Subúrbio Hospital PPP First Health PPP in Brazil

1. Subúrbio Hospital PPP First Health PPP in Brazil IFC Public-Private Partnerships in Health Johannesburg, South Africa 4 March 2011

2. First Health PPP Project in Brazil • PPP legal framework: concessions with payments (total or partial) from the public sector Project Background Brazilian Public Health Context • SUS (SistemaÚnico de Saúde), the Brazilian Public Health Program, covers about 78% of the population (mostly poor people) while private health plans cover 22%(1) • Quality and access are important issues (1) Source: ANS (National Health Agency), 2009

3. Project Background Bahia State Context • Public health management (before Subúrbio): (i) direct administration(ii) not-for-profit service providers(iii) services outsourcing • Bahia Government was already building Subúrbio Hospital when decided to structure it as a PPP • The main objective to be achieved through the PPP model was to provide high quality services to the population, comparable to the best private hospitals in the Country, creating a new benchmark for public health

4. Project Background • This project was developed through Brazil PSP – Private Sector Participation Facility, established in 2008, to foster private investment in infrastructure projects • Jointly funded (BNDES, IFC and IDB). Funds cover studies, consultants and IFC staff costs • Success fees are reinvested in the facility • IFC leads all aspects of deal execution with BNDES support

5. SuburbioFerroviario – Salvador, Bahia State Project Overview

6. Project Overview • Emergency Hospital located in underserved area of Salvador: over 1 million people with no access to emergency care in the area (UN HDI of 0.668) • 298 beds (30 home care)

7. Project Overview Project • Client is Bahia State Government • PPP involves private partner equipping, financing and providing full services (construction under separate public contract) • Total project cost of: • US$ 27 million construction (Bahia Government) • US$ 32 million equipping (private partner), of which US$ 23 million in 1st year • Maximum annual Government payment ~ US$ 58 million

8. Project Overview Structure • 10- year concession contract (renewable for additional 10 ys) • Operator to receive global budget: 70% paid if quantitative indicators (volume) are met; 30% paid on achievement of qualitative indicators. Indicators are quarterly audited • Must achieve accreditation within 24 months • Biddingwasconductedat Bovespa Stock Exchange (transparency)

9. Project Overview Results • Bidding process completed on Feb 26th, 2010 • Consortium of Promedica (Brazil)/Dalkia (France) selected • Contract signed on May 2010 • Operation started on September 2010

10. Project Overview • FPE: “Fundo de Participação dos Estados” (States Participation Fund), which will provide federal funds to the Payment Flow in accordance with the Trustee Contract to be signed with Banco do Brasil (as Trustee)

11. Payment mechanism • Linked to performance indicators • Discounts are applied for under performance based on 2 sets of indicators: • Quantitative Indicators (volume) include 3 categories: Inpatients (about 72%), Emergency/ Urgency/ Outpatient care (about 21%), Diagnostic services (about 7%) and each weight is defined based on cost contribution to total hospital cost • There are 31 Qualitative Indicators. Accreditation represents 20% of Qualitative Indicators after year 3 • Payment formula: • Discounts aims at penalizing equity returns • Contract includes ordinary and extraordinary revisions Government Payment (GP) = 70% x (1 - % discount Quantitative Indicators) x Max. GP + 30% x (1 - % discount Qualitative Indicators) x Max. GP

12. Project Timeline • Project executed in 14 months from mandate to signing (March 2009/ May 2010). Operations started September 2010 July. 2009 Consultant delivered initial reports Oct. 2009 Public Consultation/ Road Show Sep. 2010 Start-up of Hospital activities Feb. 2010 Auction at Bovespa March. 2009 Consultants hired May 2010 Contract Signing March 2009 Mandate Signing Sep. 2009 Approval of Project Structure Dec. 2009 Bid doc. issued

13. Expected Development Impact In addition, the Project has a considerable demonstration impactfor new health PPPs and as a benchmark for the public health sector (e.g. Rio de Janeiro State and São Paulo and Belo Horizonte municipalities)

14. Lessons • Not easy to shape a new market (not easy to find investors, higher risk premium required) market soundings and road show are key • Not easy to define proper indicators in such a dynamic context as health frequent revisions • Private sector will not take risks related to changes in demand, health patterns or related to the Health network frequent revisions, economic equilibrium clause • Need to find a balance between flexibility in contract and stability • Monitoring and proper reporting systems are essential Independent auditor • Contract Management should start as early as possible • Relevance of primary care to reduce hospital risks and ensure higher quality

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