Health Sector PERS PREM Public Expenditure Management Course April 2007, Washington, D. C. George Schieber Consultant Human Development Network
Organization of Presentation • • Health Systems Reform Underlying Health Dynamics Health Expenditures Basics of Health Financing Provider Payment Basic Health Reform Issues Basic Reform Instruments
Health Systems Reform
Objectives of Health Systems • • Improve health status of population Assure equity and universal access Provide financial protection Be efficient from macroeconomic and microeconomic perspectives • Assure quality of care and consumer satisfaction
Complexity of Health Sector • • Global governance and policy coherence is a major problem as there are well over a 100 major organizations involved in the health sector, far more than in other sectors (e. g. , unstructured plurality). As the bulk of the funding needed in the health sector is for long term recurrent costs as opposed to the more traditional short term investment costs, countries need to figure out how to create adequate future fiscal space in their budgets for sustainability. There are numerous non-health related factors that affect health outcomes, necessitating complex cross-sector approaches. Individual behavior plays a critical role in health outcomes and is very difficult to influence or change. Measuring health outcomes—other than sentinel events such as births or death—and attributing causality to specific factors is inherently complex. The private sector plays a substantial, often predominant, role in both the financing and delivery of healthcare services and is often absent from the policy debate. Market failures in insurance markets and in the health sector more generally require complex regulatory frameworks. Finally, the costly financial protection element of health financing is largely unique to the health sector (except for a few standard social protection programs) and creates difficult tradeoffs among competing health objectives for resource constrained governments.
Achieving Change in HNP Behavior of Individuals/Households Income Education Water Sanitation Nutrition Macroeconomic Environment Performance of Health System • Clinical Effectiveness • Accessibility and Equity • Quality and Consumer Satisfaction • Economic Efficiency Health Status Outcomes • Fertility • Mortality • Morbidity • Nutritional Status Health Care System Delivery Structure • Facilities (public & private) • Staff (public & private) • Information, Education, & communication Institutional Capacity • Regulatory & Legal Framework • Expenditure & Finance • Planning & Budgeting Systems • Client & Service Information/Accountability • Incentives Governance Projects and Policy Advice
Why Public Intervention? • Health services with collective benefits (public verses personal health services) • Redistribution/Equity • Health insurance market failures • Other market failures in the direct consumption and provision of health services
Nine Criteria for Establishing a BBP for Public Spending on Health Care Catastrophic Cost Vertical Equity Poverty Externalities Cost Effectiveness Public Goods Horizontal Equity Rule of Rescue Public Demands Key: Efficiency criteria Equity or Ethical Criteria Political Criterion Source: P. Musgrove
Underlying Health Dynamics
Why Invest in Health? Buys more health services Improves life styles Reduces job-related risks Buys more education and other human capital-related services Health Improves political stability, investment climate, and productivity Reduces medical spending Reduces fertility Increases labor supply and female labor force participation Increases saving Increase in the years of healthy life expectancy Source: Salehi, 2004 Income Wealth Growth
MDG Approach to Investments in Health Extreme Poverty • Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. • Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Safe Water & Sanitation • Halve by 2015 the proportion of people without sustainable access to safe drinking water. • By 2020, achieve significant improvement in the proportion of people with access to sanitation. Child & Maternal Health • Reduce by two thirds, between 1990 and 2015, the under-five mortality rate. Primary & Girls' Education • By 2015, boys and girls everywhere complete a full course of primary schooling. • Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015. • Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. Communicable Diseases By 2015, halt and begin to reverse the spread of: • HIV/AIDS • Malaria & • Other major diseases.
Investments are Needed Across Many Sectors to Achieve MDGs % growth government health spending % reduction U 5 MR 1990 -2015 0% 0% 3% 5% 8% 10% 13% 15% 5% economic growth -10% & 2. 5% female education growth -20% & 2. 5% roads growth & 2. 5% water & sanitary growth -30% -40% -50% -60% -70% & 2. 5% growth in all
Policies and Institutions Do Matter Elasticities of MDG Outcomes with Respect To Government Health Spending CPIA Index 1. 00 2. 00 3. 25 3. 5 4. 00 4. 50 5. 00 Under Five Mortality 0. 799 0. 507 0. 215 0. 142 0. 069 -0. 077 -0. 223 -0. 369 Maternal Mortality -0. 622 -0. 654 -0. 687 -0. 695* -0. 703* -0. 720* -0. 736* -0. 752* Underweight Children Under Five TB Mortality 0. 13 -0. 087 -0. 305 -0. 360 -0. 414 -0. 523* -0. 632* -0. 740* 0. 651 0. 276 -0. 098 -0. 192 -0. 285 -0. 472 -0. 659* -0. 847* * Statistically significantly different from zero at 90% confidence level Source: World Bank, 2003
Cost-effective Interventions Are Key to the MDGs • • • Which interventions to choose? How to transfer them to many countries? How to implement them to scale? How much will they cost? What kind of supporting environment is needed? • Can we monitor their impact?
Reducing Under-five Mortality How much health will a million dollars buy? Cost Per DALY (US$) Estimated DALYs Averted Per Million US$ Spent Improving care of children under 28 days old (including resuscitation of newborns) 10 -400 2, 500 -100, 000 Expanding immunization coverage with standard child vaccines 2 -20 50, 000 -500, 000 40 -250 4, 000 -24, 000 8 -20 50, 000 -125, 000 Service or Intervention Adding vaccines to the standard child immunizations (particularly Hib and Hep. B) Switching to combination drugs (ACTs) against malaria where resistance exists (Sub-Saharan Africa) Source: Disease Control Priorities in Developing Countries, second edition, 2006, Table 1. 3.
Preventing and Treating Noncommunicable Diseases How much health will a million dollars buy? Service or Intervention Cost Per DALY (US$) Estimated DALYs Averted Per Million US$ Spent Taxing tobacco products 3 -50 24, 000 -330, 000 Treating heart attacks with inexpensive drugs 10 -25 40, 000 -100, 000 Treating heart attacks with inexpensive drugs plus streptokinase* 600 -750 1, 300 -1, 600 Treating heart attack and stroke survivors for life with a daily polypill 700 -1, 000 -1, 400 Performing coronary artery bypass surgery in high risk cases** >25, 000 <40 Using bypass surgery for less severe coronary artery disease** Very high Very small *Costs and DALYs are in addition to using inexpensive drugs only. **Incremental to treatment with polypill. Source: Disease Control Priorities in Developing Countries, second edition, 2006, Table 1. 3
But Economic Growth Will Not Be Enough Projected
Underlying Demographics Will Drive Needs/Demands But Also Have Profound Effects on Economies
Demographic impact of HIV/AIDS: Botswana Source: U. S. Census Bureau 1999
Inequalities in Outcomes Are an Issue Child mortality rates for the poor are often two to three times higher than those for the rich [Source: Asian Development Bank (2006)].
Health Expenditures
Health Policy Baseline Health Expenditures, 2004 Source: World Bank, WHO, 2007. : All regional and income class aggregated data weighted by the series denominator 1. SSA GDP and health spending data excluding South Africa 2. HICs GDP and health spending data excluding the United States
The Global Context: Major Inequities in Disease Burden Developing countries account for 90% of the global disease burden Source: The World Bank. 2005. World Development Indicators. 2006.
The Global Context: Inequities in Health Spending …but only 12% of global health spending Source: The World Bank. 2005. World Development Indicators. 2006.
But There Also Large Inequities in Health Spending Within Countries
EXPENDITURE PERFORMANCE Can Be Measured in Many Ways • LOCAL CURRENCY – Point in time or changes over time – Total nominal spending – Share of GDP – Public verses private – Public health share of all public expenditures – Administrative expense share – Type of service – Capital vs. recurrent – Nominal per capita – Real/Volume (health deflator) – Real/Opportunity Cost (general price deflator) • NUMERAIRE CURRENCY--exchange rates/purchasing power parities (GDP, health)
Where Do We Start: National Health Accounts Source: OECD
Health Expenditures in Ukraine, 1998 -2005 Health System Expenditure & Financing (million Ukraine hryvnas) 1998 1999 2000 2001 2002 2003 2004 2005 Total expenditure on health (THE) 6 816 7 721 9 945 12 342 14 174 17 978 22 429 31 340 General government expenditure on health (GGHE) 3 632 3 838 4 924 6 273 7 457 9 985 12 713 17 612 n/a n/a 0 0 0 0 Private expenditure on health 3 184 3 883 5 020 6 069 6 717 7 993 9 716 13 728 … Private households' out-of-pocket payment 2 835 3 467 4 492 5 458 6 056 7 175 8 797 11 572 … Prepaid and risk- pooling plans 24 35 50 73 84 114 150 … Non-profit institutions serving households (NGOs) 154 165 196 203 213 231 232 287 External sources 21 18 52 63 80 85 157 198 … of which Ministry of Health … Social security funds Source: WHO National Health Accounts 2007
Evolution of Budgetary Expenditures on Health UKRAINE : - National Expenditure on Health A. SELECTED RATIO INDICATORS FOR EXPENDITURES ON HEALTH 1999 2000 2001 2002 2003 2004 2005 5. 9 5. 8 6. 0 6. 3 6. 7 6. 5 7. 5 General government expenditure on health (GGHE) as % of THE 49. 7 49. 5 50. 8 52. 6 55. 5 56. 7 56. 2 Private sector expenditure on health (Pvt. HE) as % of THE 50. 3 50. 5 49. 2 47. 4 44. 5 43. 3 43. 8 GGHE as % of General government expenditure 8. 6 8. 4 8. 9 9. 3 10. 2 9. 4 Social security funds as % of GGHE 0. 0 0. 0 Private households' out-of-pocket payment as % of Pvt. HE 89. 3 89. 5 89. 9 90. 2 89. 8 90. 5 84. 3 Prepaid and risk-pooling plans as % of Pvt. HE 0. 9 1. 0 1. 2 1. 1 External resources on health as % of THE 0. 2 0. 5 0. 6 0. 5 0. 7 0. 6 Total expenditure on health per capita ($US) 38 37 47 55 71 90 132 Total expenditure on health per capita (PPP) 220 238 279 313 379 427 526 General government expenditure on health per capita ($US) 19 18 24 29 39 51 74 General government expenditure on health per capita (PPP) 110 118 142 165 211 242 296 I. Expenditure ratios Total expenditure on health (THE) as % of GDP Financing Agents measurement II. Selected per capita indicators for expenditures on health Source: WHO National Health Accounts 2007
Recurrent and Capital Expenditures on Health Total Government Health Spending (1, 000 Ukranian hryvnas) 1999 2000 2001 2002 Wages 1, 590, 487 1, 808, 013 2, 388, 559 3, 018, 550 Utilities 428, 493 557, 393 591, 616 653, 757 1, 297, 716 1, 317, 981 1, 760, 740 2, 074, 711 Other Current Expenditures 170, 904 829, 415 1, 007, 544 1, 228, 650 Capital 321, 104 333, 113 490, 380 562, 246 3, 808, 704 4, 888, 217 6, 238, 899 7, 537, 914 Percent of Total Government Health Spending 1999 2000 2001 2002 Wages and salaries 41. 8% 37. 0% 38. 3% 40. 0% Utilities 11. 3% 11. 4% 9. 5% 8. 7% Procurement of items, materials, and services 34. 1% 27. 0% 28. 2% 27. 5% Other current expenditure 4. 5% 17. 0% 16. 1% 16. 3% Capital 8. 4% 6. 8% 7. 9% 7. 5% 100. 0% Procurement of items, materials, and services Total Source: Ukraine Public Expenditure Review Health Sector , Health Sector Task Force, World Bank 2007
Public Health Expenditures by Program 2004 Percent of Total Health Spending in Ukraine Program Government Private External Inpatient 98. 0% 2. 0% 0. 0% Outpatient 28. 4% 71. 0% 0. 6% Pharmaceuticals 0. 1% 99. 9% 0. 0% TB 74. 4% 1. 3% 24. 4% ARVs 25. 4% 0. 0% 74. 6% OB/GYN 72. 9% 19. 2% 7. 9% Other outpatient 84. 7% 14. 7% 0. 6% Rehabilitative care 54. 7% 45. 3% 0. 0% Long-term care 100. 0% Ancillary 24. 7% 75. 3% 0. 0% Prevention and public health 90. 7% 3. 4% 5. 9% Maternal and child 11. 8% 0. 0% 88. 2% Communicable disease prevention 72. 2% 0. 0% 27. 8% Non-communicable disease prevention 0. 0% 100. 0% Other 94. 9% 3. 9% 1. 2% Health administration 97. 1% 0. 0% 2. 9% Other 97. 4% 1. 5% 1. 1% Total 58. 2% 41. 2% 0. 7% Source: Ukraine Public Expenditure Review Health Sector , Health Sector Task Force, World Bank 2007
U. S. NHA By Type of Service Source: Health Affairs Feb 2007
Per Capita Health Expenditure vs. Per Capita GDP Source: World Bank, WDI, 2007, World Health Organization 2007
Health Expenditures as Percent of GDP Source: World Bank, WDI, 2007, World Health Organization 2007
Public Health Spending Varies Widely By Income Level (Per Capita GDP vs. Public Health to GDP Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007
Child Mortality Varies Widely for Given Income Levels (Per capita GDP vs. Under-5 Mortality Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007
Child Mortality Varies Widely for Given Public Health Spending Levels (Public Health to GDP Ratio vs. Under-5 Mortality Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007
Higher Public Spending on Health Does Not Guarantee Better Access for the Poor Source: WDR 2004
Basics of Health Financing
Health Financing Functions and Objectives Functions Revenue Collection Objectives raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with both a basic package of essential services and financial protection against unpredictable catastrophic financial losses caused by illness and injury Pooling manage these revenues to equitably and efficiently pool health risks Purchasing assure the purchase of health services in an allocatively and technically efficient manner
Financing Reforms Need to Deal with Revenues, Risk Pooling, Management and Payment Revenue Collection Public Taxes Public Charges/ Resource Sales Mandates Grants Pooling Resource Allocation or Purchasing (RAP) Government Agency Social Insurance or Sickness Funds Public Providers Private Insurance or Community-based Organizations Private Providers Private Loans Private Insurance Communities Out-of-Pocket Service Provision Employers Individuals And Households
Efficiency Gains are Another Source of Financing * Public spending and child mortality rate are shown as the percent deviation from rate predicted by GDP per capita Source: Spending and GDP from World Development Indicators database. Under-5 mortality from Unicef 2002`, WDR 2004
Efficiency Defined • Efficiency of financing base -- the economic costs resulting from changes in the production and consumption behavior of firms and households as a result of taxes and other revenue raising efforts • Allocative efficiency – “doing the right things” -purchasing the most cost-effective mix of outcomes • Technical efficiency -- “doing things right” – producing a specific health outcome, intervention or service at lowest cost
Domestic Resource Mobilization is Much More Limited in MICs and LICs
Strong Performance in Most Regions Real GDP annual percent change Source: World Bank
Fiscal Space* is Needed *Budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of its financial position Increase of Grant Aid in % GDP Improved Expenditure Efficiency in % GDP Improved Revenue Effort in % GDP New Borrowing in % GDP • Estimates of revenue effort may suggest that an additional 4 percent of GDP could be raised through domestic revenue measures. • Negotiations with development partners may elicit indications of an additional 3 percent of GDP in grant aid. • A PER may have identified areas for rationalization that would release 3 percent of GDP in resources for reallocation. • Macroeconomic and debt management may suggest that new borrowing over the period should be limited to 2 percent of GDP. • Seignorage (govt prints money which it loans to itself) is yet another, but generally limited, mechanism for creating fiscal space. Source: PREM: FISCAL POLICY FOR GROWTH AND DEVELOPMENT: AN INTERIM REPORT, 2006
Fiscal Sustainability is a Critical Concomitant of the Creation of Fiscal Space The Classic Definition: Other Definitions: • • Self-sufficiency -- over a specific time period, the responsible managing entity will generate sufficient resources to fund the full costs of a particular program, sector, or economy including the incremental service costs associated with new investments and the servicing and repayment of external debt: § the level of sustainable deficit that will keep the debt burden constant for feasible rates of growth, real interest rates, and inflation. § assumes that a constant ratio of public debt to GDP will ensure public sector solvency and avoid a debt crisis in the future. § ignores equity and efficiency issues, e. g. , can be fiscally sustainable yet inefficient and highly inequitable. § not very useful for countries with large grant financing. • • The capacity of the health system to replace withdrawn donor funds with funds from other, usually domestic, sources The sustainability of an individual program is defined as “capacity of the grantee to mobilize the resources to fund the recurrent costs of a project once the investment phase has ended” A softer definition is that the managing entity commits a stable and fixed share of program costs
Risk Pooling is Needed to Prevent Health Shocks Which Contribute to Poverty (Loss of income, excess expenditures in medical health services) Source: Baeza
Risk Pooling and Prepayment • Risk pooling enables the establishment of ‘insurance’ as large unpredictable risks at the individual level become predictable when pooled over a large number of individuals • Risk pooling enables the averaging of health risks over all pool members and provides the opportunity for redistribution among high and low risk pool members • Prepayment provides protection against unpredictable large losses and redistribution between high and low income individuals: – In risk rated private insurance, the premium reflects the average predicted risk of pool members, thus enabling pool members to face a predictable upfront payment – In a public system, pre-payment whether through social security or general revenue contributions allows the separation of payments from expected medical risks and thus enables redistribution from high to low income individuals
What do We Mean by Risk Pooling? Cross subsidy from productive to non-productive part of the life cycle (equity subsidy) Resource endowment $ Poor Rich Income $ $ Health risk $ $ $ Low risk High risk Resource endowment Cross-subsidy from rich to poor (risk subsidy) Resource endowment Cross-subsidy from low-risk to high-risk Produ ctive Nonproduc tive Age
Risk Selection Can Destabilize Insurance Markets • • • Adverse selection occurs when sicker than average individuals enroll in competing public or private health insurance plans This can destabilize insurance markets through premium spirals if healthier individuals disenroll Insurers react by trying to screen out such high risk individuals by: – requiring medical exams – examining claims history – having waiting periods – excluding pre-existing conditions from coverage – refusing insurance coverage • These instabilities can be offset by: – regulation of insurers – marketing insurance to groups formed for other purposes (e. g. employment) – having a mandatory public insurance program
Insurance Encourages Overuse of Services • This phenomenon known as moral hazard results because of the tendency for insurance to increase the probability of the occurrence of the event that is being insured against • It is present in both public and private insurance • Insurance design features to mitigate moral hazard include: – cost sharing – limits on benefits – frequent renewability – utilization management
Do Insurance Market Instabilities Necessitate Public Financing? l Public financing can: – pool risks over the entire population – eliminate adverse selection and medical underwriting problems – still face cost problems due to moral hazard l Private insurance can: – segment health risks by underwriting groups – preclude economic losses from coercive taxes – allow for greater consumer choice
Major Health Financing Models • National Health Service -- systems financed through general revenues, covering whole population, care provided through public providers • Social Health Insurance -- systems with publicly mandated coverage for designated groups, financed through payroll contributions, semiautonomous administration, care provided through own, public, or private facilities • Community-Based Health Insurance -- not-for-profit prepayment plans for health care, financed through private voluntary contributions, with community control and voluntary membership, care generally provided through NGO or private facilities • Voluntary Health insurance -- financed through private voluntary contributions to for- and non-profit insurance organizations, care provided in private and public facilities • User Fees – charges to individuals for publicly provided services
A Model of the Evolution of Health Care Financing Systems Low Income Countries Middle Income Countries High Income Countries Priv. insur Patient Out-of. Pocket Social Insur Gov’t Budget Community Financing Patient Outof-Pocket National Health Service Model Social Insur Gov’t Budget National Health Insurance Model Private Insurance Model Source: Modified from A. Maeda
NHS Systems financed through general revenues, covering whole population, care provided through public providers Strengths – Pools risks for whole population – Relies on many different revenue sources – Single centralized governance system has the potential for administrative efficiency and cost control Weaknesses – Unstable funding due to nuances of annual budget process – Often disproportionately benefits the rich – Potentially inefficient due to lack of incentives and effective public sector management
Social Health Insurance Systems with publicly mandated coverage for designated groups, financed through payroll contributions, semi-autonomous administration, care provided through own, public, or private facilities Strengths • • Additional health revenue source As a ‘benefit’ tax, there may be more ‘willingness to pay’ Removes financing from annual general government appropriations process Generally provides covered population with access to a broad package of services Often has strong support from population Can effectively redistribute between high and low risk and high and low income groups in the covered population Often serves as the basis for the expansion to universal coverage Weaknesses • • Poor are often excluded unless subsidized by government Payroll contributions can reduce competitiveness and lead to higher unemployment Can be complex and expensive to manage, which is particularly problematic for LICs and some MICs Governance and accountability can be problematic Can lead to cost escalation unless effective contracting mechanisms are in place Often provides poor coverage for preventive services and chronic conditions Often needs to be subsidized from general revenues
Community-Based Health Insurance Not-for-profit prepayment plans for health care, with community control and voluntary membership, care generally provided through NGO or private facilities Strengths • • Community-run and not-for-profit Membership is voluntary Promotes pre-payment Plays a role in mobilizing additional resources, providing access and financial protection in LICs Risk sharing is usually from the well to the sick If premiums are based on income, there can also be risk sharing from the better off to the poor CBHI can be a helpful complement but is not a substitute for NHS or SHI systems Weaknesses • • • Heterogeneous in terms of populations covered, regulation, and benefits provided Providing access and financial protection are limited due to the small size of most schemes The financial sustainability of most schemes is questionable CBHI schemes generally do not reach the very poor Their impacts on care delivery are quite limited Should be encouraged only where more comprehensive health financing arrangements cannot be implemented on a large scale
Voluntary Health Insurance Financed through private voluntary contributions to for- and non-profit insurance organizations, care provided in private and public facilities Weaknesses Strengths • • • As a prepayment and risk pooling mechanism is generally preferable to out of pocket expenditure May increase financial protection and access to health services for those able to pay When an “active purchasing” function is present it may also encourage better quality and costefficiency of health care providers • • • Associated with high administrative costs Not effective in reducing cost pressures on public health financing systems May be inequitable without public intervention either to subsidize premiums or regulate insurance content and price Has the potential to divert resources and support from mandated health financing mechanisms Applicability in LICs and MICs requires well developed financial markets and strong regulatory capacity
User Fees are Only a Small Share of Total Consumer Payments Fees for publicly provided services
Evidence on User Fees is Mixed Fees for publicly provided services Strengths – Generate additional revenue with which to improve health care quality – Increase demand for services owing to the improvement in quality – May reduce out-of-pocket and other costs, even for the poor, by substituting public services sold at relatively modest fees for higher-priced and less accessible private services – Promote more efficient consumption patterns by reducing spurious demand encouraging the use of cost-effective health services – Encourage patients to exert their right to obtain good quality services and make health workers more accountable to patients – When combined with a system of waivers and exemptions, serve as an instrument to target public subsidies to the poor and to reduce the leakage of subsidies to the non-poor Weaknesses – Are rarely used to achieve significant improvements in quality of care, either because their revenue generating potential is marginal or because fee revenue is not used to finance quality gains – Do not curtail spurious demand because in poor countries there is a lack, not an excess, of demand – Fail to promote cost-effective demand patterns because the government health system fails to make costeffective services available to users – Hurt access by the poor, and thus harm equity, because appropriate waivers and exemption systems are seldom implemented; where they are, the poor get discriminated against with lower quality treatment
Financing Challenges • There is no one ‘right’ financing model. • System financing must be sustainable --meaning that future economic growth generates sufficient levels of income for decent living standards and external debt solvency. • LICs face difficult tradeoffs between financing essential services and providing financial risk protection -- prioritization is critical. • For low income countries receiving large amounts of external assistance, there are serious questions of absorptive capacity as well as their ability to finance from domestic resources both future recurrent costs directly financed by time-limited grants as well as current and future recurrent costs generated by externally funded investments. • Most MICs are challenged to provide universal coverage, reduce fragmentation among risk pools, and improve purchasing efficiency. • The critical issue is risk pooling, whether SHI or NHS is ultimately chosen is really of secondary importance. • The critical condition regarding the speed of evolution to universal coverage is the level of income and its rate of growth. Evidence also suggests that the ability to administrate is a key enabling factor for success. • Models need to be tailored to individual country circumstances.
Provider Payment
Provider Payment Defined • Mechanisms used to ‘pay’ medical care providers/organizations for services rendered to their clients • Developing, testing, and implementing new methods to pay medical care providers (e. g, global budgets, capitation, DRGs, etc. ) including MIS and QA systems • Implementing new systems in which: – money follows patients – finance is separated from provision – payment systems contain incentives for access, efficiency, and quality for public and private providers
Key Messages 1. There is no ‘right’ method 2. Provider payment systems must be tailored to the institutional realities of each system encompassing both the demand supply sides 3. Policy-makers need to be concerned about effects across different provider types, different payors (i. e. , public, private HI, OOP) as well as overall health spending 4. Policy-makers must monitor the effects of alternative provider payment systems on cost, access, and quality – MIS is critical
Fundamental Issues • • • What care will be produced? How will care be produced? How much care will be produced? What level of ‘quality’ will be produced? To whom will care be offered? What kinds of care and how much will consumers ‘demand’/access? • By what method, how much, and by whom will providers be paid and/or consumers reimbursed? Source: Modified from Rena Eichler, WB, 2003
Incentives To Providers Depend On How They Are Paid • • Unit of payment: – individual service – per visit/encounter – per day – per admission – per episode of illness – all (or a defined set of services) for a provider for a fixed period of time (i. e. , salary or global budget) – all (or a defined set of) services for an individual for a fixed period of time (i. e. full or partial capitation) Level of payment – providers costs – providers charges – administratively set by payor – negotiated – competitive bidding
Need To Monitor • Costs • Quality • Access • Impacts across different provider types • Impacts across all public and private payors including those paying out of pocket
Basic Principles of P 4 P • • • Increase efficiency in the provision of existing levels of activity Where needed, encourage expansion of activity Enhance patient choice Increase patient satisfaction Encourage providers to be responsive to patient and commissioner preferences Keep costs under control Channel funding where it is most needed Introduce fairness and transparency in funding providers Encourage the development of new, cost-effective treatment pathways Shift patterns of service provision away from historical patterns Improve quality Source: Moraldo, Goddard, and Smith, York CHE Research Paper 19, 2006. Authors use the term Pb. R – pay by results
Difficult to Control Spending Without a Single Set of Payment Rules DELIVERY SYSTEM PUBLIC FACILITIES AND PHYSICIANS PRIVATE FACILITIES AND PHYSICIANS BUDGET FEE SCHEDULES CHARGES SOURCES OF INSURANCE COVERAGE PUBLIC PRIVATE UNINSURED
Provider Payment Systems are One of Many Approaches for Improving Efficiency Supply side approaches Demand side approaches Indirect mechanisms • Changing behavior via reimbursement mechanism • Changing market structure and behavior by changing overall ownership (e. g. , privatization of hospitals and facilities) • Using global budgets, possibly in combination with other efficiency targets (e. g. , staffing) Indirect mechanisms • Employing payment incentives to encourage treatment of patients in primary or ambulatory care • Introducing user charges and co-payments Changing care delivery • Adopting treatment protocols • Introducing performance management (e. g. , setting targets for length of stay, promoting day surgery) • Implementing business process reengineering • Adapting cost-reduction and efficiency targets Planning approaches • Implementing hospital closure and reconfiguration programs Demand management • Initiating an appropriateness and utilization review • Introducing “evidence-based purchasing”, specifying explicit rationing of treatments, specifying a basic package of interventions • Developing primary care substitutes • Promoting social and domiciliary care • Strengthening disease prevention activities • Adopting managed care or disease management Source: M. Henscher
Basic Health Reform Issues
Some Generic Health Reform Priorities Management, capacity building, policy and planning, regulation, and DDM • Developing capacity by employing multi-disciplinary skilled staff. • Collecting on a continuous basis necessary data for decision-making (e. g. , national health accounts; epidemiological data to monitor the MDGs, etc. ) and monitoring outcomes. • Coordinating policy-making among multiple public bodies, sectors, and private stakeholders at all geographic levels. • Assuring appropriate regulatory frameworks for quality, insurance, system capacity, etc. Delivery • Decentralizing management to regional and local levels. • Assuring appropriate numbers, mix, and geographic distribution of human and physical resources. • Implementing effective quality assurance systems • Assuring that overall system capacity corresponds to underlying needs, affordability and efficiency. • Reform pharmaceutical sector. Financing • Assuring access to affordable public and personal health services and provide financial protection by effective ‘risk pooling’ through public and private financing mechanisms. • Assuring that such mechanisms (e. g. , general revenues, payroll taxes, user charges, premiums) are equitable (based on ability to pay), efficient (minimize distortions to the economy), simple to administer, and sustainable. • Developing, testing, and implementing new methods to pay medical care providers (e. g. , global budgets, capitation, DRGs, etc. ) that contain incentives for access, efficiency, and quality for public and private providers. Public health • Better targeting of interventions on the poor and to cost-effective treatment and prevention of communicable diseases (e. g. , ARI, CDD, AIDS, malnutrition) as well as non-communicable diseases and injuries. • Implementing effective culturally sensitive reproductive health policies. • Implementing effective environmental and occupational health policies.
Some ‘Conventional Wisdoms’ About Health Reform • • • It is much easier to expand coverage and benefits than to reduce them When one creates a uniform universal program from several existing programs, the benefit package generally ends up being that of the most generous program One shouldn’t undertake major coverage expansions on an inefficient base system It is very difficult to finance a reform in the short-term through efficiency gains Demand side controls are important, but one must keep in mind that cost is often irrelevant when it comes to peoples’ health and physicians generally determine demand Supply side (regulatory and reimbursement) measures are absolutely critical for controlling costs in any pluralistic, not strictly budget-controlled, system There are substantial market failures in health that limit the inherent efficiencies underlying competition either among insurers or providers, requiring complex regulatory mechanisms for both providers and insurers Major reforms in delivery arrangements and medical practice take time, particularly if new types of physician specialists need to be trained Governments need to consider both private financing and private delivery, given potential self-referral by public providers, the ability for private insurers and providers to dump the worst health risks onto the public system, and the opportunity costs of inefficient private sector investments in terms of lost growth and employment Rationalization of the health delivery system needs to be an implicit or explicit aspect of coverage expansions, regulatory, quality assurance, and payment mechanisms
How Can the Financing Gap Be Filled? • Improve equity and efficiency of current spending in terms of focusing on cost-effective interventions targeted to the poor provided through an efficient health care delivery system • Undertake appropriate investments in other health– related sectors • Improve domestic resource mobilization • Try to re-allocate private spending for optimal public purposes including appropriate user charges • Obtain increased donor support and debt forgiveness through the adoption of effective macroeconomic and health sector strategies through PRSPs, MTEFs, SWAPS, Global Funds, etc.
ODA is Rising But is Far Short of What is Needed to Meet MDG (0. 54) and Monterrey Commitments (0. 70) To meet 2010 commitments (ODA of US$130 billion per year), need an average increase of about 8% per year Source: OECD DAC database.
Much of the Increase in Aid is Not Directed to Financing the Incremental Costs of Meeting the MDGs Source: Sundberg and Gelb 2006. In 2005, ODA peaked at US$ 106. 5 billion -- most of this increase was due to debt relief and exceptional mobilization in response to the Tsunami and the Kashmir earthquake
ODA is the Main Source of External Finance for SSA, Twice as Large as FDI and Nearly Four Times the as Large as Remittances Total long-term flows of $41 billion in 2003 Total long-term flows of $340 billion in 2003 Source: World Bank. Global Monitoring Report. 2005.
Donor Aid for Health has Increased Significantly Source: Michaud 2007
Where Does All the Aid Go? On average, for every $1 disbursed by donors to our 14 case study countries, we estimate: • Not recorded in balance of payment $0. 30 • Recorded in BOP but not in Govt spending $0. 20 • Aid earmarked to specific projects $0. 30 • Budget support $0. 20 • 1990 s structural adjustment provided a larger share of aid as general budget resources.
Basic Problems in Current ODA System • Lack of global governance and policy coherence • Lack of predictability of funding and large differences between donor commitments and disbursements at the country level generate problems of macroeconomic management and planning • There is a growing concern about the ‘verticalization’ of aid and the need to focus holistically on health systems as opposed to specific diseases or interventions • Large numbers of new actors and donors and the plethora of ‘new’ aid instruments (e. g. , SWaps, PRSPs, PRSCs, PRGFs, MTEFs, etc. ) create problems of management and coordination at both the global and country levels and generate transactions costs and absorptive capacity constraints • Lack of responsiveness and flexibility of aid to sudden problems and crises • Little accountability of donors for the absence of results and lack of M&E systems which are needed to ensure that the additional resources are being used as prioritized and achieving results • A significant portion of aid is off-budget and often doesn’t even enter into the balance of payments or the government’s budget • Countries need to create ‘fiscal space’ to absorb these large increases in external assistance, a potentially problematic situation given IMF fiscal ceiling
Donor Commitments for Health are Volatile and Unpredictable Try managing this…
Donor Collaboration is a Challenge GTZ Norad CIDA UNAIDS RNE Sida USAID WB WHO UNICEF T-MAP MOF UNTG CF DAC GFCCP CCM HSS P MOH PMO PRSP PEPFAR GFATM INT NGO 3/5 MOEC SWAP NCT P CTU CCAIDS NACP LOCALGVT CIVIL SOCIETY PRIVATE SECTOR Source: WHO: Mbewe
Bilateral Donor Support to Tanzania, 2000 -2002 Source: Foreign Policy, Ranking the Rich 2004
Vertical Aid Distorts Priorities Community Management Case management Drug Use HIV/AIDS Nutrition Skilled birth attendance New born care Malaria PMTCT Health system Source: WHO, Mbewe Maternal health Safe and Supportive Environment
Absorptive Capacity Constraints are Multi-Dimensional
Constraints to Improving Access to Health Interventions
The Face of the HRH Crisis RECRUITMENT ATTRITION Pre-service training -Clinical vs Managerial -Specialist vs polyvalent -Death -Professional vs volunteer -Braindrain: loss vs gain -Pension Social Franchising DISTRIBUTION -Geo: rural vs urban RETENTION -Monetary: salary vs allowances -Secondary: housing, transport, communication, electrification, child -Level: central vs service delivery education, training opportunities etc. -Sector: public vs private -HR management -Type: key-staff vs others
What Will Donors Have to Do? • Harmonize procedures (procurement, financial mgt, monitoring & reporting) in order to improve impacts and reduce donor and country transactions costs • Provide increased and predictable long term financing • Finance recurrent costs • Offer consistent policy advice • Submit to common assessment of their own performance
What Does This Mean for Countries? • • Develop credible strategies and plans to foster economic growth, deal with implementation bottlenecks, and reach MDGs as part of PRSPs, SWAPs, MTEFs, and public expenditure programs Improve governance including giving voice to communities, consumers and openness to NGOs and private sector Enhance absorptive capacity through decentralization, efficient targeting mechanisms, and institutional reforms including having a clear fiduciary architecture and open reporting of results Improve equity and efficiency of resource mobilization and commit resources Middle income countries need to make the commitment to develop and implement effective health reform strategies relying on evidence-based policy, best international practice, and MDG+ goals and indicators Develop financing, management, and regulatory mechanisms for equitable and effective pooling of insurable health risks as a necessary concomitant to MDG and CMH intervention choices. Integrating vertical programs into a well functioning health system to maximize health-specific and cross-sectoral outcomes and reduce transactions costs Monitor and evaluate results
A Shared Global Approach • Build on existing funding modalities • Use and further improve existing plans and mechanisms at the country level • Address inequities within countries • Scale up cost-effective interventions • Tackle critical implementation constraints • Apply a multi-sectoral approach • Focus on results • Country orientation, but global action is also needed
The Basic Instruments
Public Expenditure Management Instruments • • • Poverty Reduction Strategy Paper (PRSP) – a comprehensive, long-term, country owned, participatorally developed, results-oriented plan focused on poverty outcomes and the multidimensional nature of poverty Medium Term Expenditure Framework (MTEF) – a fiscal framework that consists of a top down resource envelop, a bottom-up estimate of the current and medium term costs of existing policies and, ultimately, the matching of these costs with available resources in the context of the annual budget process Sector Wide Approach (SWap) -- a health policy and donor coordination mechanism designed to be country-driven; based on a shared vision of a comprehensive sector development strategy that reflects all development activities including identification of gaps, overlaps, and inconsistencies; establishes agreed upon priorities for the sector; contains an expenditure framework that clarifies sectoral priorities and guides all sectoral financing and investment; and, creates partnerships across development assistance agencies that reduce governments’ transaction costs Public Expenditure Review (PER) – a comprehensive analysis of the levels and composition of government spending and revenues that assesses inter- and intra-sectoral allocations, public enterprises, the structure of governance, and the functions of public institutions Public Expenditure Tracking Surveys (PETs) – surveys that track the flow of publicly funded services through the layers of bureaucracy down to the service facility that is charged with responsibility for spending
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