Country: India

Sector: Health

Name of Project: Upgrading Radiology Services in Andhra Pradesh

Contracting agency: Department of Health, Medical and Family Welfare, Government of Andhra Pradesh

Agency type: Sub-national; provincial government

Type of PPP: BOOT

Contract term: 7 years

Construction period: 8 months

Bid Parameter: Lowest tariff

Total cost of project: $7 million

Total Population served: An estimated 1.2 million persons over 7 years in the cities of Kakinada, Kurnool, Vishakhapatnam and Warangal

Basic specifications: Output based standards and specifications derived specifically for the project maintaining the most recent quality accreditation, compliance with Atomic Energy Regulatory Board (AERB) guidelines

Stage of project: The project is operational since 2010-2011

Time taken for processing project from concept to contract execution: 8 months

Local or foreign investor: Local investors, Wipro GE Healthcare Limited and Medall Healthcare Private Limited

Applicable legislation: Andhra Pradesh Infrastructure Development Enabling Act 2001, AERB Guidelines

Approving authority: PPP Committee in Government of Andhra Pradesh

Is the approval process the same as for other projects: Yes, the route followed is as follows: approvals within the Department of Health, Medical and Family Welfare followed by approval of the Government of Andhra Pradesh

Role of Private Party: Financing, building / upgrading radiology facilities, equipment including MRI and CT, operation and maintenance in 4 teaching hospitals in the state

Role of Public Authority: Setting standards and specifications, monitoring and verification of performance, contract management and making regular payments for referral patients

Financing: Equity and debt by private provider

Payment Mechanism: Payments made by the Department of Health, Medical and Family Welfare for low-income patients, user charges for non-referral patients

Tariff: Set by bid, INR 1700

Comparison to existing rates: The tariff for the PPP radiology services is at 50% of the average prevalent tariff in the market per scan; however some anecdotal evidence is reported that tariff in the surrounding markets did fall following the commissioning of the 4 diagnostic facilities

Government Support: Advisory work supported by the Dutch Technical Assistance Trust Fund, VGF of 0.6 million by state government with the help of DFID funding, monthly payments made to the private party by the state government, GPOBA subsidy

Other advantages:

•  Government can now enable treatment of a much larger number of patients (almost double the earlier number) with the same budget due to the low price of bid;

•  Since these facilities are attached to teaching hospitals, they provide good opportunities for students to acquire skills using sophisticated diagnostic equipment

Contingent liabilities created: Fiscal commitments are created but overall there are net benefits as compared to the situation prior to the project in terms of a larger number of patients treated.

Risks: Demand risk, payment risk, performance risk

Level of risk: Moderate

Key risk mitigating features: There is no escrow mechanism or letter of support of the Government. For demand risk, while no minimum level of demand has been guaranteed, it is mandatory for all public hospitals in the area to refer patients to the PPP project for diagnostic testing

Factors affecting decisions on the size of project or population serviced by the project: The project needs to be large enough to be viable and to realize sufficient revenues to cover investment and costs; therefore, 4 teaching hospitals catering to populations in four districts were brought together in one single project.

Lessons learned:

•  The project reduced long waiting lines

•  Resulted in getting in better skills as well as better maintained equipment

•  A policy framework and standardized documents could help scale up the projects

•  The project had high level champions and therefore, could be rolled out within a reduced time frame, however, it is important to institutionalize processes, produce standardization and encourage use of templates to reduce dependence on individual champions.

•  Availability of financing is not a problem for such projects. There are several health equity funds in India, so there is a lot of private equity looking for such projects

•  Cumbersome process of approvals for project needs to be shortened

•  Cumbersome process for approving and making payments to the private party, which needs some overhaul given that the initial payments to the project were delayed

•  Substantial upgrading work in the hospital environment was required before the equipment could be installed and used

•  There are capacity issues at the level of hospitals as they need to acquire currently non-existent contract management skills in order to ensure best performance

•  Governments need to aggregate and roll out such projects in the future whereby there could be a better effort at contract management

•  GoAP did not have the Rashtriya Swasthya Bima Yojana (RSBY)/ health insurance scheme to provide cover for the out-patient diagnostic services. It had Agrogyashree, which caters to in- patient services only; GoAP therefore took the burden of paying for all low income patients.