Public-private partnership: options for healthcare facilities development
The implementation of public-private partnership (PPP) projects has recently enjoyed increased interest from both the state and private investors. This is evidenced by numerous statements by senior government officials, a number of regulations adopted for this purpose, as well a list of priority investment projects approved by the Government of Ukraine.
The need to attract investment in the economy, along with the impossibility of full transfer to private ownership (privatization) of facilities with the extraordinary social and economic role, requires from the state more flexible approaches. As a result, the Ukrainian Government has taken a number of steps to establish and expand the scope of public-private partnership.
Oleksii Bezhevets, partner, Legal Alliance
Yuliya Belinska, lawyer, Legal Alliance
In the field of healthcare, the medical reform introduced in Ukraine should have led to a reform of the healthcare system, including the provision of quality medical services by healthcare institutions and their proper provision with facilities and equipment. However, government programs do not allow to fully achieve these goals, primarily due to the limited state budget in the field of healthcare. As a result, PPP as a form of cooperation between the public and the private sectors by attracting investment in the network of healthcare facilities, against the background of increasing funding for the industry and its acquisition of market characteristics, is an interesting option for both investors and hospitals.
Healthcare reform has changed the approach to the principles of healthcare institutions funding. However, due to the chronic lack of budget funds, achieving radical changes along this line is almost unattainable. Therefore, PPP, as a tool for attracting private investment in a socially important sector of the economy, and as a form of cooperation between the public and private sectors can be a mutually beneficial step for all participants.
The Scope of PPP
A literal interpretation of the main legislative act in the area of PPP understands PPP as a form of cooperation between the state and the private sector. A private partner can be both a Ukrainian and a foreign investor.
PPP can be implemented in various legal forms: concessions, property management, joint activities, etc. The most common form of PPP in Ukraine, given the legal framework and already gained experience in implementation, is a concession. Thus, according to the Ministry of Economic Development, Trade and Agriculture of Ukraine (hereinafter - MEDT), as of today, 34 concession agreements are being implemented in Ukraine.
Legislation that regulates PPP relations in Ukraine consists of a number of regulations, the main of which are:
- Law of Ukraine "On Public-Private Partnership" 42404-VI dated July 01, 2010
- Law of Ukraine "On Concession" 5155-IX dated October 03, 2019
- Decree of the Cabinet of Ministers of Ukraine "Some issues of the organization of public-private partnership" No.384 dated April 11, 2011
- Decree of the Cabinet of Ministers of Ukraine "On approval of the Methodology for identifying risks of public-private partnership, their assessment, and determination of the form of their management" No.232 dated February 16, 2011
- Order of the Ministry of Economic Development and Trade of Ukraine "On approval of Guidelines for the application of the Methodology for identifying risks of public-private partnerships, their assessment and determining the form of their management" No.944 dated June 07, 2016
- Order of the Ministry of Economic Development and Trade of Ukraine "Some issues of analysis of the effectiveness of public-private partnership" No.255 dated February 27, 2012
- Decree of the Cabinet of Ministers of Ukraine "On approval of the Methodology for calculating concession payments" No. 706 dated August 12, 2020
Thus, the legal framework regulating PPP projects in Ukraine is actually formed, which creates real opportunities for the implementation of investment projects in Ukraine.
To the general provisions of the PPP, which apply regardless of the chosen contractual model, should be included:
- Competitive selection of a private partner.
- The PPP term, in the vast majority, is from 5 to 50 years.
- Mandatory investment in the PPP facility. Possibility to secure the ownership of the invested movable property to a private partner.
- The need to balance social and private goals in a PPP project
By a general rule, the main principle of choosing a private partner is the evaluation of bids by the local council or MEDT. At the same time, the legislation protects the interests of the initiator of the PPP project. Thus, if the application for participation in the competition was submitted by several applicants, the initiator retains the preemptive right to enter into an agreement.
In case of submission by one person of an application for participation in the tender, the parties to the project only agree on the terms of the future agreement.
The long-term nature of the relationship, enshrined in the contract, allows to count on the stability of investment, get a return on investment in the real future, and guarantees the fulfillment of obligations of parties to each other.
In the healthcare area, investments can be implemented through the performance of works/provision of non-medical services (construction/reconstruction of premises, technical re-equipment, their maintenance or operation, etc.) or the implementation of such functions as planning and management, provision of specialized/highly specialized medical services, medical equipment maintenance, etc..
The interests of a private partner are usually implemented through the provision of paid medical services at the expense of the PPP facility. The public partner, in turn, receives the newly created or re-equipped PPP facilities, while retaining them in its ownership. The public receives much higher quality medical services.
PPP project implementation procedure
The process of successful project implementation is quite complex and long-term. On average, the term of preparation for the conclusion of the contract, according to the terms established by law, is 9-18 months, and contains the following stages:
1. Submission of a feasibility study to local authorities
2. Analysis of PPP project implementation effectiveness
3. Decision-making on the PPP project implementation
4. Documentation (draft contract) approval by the tender board, holding the tender, and determining its winner
5. Signing a contract.
Possible PPP forms in healthcare
We see the following two forms of PPP in healthcare as the most promising:
- Joint activities
- Concession agreement based on the existing center for healthcare services
Based on the joint activities contract. The division of rights and obligations of the parties under such an agreement is quite complex, as is the subsequent accounting of activity results. After all, a municipal or public healthcare facility remains an entity (licensee) that provides healthcare services and receives funds from the state or individuals, having an investor as a partner.
The advantage of this form for the investor is the limited liability of the private partner mainly for making investments in the PPP facility (technical re-equipment, repair, construction of premises, maintenance of medical equipment, etc.). Disadvantages of this form include the investor's dependence on the integrity of the management of the medical facility (in particular, in terms of return on investment at a profit), legal restrictions on the provision of paid healthcare services, and the inability of the investor to enter into direct agreements with the National Health Service of Ukraine.
In the case of a concession, the parties to the agreement are a private partner, local government (the representative body of the community - the council), and a medical facility (today it is mainly MNE - municipal non-profit enterprises).
The advantages (from the point of view of the investor) of this form include obtaining an existing communal (public) property for use by a private partner, the possible involvement of medical facility staff in the PPP project, subjectivity in relations with the state (NHSU) and private consumers of healthcare services. The community will eventually receive quality medical services and, after the expiration of the contract, a modernized/repaired/built medical infrastructure facility.
Legal Alliance: Legal support of investment projects in healthcare