A rapidly expanding population and the after-effects of the Covid pandemic have exerted profound pressure on global healthcare systems, resulting in increased demand on governments to mobilise more resources in the provision of healthcare services.
Amidst—and, no doubt, partly due to—these factors, the public-private partnership (PPP) model has gained impetus in healthcare sectors of middle-to high-income countries, creating an enabling environment for collaboration between the public and private sectors.
In the GCC, the PPP model has been gaining traction as the preferred procurement route, as private parties actively participate and assist with various government initiatives, such as ‘We the UAE 2031’ and ‘Saudi Vision 2030’.
Adaptations of the PPP model
Whilst there is no universally accepted definition of PPP, a PPP can generally be defined as a long-term agreement between a public party and a private party, under which the private party will develop and/or manage a public asset or service, with its remuneration linked to performance, demand and/or use of that asset or service.
Within the healthcare sector, there are three primary PPP models that have been adopted:
- Infrastructure-based: the private party undertakes to design, build or refurbish, finance, operate and maintain public healthcare infrastructure, including non-clinical services (e.g. housekeeping, cafeteria services, utilities management and ground maintenance) or, in more advanced structures, clinical support services (e.g. imaging, laboratory, disinfection/sterilisation, rehabilitation and radiology services). In all cases, however, the public party retains responsibility for managing and providing the clinical services;
- Discrete clinical services: the private party undertakes to deliver discrete clinical services (typically over a shorter tenure of less than ten years, congruent with the lifecycle of clinical equipment) or expand service delivery capacity, usually on the premises at public healthcare facilities (e.g. clinical support services or specialty care services, such as dialysis services or diagnostics); and
- Integrated: the private party undertakes to design, build, finance and operate facilities and deliver non-clinical and inpatient and outpatient clinical services. This model is the most complex of all healthcare PPP models, given the private party’s responsibility for service delivery risks, including managing service demand and achieving strict service quality standards.
Key considerations
Some key considerations that apply to the parties and lenders in the above healthcare PPP models include:
- Clinical services: if the private party is providing clinical services, the public party should seek assistance from national or international hospital accreditation agencies to develop appropriate clinical standards. The private party must thoroughly consider these standards to ensure implementation of required clinical quality and performance standards, especially in PPP models where performance is tied to payment;
- Medical equipment: if the public party is supplying part or all of the medical equipment, it will typically bear the risk for its installation and any delay this may cause to the completion process. If the private party is supplying medical equipment, it should mitigate such delay risk by passing through this risk to its relevant subcontractors and require liquidated damages as compensation for any such delay;
- Existing asset condition: if the private party is to refurbish or rehabilitate existing structures and/or integrate them into new structures, the existing asset condition will be a crucial part of the private party’s due diligence. The condition of existing structures should be fully surveyed (and potentially warranted) by the public party;
- Human resources: the private party will normally be responsible for managing the human resource functions (e.g. staffing and managing human resources), which will require the implementation of management protocols, appropriate training etc., to effect the smooth transition of staff from the public to private sector; and
- Bankability: lenders to project-financed PPP projects will carry out due diligence on, among other things, construction and completion risks, operating risks, land availability, force majeure, change in law, as well as environmental, political, and counter-party risks.
Healthcare PPPs in the GCC
Recent healthcare projects in the GCC include:
- Saudi Arabia: the Al Ansar Hospital PPP in Madinah, the first PPP hospital project procured by the Ministry of Health;
- Dubai: the Cardiology Care Centre PPP being procured by the Dubai Health Authority;
- Abu Dhabi: the Abu Dhabi Health Data Services PPP between the Abu Dhabi Department of Health and Injazat Data Systems, to develop a first-of-its-kind health information exchange platform known as ‘Malaffi’; and
- Oman: the Al Taafi Suhar Rehabilitation Centre PPP being procured by the Ministries of Finance and Health.
Such projects demonstrate the growing trend of the use of non-classical PPP models in the healthcare sector, as well as an increased appetite in the private sector to accept risks, such as the provision of clinical services or medical equipment, that would typically sit with the public sector.
Healthcare procurement is evolving in the GCC, with its own unique set of considerations yet, no doubt, presents considerable opportunity for governments to leverage private sector expertise and resources, enabling investment in large-scale projects that support the national public health goals.
By Nicholas Kramer, partner, and Knowhee Myung, associate, in the projects and construction team at Norton Rose Fulbright, Dubai.
