For the last few years, Turkey's hospital campus programme, also known as hospital PPP's, has been one of the most discussed topics in the country's infrastructure sector and legal environment.
Across the globe, the healthcare sector is expanding as increasing prosperity, changing medical challenges, growing populations and an ever larger demographic of senior citizens are creating higher demand for healthcare services. The very same drivers of global growth are also shaping the development of the healthcare market in Turkey. The Turkish healthcare market has also been expanding and is expected to continue its growth as a greying population, higher incidences of chronic diseases, broader health insurance coverage, and increasing incomes fuel an upsurge in healthcare spending.
In Turkey, the healthcare providers are the Ministry of Health (“Ministry”), universities and the private sector, with the Ministry accounting for two-thirds of country's hospitals and hospital beds. The Turkish healthcare market is high growth, with spending in the sector increasing from USD 12 billion to USD 44 billion between 2002 and 2008, while annual patient visits doubled between 2004 and 2008.
World's largest pipeline of PPP hospitals
Public-Private Partnership ("PPP") involves the collaboration of public and private sector entities to provide public services that are traditionally provided by the state. PPP's are mostly used for the construction and operation of major infrastructure facilities, such as power plants, motorways, and hospitals.
The considerable potential for growth in the Turkish healthcare sector provides vast investment opportunities. With the support of the World Bank, the Ministry is implementing a 42,782-bed healthcare transformation program. This effort has helped to make the country's healthcare campus program the largest pipeline of PPP hospitals on the globe at the moment.
Legislative Framework – The New Law
The first PPP model introduced into Turkish legislation was the Build-Operate-Transfer model in the 1980s, followed by the Build-Operate-Own model and Transfer of Operation Rights.
On 9 March 2013, the Build-Lease-Transfer model was introduced into Turkish legislation by Law No. 6428, commonly known as the City/Campus Hospitals Law. Under the Build-Lease-Transfer model, the private sector finances and builds a facility and then leases it to the relevant public authority, with the state providing the public service. The infrastructure facility is leased for a maximum of 30 years and the public authority pays a lease fee to the private investor and operates the facility during the lease period. This model was specifically introduced to support hospital PPP's.
The City/Campus Hospitals Law was enacted following legal challenges to the current framework for healthcare PPP projects undertaken by the Ministry. The Council of State has issued stay of execution decisions for the Ankara Etlik, Ankara Bilkent and Elazığ hospital PPP projects, effectively halting their progress pending resolution of this litigation. The disputes are based on challenges to the free-of-charge allocation of Treasury-owned land for services that are not directly related to the healthcare facilities in these PPP projects. In response to the stay of execution decisions, the City/Campus Hospitals Law includes a provision nullifying existing tender terms relating to the allocation of land for commercial purposes. It also contains a provision applicable to future healthcare PPP projects for Treasury-owned land to be allocated, free-of-charge, to a project company to build commercial and healthcare facilities.
Indexing and guaranteed lease payments
Lease payments are increased annually by the average of the Turkish Producer Price Index (PPI) and Turkish Consumer Price Index (CPI) for the preceding year. This annual increase may be further adjusted to take into account the increase in the Central Bank's currency basket, if such increase is higher than the average of the PPI and CPI.
To further increase the attractiveness and bankability of the hospital PPP's, the Ministry guarantees the lease payments during the term of the agreement. Also, lenders to the project company must enter into direct agreement with the Ministry, and step-in rights are granted to them.
It has been a cumbersome process for the hospital PPPs, but the end result is close to international standards where there is a true collaboration between the state and the private sector. The tender processes for hospital PPPs are ongoing, with a remaining capacity of 22,475 beds offering attractive business opportunities for savvy investors.