The São Paulo government opted to turn over the new hospitals to private nonprofit operators to address the problems described above. The PPP model it chose included an open competition to identify the best operators to take over the facilities.5 The winning operator would enter into a 5-year renewable operating contract with performance specifications, which in turn were linked to payments.
The contractual agreement specified provisions regarding the use and maintenance of the newly built facility by the operator. Bidders were required to organize their operations as nonprofit social organizations, or organizações sociais de saúde (OSSs)-a new form of "public interest" organization created by law in 1998. Significantly, the OSSs were incorporated under civil law, which made them legally independent and therefore not bound by public contracting, civil service, or procurement laws. Because only nonprofit organizations could bid, operators are universities and philanthropic organizations that already operate other hospitals.6
Between 1998 and 2005 São Paulo ran competitive bidding for 16 new facilities. The facilities are general hospitals, averaging 200 beds and offering basic specialties: surgery, gynecology and obstetrics, internal medicine, pediatrics, and psychiatry. All maintain intensive care and neonatal units. Each facility offers emergency care, and most provide outpatient care. All are located in low-income neighborhoods in heavily urbanized municipalities on the periphery of the City of São Paulo.
Because the operators are private, they naturally have full managerial autonomy in decision making on inputs, managerial processes, and the day-to-day operations of public facilities.7 They are held accountable to the state government (and their boards) via performance contracts. The state has surrendered hierarchical control and direct management of tasks such as human resource management and input procurement. It assumes more arm's-length responsibilities related to contract negotiation, management, and performance monitoring.
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5 During the early years of reform implementation, selection of operators was through a semicompetitive process involving certification by the state.
6 State Law 846, Chapter 1, Article 1. Selection criteria included at least 5 years' experience in operating a hospital and possession of a governance board.
7 A table summarizing the characteristics of hospitals is available as an online supplement at http://content.healthaffairs.org/cgi/content/full/28/4/1114/DC1