Legal Regulation Of PPP In The Healthcare Sector Of The Republic Of Kazakhstan.
Legal News & Analysis - Asia Pacific - Kazakhstan - Energy & Project Finance
9 April, 2020
Main goals of PPP in the health sector
Currently, there is an uneven access of the population to medical services in Kazakhstan. In particular, this problem concerns access to quality medical services in rural and sparsely populated areas. In this regard, the issue of creating, modernizing and reconstructing medical facilities is being a hot topic in the last several years in Kazakhstan.
Development of private medicine, introduction of corporate governance, and promotion of the privatization of the state medical organizations are a part of the "national Plan-100 concrete steps". The objectives of the abovementioned measures are primarily to create and maintain the infrastructure and material base of health care institutions, to ensure the quality and accessibility of medical care based on modern advanced technologies and scientific developments, conduct clinical and laboratory research with the transfer of results to practical health care, ensure the quality of clinical training of university students and retraining of doctors.
Development of healthcare infrastructure will require significant financial injections, which is a burden on the state budget. At the same time one of the objectives of the PPP is to reduce the burden on the budget through the involvement of the private sector in the management of state assets.
The existing various state programs and strategic documents of Kazakhstan are aimed at developing cooperation between the state and the private sector for the implementation of projects in the health system. In particular, the state program for health development of the Republic of Kazakhstan for 2020-2025 provides for improving the provision of medical care, creating a single digital space for the healthcare sector, improving the investment climate in the medical industry, and effective management of state authorities.
Also, according to this program, it is planned to take measures for the implementation of 14 major PPP projects over the next seven years. In the messages of the President of Kazakhstan dated January 31, 2017 and November 30, 2015, it was announced that PPP should become the main mechanism for developing infrastructure, including social infrastructure and public-private partnership mechanisms should be used more actively to "unload budget” expenditures.
Main barriers to the development and spread of PPPs in the health sector
Based on the experience of countries that actively implement PPP mechanisms in the healthcare system, one of the main risks that can inhibit the spread of PPP is the long payback period of projects in the social sphere. In Kazakhstan, in addition to this risk, there are barriers as imperfection of the legislative and regulatory framework both at the level of general PPP legislation and at the level of legal regulations in the specific sector itself. Kazakhstan show progress in the work to eliminate many barriers that negatively affected the process of planning or implementing PPP projects. In particular, a significant number of legal barriers have been identified in the course of implementing PPP projects over the past few years. In order to eliminate such barriers, the legislation is being systematically changed and supplemented.
At the same time, there are also barriers in industry legislation that need to be addressed. For instance, lack of separation of tariffs for medical services within the guaranteed volume of free medical care for the costs associated with the provision of medical care and the costs associated with the operation and maintenance of facilities. This situation leads to duplication of budget payments for the same work/service for the PPP project due to the fact that when paying the compensation for operating costs to the concessionaire, such compensation also includes the cost of operating the facility.
Absence of an industry operator also makes it difficult to successfully solve many healthcare problems. The constant growth of demand for medical services faces a number of unresolved issues. For example, there is a lack of sufficient level of comprehensiveness in the management and development of infrastructure, and there is an uneven use of existing facilities' capacities. To resolve this, a number of countries oblige industry operators to monitor such issues, which allows to eliminate existing disparities in the development of social infrastructure between individual regions of the country.
Currently, full-scale amendments to the legislation of the Republic of Kazakhstan are being considered to establish the status of a single operator in the field of healthcare, determine its powers and the procedure for creating it.
Possible forms of PPP in healthcare
Based on a number of approved state programs, including the state program for the development of health care "Densaulyk" for 2016-2019, many forms of cooperation between the public and private sectors are presented, in particular, such as:
expanding the participation of private medical organizations in the provision of the full range of services included in guaranteed volume of free medical care (GVFMC) and compulsory social health insurance (CSHI);
transfer of certain types of medical and non-medical services (laboratories, radiological services, cleaning, food, purchase of tangible and intangible assets, maintenance of medical equipment, etc.) to long-term outsourcing;
transfer of Republican and local healthcare organizations to trust management of private companies, including foreign ones;
attracting private investment for the construction of health facilities under various concession models;
attracting private companies to provide equipment and efficient operation of medical
equipment, laboratory services and information systems in health care” and others.
However, based on resolution of the Government of the Republic of Kazakhstan dated November 6, 2017 No.10 "On approval of the list of objects that are not subject to transfer for the implementation of public-private partnership, including in a concession", health organizations that operate in the field of blood services and HIV/AIDS prevention (except for the purchase of medical equipment and their service) and organizations of disaster medicine cannot be provided to PPP.
The following main mechanisms are considered at the stage of planning of a PPP project in health care in Kazakhstan:
- infrastructure PPP without medical services which is an attractive mechanism for large projects;
PPP with medical services and without reimbursement of investment costs that might be attractive mechanism for small private projects under the “BOO” (Build, Own, Operate scheme) and
PPP with medical services and reimbursement of investment costs that can be appropriate for small and medium-sized projects under the “BTO” (Build, Transfer, Operate scheme).
Within the framework of current legislation and taking into account that private partners often reluctant to bear the risks of patient flow, infrastructure PPP without provision of medical services looks as the most attractive for the implementation of large projects in Kazakhstan.
This mechanism is not a new one, in many countries, including in Europe, the private sector finances, builds and maintains infrastructure facilities in PPP projects, while the public partner reimburses the private partner for capital and operating costs and is responsible for providing clinical services. Thus, the private investor is not responsible for the risks associated with the medical aspects of the clinic's activities.
The Minister of healthcare of Kazakhstan at the Government meeting on May 6, 2019 announced that it is proposed to amend the legislation for the implementation of PPP projects based on the infrastructure model based on the experience of Turkey. According to the Turkish PPP model, investors provide financing, facility creation, maintenance, and clinical support (x- ray and MRI services, laboratory tests, and room sterilization). The provision of health services is left to the public sector.
To implement a similar model in Kazakhstan the comprehensive changes to legislation, including the legislation on concessions and PPP, the Healthcare Code of the Republic of Kazakhstan and the law on state property were introduced in the end of 2019. Such amendments secure the grounds for introducing a medical operator into concession projects and implementing concession projects based on the infrastructure model, secure the mechanism for determining the medical operator by the state, its rights and obligations, and the procedure for interaction of the medical operator with the grantor and the concessionaire.
Currently, the Ministry of healthcare of the Republic of Kazakhstan is testing a new PPP model on potential PPP projects in healthcare. The practice of implementing such projects will help to identify what are the other barriers in the current legislation that prevent successful completion of the PPP projects in healthcare in Kazakhstan.
For further information, please contact:
Saniya Perzadayeva, Managing Partner, Unicase Law Firm