, and Rape Crisis Management center 25% of management staff were at QMMH. required to be local women by Year 2, and 40% of management were to be local women by Year 5.

32 Health System Innovation in Lesotho Independent monitoring and Government would be highest. This extension of the certifier role was crafted specifically for the certification QMMH project by the Government’s transaction Assignment of an independent monitor is a advisors.Ref 4 The independent monitor supports standard practice in capital infrastructure PPP the Government’s oversight of the project’s projects to certify the satisfactory completion of operation phase much in the same way that the the assets. The monitor serves as an independent independent certifier supports the construction reviewer and certifier of work performed based phase: bringing a higher level of technical on contractual terms and the monitor’s expert expertise than may reside in the Government to assessment. Often the independent monitor brings support the public sector’s contract management a higher level of technical expertise than may function. In countries where contract reside in the government, thereby augmenting the management capabilities are more established public sector’s contract management program. within the government, the monitor role is typically fulfilled by a government department The QMMH PPIP not only assigned an or committee rather than an independently independent certifier for the construction phase contracted monitor, although such arrangements of the project but also assigned an independent can be less satisfactory in guarding the public monitor for the 15-year operations phase of the interest than an independent monitor. project when contract management demands on the Government and the contract expense to the

Table 5—Independent monitors for QMMH: Organization Description & Role PD Naidoo & PD Naidoo & Associates (PDNA) is a multidisciplinary consulting and engineering practice based in South Africa with 14 Associates offices across the country. (http://www.pdna.co.za/) Scope: Certification of construction of hospital and refurbished clinics Reporting: Certification upon completion of construction programs for clinic refurbishment and hospital construction. Turner & Townsend Turner & Townsend is a global professional services firm with offices on 5 continents. They maintain South African offices in Johannesburg, Pretoria, Durban and Cape Town. In South Africa, Turner & Townsend provides commercial assurance services to public and private companies, including consultancy and contract management services. The QMMH project is the first time that the Firm has provided assurance services for clinical hospital operations. (http://www.turnerandtownsend.com/southafrica.html) Scope: Independent monitoring of ongoing clinical operations of QMMH and associated filter clinics. Reporting: Quarterly inspections and reports issued to both Tsepong and the Government. Reports reviewed quarterly by the Joint Services Committee and may be escalated to the Liaison Committee, as required.

Healthcare public-private partnerships series, No. 1 33 Key monitoring terms and Performance indicators were defined performance indicator than on a performance indicators for hospital across a range of topics and areas to facilities management indicator that and clinic operations were established cover the range of QMMH operations less directly impacted patient care. in the PPIP contract and have been and functions. Performance indicators adapted to a model or formula were established for patient volumes, The hospital and clinics will be by Turner & Townsend. Tsepong clinical quality standards, client accredited by the Council for Health is required to generate quarterly satisfaction, equipment supply and Service Accreditation of Southern performance reports and otherwise maintenance, facilities management, Africa (COHSASA). After an initial produce data for review by the information technology, and staff ramp-up period, accreditation by independent monitor and the Joint certification and training. Certain COHSASA is a necessary requirement Services and Liaison Committees. indicators were weighted more heavily of the ongoing PPIP contract. The independent monitors also than others.Ref 4 For example, Tsepong conduct separate site visits to validate might receive a greater financial reported data. penalty for a failure on a clinical

Table 6—Sample performance indicators: The LeBoHA baseline study provided initial performance indicators for the PPIP contract. The following are sample pre-accreditation targets (i.e., targets for the initial period of the PPIP prior to COHSASA accreditation) for a number of performance indicators. In general, these are demanding targets that would far exceed care standards provided at QEII or similar public facilities. For example: in a typical public sub-Saharan African hospital, lab results are often never received by clinicians. At QMMH, Tsepong is measured on its ability to provide test results in less than 60 minutes in 90% of cases. QMMH Clinicians report vastly improved lab turn-around-time and a resulting improvement in the quality of care being provided.

Sample performance indicators: Myocardial infarction treatment times: Percentage of patients with provisional or proven diagnosis of myocardial infarction who receive aspirin within 30 minutes of evaluation.

Initial (pre-accreditation) Target: at least 85% Decubitus ulcer rate: Rate of hospital-acquired decubitus ulcers

Initial (pre-accreditation) Target: less than 10% Laboratory services: Lab test turnaround time for six key lab tests to be agreed upon.

Initial (pre-accreditation) Target: less than 60 minutes in 90% of cases Medical records availability: Medical records available

Initial (pre-accreditation) Target: at least 75% of cases Information management & technology uptime: System uptime based on a three-month average period

Initial (pre-accreditation) Target: At least 99% over 3 months

34 Health System Innovation in Lesotho Table 7—Key contract terms: Key contract terms: Contract duration 18 years Financial terms Total capital expenditure M1.29 billion / $153.1 million Public funds M486 million / $57.7 million (37.7%) Private funds M804 million / $95.4 million (62.3%) Annual unitary payment M255.6 million / $30.3 million Total project cost, capital + operating (18 years, net present value) >M2.2 billion / $256.8 million6 Facility specifications Built area 29,000 m2 Number of beds 425 Number of public beds 390 Number of private beds 35 ICU beds 10 Surgical theaters 8 major procedure rooms + 1 minor procedure room Affiliated clinics 3 filter clinics, 1 gateway clinic

Annual patient volume requirements, per unitary payment 258,000 – 310,000 outpatients / 16,500 – 20,000 inpatients

Table 8—Summary of contracted risk and responsibility: Risk or responsibility Tsepong Government Notes Enabling works Owner Government required to provide enabling works to hospital site. Construction Owner Oversight Tsepong responsible for all design and construction activities and risks; Tsepong passed and design along some of this risk to subcontractors to incentivize on-time completion. Demand volume Shared Shared Tsepong is contractually required to deliver services to up to 310,000 outpatients and 20,000 inpatients per year. Beyond this cap, additional treatment must be authorized by the Government and will be paid at predetermined rates established in the PPIP contract. Case mix Owner The PPIP contract makes no allowances for case-mix adjusted payments. Tsepong must deliver care to established minimums and maximums regardless of case severity. Technology change Owner Tsepong is required to provide and maintain equipment and information technology systems according to schedules established in the PPIP contract. Maintenance and replacement schedules were established such that equipment and technology will still be current at the end of the 18-year contract. Human resources Owner Tsepong employs all employees and otherwise contracts directly for necessary services to meet PPIP service requirements. Other operational risk Owner Tsepong owns all operational risk unless an issue raises to the level of a relief or compensation event or contract default, in which case the Government shares in the negative risk. Service performance Owner Oversight Tsepong is responsible for meeting service levels established in the PPIP contract. The Government serves in an oversight role and may participate in approving resolutions to any service deficits. Treatment Abroad Shared Shared Both Tsepong leadership and Ministry of Health leadership may review cases for evaluation Program (TAP) and approve referral for treatment to facilities in nearby Bloemfontein, South Africa. A review process and referral protocols are established in the contract.

6 Calculated based on net present value from financial close based on a 9.5% discount rate. Healthcare public-private partnerships series, No. 1 35 Construction and early implementation: Financial close to launch of hospital services

Construction Construction of the hospital began Transfer of construction risk in March 2009 on a designated greenfield site outside central Maseru The increased efficiency through private management of the in Botsabelo. Refurbishment of the construction process can be a significant benefit from a PPP filter clinics also began in March 2009 arrangement; among Private Finance Initiative (PFI) projects in following financial close. In both cases, the UK, nearly 90% of construction projects were completed on construction was sub-contracted by time.Ref 10 In the case of QMMH, Tsepong did not receive unitary Tsepong to RPP Lesotho, a subsidiary of a South African construction payments until hospital construction was completed and was company. RPP outsourced as much responsible for any cost over-runs, as is the case in most PPP construction activity as possible to projects. Tsepong passed this risk onto its construction contractor, local Lesotho contractors but was RPP Lesotho, to strengthen the incentive for on-time and on- reportedly limited by the expertise budget completion. With proper incentives, private management that existed within Lesotho firms. of construction can avoid hidden costs due to delay or off-balance Tsepong was fully at risk for sheet costs that are often associated with traditional public construction budget over-runs or procurements. delays. To manage this risk, Tsepong passed these same risks to RPP Lesotho through a subcontracting agreement for construction services. The filter clinics opened in May 2010 and The Government, its transaction advisors and the Tsepong consortium initiated the new QMMH opened in October multiple initiatives that were active while hospital construction and clinic 2011. In both cases, construction was refurbishment were underway. Human Resource representatives toured the completed ahead of schedule. country to educate Ministry of Health employees on the new PPIP project, potential job opportunities, and projected impact on their positions. The Ministry of Health and Tsepong separately and jointly engaged in planning and communications efforts focused on the transition of patients, services and employees from QEII to QMMH and the filter clinics.

36 Health System Innovation in Lesotho Opening of the filter clinics Almost immediately upon opening Islands of excellence in May 2010, the patient volume at the filter clinics exceeded anticipated From the outset of the QMMH PPIP project, all parties have demand, reportedly driven in part been concerned about how to avoid establishing an “island by patients’ perceived improvement of excellence” at QMMH that is soon overwhelmed by a sea of of care, now being delivered under demand. Indeed, this is a concern for many PPIP projects in lower Tsepong. New outdoor structures were income countries. The initial demand at the Maseru filter clinics promptly built to shelter the patients who lined up outside the clinics each seemed indicative of this trend and concern. Similarly, QMMH was morning to receive care. operating near full capacity almost from the day of opening. In the first year of the hospital operations, the volume of outpatient services at QMMH and the associated clinics significantly exceeded the maximum service volumes established in the PPIP contract and covered by the unitary payment. Tsepong and the Ministry of Health are collaborating closely to manage the flow of referrals from district hospitals and to develop training programs for district physicians and staff. Many of the educational programs envisioned in the PPIP contract (e.g., nurse training programs, support of medical education for Basotho students) as well as others currently being considered (e.g., training for district administrators, rotational programs for Ministry of Health employees to orient them to QMMH operations) are aimed at broader health system strengthening to reduce the demand and burden at QMMH. While it is too early to determine whether these programs will be sufficient to manage the health system demand, the management of demand for Tsepong services is clearly a focus of both the public and private partners in Lesotho.

Healthcare public-private partnerships series, No. 1 37 During the interim transition period, primary care and other basic services Payment delays were provided at the refurbished filter clinics and patients were referred Generally, significant payment or funding delays lead to contract to QEII if more advanced care was default under many PPP agreements. Netcare’s ability and required. During this time, Tsepong willingness to loan money to Tsepong when the expected GBOPA relied heavily on remote management grant was not received demonstrates its commitment to the from Netcare and its subsidiary PPP project and may not be typical of all projects. On at least companies based in South Africa to supplement a locally hired onsite one occasion, delays in receipt of the unitary payment from the manager and nurse leaders. As hospital Government have caused Tsepong to default on its financing opening approached, senior managers agreement with the DBSA. The SPVs usually formed for PPP (Hospital Manager, Financial Manager, projects generally have few financial reserves and their sponsoring Pharmacy Manager) were seconded, companies generally have a limited appetite for lending money assigned, or transferred from Netcare to Tsepong to plan for the opening to these limited recourse companies. Identification of the right of QMMH and to manage project private partner and a financing organization who are committed operations going forward. to the goals of a project, even at the expense of its margins, can be The PPIP contract anticipated a $6.25 an important success factor, particularly for projects that might million grant from GPOBA to Tsepong encounter early financial obstacles. to cover the significant expense of operating the urban filter clinics before the first unitary payment was made upon opening of the hospital. Unfortunately, these funds were not received during this period, and, as of Fall 2012, were still being pursued by Tsepong. In place of this grant, Netcare made loans to Tsepong to cover operations through October 2011 when unitary payments began.

38 Health System Innovation in Lesotho Transition from QEII to QMMH

QMMH opened for operations on not hired by Tsepong were re-assigned private wing of the hospital. For a October 1, 2011. Based on the plans to other district facilities that were not period, QMMH was unable to provide co-developed by the Ministry of Health uniformly prepared to accept the new tuberculosis treatment or antiretroviral and Tsepong, patients, services and employees. In some cases, Ministry of drugs, leaving a significant care gap for employees were transitioned from QEII Health employees found themselves the Maseru Health District following to QMMH over the course of a single unable to effectively perform in their the closure of QEII. day. Additional transport was arranged new jobs for more than 6 months—a to move inpatients from QEII to demoralizing situation for the Overall, the first three months of QMMH and employees were on hand employees and a drain on the Ministry hospital operation proved particularly at both sites to manage the transition. of Health’s budget since salaries were challenging to employees and still paid but the employees were patients who were adjusting to new Not unexpectedly, the transition unable to provide needed services. expectations, new work norms, new between the facilities was challenging. facilities, new equipment and other To the extent possible, Tsepong The Ministry of Health also changes. In some cases, the transition employees had been trained and experienced delays in providing the caused gaps in care, but the Ministry of oriented to the new equipment and necessary licensing and permitting Health and Tsepong were able to work facilities at QMMH, but nurses, of the hospital, which was required productively to address these gaps and physicians and other staff necessarily for QMMH to purchase certain drugs resolve them as quickly as possible. faced steep learning curves while for patients and also to open the managing a heavy patient load, literally overnight.

Despite efforts to communicate to the health system and the public, neither Transitions to new facilities referring physicians nor patients fully understood the referral process It is likely that these transitional challenges would have occurred required to access care at the hospital. in any transition between facilities, as the nature of the challenges During the referral and admission is not unique to a PPP or PPIP arrangement but rather associated process, patients were troubled by long with the overnight transition between an old facility and a new waits due to new triage procedures hospital. In fact, evidence from Lesotho suggests that private and new data entry requirements associated with the advanced sector management and expertise were essential in reducing and information technology systems in addressing the transitional challenges for QMMH staff. Similar place at QMMH. transitional challenges for employees transferring from QEII to The Ministry of Health also faced other Ministry of Health facilities were greater and more persistent challenges in managing this major than the transition experience for the operations of QMMH and the transition. QEII employees who were employees of Tsepong.

Healthcare public-private partnerships series, No. 1 39 Queen Mamohato Memorial Hospital: The first year

With the opening of the new hospital, better individual performance, team healthcare services available to the work and coordination and uptake Introduction of strong people of Lesotho in their own country of new organizational models and management systems (as opposed to via referral to South technology. Netcare has assigned Africa) expanded in significant ways. experienced managers to lead the and leadership by the The new hospital introduced: project. This leadership team is private sector has been implementing Netcare’s best practice • The nation’s first Intensive Care policies and procedures while transformative to the Unit (ICU); educating and grooming QMMH delivery of care and the staff toward future leadership and • The nation’s first Neonatal Intensive management roles. experience of QMMH Care Unit (NICU); healthcare professionals. As of this report’s publication, • 9 operating theaters (as opposed operations at QMMH are very much a to QEII’s 2 operating theaters) work in progress, as would be expected equipped for a wider array of as reported by QMMH employees, for any newly established hospital, surgical services (e.g., endoscopy); have translated into improved let alone one testing an innovative patient outcomes. Further, all • New imaging modalities including arrangement for the first time. The Tsepong employees interviewed, who CT and MRI machines; and discussion below focuses on the early previously worked at QEII, reported achievements and challenges for a vastly improved work environment. • Other equipment to support QMMH operations during the first year Benefits ranged from an increased modernized clinical operations of operations, October 2011 to October sense of physical security, an improved (e.g., laryngoscopes to allow for 2012. Statements and conclusions are ability to focus on patient care rather intubation, which were not available based on in-person interviews, and than administrative-related stressors, to physicians at QEII). previously published accounts of the greater recognition, and a greater project. Beyond the improvement in facilities sense of accomplishment in daily work. and equipment, the introduction of strong management systems and Human resources Staffing levels and recruitment leadership by the private sector has management During the project ramp-up period, been transformative to the delivery A senior Netcare Human Resources Tsepong recruited employees from of care and the experience of QMMH (HR) manager was seconded to across Ministry of Health facilities healthcare professionals. QMMH Tsepong for a 1-year period to assist to positions at QMMH. External operations are marked by strong in the establishment of a strong HR applicants were also evaluated and leadership and communication, infrastructure and to mentor local HR hired to appropriate roles. Recruitment empowerment of appropriate decision- staff who will ultimately take over the was initially slow and extensive making throughout the organizational leadership role. In a short period, the education was required to address structure, strategic training programs, HR team made strides in establishing employee concerns about risks, real or well-defined operational norms and a new work culture and norms, perceived, associated with a transition performance-based incentives for implementing a strong performance to Tsepong. all staff. Ref 14 In combination, these management system, and establishing management systems incentivize new performance expectations that, Also of note, significant financial incentives existed for more senior employees to remain in a Ministry of Health position. According to Government policies, pensions are paid in a lump sum to vested employees after age 50. As a result, most senior nurses and some senior

40 Health System Innovation in Lesotho physicians from QEII elected to Primarily due to the HR challenges physicians would often not report to transfer to another Ministry of Health experienced across the Lesotho work or would not work full shifts, facility rather than join QMMH and healthcare system, the majority employees of QMMH, including forego their seniority vesting in the of physicians are expatriates from nurses and physicians, must Ministry of Health pension program. across Africa and around the world, hand swipe at installed terminals No arrangements were made to credit with few Basotho physicians on staff whenever entering and leaving Tsepong service toward a Ministry of (approximately 10% of physicians are the facility. This time reporting Health pension and while Tsepong Basotho). Over time, Tsepong aims system impacts employees’ pay if does offer a pension program for its to increase the proportion of Basotho their absences exceed vacation and employees, it is not paid as a lump physicians employed at QMMH. Nurse sick allowances or document fewer sum. Thus, more senior employees staffing is basically complete and hours of attendance than required were heavily incentivized to remain in almost all QMMH nurses are Basotho. by their shift schedules. Supervisors Ministry of Health employ. review their direct reports’ time Policies and procedures and attendance and sign off on the Over time, however, momentum built data prior to submission for payroll Employment policies and procedures and a near-full staff complement was processing. In acknowledgment at QMMH are notably different from assembled. Netcare’s reputation and of the significant cultural shift established policies or traditions the opportunity to work in a private associated with implementation of at QEII, and support significant environment within Lesotho were two a strict time and attendance system, improvements from QEII operations. major incentives reported by nurses QMMH leadership phased in this Terms of employment at Tsepong are who joined Tsepong from employers system over a six-month period. governed by Lesotho’s Labor Code, other than the Ministry of Health. Employees used the system for the whereas terms of employment at the first six months although it was not Recruitment continues for specialist Ministry of Health are governed by linked to payroll systems during that physicians, but the leadership of the Public Service Code. This shift time. As of summer 2012, the system QMMH has been able to ameliorate prompted multiple changes for QMMH was fully in effect for all employees. many of the staffing shortages employees previously employed by the experienced at QEII. Junior, non- Ministry of Health, including the need • Performance standards and specialist physician staffing is for time reporting, overtime and leave accountability: Performance complete and has improved from QEII. allowances and the loss of a Global standards have now been defined Recruitment of specialist physicians Fund salary supplement made to some and are continuously enforced in is complicated by comparatively low Ministry of Health employees. a very different way than at QEII. salaries in Lesotho, but Tsepong has Managers from QEII reported that This change in legal code along with been able to hire multiple specialists the disciplinary system under the introduction of strong management to address pre-existing gaps from Lesotho Public Service Code is principles resulted in significant QEII, including anesthesiologists, slow and cumbersome. Supervisors changes in HR policies and procedures. intensivists and other internal reported feeling powerless or Notable changes include: medicine specialists. Recruitment ill-equipped to enforce standards continues for additional surgeons. • Time and attendance for conduct and care. As a result, Visiting specialists from South Africa accountability: Whereas at QEII, at QEII, negative behavior was cover some services not fully staffed by employees reported that nurses and rarely addressed in a formal way full-time, employed physicians.

Healthcare public-private partnerships series, No. 1 41 and was often simply ignored. well as international experts who fly both hospital shifts to support quality At QMMH, physicians are able to in for periodic courses. Training will training for all students assigned to reassign nursing or clerical support continue as a priority during the first QMMH. members who are not performing few years of facility operations, due to established standards; to the comparatively large population Change management employees are formally notified of of inexperienced nurses who will The shift to a new management system performance deficiencies; and, if require extensive on-the-job training and a new level of service represents these deficiencies are not addressed to expand their skills and experience, a significant cultural change for the over a period of time, the poor a desire to increase the skills of nurses, physicians and other staff performance may culminate in Tsepong physicians, and the need to previously accustomed to different termination. QMMH has begun improve data entry compliance among policies and management systems at to develop, and continues to administrative staff to ensure data QEII. During our data collection visit, refine, performance standards for quality for performance monitoring QMMH staff, almost universally, noted each employee role so that the and reporting. a high workload that was particularly performance system is transparent demanding in the initial months of and consistent. In partnership with the Ministry of Health, Tsepong has opened its facility opening but improving over • Performance incentives: training programs to physicians based time. This sense of high workload Patient satisfaction surveys are in the district hospitals. By supporting has aggravated concerns around available on every inpatient ward this system strengthening, Tsepong compensation. and elsewhere throughout the also seeks to address skill gaps that In general, nurses, physicians and hospital. Surveys are assessed generate unnecessary referrals to other staff are receiving equal or regularly, and wards or departments QMMH. Future system-wide trainings higher compensation to salaries paid with high patient satisfaction results are planned to continue this effort. at QEII. With overtime allowances are recognized for their efforts Tsepong is considering establishing (with approval), physician and staff and success. Similarly, individual a rotational program through which salaries can reach 40-50% more than employees are recognized based on clinicians assigned to other Ministry QEII salaries. Physicians are also “employee of the month” awards of Health facilities will practice at permitted to maintain private practices and similar recognition programs. QMMH for a defined period of time, in addition to their QMMH service. Staff were also thanked for their thereby enhancing their clinical skills Expectations for salaries at QMMH, service through a year-end holiday and gaining a greater understanding of however, were very high. Despite party approximately two months the operations of the national referral communications to the contrary, many after hospital opening. Similar hospital. A training program for staff expected that they would receive programs were not available to staff administrators from district facilities is payment in line with South African when employed at QEII. also being considered. private hospital salary scales, which on average are significantly higher than Training Similarly, nurse training programs have been expanded to accommodate salaries offered in Lesotho. Training has been a particular focus a greater number of nursing students Over time, Tsepong hopes to address since opening of QMMH. To date, completing practical training at salary concerns but feels that current training programs have focused on QMMH. Tsepong has invested in hiring salaries are appropriate to the level of remediation of identified skill gaps, a greater number of nurse supervisors skill and experience possessed by each including customer service, infection to participate in training of nursing employee. Over the long-term, nurse control, accident and emergency triage students. At QEII, nursing students managers and physicians feel that and specific clinical competencies. completed training programs only elevation of salaries may be required Training is conducted by local staff as during the day, but at QMMH, student to prevent excessive staff turnover and rotations have been established across resulting impact on care.

42 Health System Innovation in Lesotho QMMH managers have addressed much of the data required for The installation and ongoing change management concerns through quarterly performance reports issued maintenance of SAP and related strong and accessible leadership. Staff to the independent monitors and the systems is managed remotely by interviewed universally stated that Government. Netcare’s IT team in Johannesburg. Tsepong management is accessible The PACS is similarly remotely to them and is fair and supportive QMMH also has a full picture and monitored by the system vendor. through a challenging time. They archiving system (PACS) for radiology Only one IT support staff is onsite at state that support from executive images and provides digital access QMMH on a daily basis, primarily to leadership for decentralized decision- to laboratory test results, which troubleshoot hardware and other IT making empowers staff, sets a high are managed by a laboratory sub- user “help desk” issues. Connectivity standard for performance, and contractor. Overall, these new issues including limited bandwidth allows for efficiency in responding to systems facilitate the flow of patient have limited Tsepong’s ability to emerging challenges. While at times information, strengthen coordination establish back-up systems. overwhelmed by the new challenges of care, and support improved financial presented by the new facility, almost and clinical outcomes. Clinicians report that these improvements Quality management and all staff and managers at QMMH utilization management report feeling motivated by the to clinical information technology The leadership of QMMH has begun new challenges they face and the systems have supported more precise to institute a quality program to opportunities and support presented to treatments and resulted in a decrease continually improve quality of care them by hospital leadership. in mortality among non-infectious patients on the medicine wards and efficiency of operations. This and ICU. includes extensive infection control Information systems training programs to address identified Tsepong has installed a fully integrated Currently, QMMH information deficits in knowledge and practice, enterprise resource planning (ERP) systems do not extend beyond Tsepong establishment of a recurring morbidity system, SAP, which links financial facilities. QMMH employees must print and mortality review for physicians and operational data to patient reports and develop other manual and formal censure of clinical staff health records. This system is fully work-arounds to deliver clinical when inappropriate care or other implemented at QMMH and is now information to other healthcare issues are identified. Defined clinical being expanded to the filter clinics. facilities in the health system, protocols and policies and procedures This is an advanced system that is including referring facilities. The are being implemented as Netcare’s more sophisticated and advanced Millennium Challenge Corporation best practice policies are adapted to than many of the IT systems installed (MCC) is supporting the Ministry of the local environment based on clinical in Netcare’s South African facilities. Health in its refurbishment of facilities and management review. This system supports the first and information technology at health electronic medical record in Lesotho. facilities around the country and Significant improvements to clinical, Other public systems rely upon a additional PPPs are being considered quality, and utilization management paper-based health passport system to support maintenance of IT systems have already been made, including (called a “bukana”) to document and at Ministry of Health health centers the introduction of a triage system communicate patient treatment and and district hospitals. Further value in the Accident & Emergency medical histories. The QMMH medical may be extracted from QMMH’s department, stricter management record captures patient demographic information systems if they are linked of the referral process from other information, all treatments and with IT systems installed across facilities, improvement of information diagnostics given to a patient and the Lesotho’s many primary care health and laboratory systems, and enforced supplies utilized in their care. This centers and district hospitals. infection control standards. Taken sophisticated system also generates together, this program represents

Healthcare public-private partnerships series, No. 1 43 a profound change from QEII, survival following major surgical which relied upon outdated nursing procedures, and decreased mortality After one year of hospital practices, lacked basic clinical for non-infectious patients requiring operations, QMMH oversight programs and enforced intensive care treatment. After one clinical policies and procedures, had year of hospital operations, QMMH Managers report tangible few to no information technology Managers reported tangible reductions reductions in patient systems, and lacked consistent in patient mortality from 12% to 7% enforcement of proper housekeeping and a reduction of maternal mortality mortality from 12% to or hand-washing techniques.Ref 2 to less than half the national average 7% and a reduction of (495/100,000 vs. 1,115/100,000). Improved availability of testing data Overall, physicians we spoke to maternal mortality to has been a key input to increased reported an improved ability to plan less than half the national quality and efficiency. For example, treatment and manage medications average (495/100,000 vs. Tsepong outsources laboratory based on the greater range of functions to a subcontractor and investigative tools at their disposal and 1,115/100,000). manages performance of that the timeliness of reporting at QMMH. subcontractor to strict service level agreements. Certain tests must define their supply and medicine needs be delivered with a 60-minute Supply chain management Supply chain management of both and manage ordering proactively. turn-around-time unless adequate medical supplies and pharmaceuticals explanation is provided. Lab reports As compared to QEII and other has been improved at QMMH, as are readily available to physicians in a Ministry of Health facilities, QMMH compared to QEII, through the short period of time, which supports has a distinct advantage in ordering application of rigorous management better clinical decision-making and supplies and medicine due to its ability and leading practice policies more precise titration of treatments. to order outside of the Ministry of and procedures. Similarly, introduction of PACS for Health systems. The Lesotho National radiology procedures allows physicians As an example, under the oversight of Drug Supply Organization (NDSO) to more easily and quickly access a seconded Pharmacy Manager from is often unable to place orders with imaging results to guide treatment Netcare, new inventory systems have suppliers due to significant payment decisions. Integration of primary care been instituted in the pharmacy to delays or outstanding balances. This clinics with the hospital operation expedite fulfillment of prescriptions, delay in payment is caused both by permits outpatient lab testing and inventorying and re-ordering. delays in the Government payment imaging, which has supported Additionally, the fully integrated SAP processing system and by delays Ref 14 decreased lengths of stay. system supports stock management in payment from client facilities by linking use of specific supplies and (NDSO’s primary income comprises While detailed outcomes data were drugs to individual patient accounts. fees paid by each district hospital and not available for this case study, With these new systems, the QMMH health center to the NDSO based on both nurses and physicians report pharmacy has reduced the number purchasing activity). This inability to improvement on clinical outcomes of stock-outs, a frequent occurrence make timely orders was a significant as a result of changes in HR policy, that negatively impacted patient driver of stock-outs at QEII. While infection control programs, equipment care at QEII. While stock-outs have QMMH must direct the majority of and technological advances and been reduced, they have not been its orders through NDSO (80% of all improved facilities. These outcomes eliminated, and the pharmacy is purchases by price), Tsepong can also include increased survival of low working closely with clinical staff to access supplier relationships through birth-weight babies, increased

44 Health System Innovation in Lesotho established Netcare relationships and likely due to the QMMH practice of issue payment through independent verifying deliveries against placed More resources and accounts payable systems. In the first orders and requesting refunds of six months of operation, Tsepong undelivered goods. This strong control focused investment in has exercised this option as required against theft or loss of drugs and building government and has been diligent in making on- supplies while in transit has resulted in capacity will be essential time payments to all vendors so that cost savings and greater efficiency. this alternate channel remains open to the long-term success for purchases. Independent monitoring of of the PPIP project. These alternate purchasing clinical operations Key monitoring terms and arrangements, as well as a focus on concentrated in only a few individuals performance indicators were coordinated planning, have allowed in the Ministry of Health and the established in the PPIP contract for the QMMH pharmacy to support Ministry of Finance. physicians with obtaining the best both construction and operations. treatment for an individual patient. For While monitoring of the construction While plans to build PPP units both example, specific antibiotics or other phase of the project did not experience within the Ministry of Health and the specialized treatments can now be many challenges, the application Ministry of Finance have been in place ordered with shorter order timelines of independent monitoring to since project launch, resources and than were possible at QEII. QMMH has clinical operations has proven more staff have not been made available to been able to share this benefit with complicated. establish fully functioning units. At other healthcare facilities across the both ministries, the long-term leaders Prior to launching the QMMH PPIP, Lesotho healthcare system as well. On of the project are beyond retirement the Government had very limited occasions when the NDSO is unable age and are serving in contract experience with PPPs, and very little to obtain a particular medication positions. To date, these leaders have institutional experience to manage but QMMH is able to purchase the been unable to assemble complete a complex PPP project. Since the drug directly from manufacturers or teams beneath them, relying on a few initiation of the PPIP project, the distributors, QMMH has shared these key staff members in each ministry. Government has focused on building drug purchases with other Lesotho In our assessment, this lack of broad capacity in both the Ministry of healthcare providers (e.g. CHAL, government capacity represents the Finance and the Ministry of Health Partners in Health), at cost. biggest risk to the project’s long- to manage the complexity of the PPIP term success. A capable Government contract and ensure capacity of the The new, formalized and enforced unit or units must be established to Government to be a strong public systems at QMMH have also led to supplement the independent monitor partner. While progress has been reduced shrinkage and waste. The function and manage this PPIP project made in this regard, more resources NDSO has observed that the QMMH and others going forward. pharmacy is ordering lower quantities and focused investment in building of drugs and supplies than were government capacity will be essential Despite these challenges, Government previously ordered by QEII. While to the long-term success of the project. monitoring has proceeded during the some of this reduction may be tied Currently, knowledge of, and capacity to tighter inventory controls and for managing, the project remains discipline in purchasing, it is more

Healthcare public-private partnerships series, No. 1 45 discuss outcomes of the quarterly • Specialist physicians: In our assessment, this monitoring assessments and to adjust Recruitment is ongoing and an lack of broad government the monitor’s findings and resulting area of continued focus for all financial penalties. At issue are parties. Some discrepancies exist capacity represents the specific performance indicators (or, between Government expectations biggest risk to the project’s in some cases, the lack of specific and Tsepong’s achievement of performance indicators) as well as recruitment targets to date; long-term success. Turner & Townsend’s adaptation of those indicators to an evaluation • Clinic schedules: Filter clinics model. The contract allows for are currently open only during first year of hospital operations and the flexibility in adapting the performance weekdays for most services, first two years of the project. Multiple indicators through the Joint Services and the cost model was based independent monitor reports have and Liaison Committees, and some on this assumption. However, been formally reviewed by the Joint revisions have already been made in patient volume and Government Services and Liaison Committees and the first year based on joint agreement expectations may call for weekend both public and private parties have between Tsepong and Government hours at the clinics. engaged in productive discussions representatives serving on these to adjust monitoring measures committees. Changes will likely • Payment delays: Payment and address emerging concerns. continue in the near-term from the Government to Tsepong Government representatives have until the independent monitor’s has been delayed on more than particularly focused on managing evaluation model is fully tested one occasion, most likely due deviations from the original contract against operational realities. to challenges with Government design to guard against escalating payment systems in general rather project costs. than any issues specific to the PPIP Partnership between project. On at least one occasion, As noted from the outset of the Government and Tsepong this payment delay resulted in a loan project, the QMMH PPIP represents The Government and Tsepong have default according to the terms of the the first foray by the Government, built strong relationships during a financing agreement with the DBSA. its transaction advisors and the relatively short period. During our Tsepong and Netcare have done contracted independent monitor visits, we observed open lines of their best to work collaboratively (Turner & Townsend) into a PPP communication on emerging issues with the Government to resolve design with such a broad scope of and a commitment to collaborative these delays which, over time, could clinical operations.Ref 13 From the success on both sides. Together, the significantly impact Tsepong’s ability outset of performance indicator parties have been able to productively to deliver according to the cost development, LeBoHA understood address some significant points of model established in the contract. and acknowledged that many of the concern that have arisen over the first measures might require revision over year or so of the project, including: These issues were jointly managed the course of the 18-year contract. Ref 24 both through the formal governance • Physician salaries: Concern structures established (Joint Services That prediction proved true in the first was raised over the compensation Committee, Liaison Committee) and six months of the project. Tsepong, of physicians, but a joint analysis through regular contact between the Ministry of Health and Turner showed that physician salaries Tsepong leadership and various & Townsend have met repeatedly to are, on average, 30% higher than leaders at the Ministry of Health, QEII salaries;

46 Health System Innovation in Lesotho Government encouraged patients and employees of Tsepong to call the station This strong partnership and air their grievances and complaints. This media campaign highlighted long patient delays, the high workload for employees at Tsepong and specific bodes well for the ability of instances of patient morbidity or mortality. In many cases, those working in the the combined project team health sector (both Tsepong employees and non-Tsepong employees) perceive to collaboratively confront that these complaints against service at QMMH were strongly linked to a general dissatisfaction with the Government or government services. and resolve emerging issues in the years to come. In early stages of the project, the Ministry of Health and Tsepong issued multiple public communications to explain the PPIP project to the public of Lesotho. It seems that these messages had limited impact, however, as many patients arrived including the PPP Coordinator, the at QMMH not understanding how to access care (i.e., through being referred) Director General and the Minister and/or confused about whether the hospital was public or private. of Health and Social Welfare. Recognizing a need, QMMH has hired a Public Relations Officer who is Ministry of Finance leaders have developing a program to address public misconceptions and to better represent been primarily involved through the the care provided at Tsepong facilities. formal governance committees. Day- to-day management, monitoring and issue resolution have been primarily managed by the Ministry of Health and QMMH leaders, and these daily Communication leading practices working relationships form the core In general, PPP projects will benefit from a comprehensive and of the partnership between Tsepong proactive communications plan that aims to engage stakeholders and the Government. This strong partnership bodes well for the ability and the public throughout all stages of the project life cycle. Many of the combined project team to countries or regions with established PPP programs require a collaboratively confront and resolve communications plan for all projects. These communication plans emerging issues in the years to come. should be as inclusive as possible rather than narrowly focusing Continued commitment from both only on those stakeholders directly involved in the process or Tsepong and the Government will be required to maintain and nurture this approval bodies. collaborative relationship, and this commitment will require continuity PPP projects in many countries are treated with suspicion by across changing governments various stakeholder groups and the media. While recognizing that and leaders. some information may be of a sensitive commercial nature, it is only by being as open as possible that an informed debate about the Public response merits of PPPs can take place. As the filter clinics and hospital opened, there was significant negative media coverage about the new hospital. Local radio stations known to highlight complaints against the

Healthcare public-private partnerships series, No. 1 47 Ongoing and future initiatives in support of the PPIP

The QMMH PPIP represents an ambitious, important step in the PPP regulatory framework evolution of the Ministry of Health. For the first time, the Ministry of In general, existence of a regulatory or policy framework for Health formally pursued its policy public-private partnerships is cited as an important precursor goals through a commissioning rather to development of any PPP project or, at least, of any significant than a delivery strategy, moving pipeline of projects. Lesotho has pursued multiple PPP projects forward as a purchaser rather than without any regulatory or policy framework in place: the Ministry a provider of care. With this project, the Ministry of Health tested its of Health headquarters construction, the QMMH PPIP and ability to fulfill its mission through multiple PPP projects under consideration or in the tender process alternative and evolving models. at the time of this report’s publication. However, the Ministry The Government and its advisors of Health and Ministry of Finance acknowledge the importance recognized that, for the long-term of a defined framework for long-term management of a PPP success of this innovative PPIP model, further innovation and action are portfolio. The Government is in the process of defining a regulatory required to prevent an “island of framework for PPPs and also working to establish dedicated PPP excellence” from being swamped by units in both the Ministry of Finance and Ministry of Health. healthcare demand across the system. This effort will be particularly important to ensure that the Thus, the Government has already Government maximizes its negotiation strength by engaging with implemented multiple initiatives aimed at strengthening its capabilities the private sector on a consistent basis, particularly where multiple in managing PPP projects, and the line ministries are involved, and the same bidders are involved in Ministry of Health’s ability to deliver multiple bids. effective care of increasing quality. These initiatives include:

• PPP regulatory framework: renovation, reconfiguration, services will be provided through The Ministry of Finance, with expansion and construction of up to these PPP arrangements, but support of the IFC, has completed 138 health centers in order to bring winning bidders will be required a first draft of a PPP regulatory all national health centers up to a to provide ongoing non-clinical framework and policy to be applied common standard (www.mca.org. services including maintenance to all future PPP projects in Lesotho, ls/projects/hcentres.php); and equipment upgrades; and across all sectors; • Health Center PPP for • Government capacity • MCC Health Center equipment and information building: The IFC has mobilized refurbishment: The Millennium technology: With the support of funds to engage consultants to Challenge Corporation (MCC) the IFC, the Ministry of Health has assist the Ministry of Health in is working with the Ministry of initiated a PPP tender for equipping building their capacity for contract Health to refurbish health centers health centers around the country management and oversight. around the country. These centers with equipment and information Consultants will work closely play a primary role in HIV/AIDS technology. The PPP also with the Ministry of Health to prevention, TB treatment and encompasses facilities maintenance build systems for performance maternal and child health services. to ensure the continued quality of monitoring and other contract Project activity focuses on design, the MCC-refurbished facilities and management activities. other health centers. No clinical

48 Health System Innovation in Lesotho Both the Government and Tsepong Beyond increasing the pool of local recognize that, over the long term, health professionals, other health more expansive action will be required system strengthening will also to address health system deficits be required. A notable number of for human resources. While QMMH referrals to QMMH are due to resource has addressed some of the “push” shortages (e.g., no doctor present factors (dilapidated facilities, lack in the facility, no sutures available) of strong management structures, at the district hospitals. Addressing lack of professional development these supply chain limitations and opportunities) that encourage improving human resource allocation local doctors and nurses to seek across the system will benefit QMMH employment in South Africa and as well as other healthcare facilities. elsewhere, a large salary gap and Strengthening functioning at NDSO other “pull” factors continue to draw and developing strong management Basotho healthcare professionals to capacity at district hospitals will also South Africa and beyond. Addressing be important to improved health the salary gap and other issues will system functioning and reduced be essential to strengthening the pressure on QMMH. Potential health system more broadly, thereby expansion of a PPIP program to benefiting both the QMMH PPIP district hospitals and/or to district and the broader health system. As a health centers, has been discussed long-term goal, Lesotho also hopes by the Government, but no specific to establish a medical school for plans have been developed awaiting a Basotho students and build a pipeline more formal assessment of QMMH’s of physicians for Lesotho health performance. facilities. Again, such an initiative will benefit not only the QMMH PPIP but the broader health system and the population of Lesotho.

Healthcare public-private partnerships series, No. 1 49 Lessons learned

The development of this case study • Further, discrete plans should be Think local: Local expertise report allowed for many of the actors developed to ensure full knowledge is critical—knowledge of local involved in the development of the transfer from expert transaction conditions and traditions is important QMMH PPIP to reflect on what they advisors to the Government partners for adapting international leading might have done differently and that will manage the project going practices to local needs, expectations what positive lessons were learned forward. Efforts were made in this and limitations. While transactional through the project experience. The regard for the QMMH PPIP, but advisors can fill some of these following sections summarize these participants report that broader and roles, the project will benefit from “lessons learned,” as reported by more complete knowledge transfer widespread local involvement from project participants in case study might have improved Government the earliest stages of the project and interviews or previously published capacity for contract management. early inclusion of leaders (both public analyses of the project. We hope this and private) who will be responsible catalog of “lessons learned” assists in Diversify project committees for project success post-financial close. generalizing the details of this case from an early stage: PPPs and The Lesotho project demonstrated this study for the benefit of future PPPs PPIPs are complex projects that require leading practices of widespread local and PPIPs in Lesotho and elsewhere. a wide range of expertise, including involvement by assembling review knowledge and experience in finance, committees with diverse expertise contracting, legal frameworks and a from both the public and private Lessons learned: spectrum of healthcare operational Appropriate expertise sectors. Reflecting on this effort, disciplines. It is important to involve the Lesotho participants expressed Engagement of skilled advisors representatives with this diverse their wish that involvement had been is only the first step for expertise in the earliest stages of a even more widespread and that a project success: Engagement of project. For example, failure to include broader range of participants had been transaction advisors was essential for hospital operations experts during more deeply involved in key project the Government, but Government contract design and negotiation decisions from the earliest stages. Such project leaders realized quickly that might result in a final contract that is involvement would have produced other elements were required to extremely difficult to implement. In greater institutional knowledge of the ensure efficient decision-making Lesotho, effort was made to include project, allowed for better integration and knowledge transfer back to diverse expertise during the planning of local knowledge at earlier stages, Government staff. and negotiation phases. Still, QMMH incorporated deeper operational management encountered contract • Once transaction advisors expertise during negotiation and terms that were difficult to implement are engaged, clear roles and ultimately benefited the project in its or not operationally sound, which responsibilities must be defined implementation stages. required early revision to some between the Government sponsor contract terms such as performance and its transaction advisors. indicators. Greater integration of more Establishing ground rules at senior operational expertise during the outset will better facilitate planning stages might have reduced or information flow and timely avoided these early revisions. decision-making; Ref 19 and

50 Health System Innovation in Lesotho Lessons learned: Leadership demonstrating steadfast policy between June 2007 and June 2008. Ref 3 Engage the broader leadership commitment and political leadership. These findings documented the team in project development: Equally, these government leaders current state of services at QEII, Throughout the project, the Prime have remained dedicated to joint helped to scope the current and future Minister’s cabinet was engaged in success during the challenging early healthcare needs for Lesotho, and decision-making about the PPP and months of hospital operation. Private provided baseline utilization and cost kept abreast on project developments. and public sector partners in future data for services provided at QEII Leaders of the QMMH PPIP identified PPP projects would be wise to assign and the existing urban filter clinics. this broad government support as a senior, tested executives to support Similar health systems analyses would key success factor for the project’s early project success. The Lesotho be essential to any future PPIPs to development, and consciously experience suggests that appointment assess or validate healthcare needs, cultivated broad government buy- of capable leaders at the outset of a produce the necessary baseline in with regular updates to the project is a critical success factor for data for scoping and costing the cabinet. Broad cabinet engagement any PPIP project. PPIP project and position a large supported the QMMH PPIP through project in a health systems context to political transition. For example, the Develop a succession plan from support good policy decision-making. appointment of, and transition to, a Day One: A challenge for the QMMH Without sufficient data on health new Minister of Health during the PPIP will be sustaining the strength of system needs or current volumes and project’s early stages was relatively management systems as operational cost, neither Government nor the smooth due to the full Government’s needs evolve over an 18-year project. private sector can make informed engagement and commitment. Succession planning and investment decisions about PPP design or the in leadership development have begun appropriate cost model to support Strong, experienced, dedicated and will be significant areas of effort a long-term relationship. Indeed, public and private leaders are in the coming years. Initiatives to a lack of such information would essential: Dedication of strong groom the next generation of leaders likely pose challenges to any provider and senior leaders, both at Tsepong began with the hiring process prior to (government or private sector) and in the Government, has been a commencement of hospital operations attempting to specify requirements for critical success factor for the QMMH and will continue. new healthcare facilities regardless PPIP. The strong leaders at QMMH of whether a conventional or PPP have bolstered the development Lessons learned: Plan early, procurement model was used to of a solid partnership with the plan often realize those facilities. Ministry of Health, established strong Early identification of Begin government capacity relationships across the Lesotho healthcare needs supports building at the earliest healthcare system, won the confidence alignment of a realistic PPP stages of PPP conception: For and support of QMMH staff, pioneered design with healthcare system any government without strong a new culture of performance and needs: The original feasibility study contracting and management leadership at QMMH, preserved the by LeBoHA provided important context experience, building capacity to financial viability of the project and and documentation of healthcare manage the complex, high value overall established a robust foundation needs for the subsequent PPIP. This contracts necessarily associated with for future success. No less important, research team, very knowledgeable PPPs and PPIPs will require significant leaders at the Ministry of Health and on the Lesotho healthcare system, investment of time and resources. This Ministry of Finance conceived a bold continued to provide health systems investment is essential to ensure that new strategy for healthcare delivery and clinical analysis support to the contracts remain affordable over the and have since navigated the project Government throughout the PPIP project life cycle and deliver on the through the political landscape, effort, conducting four surveys

Healthcare public-private partnerships series, No. 1 51 policy goals stated at the outset of the These activities all represent an Set ground rules for new project. Participants in the QMMH upfront cost for both the private partners: Governance of the PPIP wished that the development of operator and the Ministry of Health, Tsepong consortium has presented the Government partner’s capacity which would require estimation challenges in the first year or so of had begun earlier, even at the project’s and design during the contract project operations. Differences in first conception in 2000, and that negotiation process. business culture and experience exist those efforts had been more focused between Netcare and its local partners, at earlier stages of the project. Efforts Develop a transition plan, and many local partners have faced in Lesotho to build capacity are still then keep on planning: QMMH a steep learning curve on hospital in their infancy, more than 10 years leadership developed an extensive operations and clinical standards. after the first discussions of a possible transition plan that supported the As the hospital operator, and to hospital PPP. nearly overnight transition from ensure the long-term financial health QEII to QMMH. This plan allowed of the project, Netcare has had to Devote resources to planning for the transport of all patients renegotiate the service sub-contracts and training early in the project, in a single day and a near-instant that were granted to Tsepong investors and hire accordingly: The Lesotho activation of the new hospital. for specific services (e.g., security, experience demonstrates the need for Not surprisingly, there were some ambulance transport)—a complicated significant implementation planning. issues not fully anticipated in this endeavor for new partners in the In reflecting on the transition plan. For example, some equipment consortium.7 Informal arrangements experience from QEII to QMMH, many needed for clinical operations had not formally documented in contracts expressed the wish that they had to be transferred from QEII after the or agreements have similarly caused joined the project earlier and allowed transition when clinicians realized controversy among the partners. To more time to plan for operations, the equipment was not available at date, the end result: has been that training needs and project launch QMMH. Tsepong employees also Tsepong board meetings have focused logistics. The project teams engaged in reported feeling overwhelmed and more on financial matters than on extensive planning but still found the would have preferred to have patients questions of strategy or contract efforts insufficient. Lessons learned be transferred in waves rather than all delivery. Formation of SPVs with through missed opportunities include: at once. Likely, no transition plan will new partners will necessarily require be perfect, but investment in a strong an adjustment period, and future • Assign onsite project leadership transition plan will be essential to projects may prefer to draft specific, early in the process, well before opening any new facility (whether or formal agreements to govern all group facilities open for operation; not a PPP facility). In the case of a PPP interactions or otherwise anticipate hospital, transition planning may be • Develop a comprehensive the acclimation that will be required even more complicated due to greater communications and public to bridge gaps across corporate and/ coordination demands between relations plan; and or local cultures. The balance of governments and private contractors. control on the SPV Board is also a • Invest heavily in training and point for close consideration for future orientation for staff at the projects to ensure proper controls over new facility. consortium action.

7 These renegotiations did not impact cost to the Government but did affect the funds flowing to specific consortium members participating in the operating subcontracts.

52 Health System Innovation in Lesotho Lessons learned: PPPs are Do not underestimate the need for One point of future renegotiation may not a panacea education of patients, the public focus on payment structures, both Without systemwide planning, and prospective employees: While refinement to the existing cost model PPP projects can become Tsepong is now establishing a Public and addition of previously excluded “islands of excellence” soon Relations program to address public services. Despite the extensive work overwhelmed by the sea of misconceptions, patient confusion and of LeBoHA throughout the PPIP demand: Introduction of strong employee concerns about QMMH, both development process, availability management systems and a well- the Ministry of Health and Tsepong of historical utilization and cost designed PPIP have the potential would have preferred to start this data was limited during cost model to greatly improve the efficiency program earlier. Future PPIP projects development. The current cost model and quality of care provided to a should account for the extensive for QMMH operations is based on population. PPIP projects, however, public education campaign that may either “outpatient” or “inpatient” are still limited by the total resources be necessary, especially if there is no treatment; over time it may be available for the project and, precedent for a PPIP-like arrangement desirable to refine the cost estimates moreover, to the entire health system. in the country or region of the project. based on actual experience and service At the outset of the project, using line-specific data, which has been the LeBoHA feasibility analysis and Lessons learned: collected by Tsepong on a prospective baseline studies, the Government Contractual flexibility basis since hospital opening. Any addition of previously excluded and their advisors made difficult Contractual flexibility for long-term services will also require negotiation of decisions about service levels and healthcare services contracts is incremental payments to Tsepong from trade-offs necessary due to resource necessary to cope with the rapid pace the Government. constraints. These tough decisions of change in healthcare technology, about excluded services, number of delivery systems and evolving hospital beds, number of patients healthcare needs of a population. served and other considerations were This is likely especially true for necessary to ensure the project would Lesotho, given the relatively short remain affordable to the Government negotiation timeframe and limited over the lifetime of the contract. The data availability. Government identified this realism about project scope and health system status and limitations as a critical success factor for the future of the QMMH PPIP. Ref 24 Not surprisingly, given these trade-offs, QMMH was operating near full capacity during its first month of operations. Over time, Tsepong and the Government will need to strengthen the broader health system to alleviate the intense demand at QMMH.

Healthcare public-private partnerships series, No. 1 53 Opportunities for future evaluation

As previously mentioned, given limited • Achievement of policy goals, based data availability and short duration of on comparison to baseline LeBoHA hospital operations to date, a formal studies, including: evaluation of QMMH performance was not possible at this time. At a −−Quality of care; future date, however, a rigorous and −−Cost neutrality; independent evaluation of the PPIP’s performance will be necessary on −−Greater efficiency and expansion many levels: to address concerns raised of access to care; publicly and privately about whether the cost of the project is justified, to −−Predictable government health evaluate QMMH performance against expenditures; and Ministry of Health facilities and policy goals and to judge success and failures −−System-wide efficiency gains. with an eye towards improvement of The impact of a future evaluation future projects. of the project will be enhanced by Possible points of evaluation include: improved transparency for project data and contractual details. A move • Quality of care provided at toward greater public disclosure Tsepong facilities; will allow for factual discussion of the PPIP project and its impact, as • Sustainability of the annual unitary opposed to conjecture or suspicion payment (and, when applicable, based on misinformation. As Lesotho additional payments to Tsepong moves forward with an expanding for either excluded services PPP project pipeline, we strongly or additional patient volume encourage greater transparency and beyond the negotiated package public disclosure of project details of services) in the context of the and results. healthcare system;

• Impact of Tsepong facilities on human resource availability across the Lesotho healthcare system; and

54 Health System Innovation in Lesotho Conclusion

Ongoing reporting and evaluation transparency and programs to address Despite the inherent political and of the QMMH PPIP will be required poverty across the country. The PPIP financial risks and implementation to measure the long-term success project weathered previous leadership challenges, Ref 7, 23, PPIPs offer the or failure of the project and to transitions (specifically, a transition potential for significant improvement determine whether the Lesotho in Minister of Health in 2007), largely in quality and efficiency in healthcare, approach may establish a new model due to Cabinet-level buy-in for the at a time when many publicly- for improvement of publicly provided project. Now with turnover across owned and run facilities are in poor care across Africa and indeed across the entire Cabinet, including new shape. The case study of the Queen the world. While early signs point to Ministers of Finance and Health who ‘Mamohato Memorial Hospital improvement in clinical services and were appointed in June 2012, the demonstrates the ability of a lower management efficiency, continued PPIP must educate and navigate the income country to engage the private dedication and effort will be required new Government leadership structure sector in new ways, and in a relatively to maintain and expand these and build new working relationships short period of time transform the successes over the remaining 15 years quickly. As turnover in public quality of care being provided to its of the PPIP contract. and private leadership continues, population. While many challenges establishment of strong PPP units and lie ahead and more time is needed Perhaps the greatest challenge in other oversight mechanisms will be to collect data and conduct a formal the near term will be maintaining extremely important. evaluation before the project can be performance despite leadership judged a success, early signs indicate changes at many levels. Tsepong Over the longer term, the project that the strong project concept and expects to transition leadership must grapple with the overwhelming policy vision, coupled with strong seconded from Netcare and demand for services experienced in management systems introduced from expatriate leaders to local the first year of operations at QMMH by the private sector, are having an management in two to three years. and its associated clinics. Without immediate impact. Another significant change is already significant investment in the broader underway: in May 2012, Lesotho health system, and thoughtful witnessed its first peaceful transition coordination between QMMH and of power through an electoral process, outlying district facilities, the QMMH when the Prime Minister of 15 years PPIP will fast become unaffordable ceded his post following a democratic for both public and private partners election and formation of a coalition and threaten the future of the government led by Opposition leader, project. While balancing the need for Tom Thabane. Prime Minister Thabane evaluation and Government capacity immediately implemented changes building, the Government must rapidly in Government policy, pledging upgrade the surrounding health improvement in services, greater system to preserve and expand upon the early successes of QMMH.

Healthcare public-private partnerships series, No. 1 55 References

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Healthcare public-private partnerships series, No. 1 57

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