In PPP We Trust – Georgia Medical Situation About to Get (Much) Better
Georgian clinics are about (in a relative term) to get a lot closer to European standards. Three major hospitals are to get a complete overhaul as part of an ambitious reformative project, which, among other things, promises to reduce the healthcare costs by 30 %. The hospitals in question are the Central Republican Hospital, the Tbilisi Oncology Center and the Khliani Children’s Infectious Disease Hospital.
In this ambitious undertaking, Georgia’s state-owned shareholding company, the Partnership Fund (PF) is teaming up with AlphaMedic Consortium and Georgia’s Ministry of Labor Health and Social Affairs. The Georgian and Austrian sides met several times in Tbilisi to discuss the ‘Tbilisi Cluster Healthcare PPP Transformation Project.’ The project, tailored by AlphaMedic Consortium to the government tender to improve Georgia’s primary healthcare services, is set to be put into motion as early as the end of the month.
The representatives of AlphaMedic Consortium said the company was ready to invest 250 million GEL to rehabilitate the three hospitals. According Minister’s statement the total cost of the project was expected to reach about 0.5 billion GEL, which the agreement stated would be jointly covered by the tender-winning company and the PF.
Behind all this mundane trivia though is a rather intriguing factor - the way the Austrians intend going to go about it. The Vienna-based sector focus is healthcare Public Private Partnerships (PPP). In more accessible words, it’s a value for money, performance based contract that sees the winning company obliged to attract investments and create a development plan for the three hospitals. Furthermore, AlphaMedic Consortium must design, construct and reconstruct the State’s medical clinics so they meet European standards, including equipping them with high-quality medical technology.
To give you more insight on how AlphaMedic Consortium is going to reinvigorate Georgia’s primary care system and why the PPP approach is a win for every party involved, GEORGIA TODAY was privileged to have an EXCLUSIVE interview with the mind behind Alphamedic’s tender bid – Mr. Leo McKenna. A man with vast experience and knowledge in all things related to PPP, McKenna boasts an impeccable work record spanning more than two decades, with highlights including Ireland’s first and only PPP hospital; the largest project ever successfully delivered in the region’s history. Mr. McKenna was kind enough to offer his insights on the “massive Georgian project” he and his team are about to tackle.
“It’s an innovative solution for Georgia,” he says, “a compelling project both intellectually and commercially- from healthcare planning to conceptual design.”
Compelling is an understatement as the parties have to devise a funding solution to ensure the project’s financial viability. After that, the actual construction will begin, which McKenna believes is to last around three years. The Austrian company is going to “look after things” for 25 years, the duration of the agreed operational term.
It’s a lot of responsibility. And the lion’s share of this responsibility, McKenna insists, lies with Alpamedic.
“Within the PPP model, the risk is transferred from the public sector to the private one,” McKenna told us. “So all risks – be it design or construction-related, or financial and operational risks- rest with the private sector partner. The fundamental principle of PPP is that each party should manage the risks it is best able to manage. For example, the demand risk, like how many beds the hospital should have, lies with the public sector and is a planning function of the Ministry of Health. The delivery capability, the reality sits with the private sector.”
It sounds like a big commitment. But apparently commitment is what both McKenna and Alphamedic clearly have in mind with regards their Georgian future. The Alphamedic man plainly states that he and his company want to build “a lasting legacy.”
“We would love to make it long-term. Alphamedic is looking to build a strategic relationship with the Ministry of Health and the Partnership Fund – to be the partner of choice when it comes to developing medical infrastructure projects,” he says.
However, AlphaMedic Consortium is also a commercial organization, so it will obviously also be looking for return in investment. As things stand, the cluster project is a joint venture project together with the Partnership Fund- 40 percent of the project funding is covered equally by the Partnership Fund and Alphamedic, and the remaining 60 percent would be taken from the bank. McKenna is convinced that there would be no shortage of potential lenders. He backs it with the extensive financial and market analysis his company carried out, regarding the risks, ahead of the project.
“Our solution is financially viable. That’s all cold hard numbers, no emotion. We’ve done a lot of modeling, from both financial and operational perspectives. It’s a forecast with very prudent predictions and assumptions. And it tells us that the demand is there,” he says.
His optimism is hard to argue with as he rips through the potential challenges and setbacks with the self-belief of a man who’s been there, done that. And he clearly has faith in his Georgian colleagues, too.
“Two fundamental pillars that the project needs to be built on – the logistics know-how and the funding, which are already there,” he says. “We are confident in our Georgian partners, in their integrity and transparency and in their commitment to positive development. With all projects of this sort, normally, bureaucracy is your worst enemy, and the only antidote to that is decision-making, and we believe it’s here in this case.”
Bureaucracy really might not be a problem, and both the previous and incumbent governments have strived to ensure that much. Not so rosy in other areas though – a ruthless oligopoly is just about the kindest description of Georgia’s pharmacy market you might hear these days and some of those are already voicing discontent in fear of what government might come up with next. McKenna says they will listen – and theoretically, cooperate with – only those who offer value for money. “It’s not just a business,” he declares. “We aren’t just looking to make money, as many other providers do, we are beyond that. We want to be strategic partners for the government and people of Georgia.” He says they will be trying to employ local companies and people at every opportunity and every stage of the project.
“It works for us as well – local people understand the situation on the ground better than we do. So, for example, when we start with the construction competition, we will be looking at the companies here in Georgia.”
Expect high standards and prerequisites. And a thorough examination of a job done, too. McKenna and Alphamedic clearly aren’t the kind that turn a blind eye to sloppy work. Very much on the contrary, Alphamedic will be employing international assessment teams to ensure that everything is “as it was stated in the contract”. This is, for example, a routine procedure with the hospitals.
“Before the hospital is accepted by the PPP Company, we will have independent verification that it has been built according to the specifications stated in the contract- a professional third party assessment carried out. We’ll announce a competition on that as well, to get the best possible price.” states McKenna, stressing that the ultimate focus of the project is to improve the overall healthcare situation and the primary care in particular. Hard to argue with that – no less than 247 primary care facilities are attached to this project, which would significantly improve the health situation of communities, especially in the regions.
To summarize, what are the benefits of PPP and why is it good for Georgia?
“The biggest benefit of PPPs is that they are performance-based and generally result in better value for money. Because you have competitive tension at all stages of the supply chain. It guarantees the cost-effective solution and accelerates the delivery. 96 percent of the PPP’s finish ahead of or on time as, in case of a delay, they will have to start repaying the bank, while the government doesn’t have to,” McKenna said. “And on the other hand, if they finish ahead of time, they get the money with a nice interest rate and don’t have to pay the bank before it’s due, so it’s a significant saving. With respect to the operational period, which is 25 years in our case – we build it in 3 years and we operate it for 25 years – during this period, if the hospital doesn’t meet the standards envisioned in the contract, the PPP Company has to fix it with its own resources, otherwise it will not get paid. So all of these risks, which currently sit with the public sector, are transferred to the PPP.”
Vazha Tavberidze