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PRIVATE SECTOR ENGAGEMENT IN

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DISCUSSION PAPER SEPTEMBER 2022
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Rafael Cortez
Meaghen Quinlan-Davidson
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PRIVATE SECTOR ENGAGEMENT IN PUBLIC HEALTH
SYSTEMS

Rafael Cortez and Meaghen Quinlan-Davidson

September 2022
 Health, Nutrition, and Population (HNP) Discussion Paper
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ii
 Health, Nutrition and Population (HNP) Discussion Paper
Private Sector Engagement in Public Health Systems

Rafael Corteza and Meaghen Quinlan-Davidsonb

a Senior
Economist, Health, Nutrition and Population Global Practice, The World Bank, Washington
DC.
b Consultant, Institute for Global Health, University College London

Paper prepared for the World Bank’s Health, Nutrition, and Population Global Practice under the
Advisory Services and Analytics (ASA) “Strengthening the strategic purchasing of health care
services to improve health system efficiency and equity” and supported by the Korean-World
Bank Trust Fund

Abstract: The aim of the literature review was to provide evidence on private health sector
engagement globally, with a specific focus on the South Caucasus. The analysis focused
on private sector engagement through the lens of policy dialogue, information sharing,
regulation, financing, and private sector provision, including performance and private
sector engagement modalities. Results showed that the private sector in Armenia,
Azerbaijan, and Georgia is heterogenous. Regulation aimed to increase health coverage
with quality services and increase the institutional capacity of the Ministries of Health to
collect and analyze data to know better how the private health sector operates and
promote private-public partnership to respond to public health challenges.
The creation of an autonomous health superintendence would help improve the
performance of the private sector: overseeing and supervising the service delivery of
private providers and ensuring a strong regulatory environment within countries with high
levels of out-of-pocket payments. This entity should enforce transparent behaviors of
doctor practices, licensing of physicians, and accreditation of private providers. In addition,
the South Caucasus countries can adopt a mix of payment systems with private providers
and establish arrangements that ensure a strong private-public partnership (PPP) in health
through well-defined contracts. Health facilities with management autonomy should also
ensure quality-based purchasing. PPPs would be an optimal way for the South Caucasus
to engage with the private sector. Political will, legislative environments and regulatory
frameworks, transparency, public sector capacity, complete and flexible contracts, and
broad stakeholder engagement are essential conditions to expand PPPs. Learning from
best practices globally and expanding research on how health systems create and
regulate mixed public-private services are also essential to improve quality, equity, and
efficiency of these systems, as countries work to achieve universal health coverage.
Keywords: Regulation, private-private partnership, universal health coverage, regulation
Disclaimer: The findings, interpretations, and conclusions expressed in the paper are
entirely those of the authors, and do not represent the views of the World Bank, its
Executive Directors, or the countries they represent.
Correspondence Details: Rafael Cortez, World Bank, 1818 H St., N.W, Washington,
DC 20433, USA; telephone: 202-458-8707; fax: (202) 522-0050, e-mail:
rcortez@worldbank.org; website: www.worldbank.org/hnp.

3
 TABLE OF CONTENTS

RIGHTS AND PERMISSIONS ...................................................................................... II

TABLES AND FIGURES ................................................................................................ 4

ACRONYMS ..................................................................................................................... 5

ACKNOWLEDGMENTS ................................................................................................ 6

INTRODUCTION............................................................................................................. 7

METHODS ........................................................................................................................ 8

RESULTS .......................................................................................................................... 8
COVID-19 ....................................................................................................................... 9
PRIVATE SECTOR ENGAGEMENT .................................................................................... 10
Policy Dialogue ......................................................................................................... 10
Sharing Information .................................................................................................. 11
Regulation ................................................................................................................ 12
Financing ................................................................................................................... 16
Private Health Sector Provision ................................................................................ 24
Hospitals .................................................................................................................... 28
Pharmacies ................................................................................................................ 29
Private Health Sector Performance .......................................................................... 30
MODALITIES OF PRIVATE SECTOR ENGAGEMENT........................................................... 32
Outsourcing ............................................................................................................... 32
Public-Private Partnerships ...................................................................................... 32
Hospital Privatization .................................................................................... 48
DISCUSSION AND RECOMMENDATIONS............................................................. 49

REFERENCES................................................................................................................ 51

Tables and Figures

Figure 1. Coverage of Public and Private Provision of Health Care in Europe (2018) .... 17
Table 1. Search Terms used in Database Search ........................................................... 8
Table 2. Health Financing in South Caucasus Countries (2018).................................... 18

4
 ACRONYMS
BRIC Brazil, Russia, India, and China
BLT Build-Lease-Transfer
BOO Build-Own-Operate
BOT Build-Operate-Transfer
BT Build-Transfer
BTL Build-Transfer-Lease
BTO Build-Transfer-Operate
CCG Clinical Commissioning Group
CHPI Centre for Health and Public Interest
CSU Commissioning Support Unit
EU European Union
GDP Gross Domestic Product
GP General Practitioner
GPPP Global Private-Public Partnership
LMIC Lower-Middle-Income Country
MAP Medical Assistance for the Poor
MOH Ministry of Health
MolDLPHSA Ministry of Internally Displaced Persons from the Occupied Territories,
Labour, Health and Social Affairs (Georgia)
NHS National Health Service
OECD Organization for Economic Co-operation and Development
OOP Out of Pocket
PFI Private Finance Initiative
PHCC Primary Health Care Center
PPM Public-Private Mix
PPP Public-Private Partnership
SDGs Sustainable Development Goals
SHA State Health Agency
SHCC Sindh Healthcare Commission
SHI Social Health Insurance
SPV Special Purpose Vehicle
SRAMA State Regulation Agency for Medical Activities
SSA Social Services Agency
UHC Universal Health Coverage
UHCP Universal Health Care Program
WHO World Health Organization

5
 ACKNOWLEDGMENTS

This report was prepared by a team led by Rafael Cortez (Senior Economist, HMNHN),
and Meaghen Quinlan-Davidson (Consultant, University College London). This report was
part of the products prepared for the World Bank’s Health, Nutrition, and Population Global
Practice under the Advisory Services and Analytics (ASA) “Strengthening the strategic
purchasing of health care services to improve health system efficiency and equity”
The main task as well as this report benefited from helpful peer review comments by
Moulay Driss Zine Eddine El Idrissi (Lead Economist, HECHN), Roberto Lunes (Senior
Economist, HHNGE), Olena Doroshenko (Senior Economist, HECHN), Elvira Anadolu
(Senior Health Specialist, HECHN), and Ahmet Levent Yener (Practice Leader, HECDR).
The team is grateful to Jane Brodie for her editorial services.
The authors are grateful to the World Bank for publishing this report as an HNP Discussion
Paper. The work was possible thanks to the generous financial support from the Korean-
World Bank Trust Fund.

6
 INTRODUCTION
1. The fundamental goal of each country’s health system is to ensure the health
and well-being of its citizens so that each individual is able to actively engage in
social and economic activities in good health (Franken et al. 2013). Yet, the strain that
health care systems face to guarantee access to and the quality of health services, while
controlling costs, has increased over time. This has been attributed to the changing
disease burden (toward chronic diseases), increased demand, financial crises,
demographic shifts, and migration due to political and economic instability (Abuzaineh et
al. 2018; WHO 2020). To address these challenges, countries have increasingly engaged
the private sector through the implementation of mixed (both public and private providers)
health care systems. In fact, health services and products delivered by the private health
sector have become essential to health systems in countries across the globe (WHO
2020). The private sector is perceived as providing greater health service access
responsiveness, increased financial resources, management expertise, and expertise in
technology and innovation (WHO 2018a6). Private sector engagement is promoted by
Goal 17 of the Sustainable Development Goals (SDGs) and toward the achievement of
universal health coverage (UHC) (UN General Assembly 2015).
2. Indeed, the shift in the disease burden and an increased demand for health
care services are expensive. According to Abuzaineh et al. (2018), it was projected that
government spending on health globally between 2010 and 2020 would increase by over
65 percent, with Organisation for Economic Co-operation and Development (OECD) and
Brazil, Russia, India, and China (BRIC) countries investing over US$3.6 trillion in
infrastructure alone. This has led countries to engage in innovative partnerships and
explore different ways to finance health care (Abuzaineh et al. 2018). Evidence suggests
that the private sector, in partnership with governments, donors, and key stakeholders,
has promoted and developed innovative approaches to health service delivery in many
countries (Bhattacharyya et al. 2015).
3. The private sector is heterogenous and can include formal or informal, for-
profit, or not-for-profit organizations, or qualified or underqualified individuals
(WHO 2020). According to the WHO (2018a), the private sector provides a mix of health
care services, goods, and supplies that are not owned or controlled by governments. This
can include medicines, financial and medical products, health care provider training,
support services, infrastructure, information technology, and direct provision of health care
services. The private health sector can also play a role in shaping countries’ health policy
(WHO 2018a).
4. Yet there are several challenges to engaging the private sector in health care
systems. Evidence suggests that governments, once they have engaged the private
sector in health systems, tend to focus on managing the public sector while ignoring the
private sector’s provision of services. The COVID-19 pandemic has illustrated the
importance of governmental regulation of private sector engagement. Effective
governance, with clear dialogue, policy frameworks, and contracting of private sector
engagement, is critical to the attainment of UHC. Well-developed, explicit strategies and
effective management of such strategies between governments and the private sector are
needed. These strategies should include sharing information and data between the public
and private sectors. This could include, for example, information on out-of-pocket (OOP)
payments, quality control, and access to referral services to ensure continuity of care
(WHO 2020).

7
5. The ways in which the private sector participates in the contracting of health
care services vary. The mixing of public and private services can be implemented in a
variety of ways. For example, “public financing can finance the private sector, private
financing can finance the public sector; contracts can be signed between public authorities
(regions, insurance funds, etc.) and private providers, contracts can be signed between
public hospitals and private clinics; private practice may be developed in public hospitals”
(Andre and Hermann 2008). At the same time, if insurance is mandatory within a country,
private sector organizations may supply the benefits. The processes involved in
privatization include deregulation, contracting, implementation of private organizations,
and an increase in cost-sharing and new OOP payments.
6. Given the important role that the private sector can play in providing access
to and in the quality of health care services, as well as toward the achievement of
UHC, it is critical to identify and understand how countries are engaging the private
sector. This requires a better understanding of the private sector within health systems.
This information can then be used to inform effective interventions (Mackintosh et al.
2016). As such, the current report aims to provide a literature review on private sector
engagement in health care globally, with a specific focus on the South Caucasus
(Armenia, Azerbaijan, and Georgia).
METHODS
7. A narrative literature review was carried out to identify private sector
engagement within public health systems. The review was conducted using Pubmed,
Web of Science, Medline, and Google Scholar, focusing on global and regional,
specifically the South Caucasus, literature. The search terms used in the database are
provided in Table 1 and articles were included if they were written in English. References
were also found by scanning the references of included articles and gray literature.
RESULTS
8. Of the 343 references identified in the database search, 120 full-text articles
were identified, of which 13 were included from the database search and 38 were
additional gray literature in the review. Results according to private sector engagement
themes are described in Table 1.

Table 1. Search Terms Used in Database Search

Private Stewardship Engagement Contract
sector in health
Private Engagement in Private Insurance Licensed
sector health expenditure providers
unlicensed
providers
Private Health service Primary Service Contract Public- Health
sector provision health modalities private care
facilities partnership
Health service Secondary Hospital
delivery health
facilities
Private Engagement in Commercial Market
sector health market incentive
Private Pharmaceutical Health Supply
sector Medicines products chain

8
 COVID-19
9. Since the onset of the COVID-19 pandemic, countries have been increasingly
engaging the private sector to respond to health needs. For example, the National
Health Service (NHS) in the United Kingdom has been managing all private inpatient
facilities and COVID-19 patients. In Spain, all private hospitals were nationalized to
combat the virus, and in Lombardy, Italy, private providers were engaged in the initial
COVID-19 surge (O’Hanlon and Hellowell 2020).
10. Despite this increase in private sector engagement, there are policy
challenges to ensuring that the private sector is aligned with each country’s
national response. Some of these challenges include (a) engagement of the private
sector in preparing the national response; (b) limited sharing of data between the private
sector and the government on private sector resources and capacity; (c) explicit defining
of inputs to ensure that the private sector is effectively responding to the pandemic; (d)
weak health systems and the regulation of the private sector; (e) uncertainty about
governmental financial planning, provision, and reimbursement to the private sector for
services and products rendered; and (f) financial losses to the private sector incurred by
the pandemic (O’Hanlon and Hellowell 2020).
11. In Armenia, the Ministry of Health (MOH) has facilitated access to health care
for COVID-19. The package of services covered by the government has expanded to
include all COVID-19–related care, including testing, telemedicine, and case
management. The clinical pathway for COVID-19 care has been described, including
detection of suspected cases by primary care physicians; care for cases that are mild or
asymptomatic at the primary health care level; and referral to inpatient care for severe
cases, older patients, symptomatic pregnant women, and patients with comorbidities.
Primary care physicians are required to make two calls per day to patients to determine
the need for a change in management, and services are monitored through the e-health
systems. The selection of providers and suppliers reflects consideration for service
delivery needs. The MOH has specified the service requirements for COVID-19 treatment
and designated nine medical centers with a total of 1,700 beds for case management, all
of which are publicly owned. Children under 18 years and pregnant women are transferred
to designated health facilitates, four of which are private. The MOH has developed
technical specifications for equipment needed for COVID-19. Following a call for volunteer
nurses and medical students, the MOH is facilitating retraining to ensure competence in
managing COVID-19 cases. The MOH has implemented changes in provider payment
methods to incentivize conversion of hospital beds to intensive care beds, protect the
health of vulnerable groups, and mobilize surge human resources for health capacity.
Hospitals, which are routinely paid per case, are reimbursed on a per diem basis for each
hospital bed involved in COVID-19 care provision. Specialized centers that care for
COVID-19 cases among children and pregnant women receive special tariffs. Physicians
who are mobilized to provide care receive bonuses (Chukwuma et al. 2020).
12. In 2020, due to COVID-19, Georgia’s Ministry of Internally Displaced Persons
from the Occupied Territories, Labor, Health, and Social Affairs (MolDLPHSA)
signed a memorandum with the United Nations Development Programme (UNDP) to
support the Georgia Medical Holding to manage public health care facilities. This has also
included introducing a clinical quality assurance mechanism. The Georgia Medical Holding
currently manages five health care facilities, and its aim is to provide management
expertise to publicly owned hospitals (UNDP 2020). At the same time, the World Health

9
Organization (WHO) supported the government of Georgia to develop and expand primary
health care (PHC) services through training on essential health services and preparing
and strengthening the health system (WHO 2021).
13. The WHO is working with the Azerbaijan government to prepare and respond
to COVID-19. It launched, in collaboration with the Heydar Aliyev Foundation, MOH, the
State Agency on Mandatory Insurance, and the Administration of Regional Medical
Divisions, the REACT-C19 Project. The aim of this project is to share medical expertise,
reform the hospital response, and use digital platforms and innovative solutions. The WHO
also implemented the Solidarity for Health Initiative funded by the European Union (EU),
which provides technical assistance to the government in procuring and delivering key
equipment and medical devices (WHO 2020).
PRIVATE SECTOR ENGAGEMENT
14. Historically, public health systems engaged the private health sector through
large vertical health programs. According to the WHO, there have been three waves of
private sector engagement: (a) linking of social marketing techniques to social goals,
within a range of contexts (i.e., seat belt campaigns in the United States); (b) global
private-public partnerships (GPPPs) (i.e., vaccine development); and (c) implementation
of market systems within the health sector. Additional waves of private sector engagement
have focused on addressing global health commitments, responding to country needs,
and ensuring participation of new actors in the health sector (WHO 2020).
15. WHO (2018) defines private sector engagement as a partnership between the
public and private sectors toward the accomplishment of a specific target. This
requires effective governance to guarantee access to and quality of care as well as
financial protection. It also requires that the private sector commits to the public sector
health goals as set by the government. Private sector engagement includes the following:
(a) private actors to support the development of public health policy as well as ownership
and contracting arrangements, (b) use of regulatory and financing tools to influence private
sector behavior, and (c) transfer of “private features” to public sector organizations. (WHO
2018a).
16. There are five domains for effective private sector engagement: policy dialogue,
sharing information, regulation, financing, and public provision of services, proposed by
the WHO (2020):
Policy Dialogue
17. Governments should actively engage the private health sector in dialogue and
national health plans to ensure participation and obtain input on national health
goals. In a landscape analysis of private sector engagement of 16 lower-middle-income
countries (LMICs) (with the highest overall utilization of private health providers), Albania
and the Kyrgyz Republic explicitly mentioned “private health sector” or “private sector” in
their national health strategic plan or national health policy. These countries have also
included a specific objective for private sector engagement.
18. In Afghanistan in 2008, the Ministry of Public Health launched an initiative to
oversee, regulate, collaborate, and build the capacity of the private health sector
(Cross et al. 2017). The government wanted to align the private health sector with national
health goals by improving quality of services and products, efficiency, and garnering
greater funds for the health system. This involved developing intragovernmental
relationships, public-private dialogue, and private sector partnerships. It also included the
establishment of the Office of Private Sector Coordination in 2009, which managed for-

10
profit health companies and the creation of a public-private partnership (PPP) unit for large
hospital PPPs. In its Strategic Plan 2011–2015, the government committed to regulations,
procedures, and specific policies to collaboratively engage and partner with the private
health sector. In 2013, the Office of Private Sector Coordination became the Directorate
of Private Sector Coordination within the Ministry of Public Health. The Information and
Communications Desk for Private Providers was established in 2015 to simplify the
licensing of private providers. An evaluation of the directorate between 2012 and 2014
found improved capacity in strategic planning; work and monitoring and evaluation plans;
communication; and staff responsibilities, roles, and satisfaction. Some of the identified
challenges included a lack of financial resources for monitoring and evaluation plans,
decisions not made based on monitoring and evaluation data, and inadequate
management of information and records. Similar results were found for an evaluation of
the PPP unit (Cross et al. 2017).
19. In Armenia, engagement with the private health sector has increased since the
early 1990s. The MOH submitted a document to the government in 1994 outlining
privatization of health care facilities. Almost all pharmacies, medical technical services,
and large medical centers are privatized and are under private sector companies
(Torosyan et al. 2008). It is not clear how the government has been and is currently
engaging in policy dialogue with the private sector; the State Health Agency (SHA) works
with private providers (Chukwuma et al. 2020).
20. In Azerbaijan, private health care was legalized in 2001. The MOH licenses the
private sector but does not formally regulate it with strong installed mechanisms.
(Richardson 2013). The mechanisms by which the government has engaged in policy
dialogue with the private sector in Azerbaijan remain unclear (Hohmann and Lefevre
2014).
21. Georgia began a decentralization and privatization process of health care in
the early 1990s. By 1996, distribution of medicines was privatized, and health insurance
was privatized in 1997 (Hohmann and Lefevre 2014). However, the challenge of installing
formal mechanisms through which the government engages in policy dialogue with the
private sector is not clear yet.
Sharing Information
22. The sharing of information between the government and the private sector is
critical to ensuring effective health systems and services. This includes engaging the
private sector in the government’s health strategy and within existing health information
systems and ensuring that the private sector is collecting and providing data to these
systems. For example, this could include data on the planning and allocation of health
resources, utilization of private health services, disease surveillance data, and the
coordination of health services. The Kyrgyz Republic and Armenia both have national
health information systems that include private providers (WHO 2020b).
23. There are several challenges to private sector engagement and for sharing
health information. Evidence suggests that private health providers lack motivation to
collect and contribute data to health information systems. This is due to a lack of training
on collecting and analyzing data and reporting to health information systems and a lack of
time and incentives (Buchner et al. 2019; Tan et al. 2019; Wandera et al. 2019). The
limited evidence available on private sector engagement in health information systems
has found variation in implementation, reporting systems, and the health information data
collected and provided. These challenges have a negative impact on governmental
regulation and financing of the private sector, including paying providers. They also limit

11
understanding of private sector engagement and its accountability to the health system
(Barber, Lorenzoni, and Ong 2019).

24. In Armenia, the National Health Information Analytical Center collects and
analyzes routine data from both public and private health facilities. Evidence shows
that not all private facilities are included in the database. At the same time, the SHA
collects information on finances and activities from contracted health facilities. Some of
the challenges to this system include collecting data more frequently, updating,
streamlining, and verifying data quality (Richardson 2013).
25. In Georgia, the MolDLPHSA has prioritized the development and health
sector’s use of integrated information and technology systems. The aim is for the
Social Services Agency (SSA) to selectively contract health care providers based on
performance and quality of services delivered. Under the inpatient and outpatient
Universal Health Care Program (UHCP) and vertical programs, electronic reporting
systems were gradually launched between 2014 and 2016. A national cancer registry was
launched in 2015. The Georgian Birth Registry was launched in 2016 to monitor antenatal
and obstetric services and expanded in 2018 to cover children ages 0–5 years. As of 2017,
hospitals in Tbilisi had piloted electronic medical records; however, they had not been
scaled up at the national level. Yet, deregulation, decentralization, and privatization have
led to a mix of health information solutions for private insurance and private providers. In
fact, communication between the systems has been limited (Richardson et al. 2017).
Other challenges to the system include limited staff capacity for data analysis, a lack of
analytical tools, a lack of motivation to collect and share the data in a context of
decentralization, and private organizations in the health system. Registration of the cause
of deaths is also limited (Cortez 2020; Richardson et al. 2017).
26. Azerbaijan has experienced fragmentation in its data collection and analysis.
Health care providers do not have the capacity or are not motivated by government
policies to collect and analyze data. There is also weak enforcement of the private sector
reporting on its procedures (Ibrahimov et al. 2010).
Regulation
27. To improve access, quality, financial protection, and health outcomes,
governments can regulate the private health sector through administrative and
bureaucratic controls, including licensing, registration, and pricing of services and
products. This can be achieved through incentives and economic signals (Barber,
Lorenzoni, and Ong 2019). Other types of regulatory approaches that governments can
use include “market supply-oriented approaches, consumer/citizen-oriented approaches
and collaboration-oriented approaches” (Bloom, Henson, and Peters 2014; WHO 2020).
In an analysis of 18 countries, evidence suggests that to control market entry of the private
health sector, Albania, the Kyrgyz Republic, and Armenia have a standardized registration
and regulation process of private providers and private pharmacies. The Kyrgyz Republic
regulates service and drug pricing, while there is weak evidence on Armenia and Albania
enforcing these regulations (WHO 2020).
28. Regulation is defined as “statutory rules laid down by the government or
government-appointed agencies, and also self-regulation implemented by professional
bodies.” Regulation can include contracting, provider payment systems, accountability,
and quality improvement (Barnett and Hort 2013; Ensor and Weinzierl 2007; Montagu et
al. 2016; Morgan and Ensor 2014).

12
29. Regulation of the private sector is critical, as evidence suggests private health
sector failures in the implementation of health services and products. This includes
charging exorbitant prices for health care services, excessively ordering unneeded
diagnostic tests, having inequities in coverage of health services, monopolizing the
pharmacy industry, and providing fake and harmful medicines (World Bank 2012; Marriott
2009; Montagu et al. 2016). conducted a systematic review of private sector engagement
and experience with health system interventions in LMICs. They outlined four approaches
that governments can adopt to engage and regulate the private sector while addressing
these challenges (Montagu et al. 2016).
 Prohibition: This entails forbidding some or all components of the private
health sector. For example, prohibiting health service provision by
unlicensed providers. To guarantee prohibition, countries need to have the
capability to enforce these restrictions as well as have social support in
favor of these restrictions. According to Montagu et al. (2016), low-income
countries may not have the resources to monitor or prohibit the private
sector from practicing, whereas middle-income countries may have more
resources to enforce and audit private health sector restrictions. Complete
prohibition of the private health sector is uncommon.

 Constraints: This involves regulating and limiting some private health

provider activities. This can begin with dialogue and voluntary activities,
and where required, can move to mandatory or statutory constraints (World
Bank 2012; Marriott 2009; Montagu et al. 2016). Statutory constraints, for
example, can include regulation of medicines, equipment, human
resources, and quality of services. They can also include constraints on
licensing and registration of clinics, health facilities, hospitals, medical
products and supplies, and health care providers, as well as price gouging
and monopolies (Bloom, Henson, and Peters 2014; Ensor and Weinzierl
2007; Kumaranakyake et al. 2000). Regulating and enforcing constraints is
challenging in LMICs due to lack of resources and monitoring capacity.
Evidence suggests that this form of regulation can increase the cost of
services, particularly in poor communities (Attanayake and Siyambalagoda
2003; Wafula et al. 2013) and lead to corruption within the private sector
(Wafula et al. 2013). There is limited evidence on countries introducing,
implementing, and improving regulations (Chalker et al. 2005; Chuc et al.
2002; Montagu et al. 2016; Sax and Marx 2014; Sheikh, Saligram, and Hort
2015; Stenson, Tomson, and Syhakhang 1997; Wafula et al. 2013),
although it appears that constraints have prevented an ungoverned free
market (Montagu et al. 2016). For example, health care providers tend to
have some form of qualification and hospitals some form of accreditation,
and medicines are often sold in specific places (Goodman et al. 2007).

 Encouragement and subsidizing: This component involves governments

promoting the uptake of key health interventions and the improvement of
quality through the use of positive supply-side incentives. For example,
training private health care providers (Morgan and Ensor 2014; Shah,
Brieger, and Peters 2011); promoting tax incentives to increase investment
and reduce the price of services and products; creating a social franchise
network for private providers (Montagu 2002); providing subsidies; and

13
 promoting the social marketing of commodities that have high public health
value (Montagu et al. 2016).

 Purchase: This entails governmental purchase of private goods and

services, using contracts. These can include construction and operational
models for the provision of health care services (Coelho and O’Farrell
2009; Llumpo et al. 2015; Montagu and Harding 2012). The private sector
may be able to invest, build, and expand facilities quicker than
governments; it may also be able to provide specialized services that the
government cannot provide. At the same time, governments can also
promote the use of vouchers among patients as a way to indirectly
purchase services (Montagu et al. 2016).

30. The aim of regulation is to control provider behavior while guaranteeing

accessible, acceptable, equitable, and quality health services that are aligned with
a country’s health sector goals (Akhtar 2011; Morgan and Ensor 2014). A lack of
regulation can lead to poor quality of care (Morgan et al. 2016). One way to regulate
private health providers and guarantee the provision of qualified and competent staff is
through the use of certification. Health care providers can obtain certification after meeting
a set of standards (Harding 2003; Morgan and Ensor 2014). These standards must be
enforced and monitored. Accreditation is another way of regulating the quality of private
health services (Posnett 2002).
31. Despite the importance of regulation, there is a lack of evidence on effective
regulation within health services, and experience from low-income countries has
showed poor government regulation (Montagu and Goodman 2016; Morgan et al.
2016). This is influenced by the structure of the public and private sectors within countries.
Changes to the quality, efficiency, and equity of health services within the public sector
will lead to changes in the private sector (Morgan et al. 2016).
32. Primary health care was privatized in Croatia in 1993. This involved privately
owned facilities providing health services through self-employed doctors (contracted by
the Croatian Health Insurance Fund and financed mostly through capitation) and private
practice within rented offices of county health centers. Private providers are regulated by
the MOH on the quality of care, with private health care providers continuously evaluated
on improving the quality of clinical and nonclinical services. The country has several
reviews of performance indicators, including wait times, duration of hospitalizations,
survival rates, unplanned readmissions, patient and personnel safety, personnel
satisfaction, infection control, patient rights, drug side effects, deaths, and autopsies
(Dzakula et al. 2014).
33. The Private Health Centers Regulation Law in 2012 in Afghanistan specifies
the regulations, procedures, and fees for the establishment, licensing, and
operation of all private hospitals, clinics, physical therapy, and radiology centers
(Cross et al. 2017). The country has experienced some challenges to the implementation
of this law, which has potentially undermined and discouraged private sector engagement.
These challenges included a commission within the Ministry of Public Health to review
and approve all private sector fee schedules, disproportionate monetary penalties for
violations, expensive licensing fees, strict personnel requirements, and high capital
guarantees. In 2013, standards were set and private sector providers were required to use
a checklist to ensure the safety and quality of services (Cross et al. 2017).

14
34. Health care services are decentralized in Pakistan (World Bank 2019). The Sindh
Healthcare Commission (SHCC) was mandated by the Sindh Healthcare Commission Act
No. VII of 2014. The SHCC has been tasked with strengthening the government’s
regulatory function through licensing, quality assurance, and banning of fraudulent health
services. To date, the SHCC has developed the Minimal Service Delivery Standards,
Sindh Service Delivery Standards, and Primary Health Care and Clinics Standards. As of
2019, the SHCC was also preparing to map public and private sector providers and to
determine a baseline for the standards of and access to quality care. Progress for the
SHCC has thus far has been positive; however, additional capacity-building in
organizational structure and human and financial resources is required to implement core
stewardship and regulatory functions. A shift in approaches is also needed, from a
traditional punitive government-dominated approach to regulation and toward a mix of
incentives and implementation of legislation approach, developed in collaboration with
multiple stakeholders. This could include strategies such as tax breaks, subsidies,
branding, accreditation, consumer awareness, and penalties, to ensure compliance and
encourage private providers to self-regulate. The Aga Khan University, in partnership with
the London School of Hygiene and Tropical Medicine and SHCC, has designed a research
project to test the response to innovative health care regulations in Sindh through a
participatory multistakeholder approach (World Bank 2019).
35. In Azerbaijan, the private sector is licensed by the MOH but is otherwise
independent. The licensing process in the country is transparent with information
available to the public. The MOH does not formally regulate the “status, structure, and
services provision of private health facilities.” According to Ibrahimov et al. (2010), the
MOH does not have an approach to regulate quality of care in private health service
provision. The government’s approach toward privatization is as follows:
 Improve transparency of financial flows in the health sector
 Mobilize additional financing resources through investments by the private
health sector
 Improve efficiency and effectiveness of health resources
 Improve quality and diversity of services and providers
 Increase choice and competition for health care users (Richardson 2013):
36. The Georgian health system has undergone several reforms since 1991,
mainly focusing on decentralization and privatization of health care provision and
management of funds (Richardson et al. 2017; Rukhadze 2013). Private health providers
predominate the system and experience limited regulation. Private health care providers
are independent in terms of ownership, governance, and management (Cortez 2020).
 Between 1995 and 2004, the country implemented a Social Health Insurance
(SHI) scheme, but this was abandoned due to insufficient financial resources
(Cortez 2020).
 By 2004, the government decided to focus on marketization, privatizing health
service provision, and purchasing and liberalizing regulation and supervision
of private insurance companies. The idea was that the private sector would be
more efficient than the public sector, and through competition the health market
would achieve greater efficiency and fairness (Cortez 2020).
 To complement this new approach, in 2008, the government implemented the
Medical Assistance for the Poor (MAP) program. Under the MAP program, a

15
 basic benefits package was made available to households living below the
poverty line. The Social Services Agency (SSA) paid private health insurance
companies and covered the benefits package for the poor while non-poor
populations financed their own health expenses and insurance cost (Cortez
2020).
 The State Regulation Agency for Medical Activities (SRAMA) is under the
MolDLPHSA; SRAMA is the regulatory agency responsible for issuing licenses
and permits to health care facilities and pharmacies and regulating health care
providers, medical devices, and pharmaceuticals (Richardson et al 2017).
 The Insurance State Supervision Service regulates the private insurance
industry. Insurance companies are licensed by the Insurance State
Supervision Service and are required to provide annual reports to the
government (Insurance State Supervision Service 2017).
 Since 2008, the private insurance industry was consolidated, and as of 2017
there are six private health insurance companies (Imedi L, PSP Insurance,
ARDI, IRAO, GPIH, and Alpha) (Cortez 2020; Richardson et al 2017).

37. In Armenia, licensing of public and private medical facilities is carried out in
compliance with the following: Decree 1936-N for medical facilities and Decree 1275-
N for dental clinics, polyclinics, and ambulatories. These standards address the structural
requirements for service delivery in terms of equipment, staffing, and infrastructure.
However, following market entry, reviews of licenses are rarely conducted. This may
inadvertently create incentives for health facilities to not maintain the standards for
licensing. There is also a need for regulation to guide the monitoring and enforcement of
quality standards in the private sector and prevent financial fraud and other abuses even
for private health care spending (Chukwuma et al. 2020).
Financing
38. This component refers to the availability of private sector funds from the
government and the arrangements agreed upon by the government over the use of
funds. Evidence shows that the private sector in many LMICs is financed through OOP
payments, with limited financial risk protection. When the public sector is not meeting the
health needs of its citizens, one way that governments can ensure that the population’s
needs are met is through strategic purchasing of private health services (WHO 2020).
39. In Croatia, the Croatian Health Insurance Fund is the sole purchaser of health
services and purchases all individual health services delivered by both public and
private providers. Primary care is provided mainly by private medical practices, while
almost all hospitals are publicly owned and managed. Mandatory health insurance
contributions made by employers and individuals are the main source of financing for
health and account for 76 percent of total financing (Voncina et al. 2018).
40. In Europe and the United Kingdom, health care financing is almost universally
government-managed, either through direct taxation revenue (the United Kingdom) or
through Social Health Insurance (SHI), which is semi-direct government-subsidized and
managed (Germany). European governments provide a health care safety net for most of
their citizens through SHI (Montagu 2021) (Figure 1). Meanwhile, most private health care
providers in Europe are paid either through tightly regulated SHI schemes or through the
national health insurance system (Orosz and Morgan 2004; Paris, Devaux, and Wei 2010;
Tchouaket et al. 2012). At the same time, OOP payments are low across European

16
countries, with 2018 estimates suggesting they represent 0.5 percent of total spending on
preventive care and less than 20 percent of the total health expenditure (Montagu 2021;
OECD Statistics 2020).

Figure 1. Coverage of Public and Private Provision of Health Care in Europe (2018)
120

100

80

60

40

20

Public (%) Private (%)

Source: Montagu 2021.

41. Table 2 shows health financing in the countries of the South Caucasus
compared to the entire region. As a percentage of gross domestic product (GDP),
current health expenditure is low in Azerbaijan (3.5 percent) compared to Armenia,
Georgia, and the region in its entirety. Compared to the region (17.7 percent), OOP
expenditure is high in all countries (84.3 percent in Armenia, 72.8 percent in Azerbaijan,
and 47.7 percent in Georgia). At the same time, external health expenditure (as a
percentage of current health expenditure) is high in Armenia (1.2 percent) compared to
the other countries and region (0.02 percent) (WHO 2018a). In Croatia, OOP spending
accounts for most of the private health expenditure and is the second-most important
source of health financing (Dzakula et al. 2014).
42. In Azerbaijan, the level of private health expenditure is difficult to determine
due to the following: A large proportion of informal payments and OOP expenses,
Inadequate reporting by the private sector and a lack of a national health accounts system
to identify health expenditures within the entire system (Ibrahimov et al. 2010).

43. Given that private providers are paid on a fee-for-service basis, they are
incentivized to have a large volume of services, with evidence showing there is
excessive diagnostic and laboratory service referrals. Fee-for-services are paid through
OOP or voluntary health insurance and set by each private health facility. In cities, the
private health sector is perceived as having better quality of care and an extensive
provision of diagnostic and laboratory services. As such, those who can pay will seek care
in the private sector (Ibrahimov et al. 2010).

17
 Table 2. Health Financing in South Caucasus Countries (2018)
Europe and
Indicator Armenia Azerbaijan Georgia
Central Asia
Current health expenditure (% of 10.0 3.5 7.1 9.3
GDP)
Current health expenditure per 1,036.95 633.56 795.90 2,968.91
capita, PPP (current US$)
OOP expenditure (% of current 84.2 72.8 47.7 17.7
health expenditure)
Domestic general government 12.3 26.5 39.5 72.5
health expenditure (% of current
health expenditure)
Domestic general government 127.96 168.07 314.08 1,701.61
health expenditure per capita,
PPP (current intl $)
External health expenditure (% of 1.2 0.7 0.5 0.02
current health expenditure)
External health expenditure per 12.62 4.23 4.26 1.32
capita, PPP (current intl $)
Source: WHO Global Health Expenditure database 2018.
Notes: GDP = Gross domestic product; PPP = Public-private partnership.

44. In Armenia, the institutional arrangements for paying for health services have
involved the Marz governments, the State Health Agency (SHA) and its Marz branches,
the MOH, donors, private health insurance agencies, community-based health insurance,
and service users through OOP payments—and a relatively small percentage of health
expenditure flows through voluntary health insurance, community-based health insurance,
and external donors. The territory of the Republic of Armenia is composed of ten marzes
(regions) and Yerevan city which is governed by the law on local self-government in the
city of Yerevan. Public administration in the marzes is governed by President’s decree
“On public administration in the marzes of the Republic of Armenia” and other legal acts.
Marz governors implement the regional policy of the government.
45. In 2018, to further pool risks, the government discussed the possibility of
administering the benefits package and civil servants’ package through private
health insurance companies. Private insurers would act as third-party administrators to
purchase services, while program beneficiaries would be randomly assigned to the
insurers. The insurers would then pay claims using previously established rates to a set
of providers chosen by the government (Lavado, Hayrapetyan, and Kharazyan 2018). By
2020, third-party purchasing mainly occurred through the MOH and SHA. However, there
have been challenges in defining institutional roles and decision rights for purchasing in
the country that facilitate accountability and the attainment of health system goals
(Chukwuma et al. 2020). The SHA still lacks several important aspects of modern payment
systems including effective gatekeeper and referral systems, limited managed care use,
lack of effective spending caps, and weak and limited regulation of private sector health
spending. The SHA is not a strategic purchaser, and because it is under the auspices of
the MOH, it is granted limited autonomy to initiate major initiatives such as budget program
changes. Every program budget adjustment must go through the MOH and the Ministry of
Finance. Furthermore, the funds it manages are too limited to pay incentives for finance
development/improvements. Benefits package funding is a small share of revenue for
private hospitals, and the SHA has no fiscal space for negotiation with providers.

18
Currently, the SHA does not have health or health system roles or objectives—as it is
narrowly focused on processing facility payments (Lavado, Hayrapetyan, and Kharazyan
2018).
46. In Georgia, in 2013, the SSA became the single purchasing agency while
private insurance companies stopped dominating the health market in the purchase
of the government-funded benefits package. The SSA manages service purchasing
for the Universal Health Care Program (UHCP) and 23 other vertical health programs and
uses a list of fixed prices for health care services. In 2017, the government excluded high-
income households from access to SSA funding, as they were expected to buy their own
insurance or pay for their services. This did not exclude an option for employers to
continue paying for health insurance plans of their workers. The government understood
that one factor for SSA entry in the health market was to stabilize the private insurance
companies’ generation of high-level profits (Cortez 2020; Rukhadze 2013).
Contracting
47. Contracting private providers is one way governments can negotiate and
improve the effectiveness of public funds. It also gives governments the opportunity to
better regulate the private sector by specifying certain conditions within the contract, such
as providing quality of care and becoming accredited. Contracting assigns responsibility
to the private health sector to deliver certain services and products. This gives the
government the opportunity to focus on stewardship (or monitoring contract performance)
over the private health sector and health financing. According to Rao et al. (2018), there
is mixed evidence on the impact that contracting has on private health sector performance,
including improved access to and utilization of health care services and improved health
outcomes.
48. To ensure equity of care, governments can incentivize providers through
voucher schemes that target underserved populations. At the same time, providing
high coverage for a core set of health services through pooled financing is associated with
wide-scale financial risk protection (WHO 2020, 2018b).
49. Rao et al. (2018) differentiates between two types of contracts: management
contracts, or those where the private health sector provides services within existing
government establishments, and service delivery contracts, where the private sector uses
its own resources and infrastructure to provide services (Rao et al. 2018). In an analysis
of 18 countries, Albania, the Kyrgyz Republic, and Armenia had in-service contracting of
the private health sector (regional or specific diseases). They also had publicly financed
health care for citizens and coverage of pharmaceuticals through public insurance. The
Kyrgyz Republic and Armenia covered private providers through public insurance. The
Kyrgyz Republic reported an established partnership with private sector engagement for
a tuberculosis program. The proportion of utilization of private sector medical providers in
Albania, the Kyrgyz Republic, and Armenia was 7.8 percent, 7.1 percent. and 4.5 percent,
respectively. In Albania, there were 450 private sector retail pharmacies (WHO 2020,
2018b).
50. Once services are contracted by the private health sector, it is important that
the government monitors and enforces these contracts. For example, Bosnia and
Herzegovina has near universal health care (Rakic et al. 2018; Rao et al. 2018). In 2009,
the Ministry of Health and Social Welfare passed a certification regulation to ensure
quality, safety, and trust of health services. In 2010, to increase access in rural areas and
quality of health services, the government began to contract the private health sector
through the provision of specialist services. In 2012, the government assigned an

19
independent agency to evaluate the private health sector’s compliance with these
mandatory standards. Evidence suggests large variation in compliance by specialist
practices, dentists, and pharmacies. Those that went through the certification process
reported doing so to improve management and provider confidence and safety. Those
that did not go through the certification identified the following challenges: costs, disruption
of services, and time. Despite being mandatory, there was low governmental monitoring
and enforcement, and this led to a lack of certification among certain pharmacies, dentists,
and specialist services (Rao et al. 2018).
51. In 2015, the Centre for Health and Public Interest (CHPI) investigated National
Health Service (NHS) England’s contracting out of services to the private sector
(CHPI 2015). At the time, over one-fifth of NHS England’s annual total health care budget
(approximately £20 billion per year) was contracted out to the private sector to deliver
health care services. In fact, the budget between the private sector and NHS trusts and
local commissioning bodies increased by 50 percent between 2009 and 2014 (from €6.6
billion to £10.0 billion, respectively). This included contracts with pharmacies, general
practitioners (GPs), and dentists, with the largest services outsourced to community health
services and secondary care. A total of 53,000 contracts were estimated to be between
NHS England and the private sector. The contracts were administered by about 25,000
staff at Clinical Commissioning Groups (CCGs) and local area teams, costing upward of
approximately £1.5 billion. CHPI posited that private sector engagement with NHS
England would increase due to the Health and Social Care Act of 2012, which requires
CCGs to put out a competitive tender for services. One of the main challenges highlighted
in the report, as identified by the Public Accounts Committee and by Monitor (the economic
regulator of the health care market), was NHS England’s lack of monitoring and
enforcement of these contracts. This is critical given the need to ensure quality and safety
of health services. This was attributed to a lack of information-sharing. In fact, service
commissioners did not know whether the private provider was adhering to the contract or
maximizing revenue by cutting back on the provision of services and products. In the
analysis, CHPI showed that 211 CCGs held over 15,000 contracts, with 2013–2014
expenditure on private sector contracts estimated at £9.3 billion (approximately 16 percent
of the £65 billion budget). At the same time, there was a lack of information on the number
of site inspections that CCGs had conducted on private sector contracts. The reason for
this was that CCGs contract out their monitoring function to Commissioning Support Units
(CSUs). As such, CCGs would not know the number of contracts or site inspections held.
52. Monitor also reported, in a 2013 study, that CCGs were reluctant to enforce
contract terms to not expend the limited financial resources available. In fact, CHPI
found that seven of the 15,000 contracts were terminated due to poor performance, 16
CCGs had imposed financial sanction on private providers, and 134 contract query notices
had been issued. Ultimately, this illustrated poor monitoring of services with limited
information on value for money and good quality and safe care. CHPI made several
recommendations including commissioning an independent audit of CCGs’ capacity to
monitor and manage contracts with the private sector; ensuring that CCGs are
accountable to enforcing the contracts with the private sector; and collecting and making
data about private sector contracts publicly available, including payment and performance
(CHPI 2015).
53. Following the breakup of Socialist Yugoslavia in 1993, the MOH reformed the
inherited primary care financing and organization models in Croatia. The Health
Care Act of 1993 combined three separate health insurance schemes under the Croatian
Health Insurance Fund. Budgets were replaced by capitation, with no fee-for-service

20
payments, and all citizens were required to register with individual GPs. In addition, the
MOH allowed for privatization of individual primary care doctors’ offices. Within several
years, most primary care doctors chose to become private entrepreneurs contracted
directly by the Croatian Health Insurance Fund because this meant better incomes
compared to health center salaries. By the mid-1990s, over 80 percent of private practices
in primary health care operated as microentrepreneurs in leased facilities. Health centers,
formerly exclusive providers of all primary health care services, with salaried employees
and public health functions, transformed into administrative organizations that leased
premises and organized some forms of care such as laboratory services, community
nursing, and radiological diagnostics (Vocina et al. 2018). This was abolished in 2002.

54. In 2006, the Voluntary Health Insurance Act outlined the provision of voluntary
health insurance by the Croatian Health Insurance Fund and private insurers. The
Croatian Health Insurance Fund contracts private health care providers. The insurance
fund is overseen by a governing council, comprising representatives from the insured
population, MOH, Ministry of Finance, the Croatian Employers’ Association, health
institutions, and private practices (private GPs). Over time, primary care practices have
become privatized. Private health insurers must be approved by the MOH and supervised
by the Croatian Health Insurance Fund. Although formally independent of the MOH, the
central government effectively controls the Croatian Health Insurance Fund since it
appoints its director and board of directors (on the recommendation of the minister of
health) and has the authority to dismiss them. The Croatian Health Insurance Fund is
responsible for managing the mandatory health insurance scheme and contracting health
care providers across all levels of care. As the main purchaser of health services, the
Croatian Health Insurance Fund plays a key role in establishing performance standards
and setting the price of services. The Croatian Health Insurance Fund is also responsible
for the distribution of sick leave compensation, maternity benefits, and other allowances
as regulated by the Croatian Health Insurance Act (Voncina et al. 2018). Concessions or
purchasing power parity (PPP) tenders for the provision of primary health care services,
between county governments and the private sector, were introduced in the country in
2009 with the new Health Care Act. All health care providers belong to the National Health
Care Network and PPPs are granted to primary care teams that operate outside of the
primary health care center in which doctors are salaried employees. The Health Care Act
was amended in 2012, where market prices were applied to health care centers rented by
private physicians. Every three years the Croatian Health Insurance Fund holds a
competition in contracting with individual and institutional health care providers, within the
scope of the Mandatory Health Insurance. The Croatian Health Insurance Fund, under the
agreed contract, pays for health care services. The contract includes the scope and
quality, requirements for cost accounting, and payment terms. Contracts conform to the
National Health Plan’s guidelines. Over the contract period, the Croatian Health Insurance
Fund monitors the execution of the contract, including the financial and medical aspects
(Dzakula et al. 2014). All providers in the public health network, regardless of public or
private ownership, are directly contracted by the Croatian Health Insurance Fund. The
Croatian Health Insurance Fund purchases primary care services based on contracts with
primary health care providers. Primary care providers are paid through a combination of
capitation and fee-for-service payments (called diagnostic therapeutic procedures), and
quality and performance bonuses, with the following elements: capitated amount per
enlisted patient (diagnostic therapeutic procedures codes used to report services
provided); fixed payment for running costs, such as heating and nurse’s salary; fee-for-
service payments for selected services (diagnostic therapeutic procedures codes); bonus
for quality indicators; and bonus for key performance indicators. The shift to capitation

21
payments and privatization of primary care offices were intended to provide physicians
with direct incentives to provide better quality and more efficient care, as patients were
expected to vote for both with their feet. At the same time, as gatekeepers, primary care
doctors were responsible for the influential role of coordinating and rationing the provision
of health care services. Patients were not allowed to access hospitals without primary care
referrals (except in emergencies), and only primary care doctors were allowed to prescribe
reimbursed medicines (Voncina et al. 2018).
55. In Pakistan, the Sindh Province has the highest concentration and utilization
of private sector health facilities in the country (World Bank 2019). However, the
private health care services provided are largely unregulated while holding over 80 percent
of the province’s health service infrastructure. Over 60 percent of public primary health
care facilities in Sindh are currently contracted (24 of the 27 districts) to People's Primary
Healthcare Initiative (PPHI), which currently manages over 1,013 primary health care
facilities. The PPHI Sindh is a PPP program of the government of Sindh. It was developed
in Pakistan to improve the delivery of primary health care services in public health facilities
that were understaffed, poorly resourced, and/or ineffectively managed. A 2011 third-party
evaluation of PPHI provided evidence for improvements in staffing; the availability of drugs
and equipment; and the physical condition of facilities, including the rehabilitation of
dysfunctional Basic Health Units (BHUs) that the PPHI had been operating since 2007. Of
the over 90 secondary health care facilities in Sindh, only 7 are currently contracted out
through PPPs. There are also existing plans to scale up the ambulance services in Sindh.
Other contracted entities include Indus Health Network, SINA, Aman Foundation,
Integrated Health Services, and Health and Nutrition Development Society. Overall, the
Sindh PPP Unit, in collaboration with the Department of Health, has actively embraced the
contracting of health services. Promulgation of the Sindh Public-Private Partnerships Act
2010, coupled with legislative guidelines and financing and procurement rules, was largely
a result of the urgency to improve service delivery post-devolution and to help reduce the
infrastructure and service delivery gaps within the limited resources available. Along with
these reforms came the establishment of the PPP Unit in the Sindh Finance Department.
The Sindh PPP Unit, in recognition of the commercial nature of PPPs, has also established
a viability gap fund to provide assurances to private sector partners that negotiated
subsidies or payments over the life of a PPP project and will be met according to
contractual obligations. Complementary to this, the Sindh PPP Act 2010 (Chapter V)
defines financing options for all PPP projects inclusive of construction/infrastructure and
equipment. However, some gaps remain in contract design—the overarching Sindh
outsourcing strategy needs further refinement, including more detailed operational
procedures for performance monitoring and payments schedules; performance-based
penalties are not completely developed; and finally, the issue of the assessment and
regulation of technology and related ethical concerns needs to be addressed. In addition,
to develop and implement a sound contracting and institutional framework, there is a need
to incorporate gold standard practices of contracting including precontract feasibility
studies, pricing analyses, competitive tendering and prequalification of bidders, adequate
costing, and terms of reference preparation of the contracts, as well as to put feedback
mechanisms in place. There is also no overarching strategy that fosters the growth and
development of the private health sector nor a framework/platform for developing a sound
working relationship between the public and private health care sectors. Other concerns
have to do with self-evaluation and a weakness in monitoring and evaluation, each
contractor is required to hire its own independent evaluator. Baseline assessments of the
contract that utilize District Health Information Software data have limited information
available for initial inputs, leading to difficulties in assessing performance. Another

22
challenge is that the process for the awarding of contracts is vulnerable to political
interference, and taxation levels are inhibitory for some private sector entities’ entry into
primary health care (PHC) service delivery, coupled with lower profit margins in the sector.
Diagnostic and laboratory service fees are the main component of fees charged in
contracted out facilities. The PPP Node is housed under the Department of Health and
currently has a staffing organizational structure of up to four people. The study findings
suggest challenges including delays in receipt of payments for contracted entities, with
biannual payment mechanisms using a single line budget transfer facility. Payment delays
have been attributed to difficulties in bifurcations of the budget. There is also a need for
more contracting in preventative programs, and unclear referral mechanisms between the
public and private sectors hamper primary health care service delivery (World Bank 2019).
56. In a literature review of public-private interactions in South Africa, Kula et al.
(2014) showed that contract development, management, and monitoring were weak and
failing. For example, challenges were found in contracts between hospitals and private
psychiatric hospitals. This included a lack of connection between performance and
payment as well as a lack of incentives to improve quality of care. Similarly, contractors
limited the quantity and quality of contracted-out district health services that failed to meet
public sector standards (Kula et al. 2014).
57. In Azerbaijan in 2010, the centralization of funds for health services was
discussed to provide greater health care provider autonomy and introduce
contracting as a payment mechanism. This included per capita payments in primary
care and case-based payments for hospitals. Private providers are not covered by state
treatment and diagnostic protocols. Insurance companies have mechanisms to control
providers’ behavior through utilization management. At the same time, the procurement
of private sector medical equipment is not regulated by the MOH (Ibrahimov et al. 2010).
Contracts to public and private providers include conditions of access, benefits plans,
payment mechanisms, information systems, payments, and investments, monitoring and
evaluation, and audits and incentives (Cortez et al. 2021).
58. In Armenia, the SHA contracts private hospitals and clinics for public health
services (Chukwuma et al. 2020). The SHA started operating in 1998 by contracting a
few providers in a pilot and scaled up operation nationally in January 1999 (Chukwuma et
al. 2020).
 The ongoing privatization agenda had implications for SHA operations. By 1993,
state health institutions had become semi-independent and able to generate
revenues (Chukwuma et al. 2020).
 In 1995, hospitals and polyclinics were permitted to provide private care in
addition to state-funded services, under the regulatory framework of private and
commercial firms (Chukwuma et al. 2020).
 The contractual arrangements between the SHA and providers were limited to
health services providers using the state’s property. The SHA also had limited
ability to supervise private enterprises and could only resolve challenges that did
not violate the independence of these enterprises. For example, hospitals could
set the terms of service and had discretion over investments of surplus income.
Also, the MOH continued to undertake centralized procurement of some
medicines and to define allocations for public health programs such as
tuberculosis, HIV/AIDS, and oncology. Where these public health programs were
financed by donor agencies, there were also reporting lines to these agencies

23
 from the MOH. The MOH continued to be directly involved in service delivery,
particularly of tertiary care (Chukwuma et al. 2020).
 Since 2017, third-party administrators have been contracted to carry out the
purchasing of services in the social package. This decision was made by a
minister of health who had led a private health insurance company. Under this
arrangement, the benefits, tariffs, providers, and beneficiaries continue to be
decided by the MOH, in line with broader health system goals, and this effectively
reduces the scope for competition among the private insurers. The functions of
the third-party administrators included helping beneficiaries navigate the health
system and processing claims. The ratio of benefits to insurance premiums was
fixed at 90 percent. Despite this target, there are still indications of inefficiency
and decreases in coverage (Chukwuma et al. 2020).

59. In Georgia, the SSA purchases all services, from both public and private
providers, under the UHCP (Richardson et al. 2017). The relationship between
purchases and providers shifted over time from an integrated model to a contracting
model. For the UHCP, the SSA purchases services from health care providers, while
private health insurance companies purchase services for those with voluntary health
insurance. Services are essentially provided by private providers.
 By 2013, most of the health care sector was private: approximately 80 percent of
hospital beds and primary care and outpatient specialists. Only a few hospitals
were part of the public sector (Smith 2013). Within recent years some of the
private hospitals have been taken over by the public sector (Nikuradze 2013).
 Most health facilities are autonomous and not under local government or
MolDLPHSA management. Health care workers are employed by these facilities.
Fee-for-service is the most common payment mechanism used by the SSA to
pay to health providers. In parallel, services not covered by UHCP and voluntary
health insurance can be directly purchased OOP (Cortez 2020).
 The state does not employ health care providers; rather, they are employed by
health facilities that are independent actors. The most common payment
mechanism is fee-for-service. Prices are controlled by those reimbursed by
private insurance companies (Richardson et al. 2017).

Private Health Sector Provision

60. Globally, health care delivery, from community services and primary care to
tertiary-level services, shows that the private sector is engaged in health systems
in a variety of ways, delivering services. The private sector is not necessary for the
delivery of national health services nor is it a barrier to an effective and strong national
health care system (Moisidou 2017).
61. Based on 2008/2009 data from the OECD (Paris, Devaux, and Wei 2010), the
provision of specialist care in European countries varied by solo private specialist
practitioners (9 of 22 European countries) and group private specialist practitioners
(3 of 22 European countries). Meanwhile government specialist services were
predominantly available in Italy, Portugal, and Spain (Group 2); Czechia, Finland,
Hungary, and Portugal (Group 3); and Ireland, Sweden, and the United Kingdom (Group
4). The United Kingdom and 15 of 22 European countries reported providing primary
health care through the private sector, including those with SHI and countries with national
health systems (Paris, Devaux, and Wei 2010).

24
62. Albreht et al. (2006) investigated the evolution of primary health care centers
(PHCCs) in Slovenia after health system reforms in the 1990s. A total of 57 PHCCs
were surveyed to understand the changes in health care for PHCCs—in services and
resources and the relationship between PHCCs and new primary health care providers.
Results showed a reduction in public health care providers as providers moved to private
health care provision. Health care providers reported that the introduction of private health
care services led to chaos and poor management under the MOH, specifically a lack of
coordination between the MOH and the municipalities as well as a lack of understanding
of the share of private provision and goals for the private sector. Health care providers
recommended a better definition of the responsibilities and conditions for private provision
as well as a revision of the contracting arrangements (Albreht et al. 2006).
63. A study of ambulatory services in Krakow, Poland, in 2004 (Chawla et al. 2004)
identified five types of private health care providers: (a) publicly financed family
medicine services; (b) OOP-financed specialist physician services provided by nonpublic
integrated health care units; (c) specialist ambulatory services provided in physician
private practices; (d) home visits provided by physicians; and (e) facility-based emergency
services. Approximately 35.1 percent of patients used the private sector in Krakow:
estimates showed that 18.5 percent of individuals used the nonpublic integrated health
care units while 14.5 percent used individual physician private practices. The private
health sector is organized either on an individual basis or through the nonpublic integrated
health care units (with two or more private physicians). The nonpublic units can be
established by one private physician, through a civil partnership or through corporations
(more than 15 private physicians) and foundations. Private practices have greater
management autonomy compared to the public sector. These services are organized on
a fee-for-service basis, although there has been evidence of private providers receiving
informal payments. About 52 percent of total OOP expenditure went to private sector
providers, with 26 percent going to drugs and 19 percent to nonpublic integrated health
care units (Chawla et al. 2004).
64. In Vietnam, in 2018, there were about 35,000 private clinics across the country,
nearly triple the number of commune health stations and regional polyclinics within
the public sector. Altogether, private health facilities account for 32.2 percent of
outpatient services and 6.3 percent of inpatient services provided to the Vietnamese
people. Some evidence also indicates that private health care is meeting the expectations
of the emerging middle-income class: in exit interviews at facilities in Ho Chi Minh City,
patients at private hospitals reported shorter waiting times, more comfortable amenities,
friendlier behavior by providers, and better consultations than those visiting public
hospitals (Le, Govindaraj, and Bredenkamp 2020).
65. In Croatia, provision of primary care is predominantly private, although
financing for primary care services is predominantly public. Care is provided in a dual
public-private system—by public institutions that employ doctors and nurses (primary
health care centers) owned by region and by private medical practices (single doctor
owner, who in addition employs one nurse). Private medical practices operate as
concessionaires, that is, regions award concessions or the right to offer primary care
services in the public system. Approximately 40 percent of primary care medical doctors
and nurses work in primary health care centers, while the remaining 60 percent operate
as concessionaires (Vocina et al. 2018).
66. Since the late 1990s, Armenia has significantly redesigned its health system.
To improve efficiency, access, and quality of health care service provision, the country
undertook institutional and structural reforms. The reforms included (a) strengthening

25
primary health care provision, (b) downsizing excess hospital capacity, (c) changing
provider payment mechanisms and introducing a purchaser-provider split, and (d)
improving targeting (Lavado, Hayrapetyan, and Kharazyan 2018). Health system policies
have concentrated on the design of the system, specifically decentralization, primary
health care, and family doctors, as well as on external financing, targeting equipment
purchasing and building renovation (Hohmann and Lefevre 2014). Households largely
incur the cost of health care, with OOP spending representing more than 50 percent of
total health care costs. This has led to citizens not seeking treatment despite service
provision being viewed as high quality. At the same time, the cost of medication is
exorbitant as almost all drugs are imported (Hohmann and Lefevre 2014).
67. Armenia made legislative changes to its health system framework that
permitted the establishment of private health practices. Health services were then
privatized via the transfer or sale of government facilities (Richardson 201315). Since 1993,
licensed doctors were also allowed to practice privately. Health system reforms led to fee-
for-service payments and a basic benefits package of free health care, becoming effective
in 2001. There are 29 categories of individuals who qualify for benefits package coverage,
ranging from the disabled, children under seven years, and pregnant women, to anyone
who qualifies for the Family Benefit Program (a social assistance program of unconditional
cash transfers to the poor) (Hohmann and Lefevre 2014; Lavado, Hayrapetyan, and
Kharazyan 2018).
68. The country has few officially registered insurance companies, with private health
coverage availed mostly by employers for their staff and not by individuals themselves. In
fact, private health insurance is not attractive for Armenians given informal payments and
high premiums (Hohmann and Lefevre 2014). In 2012, voluntary private health insurance
for corporations and individuals under the benefits package covered approximately 1.1
percent of the population (Lavado, Hayrapetyan, and Kharazyan 2018).
69. In 2013, the private health sector in Armenia included hospitals, diagnostic centers,
dental clinics, pharmacies, and medical universities (Richardson 2013). The MOH
contracts all health facilities through the SHA, which is in charge of paying the facilities
and monitoring their reports. The SHA purchases the benefits package from almost all
public and private providers in the country (Hohmann and Lefevre 201416).
70. The share of resources from employers/private ventures has grown over the last two
decades in the country from 0 to 2 percent between 2004 and 2014. OOP payments
remain the greatest source of the country’s health financing, ranging from 68 percent in
2004 to 51 percent in 2014. Meanwhile, public spending ranged from 24 percent to 30
percent over this time frame, respectively. It has been posited that it is unlikely that there
will be reductions in OOP spending unless there is a significant increase in public funding
to cover essential health services and/or a reduction in treatment costs through efficiency
gains in payment mechanisms (Lavado, Hayrapetyan, and Kharazyan 2018).
71. According to Armenia’s National Health Accounts, private health sector revenues
increased from 82.5 percent in 2015 to 85.1 percent in 2017. The nominal growth from the
private sector (employers, insurance payments, and household payments) in 2015 was
estimated at 119.7 percent. Direct payments to households increased by 19.7 percent,
insurance payments by 38.1 percent, and employers’ funds remained unchanged
(Davtyan et al. 2018).
72. By 2019, the following private health facilities provided the benefits package: 23
medical centers, 2 health centers, 5 hospitals, 1 polyclinic, 3 other primary care facilities,
7 diagnostic centers, 19 dental clinics, 1 sanatorium/rehabilitation center, and 5 facilities

26
that provide other services. At the same time, approximately 83 percent of private
providers have been contracted by the MOH to provide the benefits package services,
following the same procedure as the public providers. Health care providers not contracted
by the MOH are mainly private outpatient diagnostic centers and dental offices
(Chukwuma et al. 2020).
73. Azerbaijan’s health system has been engaging with the private sector. The
system has been privatized, leading to “multispeed health care,” with large oil companies
developing their own health system for their employees (under the authorization of the
MOH). In 2001, private health care was legalized. Doctors apply for licensing from the
MOH to form private practices, with most pooling resources with other doctors to cover
the cost of the establishment. As the public health system does not pay doctors well, many
doctors work part-time in the private sector (Hohmann and Lefevre 2014).
74. Evidence shows that there are positive benefits associated with company social
systems, as these can spill over to the rest of society through improved infrastructure
(Hohmann and Lefevre 2014). In 2018, evidence showed that private provision of health
care had increased. That same year, 500 private health care providers were estimated to
be in the country, including hospitals and outpatient clinics (Bonilla-Chacin, Afandiyeva,
and Suaya 2018).
75. However, despite the increase of the private sector in the health system, the public
health system is still centralized, with formal and informal fee-for-service payments.
Households incur a large percentage of health care costs, with evidence showing over 70
percent of households not being able to afford health services (Hohmann and Lefevre
2014).
76. Georgia has an active private sector in health. Medication production and
distribution were privatized in 1996, private health insurance legalized in 1997, and
specialist doctors could practice privately in the primary health care system in 1998. In
2003, almost all hospitals were privatized (Hohmann and Lefevre 2014). In 2006, the
Medical Insurance Programme for the Poor was launched to financially protect the poorest
20 percent of the population. This included a comprehensive benefits package but
excluded medication costs. OOP payments for medication are high. The Medical
Insurance Programme for the Poor was implemented by private insurance companies and
financed by taxes. For those not covered by the Medical Insurance Programme for the
Poor, private health insurance coverage is expensive, and only a minority can afford to
purchase private health insurance (Hohmann and Lefevre 2014).
77. In 2008, the law on Compulsory Health Insurance promoted private health insurance
among those able to afford it and a voucher system for free basic health care for the
poorest income quintiles in the country. That same year, the country saw an increase in
private health insurance companies and private hospitals, with the approval of the free
market policy (Hohmann and Lefevre 2014).
78. In 2011, the share of private health care expenditure in total health expenditure was
estimated at 78.8 percent with private spending on health care estimated at GEL 403
(Verulava 2015). By 2020, the share of private expenditure was estimated at 60 percent
(with OOP estimated at 55 percent) (Georgia Healthcare Group 2021).
79. In 2020, it was shown that private providers account for most of the country’s total
supply. The six largest competitors (all private) account for 35 percent of the total number
of beds in the country. In 2020, there were 609,000 private medical insurance packages
(Georgia Healthcare Group 2021).

27
80. Within the existing health system, doctors can “self-privatize” without changing
workplace or position. Within hospitals, head doctors in effect become company
managers. Public bodies do not regulate private or privatized hospitals. One of the
challenges to the system is that medical graduates do not have the resources to establish
a private practice. Due to these reforms, public funding for health care is low while health
care costs and OOP payments have increased, estimated at 70 percent of total costs in
2010 (Hohmann and Lefevre 2014).
Hospitals
81. Health care delivery is evolving across Europe and the United Kingdom, as
efficiency has become more important and outpatient services are provided in
clinics rather than in hospitals (Montagu and Goodman 2016; Zelmer 2013). Private
hospitals in Europe and the United Kingdom can be organized in the following groups:
 Group 1: This includes countries in which there is minimal difference between
public and private hospitals in terms of patient experience, services provided,
bed numbers, and bed stay duration; they are functionally equivalent and exist
in parallel. Health systems like this are based on Bismarck’s model of care and
financing. Countries that implement this model of care are Belgium, Germany,
Norway, Switzerland, and the Netherlands. About 60 percent of hospitals are
mostly private.
 Group 2: This includes countries in which the private sector is not universal,
and the focus of private provision is on outpatient services and lower-risk
hospital care, with fewer beds and higher bed turnover compared to
government hospitals (Chevreul et al. 2015). Countries that implement this
model of care are greatly influenced by the Bismarckian model and include
Austria, France, Italy, Luxembourg, Portugal, and Spain. About 40 to 60
percent of hospitals are mixed (public-private).
 Group 3: This includes countries where hospitals are more specialized,
smaller, provide fewer opportunities for inpatient stay, and are limited in
offering emergency, chronic, and inpatient services. This model of care was
influenced by social services in Eastern Europe and is based on the Semashko
model. This includes the Czechia, Estonia, Finland, Hungary, Latvia, and
Poland. About 20 to 40 percent of hospitals are mixed.
 Group 4: This includes countries in which there is an emphasis on national
social services and hospitals are mostly public. Management of the hospitals
is centralized and there are a limited number of facilities, with limited
competition. Private hospitals either do not exist at all or there are a minority of
them providing services not covered by the national insurance or to those
willing to pay for outpatient services. This model of care is based on the
Beveridge system and includes Denmark, Iceland, Ireland, Lithuania, Slovenia,
Sweden, and the United Kingdom. About 20 of hospitals are private. (WHO
2020b).

82. In Vietnam, the number of private hospitals reached 240 by the end of 2018 (up
from only 1 in 1996, 43 in 2005, and 182 in 2015), accounting for 14 percent of all
hospitals and 6 percent of all hospital beds nationwide. Currently, 50 of the 63
provinces have at least one private hospital, with an average of 1.7 private beds per
10,000 population. While the five centrally managed cities (Ho Chi Minh, Ha Noi, Da Nang,
Hai Phong, and Can Tho) account for 45 percent of private hospitals, the provinces with

28
the highest number of private beds per 10,000 population are Binh Duong, Vinh Long,
Thanh Hoa, and Nghe An (Govindaraj and Bredenkamp. 2020).
83. In Croatia, hospitals are predominantly publicly owned and managed; fewer
than 5 percent are privately owned. The central government owns tertiary care
hospitals. Ownership of other health care facilities is decentralized. Counties own
secondary care general and specialized hospitals (Voncina, L., A. Arur, F. Dorčić, and D.
Pezelj-Duliba, 2018).
84. In Azerbaijan in 2015, more than 50 percent of outpatient care visits across all
income quintiles occurred in both public and private hospitals. That same year, the
number of private hospitals was estimated at 656 (Bonilla-Chacin, Afandiyeva, and Suaya
2018).
85. In Georgia, the government holds regionalized tenders on hospitals to engage
the private insurance sector. The aim is to reform health infrastructure supply and
stimulate the construction sector. The private insurance company that wins the tender and
is chosen for the regionalized hospital is granted several years of monopoly on health care
provision to the population in that region. The privatization of the hospital sector led to the
construction of modern, multiprofile hospitals owned by private investors (Hohmann and
Lefevre 2014).
Pharmacies
86. The WHO (2020) conducted a 65-country analysis on inpatient and outpatient
care globally. This included Armenia, Albania, and the Kyrgyz Republic. In terms of the
proportion of inpatient and outpatient care from the for-profit private sector, Armenia
registered an average of 4.5 private medical providers (3.8 inpatient and 5.4 outpatient
private medical providers). Albania came in first place with an average of 7.8 private
medical providers (3.4 inpatient and 11.8 outpatient), followed by the Kyrgyz Republic,
with an average of 7.1 private medical providers (1.5 inpatient and 12.1 outpatient).
87. Community pharmacies are all privately owned, operated, and regulated in the
private market across Europe and the United Kingdom, with some countries restricting
certain types of ownership (i.e., corporate chains and franchise arrangements) (WHO
2020b).
88. Toward the end of 1990, pharmacies underwent privatization in Croatia. This
was due to a legislative act on private ownership within the health care system.
Privatization of existing state-owned pharmacies began with legislation that was passed
in 1996, wherein pharmacies could be leased to employed pharmacists who worked for
the pharmacy for at least three years. By 2014, approximately 66.5 percent of pharmacies
were privately owned (Dzakula et al. 2014).
89. The Georgian economy relies heavily on pharmaceuticals, as one of the
largest private employers in the country. In 2015, pharmaceutical expenditure was 38
percent of the total health expenditure (3 percent of the GDP) (MoLHSA 2018). The SSA
is the main importer of pharmaceuticals. Approximately 50 essential medicines are
covered by UHCP. Prescription medication for outpatient care is purchased by the patient
at full cost unless it is covered by UHCP or private health insurance. The following groups
are covered by UHCP with 50 percent copayment while all other UHCP beneficiaries (not
listed below) must pay for the prescription medication at cost (Richardson et al. 2017):
target groups are covered up to GEL 50 per year for the cost of prescription medication
(GEL 200 for pensioners), other pensioners GEL 100 per year, and children ages 0–5
years and veterans GEL 50 per year. Pharmaceuticals are costly in Georgia. The system

29
is inefficient as the cost is seen as one of the biggest barriers to accessing care. It can be
catastrophic for households and is one of the main barriers to coverage. The country has
experienced some improvements in access to medication; however, this has been seen
mainly in urban areas (World Economic Forum 2019). There is a push by the government
to increase coverage, as it expanded pharmaceutical coverage for those with certain
chronic conditions, intending to expand coverage to other groups and diseases. Generic
brands are not promoted by health care providers and well-accepted by patients, and the
government must enforce standards about pharmaceuticals (Chanturidze et al. 2009;
Richardson 2017). Pharmaceutical spending in Georgia is one of the highest in the world,
representing approximately 3–4 percent of the GDP (Hohmann and Lefevre 2014).
90. In Armenia, prices in private pharmacies (which predominate) are high by
international standards and limit access from households. There are no legal or
regulatory provisions regarding medicine prices, and the Armenian government does not
run an active price monitoring system for wholesale or retail medicine prices.
Pharmaceutical products are also subject to a 20 percent value-added tax (Lavado,
Hayrapetyan, and Kharazyan 2018).
91. In Azerbaijan, private pharmacies were legalized in 1997. Similar to Armenia,
medications are imported and expensive with the cost incurred by the individual (Hohmann
and Lefevre 2014).
Private Health Sector Performance
92. Morgan et al. (2016) conducted a literature review on private sector
performance, focusing on quality, equity, and efficiency as countries progress
toward UHC. The authors differentiated between service quality (staff responsiveness as
measured by patient satisfaction) and technical quality (provider competency, including
implementation of guidelines). The review found evidence that the private sector
performed better on service quality compared to the public sector (Basu et al. 2012; Bhatia
and Cleland 2004). Technical quality in the private sector, on the other hand, was poorer
in comparison to the public sector in Mexico, Nigeria, Perú, South Africa, the Lao People’s
Democratic Republic, Uganda, Vietnam, (Basu et al. 2012). Private providers often charge
OOP to individual clients, which leads to the exclusion of poorer patients and inequities in
health services. Despite this, poor people will use the private sector when there are gaps
in the provision of essential services in the public sector. These services, however, are
often provided by unqualified providers and are of poor quality (Basu et al. 2012; Morgan
et al. 2016).
93. Bathia ad Cleland 2004, and Bloom et al. 2014 found that the private, informal
sector provides most health care for poor people. In fact, in an analysis of 22 LMICs,
both poor and wealthy individuals are more likely to use the private health sector,
particularly informal providers including private drug shops (Prata, Montagu, and Jefferys
2005). This is attributed to their convenience, affordability, and accessibility for patients
(Sudhinaraset et al. 2013). The challenges associated with this are limited regulation over
informal underqualified providers, which contributes to poor quality of care (Mills et al.
2002) and poor efficiency within the health system (Hsu 2010). These challenges include
the use of brand name medicines versus generic; overprescription of medication, tests, or
procedures; wasting of medical supplies (Brugha and Pritze-Aliassime 2003); and a lack
of referral links between services and sectors creating further delays in diagnoses, repeat
diagnostic tests, and higher prices for patients (Basu et al. 2012; Morgan et al. 2016).
94. Provider performance is based on organizational objectives, staff
competence, and organizational size. Evidence shows that the quality of private and

30
public ambulatory health care in LMICs found little difference between the two sectors.
They both performed poorly in technical quality compared to public sector providers. They
also found that staff in the private sector had slightly lower competence than those in the
public sector (Berendes et al. 2011).

95. Many health care providers, particularly doctors, in LMICs practice in both
systems (dual practice) (Macq et al. 2001), with most of them trained in the public
sector (Ensor, Serneels, and Lievens 2013). Dual practice does affect the performance
of both the private and public health sectors. Challenges of dual practice include the
increase of patient referrals to the private sector. This can lead to increased patient costs,
lower quality of care in the public sector, absenteeism in the public sector, and increased
capacity to keep health care providers. Government regulation and market opportunities
play a role in this (Eggleston and Bir 2006; McPake et al. 2016; Morgan et al. 2016; Socha
and Bech 2011).
96. Private sector performance is also shaped by patient characteristics. Limited
health literacy, a lack of information about health care providers to patients, lower
socioeconomic status, limited education, and household and community preferences
affect the quality of health services (Ensor and Cooper 2004). Evidence shows that
tackling and reducing these barriers can lead to better patient choice, access, and quality
of health care in both the public and private sectors (Borah 2006; Morgan et al. 2016).
97. Albania has experienced several health sector reforms: the inclusion of private
service providers (for primary and specialty services), the complete privatization of
the pharmaceutical sector and dentistry, decentralization of primary health care
services, and the founding of the Health Insurance Institute (Gabrani et al. 2020). As
of 2019, there were 10 private hospitals, 229 specialized private diagnostic and laboratory
clinics, and 177 license outpatient medical centers and cabinets. The inclusion of private
health services has led to a lack of coordination with the national health system and
greater competition between the public and private sector. In a cross-sectional facility-
based survey of patients at 38 public health care facilities and five private health care
facilities; Gabrani et al. (2020) showed that coordination of care (p < 0.01) and prompt
attention (p = 0.03) were rated significantly higher among urban, public primary health
care services compared to private services. Meanwhile, private outpatient clinics were
perceived as significantly better on confidentiality (p = 0.03), quality of basic amenities (p
< 0.002), and autonomy (p = 0.07) compared to public services.
98. In Georgia, assessing quality of health care has been a challenge for the
country. The government must develop clear criteria to assess the quality of care at the
national and regional levels. Data collection and sources of information must be
developed. At the same time, there are no incentives to providers for the achievement of
goals or higher productivity. In this context, the SSA is considering the actions needed to
monitor quality of care as it begins to selectively contract facilities. With no monitoring of
performance, it will not be feasible to ensure value for money (Cortez 2020).
99. In Armenia, the MOH has committed to undertaking reforms to address the
barriers to access and quality of care. In the 2019 “Concept Note for the Introduction
of Universal Health Insurance,” there was a proposal to launch a health reform that
introduces Universal Health Insurance, which has been put forward for public review and
debate. In addition to the proposal to mobilize revenues for health through new taxes, the
Concept Note recommends selective contracting of providers to improve the quality of
health care and financial discipline. Also, performance-based payments that reward
quality will be implemented to incentivize better care (Chukwuma et al. 2020).

31
100. Azerbaijan faces challenges in the quality of health care services, with system
losses at the level of doctor’s services and availability and quality of drugs (Hohmann and
Lefevre 2014). Ibrahimov et al. (2010) stated that a 2008 Presidential Decree on health
financing reform was supposed to focus on contracts and performance-related payments.
There has been lack of evidence on the improvement of health system performance in
terms of financial protection, quality of services, and user satisfaction (Rechel et al. 2014).
MODALITIES OF PRIVATE SECTOR ENGAGEMENT
Outsourcing
101. Outsourcing is defined as the transfer of decision making and internal
activities and services from the public sector to the private sector, through short- or
long-term agreements or contracts (Rajabzadeh et al. 2008). Outsourcing has been used
to decrease government spending and increase efficiency (Pollitt and Bouckaert 2011;
Van de Walle and Hammerschmid 2011).
102. Historically, outsourcing to the private health sector was used for secondary
services such as cleaning and catering. However, evidence suggests that outsourcing
of services and supplies to the private health sector has expanded to include laboratory
services, surgeries, hospital planning, accounting, and information technology. For
example, in 2000, the UK government signed an agreement with the private health sector
to outsource approximately 150,000 medical procedures per year (Pond 2006). At the
same time, the UK government outsourced low-risk elective surgeries through
independent treatment centers. The private sector and the UK government signed a five-
year contract, which outlined a minimum number of surgeries that had to be performed
per year. Evidence suggests that instead of hiring overseas talent to provide services
through the private sector, private treatment centers were increasingly hiring NHS medical
staff (Pollock 2003).
103. The long-term outsourcing of services is also referred to as public-private
partnerships (PPPs).
Public-Private Partnerships
104. PPPs are a “a long-term contract between a private party and a government entity,
for providing a public asset or service, in which the private party bears significant risk and
management responsibility, and remuneration is linked to performance” (World Bank,
Asian Development Bank, and Inter-American Development Bank 2014). There is also
public-private mix (PPM), which usually focuses on diseases. This involves various
collaborative strategies including public-private (i.e., collaboration with the private sector
on national disease programs); public-public (i.e., collaboration with the public sector and
national disease programs); and private-private (i.e., local private providers collaborating
with a private hospital) (WHO 2020).
105. The aim of the PPP is to utilize the strengths of both the public and private
sector together and ensure value for money. The private sector is usually contracted
for over 15 years, managed by the government at the national or subnational levels. The
government takes control of the PPP at the end of the contract (Abuzaineh et al. 2018).
Critical to this definition is the financial, operational, and technical risk shared between the
private sector and the government. PPPs vary in their remit and services (clinical and/or
nonclinical) provided (IEG 2016). According to Ferreira et al. (2021), depending upon the
contract and its length, PPPs are subject to uncertainty; incomplete, rigid demands;
shared risk, rewards, and roles; some degree of public control over the project; and large
investments that are subject to opportunistic behaviors by the contractors and contracted.

32
106. With PPPs, the government’s role shifts from an investor and beneficiary of
infrastructure projects to a regulator, supervisor, and policy maker of the services
provided (Tabrizi et al. 2020). For example, Tabrizi et al. (2020) reviewed the role of
public and private sectors in PPP plans in primary health care globally. Evidence shows
that service provision (i.e., vaccination, diagnostic and treatment services, referral
services, health education, disease screening, and distribution of medicines and vaccines)
was the most common arrangement for private sector involvement, while financing and
management (i.e., coordinating, organizing, and managing a health service center) were
the least common activities. The public sector engaged in providing supportive activities
such as equipment provision, infrastructure, training, licensing, human resources, physical
space, and provision of medicines. Indicators most used to measure PPP success
included case detection and service coverage. Meanwhile, the least used indicators
included quality of care, satisfaction of both providers and users, and equity (Tabrizi et al.
2020).
107. Some countries establish a technical PPP unit or node within the MOH, in
addition to the PPP unit that is usually in place in other oversight ministries, to formulate
policy, standardize documentation, coordinate the relevant players, provide technical
support, raise awareness, and build the capacity of public officials. In addition, government
agencies (whether line ministries or subnational governments) require resources to
prepare and tender PPP projects, monitor project performance, and deal with unexpected
changes to projects during the contract term. Political will, private sector readiness, and
stakeholder engagement are also critical factors for health PPP projects (Le, Govindaraj,
and Bredenkamp 2020).
108. There are several health system challenges that the private sector, through
PPPs, can help the government address. This includes (a) building or renovating
infrastructure; (b) providing financial resources; (c) designing the services and
infrastructure; (d) ensuring better management skills for cost efficiency and quality of care;
(e) ensuring more expansive and efficient procurement and supply chains; and (f)
operating and expanding services, skills, and service capacity (Abuzaineh et al. 2018;
Barlow et al. 2013). It has also been argued that PPPs can enhance innovation in the
delivery of services and products and put health in all policies and improve self-regulation
(Abuzaineh et al. 2018; Parker et al. 2019). It is critical that the government actively
participates in designing the PPP and monitors and evaluates its effectiveness and the
private sector’s role (Ferreira et al. 2021). PPPs should ensure a lasting and real
improvement in the population’s health (Parker et al. 2019).
109. There are some challenges to PPPs and partnerships between governments
and the private sector. Some PPP projects may be so large and expensive that a limited
number of private sector organizations are able to bid on them, set up the project, and
manage over an extended period (Barlow et al. 2013). The private sector also may be able
to negatively influence the government and push its agenda (Parker et al. 2019). Another
challenge is the linking, or integration, of care models and ensuring that incentives
between all parties are aligned to ensure good performance (Barlow et al. 2013). At the
same time, the private sector, when unregulated, may provide products and services that
are harmful to an individual’s health (Parker et al. 2019).
110. It is also difficult to identify the size of the PPP health market given the limited
data available, the various models used, different stages of PPP development, and PPPs
that may be categorized under “social sector” projects (e.g., education) (Abuzaineh et al.
2018). In fact, according to an evaluation of PPP in health care delivery across the
European Union in 2012–2013 by the European Agency for Health and Consumers (EXPH

33
2014), results showed that there was a lack of availability of public information on PPP
investments. The information available was not standardized or reliable and there was a
lack of evidence on the cost-effectiveness of PPPs compared to public health care
services. In fact, the European Agency for Health and Consumers concluded that it is hard
to calculate value for money, or cost-effectiveness, of a health service as it requires data
on a defined patient population compared to an alternative. The agency recommended (a)
transparency on the government’s PPP obligations, such as contingent liabilities and
ripple effects through public lenders; (b) arrangements to ensure that the PPP is following
the same rules as the public sector on patient access, tariff, and OOP payments so that
there are no significant differences in patient experience; (c) ensuring appropriate
financing mechanisms, including an incentive structure for providers, as well as
management and follow-up; (d) appropriate policies for PPPs; and (e) ensuring evidence-
based health care, including provisions for monitoring and evaluation of the PPP. This can
be achieved through observational studies, using data from clinical practice such as
patient outcomes and cost-effectiveness (EXPH 2014).
111. According to some evidence, the United Kingdom and Australia are two
countries that have signed the most PPP contracts, representing approximately 15
percent of all infrastructure investments. For OECD countries, PPP contracts
represent less than 5 percent, while in European countries PPPs represent a little over 5
percent. In fact, the total value of PPPs within the European market (27 countries, Western
Balkans, and Turkey) was estimated at €12 billion in 2016 (Kosycarz et al. 2019). In 2018,
it was estimated that there were globally 600 health care infrastructure projects/assets,
with PPPs comprising the vast majority of these. Over 60 percent of these projects were
in Europe, with 15 percent found in North America and less than 5 percent in Sub-Saharan
Africa and the Middle East (Abuzaineh et al. 2018).
112. According to research from the University of California, San Francisco, and
PricewaterhouseCoopers (PwC) on PPPs, there are three dominant facility-based
PPP models. These will be explored in the sections below:
 Infrastructure-based model: renovating or building health care infrastructure
 Discrete clinical services model: expanding or adding service delivery capacity
 Integrated PPP model: comprehensive provision of infrastructure and services.
(Abuzaineh et al. 2018):

Tendering Process
113. Before the tendering process can begin, the potential project should first:
Conform to national PPP guidelines, demonstrate affordability, and establish that it can
lead to better outcomes compared to other alternative projects (Abuzaineh et al. 2018).

114. Once the project has been assessed and approved, the ministry in charge (i.e.,
the MOH) is authorized to solicit private sector interest through a competitive bidding
process (which usually requires separate technical and financial proposals). It is
recommended that the ministry be as transparent as possible in operating and managing
the tendering process. Each private sector organization should demonstrate cost of
finance in its bids. Some tenders may require that private sector organizations include the
participation of specific local partners and entities. In Lesotho, for example, an integrated
PPP model bid required the inclusion of local organizations in the contract as a way to
shift responsibility of the project to local partners over time (Abuzaineh et al. 2018).

34
115. A special purpose vehicle (SPV) may be developed at this time, forming one
bid. An SPV is a consortium of private sector organizations representing their collective
interests. As part of the contract, the SPV commits to (a) key project terms (such as date
of completion of design and construction activities) and (b) prespecified outcomes and
quality metrics for services to be provided during the contract term. In fact, an SPV is
simpler and less risky for the government to contract, as it requires only one contract.
When multiple private sector organizations are involved, the government must contract
each of them separately (Abuzaineh et al. 2018).
116. Risk, or the appropriate allocation of responsibility, is a critical component of
the PPP. The contract should explicitly state the roles and responsibilities of each partner,
including closely monitoring and managing risk. By shifting construction and financing risk
as well as operational risk onto the private health sector, the public sector can not only
diminish the potential for project delays and overrunning costs but also focus on
performance and contract management and improve the efficiency of costs and services.
There are several tools and payment mechanisms that the public and private partners use
to manage these risks. There are three main types of risk: General and financial risk,
planning/design and construction risk, and operating risk (i.e., clinical performance)
(Abuzaineh et al. 2018).

117. Before the tendering process, governments go through a series of PPP project
reviews to align the project with health plans and legal frameworks. For example,
financial planning should be conducted by the government to identify the fiscal impact and
risk of the PPP (i.e., capital expenditures, revenue drivers, and operating expenses). It will
help identify available revenue streams to cover government payments associated with
the PPP as well as the costs and benefits (Abuzaineh et al. 2018).
118. Vietnam does not have a single unified legal document that governs all
aspects of a PPP project. Rather, a PPP project is governed by an array of laws and
regulatory documents. The laws cover a wide range of issues, including investment rules,
enterprise management, land acquisition and valuation, construction, ownership of assets,
the PPP process, and fiscal management. In addition, there are regulations related to the
operation of a PPP project, for example, regulations on government incentives, tolls,
accounting, auditing, taxation, finance, contract management, monitoring, and dispute
resolution. The legal and regulatory framework for PPPs is still under development. Over
the past decade, the government has revised and amended the regulatory framework for
PPPs three times. In 2010, Decision 71/2010/QĐ-CP regulated the piloting of PPPs. In
2015, Decree 15/2015/NĐ-CP on PPP investment forms was promulgated and was
replaced by Decree 63/2018/NĐ-CP in 2018. In 2019, Decree 69/2019/NĐ-CP was
enacted to regulate payment for build-transfer (BT) projects. Vietnam's new Law on Public-
Private Partnership (Law No. 64/2020/QH14) (the "PPP Law") was ratified on June 18,
2020 by the Vietnamese National Assembly and came into effect on January 1, 2021. In
this changing environment, the only ministry that has issued a circular regulating PPP
projects within its sector is the Ministry of Transport. The MOH began developing a circular
regulating health PPP projects in 2016 but has not yet finalized this document (Le,
Govindaraj, and Bredenkamp 2020).

Contracts
119. PPP contracts employ a direct relationship between payment and
performance. They are critical to managing the PPP relationship. They explicitly detail
the roles and responsibilities of each partner as well as risk allocation. Contracts usually

35
include a single payment mechanism for infrastructure and services together. However,
sometimes infrastructure is paid separately from the variable costs of services. In general,
payment from the public to private sector does not occur until key terms in the contract
have been met. This usually incentivizes the private sector to deliver on time, while
meeting performance and quality standards defined in the contract. For service delivery,
contracts tend to include more complex arrangements, with payments linked to service
provision across the population, or through data on better health outcomes (Abuzaineh et
al. 2018).
120. Tools and mechanisms used to incentivize the private sector and its behavior
with planned outcomes include payment amounts, timing, and triggers. There are
four categories of payments:
 Availability payment: A fixed payment that covers the cost of infrastructure
and maintenance, It is a payment for making a hospital available to the
provider.
 Service payment: A variable payment based on the volume and type of
services and procedures performed.
 Capitation: A variable payment that aims to manage the overall health, and
the payment is made on a per person basis
 Payment penalties: Whereupon payment is delayed or reduced when terms
or expectations of the contract are not met. (Abuzaineh et al. 2018)
121. One way to minimize risk is for contracts to include specific details and
arrangements for each party, along with hefty penalties when changes are made
(McKee et al. 2006). Yet, evidence suggests that this can create problems when all phases
are bundled into one contract. With rigid contracts, identifying and implementing solutions
to problems that arise during the PPP become more complex to solve as the fee is placed
on the private provider. There is less space for private providers to include flexible design
solutions since the cost of changes falls on the private sector (McKee et al. 2006).
Evidence suggests that contracts should specify service quality ex ante or ensure that
performance indicators are being measured on an ongoing basis during the PPP to reward
or penalize service providers. At the same time, collaboration is critical between the public
and private sector; however, evidence suggests that many PPPs have noncollaborative
relationships. This has been attributed to differences in goals and values and an
imbalance in power between the public and private sector. It can also be affected by social,
political, and legal factors (Roehrich et al. 2014).
122. Provisions to monitor the PPP and private sector engagement are critical.
However, monitoring health care in a PPP is not as easy as in other sectors. Hospitals,
for example, are complex. Identifying all dimensions and capturing the scope and quality
of all of their services is enormous. There is also uncertainty associated with population
health and demand for health care as well as health technology development. This may
lead to costlier PPP than traditional public procurement. Ferreira et al. (2021) argue that
flexibility should be given to the private partner to ensure that innovative solutions to the
PPP are exploited. They argue that there are nine success factors for PPPs: stewardship,
coordination, regulation, incentives, capacity to support partnership, monitoring and
evaluation, high-level support and buy-in, harmonization and alignment, and innovation.
123. Parker et al. (2019) conducted a systematic review of evaluations of PPP
interactions and found that there is a lack of strong PPP evaluation on health. Existing

36
evidence on PPP evaluation has focused on public-private arrangements (Parker et al.
2019).
124. In response to public demand for transparency and accountability in Vietnam,
Government Decree 63/2018/NĐ-CP has established a mechanism to disclose PPP
project information throughout the project cycle. PPP project announcement, bidding
documents, and selected project contract information must be accessible to the public on
the national procurement website. Assigned state agencies must supervise compliance of
the investor and the project enterprise with their obligations as prescribed in the project
contract. However, there is neither a regulatory requirement nor a technical guideline for
public and private parties to monitor, report, and disclose project performance against key
performance indicators. Therefore, individual PPP contracts rarely set out an effective
performance monitoring system, and payment for the private operator is minimally linked
to performance. The MOH and provincial Department of Health have mainly relied on
regulation, licensure, and self-assessment to ensure the quality of PPP health care
providers. All health care professionals and institutions must be licensed to practice.
Hospitals are required to self-measure their quality against the MOH’s 83 quality criteria,
of which the majority reflect structural and nonclinical factors and are expected to report
to relevant health authorities for evaluation once a year. Quality criteria for preventive and
primary health services are not developed. Measurement of clinical process and outcomes
against key performance indicators is rarely carried out. The national health care
accreditation system is still underdeveloped, and only some pioneer hospitals have been
accredited against international standards. Patients hold health care service providers
accountable for service quality by voicing their complaints through different channels, such
as in face-to-face meetings, telephone hotlines with managers, or weekly patient council
meetings in the hospital. In addition, patients may send their grievances directly to health
authorities (provincial Department of Health and MOH) or Peoples’ Councils at different
levels. Patient complaints can trigger inspection visits by health inspectors, financial
sanctions, or revocation of medical licenses. Health care providers can be prosecuted for
fatal medical errors. The grievance mechanism is regulated in the Examination and
Treatment Law and applied to both the public and private sectors (Le, Govindaraj, and
Bredenkamp 2020).
125. Decree 63/2018/NĐ-CP specifies eight PPP contract types (which are also
proposed in the draft PPP Investment Law): build-operate-transfer (BOT), build-
transfer-operate (BTO), build-transfer (BT), build-own-operate (BOO), build-lease-transfer
(BLT), build-transfer-lease (BTL), operate-manage, and mixed. Internationally, the BT
contract is not regarded as a PPP because the contract duration is short, and the private
sector takes on limited risks and management responsibility. However, in the Vietnamese
environment, the BT contract is the most used contract type, accounting for 188 (or 56
percent) of 336 signed PPP contracts. BOT contracts are also common, accounting for 42
percent of the total number of signed PPP contracts. Other contract types including BOO,
BLT, and BT-BOT mixed contracts account for just 2 percent. No BTO, BTL, or operate-
manage contracts have been signed in Vietnam (Le, Govindaraj, and Bredenkamp 2020).
Health PPP project enterprises, like other companies doing business in Vietnam, are
required by law to comply with the Vietnam Accounting Standard, which guides how
revenues, expenses, the balance sheet, cash flows, and so on must be recorded. Unlisted
PPP project companies are not subject to internal audit practices (although many public
health institutions are), but PPP projects might undergo spot audits by the state audit
agency of Vietnam. So far, the audit agency has audited more than 80 BOT and BT
projects, including one BT project in the health sector. In many cases, the audit agency
has recommended reduction of a project’s total investment capital and shortening of the

37
contract duration. Vietnam Social Security is another key actor in financial accountability
relationships. Vietnam Social Security enters contracts with licensed health care
providers—both public and private—reimbursing them for certified services at negotiated
price schedules that link to the hospital’s technical capacity. To contain fraud and misuse
of health insurance funds, Vietnam Social Security uses an electronic medical review
system to scrutinize eligible services, drugs, and materials delivered by the health
facilities. This electronic system is connected to all contracted health care providers,
enabling Vietnam Social Security to process more than 176 million claims with total value
of VND 98,116 billion per year. Although the primary accountability role that Vietnam
Social Security plays is associated with financial control, its electronic medical review
system can strongly influence compliance with prescribed inputs and procedural
standards as well as performance accountability of health service delivery networks,
including health PPP facilities (Le, Govindaraj, and Bredenkamp 2020).
Public-Private Partnership Business Models
Infrastructure-Based Model
126. With the infrastructure-based model, the private health sector is contracted to
design, build, finance, and maintain health facilities. Components of the model include
infrastructure; financing; nonclinical services (i.e., cleaning, food service, parking,
reception, utilities, and waste management) and—where relevant—clinical support
services (i.e., radiological or laboratory services). It is the most common PPP model
globally. The United Kingdom’s Private Finance Initiative (PFI) is an example of this model.
It has also been implemented in Australia, Canada, Egypt, Italy, Japan, South Africa, and
throughout Latin America. The objectives of this model are to (a) provide financial
resources to the government for infrastructure projects; (b) renovate or build public health
care facilities, within a shorter time; (c) improve public health care system capabilities to
deliver quality services; and (d) increase efficiency and quality for clinical and nonclinical
services (Abuzaineh et al. 2018).
127. The private sector is contracted under this model for approximately 25–30
years to build, renovate, or replace public health infrastructure while maintaining
the infrastructure over the course of the contract. The private sector may also be
contracted to manage and deliver clinical or nonclinical services, where needed. They are
contracted to “(i) design; (ii) build; (iii) finance; (iv) maintain; and (v) operate”:
• The minimum risk involved in this PPP is to design and construct and be responsible
for maintenance costs as well as potential overbudget costs due to delays in
project completion. Given this risk, the private sector is incentivized to perform well
across the entirety of the project. Contracts usually provide an 18- to 24-month
completion of construction and/or renovation activities. The private sector is
incentivized to deliver on time and within budget, as the private sector is not paid
until its completion (Abuzaineh et al. 2018).
• Payment for the construction or renovation from the government to the private
sector, as outlined in the contract, usually occurs through an amortized annual
payment over the course of the contract, along with an annual maintenance
payment. This makes the project more affordable and provides the private sector
opportunities for long-term debt financing (Abuzaineh et al. 2018).
• For the provision of nonclinical services, the contract usually specifies that the
private sector is covered through a single, annual payment. These costs are
usually reassessed every five years to determine value for money. The private

38
 sector incurs additional risks to the cost and operation of these services as well
(Abuzaineh et al. 2018).
• The provision of clinical services is a more advanced form of this PPP wherein the
private sector hires staff and operates the services. This model provides a more
complex service delivery project for the government to manage when it engages
in the provision of clinical services (Abuzaineh et al. 2018).

The United Kingdom’s Private Finance Initiative

128. The United Kingdom began implementing this PPP model in the 1990s when
facilities were upgraded, and services expanded within the NHS. It is the most
common form of health care PPP globally. The project costs have ranged from US$15
million for a small hospital to over US$2 billion for several hospitals (Barlow et al. 2013).
129. The rationale behind promoting the PFI was to pass the risks onto the private
health sector, as well as ensure that health care infrastructure and services were
kept on budget and schedules were not delayed. Within the United Kingdom, the
private sector not only designs and constructs hospitals but also operates some services
(Abuzaineh et al. 2018; Andre and Hermann 2008; McKee et al. 2006).
130. The PFI is an SPV, comprising a group of companies; it typically includes a
bank, construction company, and a firm that manages the facilities. According to
McKee et al. (2006), the SPV enters into three types of subcontracts:

 One contract with the bank to finance the project

 One contract with the construction company to build the hospital
 One contract with the facilities management firm to manage the PPP over the life
of the contract (typically 25–30 years)

131. Once the facility has been built or renovated and is fully operational, the PFI
charges an annual fee over the 25- to 30-year contract term to the NHS Trust or
District Health Authority (Andre and Hermann 2008). The agreement within the contract
is that the government pays a defined amount from its revenues, and the private sector
maintains and manages the facilities.
132. A challenge to the PFI is keeping building costs low. As a result, there is a lack
of innovative building designs (i.e., improved work settings or therapeutic environment).
At the same time, evidence suggests that several UK PFI hospitals are experiencing
financial stress (Barlow et al, 2013). It was found a lack of peer-reviewed evidence on
PPP evaluation in the United Kingdom, as well as a lack of information on challenges
associated with inflexible contracts. For example, a PPP was implemented for a hospital
in Norfolk and Norwich; this evaluation showed how the arrangements were not quite so
clear regarding PPPs. Within this case study, there were concerns about patient safety
and fear of retribution for speaking out about the way things were organized. This
highlighted a lack of transparency and information-sharing (EXPH 2014).
Italy
133. Italy has the second-largest PPP market in Europe, after the United Kingdom.
The country has taken a decentralized approach to PPPs, meaning that standard models
do not apply. Rather, this approach provides an opportunity for the private sector to
innovate and customize solutions. Indeed, regions focus on increasing financial resources
to modernize and upgrade facilities as well as increase efficiency and quality standards.

39
Most of the PPP deals have been concentrated in the north of the country due to the
financial resources available. Despite this, evidence shows that clear, legal frameworks
and methodologies for evaluating the cost-effectiveness of the PPPs from the central
government would help determine whether PPPs are beneficial (EXPH 2014).
134. One example of a successful PPP, signed in 2004, was the Castefranco Veneto
and Montebelluna Hospitals. The overall value of the investment was estimated at €120
million for the private sector and €31 million for the public sector. The contract between
the Local Health Authority and Solo Hospital Services (a private company) focused on
modernizing the hospitals and nonclinical management of services. Within the contract, it
was explicit that there would be penalties levied against the private partner if it did not
meet performance standards set by the Local Health Authority. The contract also included
a commitment by the private partner to provide technological upgrades at 19.6 percent of
the fee paid annually by the Health Authority (EXPH 2014).
Sweden
135. Sweden tried to implement a PFI-like approach to the New Solna Karolinksa
hospital in 2008 (EXPH 2014). The government thought a PPP would bring certainty of
cost, certainty to deliver, and better value. As such the government held a preliminary
design competition to generate new and imaginative ideas for the future of New Solna
Karolinksa. It also had to address issues of adaptability and flexibility explicitly. This was
a departure from public PFI projects at the time, as most PFI projects are confined by rigid
contract structures that mitigate against future flexibility and adaptability. Swedish Hospital
Partners won the bid, which was a partnership between a construction company
(Skanska) and Innisfree, a UK private equity fund. The risk transfer was high within the
PFI model, and as such, there was a low level of participation. Instead of developing a
new PFI model, New Solna Karolinksa maintained the standard UK PFI model. As such,
New Solna Karolinksa withdrew from consideration (EXPH 2014).
South Africa
136. Netcare, a private health sector company, was contracted to implement six
PPP public hospitals. This involved the company investing in the physical infrastructure,
equipment, and fittings of the hospital infrastructure. It also involved including private
facilities in two public health hospitals. This resulted in increased revenue for the public
sector and profit for the private sector. An external review of Netcare showed significant
infrastructure investment, along with economic and social benefits. Through the creation
of jobs, this included economic growth and poverty alleviation. It also led to improved
efficiency quality of health care. The reasons why this PPP was successful were due to
understanding the motivation of both parties and meeting partnership expectations;
ensuring that the correct incentives are in place (e.g., the rental fee per month that Netcare
charged for using underutilized space in the public facilities); good contract management
of the interaction (which required good capacity and skills); and monitoring and evaluation
(Kula et al. 2014).
Turkey
137. The Adana Health complex entails the construction, operation, and
maintenance of an integrated health complex in Adana, a key health sector hub in
Anatolian Turkey. The health complex has a 1,550-bed capacity and comprises six
hospitals. Total project costs were estimated to be €500 million. Under the structure, the
winning consortium is responsible for financing, building, maintaining, and managing the
facilities and providing or coordinating medical support services, while the MOH will deliver
core medical services. The MOH will pay the private partner to use the facilities (availability
payments) and for services provided (service payments). By separating the service

40
payments from the availability payments, this model makes financing easier than if the UK
model were adopted. It does, however, mean that the government bears more risk and
must ensure that it has the means to manage that risk. The agreement includes debt
guarantees, compensation for early termination, and key performance indicators to be
achieved. The construction period was expected to last 36 months, followed by a 25-year
concession period. Following a transparent bidding process, an agreement was signed
between the MOH and a consortium in 2014. The health complex is now operational. This
is a pioneering project for the Turkish government’s Hospital Public-Private Partnership
Program (Le, Govindaraj, and Bredenkamp 2020).
Lessons Learned from the Model
138. Where governments lack the up-front financial resources or the expertise to
manage large health system projects, this type of PPP model is most relevant. The
public sector can then focus its efforts on managing the delivery of health services. With
infrastructure projects, it is easy to measure the opening of a new hospital (on time and
within budget) and garner the support of the community and government. These projects
also allow the government to improve the design and layout of health facilities as well as
increase efficiency and improve service delivery (Abuzaineh et al. 2018).
139. There are several challenges to this type of model: focusing on staying within
budget and within the time frame. This type of model also favors standard/preexisting
templates for large health facilities. This limits innovation for the private partner (Barlow et
al. 2009). Particularly for infrastructure-only PPPs, there are challenges with gauging
patient demand. Evidence shows that some hospitals are built for political reasons as
opposed to addressing patient demand. To overcome this challenge, governments should
link investments with projections of future inpatient need (PwC 2017). An additional
challenge is the evolution of health-related information technology systems and
equipment. This is particularly a challenge within rigid, long-term contracts. Lessons from
Latin America have shown that to overcome this issue, equipment should be bundled with
IT in the PPP contract (Abuzaineh et al. 2018; Llumpo et al. 2015).
Discrete Clinical Services Model
140. In the discrete clinical services model, the private sector is contracted to
deliver discrete clinical services such as specialty care or clinical support services
(Abuzaineh et al. 2018). This type of PPP is generally of short to medium duration (usually
less than 10 years) due to the life cycle of clinical equipment, although it can be extended.
Despite the shorter duration, contracts for this PPP focus on performance, maintenance,
or replacement of clinical equipment. For example, an asset-light model focused on
increasing service capability for specific clinical services. This model is being used
increasingly across India and Southeast Asia. Objectives of the model are to (a) mobilize
the involvement and resources of the private sector in the provision of health care; (b)
better the management of clinical service provision, particularly for high-demand, specific
services; and (c) improve access to and quality of clinical services (Abuzaineh et al. 2018).
141. The private sector is contracted by the government to operate and provide
certain clinical or clinically related services. For this type of model, the contracts come
in many forms due to the variety of services they provide such as diagnostic, laboratory,
dialysis, or other specialized services. Usually, the contract and its performance
management focus on the number of services provided and patients reached. The private
sector is contracted to finance, maintain, operate, and deliver services (Abuzaineh et al.
2018).

41
142. One of the benefits of this model is that it delivers targeted clinical services
and focuses on being “asset-light.” As a result, this reduces the complexity and cost of
the PPP. Compared to the infrastructure-based PPP, discrete clinical services are higher
risk, but they are lower risk compared to the integrated PPP model (Abuzaineh et al. 2018).
Examples of This Model
Portugal
143. The MOH and the Ministry of Finance share overall supervision of PPPs in
Portugal. PPP contracts in Portugal are under the remit of the Health System Central
Administration. The Mission Structure of Health Partnerships identifies PPP health
projects, while the Health System Central Administration coordinates and monitors the
implementation of the contracts. This is achieved through the nomination of a contract
manager (through a public tender, assigned by the MOH), who supervises the contract
and summarizes the information provided by the private sector. A monitoring committee,
which represents the public sector, is designated by the government to the PPP hospital.
It is responsible for formulating and renegotiating the contract, verifying that the private
health sector is complying with the contract and reporting on hospital activity. The
evaluation of clinical and nonclinical performances is under the remit of a user deputy. The
deputy drafts recommendations and supports the private sector to remedy issues that
arise. Legislations passed in 2002, 2003, and 2006 define the PPP arrangements as a
relationship between the MOH and private sector, where the private sector manages and
funds the PPP within primary, secondary, or continuous health care. The Ministry of
Finance regulates and controls the financing aspects of the PPP. The PPP also includes
self-evaluation of the private sector, which comprises 52 distinct performance indicators.
There is also a Court of Auditors, which is a public interest protector. It advises and
provides preventive supervision and judicial inspection activities, ensuring that the PPP is
within the government’s budgeting capacity (Pereira et al. 2021).

144. The country launched the first wave of PPP arrangements in hospitals in 2001
(Pereira et al. 2021). These included Sintra, Cascais, Braga, Vila Franca de Xira, and
Loures. Portugal’s Hospital Amadora-Sintra was a PPP but was returned to public sector
ownership. The hospital itself was built by the public sector and the PPP involved the
management of clinical activities. Subsequently, performance of the PPP varied over time.
The experience illustrated the importance of engagement and management of the private
sector by the public sector as well as private sector incentivization (EXPH 2014).
145. Using the lessons learned from the Hospital Amadora-Sintra, the country
integrated the infrastructure and clinical activities together in one PPP. The contract
stipulated different timings for each component: a 30-year contract for infrastructure and
maintenance activities and a 10-year contract for managing clinical activities (with the
option for the public partner to change the private partner after the 10-year time frame if it
is performing poorly). This did not include primary care centers as it remained under public
domain (EXPH 2014). The arrangements included conception, construction, funding,
maintenance, and exploration of hospital building and health care provision by a
consortium of two management entities. The contracts included a 10-year contract for
clinical management and a 30-year contract for building management. According to
Pereira et al. (2021), there was a lengthy process associated with the time between the
public tender, the signing of the contract, and the start of the activity, ranging from five to
eight years. The private company Jose de Mello Saude won the tender for Braga and Vila
Franca de Xira Hospitals, Hospitais Privados Portugueses won the tender for Cascais,
and Espirito Santo Saude won the tender for Loures. The tenders were selected on price
and technical quality. In terms of the risk of the PPP, legislation in the country stipulates

42
that it is attributed to the party that is more competent in managing it. To ensure mutual
benefits between the government and the private health sector company, as the
government is capable of withstanding great risk, the private sector health company must
have higher-risk management capability (Pereira et al. 2021).
146. According to Ferreira et al. (2021), recent PPPs in the country have been
implemented in secondary-level facilities or hospitals. The current model is a mix of
the United Kingdom’s PFI and the Spanish (Alzira) model, explored further below. The
idea behind the Portuguese PPP model is “that synergies arising from bundled
infrastructures and clinical management can be exploited, diminishing the risk of interface
friction.” Hospital PPPs belong to the Portuguese NHS, yet they do not have the same
contracting terms for funding as the public hospitals (Ferreira et al. 2021).
Romania
147. To increase access to and quality of dialysis services, the Romanian
government, in 2004, contracted four separate private partners to operate and
manage dialysis centers across eight hospitals. The government also wanted to
simplify the funding stream for these centers. The contract stipulated that the private
sector was responsible for renovating the facilities; providing and maintaining equipment;
obtaining supplies; and managing service provision, including health care providers. The
private partner was paid per hemodialysis treatment as well as an annual fee per
peritoneal dialysis patient.
148. According to the International Finance Corporation (IFC), it was estimated that
the government saved €3 million between 2005 and 2008 due to this PPP (Abuzaineh
et al. 2018). However, evidence suggests mixed results in this case. According to EXPH
(2014), the Romanian case provides an example of factors that could impede PPP
implementation in health care. The agency stated there was a lack of data and that the
analysis conducted should have investigated each contract with each private partner,
separately. At the same time, there was no formal audit or evaluation (EXPH 2014).
Croatia
149. In 2009, Croatia implemented concessions, with county governments
providing tenders to the private sector to provide primary health care services to
teams within the National Health Care Network. This involved the delivery of family
medicine; maternal, infant, and child health services; dental health care; occupational
medicine; laboratory diagnostics; pharmaceuticals; and home visits. Market prices were
applied to health care centers rented by private physicians and prices of services provided
in private practices were regulated (Dzakula et al. 2014).
India
150. In Gujarat in 2007, the government launched the Chiranjeevi scheme in
secondary-level facilities (Baru et al. 2020). Within this PPP, the state government
contracted private providers (after verifying and enrolling them) to provide institutional
deliveries (skilled birth attendance and emergency obstetric care) to women living below
the poverty line. A district health society was created to manage the PPP. Private providers
were paid by the government for their services, and participating pregnant women were
financially remunerated. Evidence showed some challenges to the scheme: bureaucratic
procedures negatively influenced private providers’ engagement in the scheme; private
providers felt that participating in the PPP would lower their private practice status while
others did not want to handle complex cases; and there were also operational and trust
challenges between public and private providers. In addition, evidence suggests that

43
pregnant women who participated in the scheme incurred OOP expenses (Baru et al.
2020).
151. The Pradhan Mantri National Dialysis Program under India’s national health
mission was announced in the Union Budget 2016–2017. The guidelines for
implementing the Dialysis Program include provision of dialysis services through a PPP
as a cost-effective approach. The private service providers are required to provide medical
human resources, dialysis machine, water plant infrastructure, dialyzer, and consumables.
The government entities should provide space in district hospitals, drugs, power, and
water supply and pay for the cost of dialysis for poor patients. A majority of states in India
are delivering dialysis services through a PPP outsourcing model as per the guidelines
(Le, Govindaraj, and Bredenkamp 2020).
South Africa
152. The government partnered with Discovery Health and Vodacom to support
public health programs directly and indirectly. There were no contractual agreements
between the entities. They used their technology, expertise, innovation, and financial
resources to implement initiatives to strengthen health systems. For example, Discovery
Health improved the capacity of health care providers and the quality of health services in
both the public and private domains. They also increased equitable coverage of primary
care and essential services. Vodacom donated mobile phones to the National Health
Department. All the phones were able to access, at no cost, a central database of health-
related information. The phones are used for a mobile monitoring and reporting system to
improve data quality and service provision as well as to inform decision making (Kula et
al. 2014).
Kenya
153. Kenya is pioneering a large-scale project that involves outsourcing the
provision of medical equipment for 98 hospitals across 47 counties. The project
comprises seven-year contracts between the Ministry of Health and five contractors for
the supply, installation, maintenance, replacement, and disposal of various equipment as
well as training and reporting for the entirety of the contract period. The total tender sum
amounts to US$432,482,160 paid in quarterly instalments of US$15,445,790 (Le,
Govindaraj, and Bredenkamp 2020).
154. The project has been delivering tangible benefits for the government and the
people in many counties. For example, the contract for the provision of radiology
equipment improved access to radiology services, increased the skill set of health care
workers, and reduced patient referrals. However, several facilities have not yet been able
to benefit from the arrangement. Reasons include contractual issues, lack of requisite
infrastructure and support systems for the equipment, lack of specialized health personnel
to operate the equipment, high charges for the specialized services being provided
following the installation of equipment, underutilization of installed equipment, and so on
(Le, Govindaraj, and Bredenkamp 2020).
Lessons Learned from the Model
155. This type of PPP model provides lower risk for the private sector and also
addresses constraints within the public system as it focuses on service provision.
It could lead, in the future, to a more complex, integrated PPP model. It stimulates
competition among private bidders and can lead to an increase in access, efficiency,
innovation, and governmental savings over the long term (World Bank 2016). In designing
this PPP, the government should conduct due diligence to determine the local need for
services, long-term management capacity, and the financial resources available. To

44
overcome any resistance to this type of PPP, the private sector should demonstrate a
clear need for these services that can be delivered at a lower cost. The partner should
also include clearly defined metrics, evaluation, and publicly available outcomes to
illustrate performance.
Integrated PPP Model
156. Within the integrated PPP model, the private partner is contracted to design,
build, finance, operate, and deliver nonclinical and clinical services. This is the most
complex PPP model and has been implemented in several countries including Australia,
Lesotho, Peru, and Spain (Abuzaineh et al. 2018). The objectives of this model are to (a)
provide long-term financial resources and investment to the infrastructure and delivery of
health care services; (b) renovate or build public health care facilities, within a shorter
time; (c) improve public health care system capabilities to deliver quality services; (d)
improve the management of nonclinical and clinical service delivery; (e) increase access
to and quality of comprehensive health care; (f) improve management of primary care
referrals to improve efficiency, value for money, and health outcomes within the
community; and (g) provide financial resources to the government for infrastructure
projects (Abuzaineh et al. 2018).
157. The aim of the integrated PPP model is to improve the management, access
to, and quality of health care services while remaining within the budget of the
government and maintaining cost neutrality for service users (who would have the
same OOP costs at a public facility). The model not only renovates and builds health
facilities but also uses private sector expertise to provide inpatient and outpatient clinical
services (Abuzaineh et al. 2018).
158. The contract is complex and involves private sector responsibility for
managing the financing, design, construction, and provision of services. For
example, the contract usually stipulates that the private partner is responsible for the
provision and management of all patient care services. This includes hospital care, referral
clinics and referral networks, ancillary clinical (radiological and laboratory services) and
nonclinical support services (food services and cleaning), equipment management, and
patient systems. It also includes staffing and managing health care providers and other
health staff. Due to demographic shifts and demands in health care, the contract also has
to be flexible enough to address changes within the population (Abuzaineh et al. 2018).
159. The risk involved for the private sector for this type of PPP is more than the
other two types of models described earlier. It is responsible for going over budget,
managing delays due to construction and service provision, managing health care
providers and other staff, ensuring quality standards in service provision, and tracking
changes in population demand for services. Generally, governments contract one set of
private sector partners to finance and design/construct the health facility in the short term
and contract another set of private partners to provide services over the contract’s length
(Abuzaineh et al. 2018).
Examples of This Model
Spain
160. The Alzira model was implemented across five health districts in Valencia,
Spain, becoming operational in 1999 (Abuzaineh et al. 2018). The government
contracted a private company to build and operate the hospital while developing a
separate contract for the provision of care to a defined population (Caballer-Tarazona et
al. 2016). It was financed by a group of firms under the Adeslas SA (a private health

45
insurance company owned by a regional savings bank), Bancaja, CAM, Caixa Carlet,
Dragados, and Lubasa (EXPH 2014).
161. The contract for the Alzira model is focused on managing comprehensive care
and is supervised by the Regional Health Department Commissioner. Financially,
there is a premium per capita on population covered by a designated doctor. Invoices are
also made for intercenter movements (populations moving from another department),
populations from autonomous communities (Caballer-Tarazona et al. 2016), procedures
performed in publicly managed health facilities, incentives for pharmacy savings, and civil
servant salaries (Julian et al. 2018). According to Julian et al. (2018), contracts included
a clause to limit the profitability of the private sector, with a limit on the internal rate of
return at 7.5 percent. Yet, this has been difficult to determine due to changes in accounting
standards and a lack of information on financial statements from the private sector. It was
also found that the indebtedness ratio was high in the PPPs with shareholders appearing
as creditors through participative loans. The interest rates of these loans were higher than
the bank financing received, which could mean further reprisal to private shareholders
(Julian et al. 2018).
162. According to EXPH (2014), the following public services are provided by the
private sector in the country: primary health services (10 percent), hospital and
specialist services (20 percent), pharmacies, and some hemodialysis and ambulance
services. Some of the services such as primary health care, hospitalizations, medicines,
and specialized care are contracted for a year and renewed annually. This reduces the
risk and provides a more flexible way to service delivery (EXPH 2014).
163. In a comparison of public and PPP hospitals (using the Alzira model) on
performance, cost, and quality indicators, Caballer-Tarazona et al. (2016) showed that
for “emergency material cost,” public hospitals performed better. For everything else (first
consultations, wait time for first consultations, outpatient replacement rate, magnetic
resonance imaging (MRI) equipment, management agreements score, and rate of hip
fracture operations with more than two days of delay), the PPP hospitals showed better
results. The results should be taken with caution given the small sample size. They also
found that there was a lack of competition in assigning concession contracts (Caballer-
Tarazona et al. 2016). Other studies conducted have shown that there is not enough
information to conclusively state how successful this model has been. For example, the
National Competition Agency Report found that there were several problems associated
with the processing of tenders and contracts between 1997 and 2010. Meanwhile, the
Spanish National Association of Public Health and Health Administration in 2012 stated
that PPP implementation has led to increased cost, and there is not enough information
to show that it is advantageous (EXPH 2014).
Poland
164. Poland implemented a PPP at a hospital in Jaworzno, with the private partner
Nefrolux in 2009 for a contract of 15 years. The private partner built a dialysis center
and nephrology clinic. Nefrolux is tasked with managing and providing medical services.
It also benefited from the facilities. At the end of the contract, the infrastructure and
equipment will be transferred to a public hospital. There are no data on the benefits thus
far (Kosycarz et al. 2019).
Lesotho
165. In 2006, the government of Lesotho launched a PPP to build a 425-bed national
referral hospital to replace its outdated hospital. The Lesotho PPP structure was a
first for Africa. In addition to the design, construction, and full operation of the hospital and

46
associated health care facilities, the private operator delivers all clinical services, with the
objective of providing vastly improved, high-quality health care services at an affordable
cost. The government made significant up-front payments for hospital construction and
will provide the private operator with an annual fixed payment for 18 years. The PPP
agreement includes performance monitoring of both clinical and nonclinical service
indicators. An independent monitor conducts a quarterly audit of the private operator’s
performance. A penalty deduction is applied if performance is not achieved. Following a
competitive tender process, a consortium was selected, and the PPP agreement was
signed in 2008. The hospital and clinics were opened in 2011. In the initial operation, the
project faced several challenges, including excessive demand for its services, payment
delays, a lack of physicians, and negative media reaction. Despite these challenges, both
public and private parties reported significant achievements. This PPP has demonstrated
that it is possible for a lower-middle-income country to embark on an ambitious project
that is affordable for the country and patients. The successful implementation of the
Lesotho hospital PPP has been attributed to political commitment, leadership, and advice
received on how to set up a PPP transaction (Le, Govindaraj, and Bredenkamp 2020).
Vietnam
166. In 2015 in Vietnam, the Quang Ninh PPC entered a contract with the TTP
Industrial Development Joint Stock Company—a local investor in the business of
coal mining and retailing—to improve hospital infrastructure and service quality at
Cam Pha General Hospital. This was the first PPP contract in the local health sector
implemented under Decree 15/2015/nD-CP on PPP. The hospital was designed for 500
beds, and construction commenced right after the contract was signed in 2015. However,
because of disagreement among the medical staff and protracted issues with the legal
procedure for transferring public assets (land) to the project company under this modality,
the project could not continue. Finally, the PPC had to cancel the project without
compensation to the private sector. Cam Pha General Hospital’s contract involved transfer
of the existing hospital to the investor. The investor was to be responsible for financing,
design, construction, provision of clinical services, and maintenance of the new hospital
facility for a period of 50 years. The investor was to develop and construct a new 13-story
hospital and consolidate it with an existing 4-story building while providing all the required
facilities management. The capital required for the Cam Pha Project was estimated at
VND 800 billion (US$36 million). Quang Ninh PPC was the contracting agency. The
hospital was to provide medical services to patients covered by SHI, and examination and
treatment services were to be charged for at the public prices set by the local government.
These services are currently claimed under the cost-recovery initiative and partly
subsidized by the local government budget. In the contract, the shortfall in cost recovery
was to be repaid by the local government in the first five years of operation. The amount
paid was to equal the current level of subsidy to the hospital, adjusted for annual inflation
and the increased capacity required for patients covered by SHI, and charged at public
prices. The private investor was to repay the local government the residual values for the
hospital building and return all the old medical equipment purchased by the public sector
to the local Department of Health. The investor was to assume demand and revenue risk
without the support of any local government guarantee. On-demand medical services
(charged at prevailing market prices) were expected to generate more than 50 percent of
the project revenues. Revenue from payments by SHI and public health services (charged
at public prices) was to contribute the remaining. According to the contract, the
Department of Health would monitor all the examination and treatment activities of the
hospital and place the orders for public health services. However, there were no key

47
performance indicators in place to monitor the hospital performance (Le, Govindaraj, and
Bredenkamp 2020).
Lessons Learned from the Model
167. Although this model is the least commonly implemented model, it does
provide countries with a road map to reform health systems. It can lead to improved
clinical performance; however, government management, political support, and oversight
are critical in this aspect due to the complexity of this PPP. There also needs to be greater
evaluation on the efficiency and gains made through this type of PPP as there is limited
robust evidence (Abuzaineh et al. 2018).
168. Enforcing clinical quality and performance standards is critical to this model
as well as improving management at all levels. This can be achieved through
accreditation agencies that aim to improve quality and performance standards as well
monitor and evaluate public and private health services. This should include training of
health care providers, administrators, and managers. obtaining buy-in from health care
providers and staff on the design, operations, and management of the facility. At the same
time, there should be clarity on which health care staff and providers will change to private
employment or if it will be a mix of both (Abuzaineh et al. 2018).
Hospital Privatization
169. It has been argued that the sale of public hospitals to the private sector is a
significant component of privatization (Andre and Hermann 2008). In Europe, several
public hospitals in Germany were privatized. In fact, between 1991 and 2004, public
hospitals sold under private ownership increased from 14.8 percent to 25.4 percent. In
tandem, the share of public hospitals decreased from 46 percent to 36 percent over the
same period. Sweden has also experimented with public hospital privatization. Countries
in Europe have also seen an increase in the share of newly built specialized, private
hospitals. These are offered to patients who are self-paying or have private insurance
(Andre and Hermann 2008).
170. Fidler et al. (2007) conducted an analysis of hospitals in Austria and Estonia
in 2007. In Austria, the hospitals are decentralized with the nine state governments
financing and providing care. In 2003, hospitals entered a hospital holding concept, which
means horizontal integration between public and private hospitals and contracts between
the state government and management company of the hospital. Indeed, private hospital
inpatient services are integrated and financed by the same public financing scheme. The
mandate is to provide comprehensive and quality secondary level of services that are
financially sustainable. For example, in 2007, the KHBG (Krankenhause Betriebsellschaft)
was the largest health care provider in Vorarlberg State, with a market share of 84 percent.
It managed five public hospitals with approximately 1,700 hospital beds at eight different
locations. The company was legally owned by the government and four towns. It
outsources nonclinical services, including laundry, restaurants, facility management,
maintenance, and IT services. In Upper Austria, the OÖ. Gesundheits- und Spitals-AG
(GESPAG) is the largest health care provider, owning approximately 50 percent of the
market share of hospitals and employing 8,500 individuals. Health care providers in
hospitals are contracted under state employment law but contractually transferred to
report to the private holding company. This allows the holding company to hire, fire, and
transfer employees. Staff selection and hiring procedures are shorter and flexible and less
likely to be influenced by politics. In Estonia in 2003, hospitals were incorporated under
either a private company or foundation, with some hospitals merging into large integrated
organizations. This means that the hospitals were publicly owned but privately managed.

48
They were under the domain of private law; however, the government is the only
shareholder with the supervisory board ensuring that the hospital complies with the
government’s strategic vision. The hospital reforms were widely accepted by the
population, and according to Fidler et al. (2007), led to efficiency gains, increased quality,
and the stabilization of public hospital expenditure.
171. In India, nonprofit hospitals that provide clinical and nonclinical services in
Delhi and Mumbai have become commercial entities. As such, the hospitals are
managed, run, and the services costed and delivered by for-profit private companies (Baru
et al. 2020). These nonprofit hospitals were transformed through the support of state
subsidies. A study in 2009 found that most of these hospitals did not provide free treatment
to the lower-income quintiles. Studies have also found that contracted workers in these
hospitals work long hours, are not paid well, and are not given minimum protective
measures (Baru et al. 2020).
172. In 2010 in Georgia, the government released a bid to private insurance
companies to provide services within state-owned hospitals in a region for three
years. The government’s aim was to increase financial revenue and rationalize hospital
stock by closing underutilized facilities. The private companies that won the bids were
contracted out to renovate or build and operate the hospitals between 2010 and 2012.
Some private companies did not deliver, and the government stepped in to suspend the
contracts and resume responsibility with the hospitals. Between 2014 and 2015, privately
owned and operated medical centers were bought back by the government in
mountainous and remote regions (Richardson et al. 2017).
DISCUSSION AND RECOMMENDATIONS
173. This report has summarized evidence on private health sector engagement
globally, with a specific focus on the South Caucasus. We have looked at private sector
engagement through the lens of policy dialogue, information-sharing, regulation,
financing, and private sector provision, including performance and modalities of private
sector engagement.
174. In terms of policy dialogue, there is limited evidence on the government’s
engagement with the private sector in Armenia, Azerbaijan, and Georgia. The private
sector is heterogenous; therefore, clear and transparent policy approaches are needed to
regulate the private sector to increase health coverage with quality services. In this
context, it is key to increase the institutional capacity of MOHs to collect and analyze data,
to know better how the private health sector operates and its resources and capacity to
deliver quality services, considering transparency, accountability, and anti-corruption
goals. The government should also incorporate private sector engagement into the
national health strategy and set the policy conditions for the private sector to function
efficiently with monitored results.
175. For information-sharing between the public and private sectors, evidence
showed that the countries of South Caucasus have experienced several barriers to
data collection and analysis. Despite Armenia and Georgia prioritizing health data
collection and analysis through the National Health Information Analytical Center and the
MolDLPHSA, respectively, they have experienced challenges in communication with key
stakeholders, limited staff monitoring and management capacity, and motivation to collect
and share data. In Azerbaijan and Georgia, the MOHs have not developed functional
institutional arrangements to regulate and monitor results of the private sector. The
governments in the South Caucasus should continue prioritizing the construction of
information-sharing by synthesizing public and private health information systems and

49
using standardized indicators and instruments to collect and analyze the data. The
expected outcomes of constructing monitoring and evaluation systems are not only related
to ensuring quality and transparency in the system but also to promoting sustainable
private sector investments with social goals. Indicators could be included considering
priority health conditions for each country, quality of care, periodic monitoring of provider
performance, publication of comparative provider performance, and rewarding of
improvements in the quality and integration of health care. Data should also be collected
on supply, infrastructure, equipment, and constant training to staff to monitor results and
disseminate good practices to private providers.
176. The countries of the South Caucasus experience limited regulation of the
private health sector. To ensure the delivery of safe, equitable, and quality health care,
governments should enforce regulatory standards for infrastructure, health care providers
and health staff, and clinical interactions, including provider licensing, service delivery
network planning, and the development of clinical pathways for prevalent diseases. As
followed by health systems in middle-income countries, the creation of a health
superintendence would add value to improve the performance of the private sector. This
autonomous entity representing the government should oversee and supervise the service
delivery of private providers and ensure a strong regulatory environment that is particularly
important given the role of private providers in coverage and the high level of OOP
payments. On the other hand, this entity should enforce transparent behaviors of doctor
practices, licensing of physicians, and accreditation of private providers.
177. Armenia, Azerbaijan, and Georgia need to adopt a mix of payment systems
with private providers and establish arrangements that ensure collaboration
between the public and private sector through well-defined contracts. Governments
of South Caucasus countries should scale up centralized procurement and framework
contracts and build capacity for procurement coordination, planning, and execution at the
facility level in the long term, with health facilities and with clear autonomy in decisions
ensuring quality-based purchasing.
178. PPPs may be a way for the South Caucasus to engage with the private sector.
Political will, legislative environments and regulatory frameworks, transparency, public
sector capacity, complete and flexible contracts, and broad stakeholder engagement are
essential conditions to expand PPPs. In addition, it is important that MOHs engage with
country team experiences and learn from best practices from all over the world, expanding
research on how health systems create and regulate mixed public-private services. Future
research at the country level should also focus on how to improve quality, equity, and
efficiency of mixed systems, as countries work to achieve UHC.

50
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The aim of the literature review was to provide evidence on private health sector engagement globally, with a specific
focus on the South Caucasus. The analysis focused on private sector engagement through the lens of policy dialogue,
information sharing, regulation, financing, and private sector provision, including performance and private sector
engagement modalities. Results showed that the private sector in Armenia, Azerbaijan, and Georgia is heterogenous.
Regulation aimed to increase health coverage with quality services and increase the institutional capacity of the
Ministries of Health to collect and analyze data to know better how the private health sector operates and promote
private-public partnership to respond to public health challenges.
The creation of an autonomous health superintendence would help improve the performance of the private sector:
overseeing and supervising the service delivery of private providers and ensuring a strong regulatory environment
within countries with high levels of out-of-pocket payments. This entity should enforce transparent behaviors of doctor
practices, licensing of physicians, and accreditation of private providers. In addition, the South Caucasus countries
can adopt a mix of payment systems with private providers and establish arrangements that ensure a strong private-
public partnership (PPP) in health through well-defined contracts. Health facilities with management autonomy should
also ensure quality-based purchasing. PPPs would be an optimal way for the South Caucasus to engage with the
private sector. Political will, legislative environments and regulatory frameworks, transparency, public sector capacity,
complete and flexible contracts, and broad stakeholder engagement are essential conditions to expand PPPs.
Learning from best practices globally and expanding research on how health systems create and regulate mixed
public-private services are also essential to improve quality, equity, and efficiency of these systems, as countries work
to achieve universal health coverage.

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