Health Sector PERS

1
Health Sector PERS

• PREM Public Expenditure Management Course
• April 2007, Washington, D.C.

George Schieber Consultant Human Development
Network
2
Organization of Presentation

• Health Systems Reform
• Underlying Health Dynamics
• Health Expenditures
• Basics of Health Financing
• Provider Payment
• Basic Health Reform Issues
• Basic Reform Instruments

3
Health Systems Reform
4
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

5
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 outcomesother than sentinel
  events such as births or deathand 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.

6
Achieving Change in HNP
Behavior of Individuals/Households
Income Education Water Sanitation Nutrition

• Performance of Health System
• Clinical Effectiveness
• Accessibility and Equity
• Quality and Consumer Satisfaction
• Economic Efficiency

• Health Status Outcomes
• Fertility
• Mortality
• Morbidity
• Nutritional Status

Macro-economic Environment
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
7
Health Systems
Source David Peters, World Bank 2006
8
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

9
Nine Criteria for Establishing a BBP for Public
Spending on Health Care
Catastrophic Cost
Poverty
Externalities
VerticalEquity
Cost Effectiveness
Public Goods
HorizontalEquity
Public Demands
Rule of Rescue
Key Efficiency criteria Equity or Ethical
Criteria Political Criterion
Source P. Musgrove
10
Decision Tree for Public Resource Allocation
Source P. Musgrove
11
The Five Control Knobs for Health Sector Reform
THE FIVE CONTROL KNOBS FOR HEALTH SECTOR REFORM
FINANCING
PAYMENT
ORGANIZATION
REGULATION
PERSUASION
INTERMEDIATE OUTCOMES
HEALTH STATUS
FINANCIAL RISK PROTECTION
SATISFACTION
FINAL OUTCOMES FOR HEALTH SECTOR PERFORMANCE
12
Underlying Health Dynamics
13
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
Income Wealth Growth
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
14
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.
• Reduce by three quarters, between 1990 and 2015,
  the maternal mortality ratio.

• 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.

• Communicable Diseases
• By 2015, halt and begin to reverse
• the spread of
• HIV/AIDS
• Malaria
• Other major diseases.

15
Investments are Needed Across Many Sectors to
Achieve MDGs
Investments are Needed Across Many Sectors to
Achieve MDGs
Investments are Needed Across Many Sectors to
Achieve MDGs
growth government health spending
0
3
5
8
10
13
15
0
0
5 economic growth
-10
-10
2.5 female education growth
2.5 roads growth
-20
-20
2.5 water sanitary growth
-30
-30
2.5 growth in all
reduction U5MR 1990-2015
-40
-40
-50
-50
-60
-60
-70
-70
16
Policies and Institutions Do Matter

• Elasticities of MDG Outcomes with Respect To
  Government Health Spending

Statistically significantly different from zero
at 90 confidence level
Source World Bank, 2003
17
MDG Approach

• Highlights cross-sectoral links of health,
  education, water, sanitation, poverty reduction,
  and growth
• Focuses on health outcomes
• Estimated costs for assisting countries in
  reaching the MDGs are on the order of 50 billion
  per year with health estimated to be 15-30
  billion overall including 8-15 billion in
  additional development assistance

18
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?

19
Reducing Under-five Mortality
How much health will a million dollars buy?
Source Disease Control Priorities in Developing
Countries, second edition, 2006, Table 1.3.
20
Preventing and Treating HIV/AIDS
How much health will a million dollars buy?
Due to limited gains by individuals and
potential for adverse behavior changes, more
years may be lost than saved. Source Disease
Control Priorities in Developing Countries,
second edition, 2006, Table 1.3
21
Preventing and Treating Noncommunicable Diseases
How much health will a million dollars buy?
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
22
Cervical Cancer and Surgically Treatable
Conditions
How much health will a million dollars buy?
Source Disease Control Priorities in Developing
Countries, second edition, 2006, Table 1.3
23
Implementation Bottlenecks Must Be Addressed

• Human resource constraints
• Constraints to physical accessibility
• Supply and logistical problems
• Technical and organization capacity constraints
• MBB (Marginal Budgeting for Bottlenecks), a
  resource allocation tool, can be used to estimate
  the costs of removing system-wide impediments to
  service delivery

Source A Soucat , W.V. Lerberghe, F. Diop , S.
N. Nguyen and R. Knippenberg, Marginal
Budgeting For Bottlenecks A New Costing Tool and
Resource Allocation Practice to Buy Health
Results, World Bank, November 2002.
24
Isnt Economic Growth Enough?

• Income elasticity of health outcomes low
  economic growth alone cannot be expected to
  deliver MDG outcomes.
• Income-health relationship has been shifting over
  time the same level of income in 1960 and 2000
  is associated with higher health outcomes in 2000
  versus 1960.
• Wide variation with regard to impact of income on
  health MDGs although wealthier is healthier on
  average, but several examples show that economic
  growth is neither necessary nor sufficient to
  attain health outcomes.
• Cuba, Sri Lanka, pre-reform China, and Kerala
  (India) demonstrate that rapid economic growth is
  not a pre-condition for health improvements.
• Many countries have had improvements in child
  mortality without economic growth (e.g., SSA).
• Other factors such as education, institutions,
  and political environment are important.

25
Isnt Economic Growth Enough?
Chinas life expectancy grew rapidly in the 1960s
and 1970s (a period of relative low growth).
Post-reform when the countrys economy has been
booming life expectancy improvements have
slowed.
26
But Economic Growth Will Not Be Enough
27
Underlying Demographics Will Drive Needs/Demands
But Also Have Profound Effects on Economies
28
Demographic impact of HIV/AIDS Botswana
Source U.S. Census Bureau 1999
29
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).
30
There Are Large Global Inequities in Health
Resources
Source WDR 2004
31
Health Expenditures
32
Health Policy BaselineHealth 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
33
Key Expenditure Facts

• Public spending accounts for less than 25
  percent of total health spending in LICs, some
  50 in MICs but over 60 in HICs
• Policy-makers need to focus on private spending
  as well as public.
• Public spending on health is some 10 per capita
  in LICs, over 100 in MICs, and 2000 in HICs
• Policy-makers in LICs will be challenged to
  provide an essential package of basic services.
• Out-of-pocket payments account for 70 percent of
  health spending in LICs, 40 percent in MICs and
  15 percent in HICs
• Policy-makers need to focus on improving formal
  risk pooling mechanisms in order to provide
  financial protection and protect the poor.
• Social health insurance accounts for some 1 of
  all health spending in LICs, 20 in MICs, and 30
  in HICs
• Policy-makers in LICs need to carefully evaluate
  whether they have the enabling conditions in
  place for SHI to succeed.
• While external sources on average account for
  only some 6 percent of total health spending in
  LICs, in over 20 African countries, it accounts
  for more than 30 percent
• Policy-makers in LICs and MICs need to keep
  focused on internal sources of finance, as these
  sources account for the bulk of their health
  revenues.

34
The Global ContextMajor Inequities in Disease
Burden
Developing countries account for 90 of the
global disease burden
Source The World Bank. 2005. World Development
Indicators. 2006.
35
The Global ContextInequities in Health Spending
but only 12 of global health spending
Source The World Bank. 2005. World Development
Indicators. 2006.
36
But There Are Also Large Inequities in Health
Spending Within Countries
37
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)

38
Where Do We Start National Health Accounts
Source OECD
39
Health Expenditures in Ukraine, 1998-2005
Source WHO National Health Accounts 2007
40
Evolution of Budgetary Expenditures on Health
Source WHO National Health Accounts 2007
41
Recurrent and Capital Expenditures on Health
Source Ukraine Public Expenditure Review Health
Sector , Health Sector Task Force, World Bank 2007
42
Public Health Expenditures by Program
Source Ukraine Public Expenditure Review Health
Sector , Health Sector Task Force, World Bank 2007
43
U.S. NHA By Type of Service
Source Health Affairs Feb 2007
44
U.S. NHA Growth By Type of Service
Source Health Affairs Feb 2007
45
U.S NHA Growth in NHE and GDP
Source Health Affairs Feb 2007
46
U.S. NHA by Source of Funds
Source Health Affairs Feb 2007
47
U.S. NHA By Source of Spending
Source Health Affairs Feb 2007
48
Per Capita Health Expenditure vs. Per Capita GDP
Source World Bank, WDI, 2007, World Health
Organization 2007
49
Health Expenditures as Percent of GDP
Source World Bank, WDI, 2007, World Health
Organization 2007
50
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
51
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
52
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
53
Higher Public Spending on Health Does Not
Guarantee Better Access for the Poor
Source WDR 2004
54
Observations on Current Spending Patterns

• There are large global inequities in health
  spending among countries
• There are large variations in health spending
  among countries at the same income level
• There are large variations in health outcomes
  among countries even for the same health spending
  and income levels
• There are large variations within countries in
  health spending, access, and outcomes for the
  poor vs. non-poor
• The private share of health spending, which
  averages 75 for low-income countries, decreases
  as countries incomes increase
• There are clearly large differences in the
  efficiency of health spending related to both
  allocative (doing the right things) and
  technical (doing things right) efficiency

55
Basics of Health Financing
56
Health Financing Functions and Objectives

• Functions

• Objectives

Revenue Collection
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
57
Financing Reforms Need to Deal with Revenues,
Risk Pooling, Management and Payment
Revenue Pooling
Resource Allocation Collection
or Purchasing (RAP)
Service Provision
Public
Private
58
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
59
Source Baeza
60
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

61
Public Financing Sources

• Taxes
• Sales of natural resources
• User charges
• Mandates
• Grant assistance
• Borrowing
• Efficiency Gains

62
Private Financing Sources

• Private insurance
• Direct out-of-pocket purchase
• Grant assistance
• Borrowing
• Charitable contributions

63
Tax System Criteria

• Revenue adequacy and stability the tax should
  raise a significant amount of revenue, be
  relatively stable, and be likely to grow over
  time
• Efficiency minimizes economic distortions
• Equity should be fair in terms of the treatment
  of different income groups
• Ease of collection should be simple to
  administer
• Political acceptability transparency, broad
  diffusion, and clarity about the uses of the tax
  promote acceptability

64
Domestic Resource Mobilization is Much More
Limited in MICs and LICs
65
Strong Performance in Most Regions
Real GDP annual percent change
Source World Bank
66
Essential Elements of the Fiscal Policy Framework

• Overall fiscal balancereflects its link to the
  governments net financing requirements and to
  the external current account, but ultimately need
  to examine other key fiscal indicators
• Ensure that fiscal policy well coordinated with
  monetary policy to ensure limited inflation
• This imposes limits on magnitude of seignorage
  creation
• Also imposes limits on how much credit to be
  provided to the government
• Avoid crowding out of the private sector
• Concerns for fiscal sustainability/solvency
• Particularly if limited size of domestic
  financial markets, need to be cautious about
  expansion in size of domestic debt

Source Heller
67
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

• 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
68
Fiscal Sustainability is a Critical Concomitant
of the Creation of Fiscal Space

• The Classic Definition
• 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.

• Other Definitions
• 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
  

69
Risk Pooling is Needed to Prevent Health Shocks
Which Contribute to Poverty (Loss of income,
excess expenditures in medical health services)
Source Baeza
70
Catastrophic Health Costs Cause Poverty Effect
of Household Health Spending on Poverty Levels in
Bangladesh, 2004
Source Baeza
Source EQUITAP Project Working Paper 2. May
2005. Paying out-of-pocket for health care in
AsiaCatastrophic and poverty
impact. www.equitap.org
71
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

72
What do We Mean by Risk Pooling?
Resource endowment
Resource endowment
Resource endowment
Health risk
Income
Age
73
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

74
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

75
Do Insurance Market Instabilities Necessitate
Public Financing?

• Public financing can
• pool risks over the entire population
• eliminate adverse selection and medical
  underwriting problems
• still face cost problems due to moral hazard

• Private insurance can
• segment health risks by underwriting groups
• preclude economic losses from coercive taxes
• allow for greater consumer choice

76
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, semi-autonomous
  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

77
Major Health Financing Models
78
A Model of the Evolution of Health Care Financing
Systems
High Income Countries
Low Income Countries
Middle Income Countries
Patient Out- of-Pocket
Patient Out-of- Pocket
Priv. insur
National Health Service Model
Patient Out- of-Pocket
Social Insur
National Health Insurance Model
Social Insur
Govt Budget
Govt Budget
Private Insurance Model
Community Financing
Source Modified from A. Maeda
79
What is a NHS?
Systems financed through general revenues,
covering whole population, care provided through
public providers

• Three main features
• Funding comes primarily from general revenues.
• Taxes, other public revenues from sales of
  natural resources, sales of government assets,
  public tolls, borrowing and grant assistance,
  earmarked taxes or funds from local authorities.
• Provide medical coverage to the whole population.
  
• Health care coverage is considered an attribute
  of citizenship.
• Usually deliver health care through a network of
  public providers.
• MoH heads a large network of public providers
  organized as a national health service.
• Facilities are owned by the government, and
  health personnel are public employees.
• However, some countries reimburse or contract
  with private providers.

80
NHS Systems
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

81
What is 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

• Most common features and principles
• Membership is publicly mandated for a designated
  population.
• Occurs through an incremental process.
• From existing employer-based insurance schemes to
  compulsory schemes for specific employment groups
  to SHI.
• Direct link between the payment of contributions
  to finance the system and the receipt of medical
  care benefits.
• Only contributors have the right to access
  specific items of care.
• There is a public commitment to take and give
  under prescribed conditions stipulated by laws
  and regulations. (Ron, Abel-Smith, and Tamburi
  1990).

82
What is Social Health Insurance? (2)

• 3. Social solidarity is essential.
• Implies a high level of cross-subsidization
  across the system, between rich and poor,
  low-risk and high-risk people, and individuals
  and families
• 4. Management of social health insurance involves
  some degree of autonomy from the government,
  often through quasi-independent organizations in
  charge of the system and in principle the
  organization has to maintain its own financial
  solvency.

83
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

84
What is CBHI?
Not-for-profit prepayment plans for health care,
with community control and voluntary membership,
care generally provided through NGO or private
facilities

• Three common features
• Affiliation is based on community membership, and
  the community is strongly involved in managing
  the system.
• Linked by geographic proximity, same profession,
  religion, ethnicity, or any other kind of
  affiliation that facilitates their cooperation
  for financial protection (Jakab and Krishnan
  2004).
• Beneficiaries are excluded from other kinds of
  health coverage.
• Members share a set of social values.

85
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

86
What is Voluntary Health Insurance?
Financed through private voluntary contributions
to for- and non-profit insurance organizations,
care provided in private and public facilities

• Voluntary health insurance is defined as any
  health insurance that is paid for by voluntary
  contributions.
• In reality, most private health insurance markets
  are voluntary.
• Important to identify whether the voluntary
  scheme is a primary or additional source of
  health care funding.
• Primary functions (OECD 2004)
• the main source of health coverage for a
  population or subpopulation (primary)
• coverage of the same services or benefits as the
  public system (duplicate) (although the providers
  and timely access to, quality, and amenities of
  the services may vary)
• coverage of cost sharing under the public system
  (complementary)
• coverage of services uncovered by the public
  system (supplementary)

87
Voluntary Health Insurance
Financed through private voluntary contributions
to for- and non-profit insurance organizations,
care provided in private and public facilities

• 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
  cost-efficiency of health care providers

• Weaknesses
• 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

88
User Fees are Only a Small Share of Total
Consumer Payments
Fees for publicly provided services
89
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 and 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 cost-effective 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

90
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.

91
Provider Payment
92
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

93
Key Messages

• There is no right method
• Provider payment systems must be tailored to the
  institutional realities of each system
  encompassing both the demand and supply sides
• 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
• Policy-makers must monitor the effects of
  alternative provider payment systems on cost,
  access, and quality MIS is critical

94
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
95
Flows of Funds to Medical Care Providers
PUBLIC AND PRIVATE INSURANCE PROGRAMS PAYMENTS
FOR SERVICES
DIRECT PROVIDER REIMBURSEMENT APPROACHES
AND CONTRACT ARRANGEMENTS
INDEMNITY MODEL
METHOD, UNIT, AND LEVEL OF PAYMENT HAVE
INCENTIVES FOR PROVIDERS THAT AFFECT TYPE,
NUMBER AND QUALITY OF SERVICES PROVIDED
PROVIDERS OF CARE
PATIENTS
FLOW OF SERVICES
96
Incentives To ProvidersDepend 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

97
Need To Monitor

• Costs
• Quality
• Access
• Impacts across different provider types
• Impacts across all public and private payors
  including those paying out of pocket

98
The New Focus P4P Pay for Performance

• Realigning payment incentive in health care to
  encourage higher quality and more efficient care
  (Epstein, NEJM, Feb,2007)
• Transfer of money or material goods conditioned
  on taking measurable actions or achieving a
  predetermined performance target (Eichler, CDG,
  2006)
• In 2005 U.S. Congress mandated that CMS put
  develop a P4P program for Medicare
• British have implemented P4P with FPs
• Is this anything really new or does it just more
  directly address the tradeoffs between cost,
  quality, and access?
• Can be applied at system wide to individual
  organizational levels

99
Basic Principles of P4P

• 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
PbR pay by results
100
Some Basic Measures for Family Physicians

• Utilization and cost management - avg number of
  emergency dept visits per patient per year
• Clinical quality/effectiveness of asthma
  patients on controlled medications
• Patient satisfaction -- of patients who would
  recommend their physician to a friend/relative
• Administrative practices level of information
  technology
• Patient safety -- of patients questioned about
  allergic drug reactions

Source Millenson, NEJM, Feb, 2007.
101
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
PRIVATE
PUBLIC
UNINSURED
102
Need to Regulate the Private Sector

• Design of regulatory framework determined by
  objectives and their ranking
• cost control is usually the primary problem
• Regulatory frameworks complex and costly
• Many countries regulate the private sector
  inadequately
• Ignoring the need for private sector regulation
  ensures cost inflation, inefficiency, inequity,
  and cost-shifting to the public sector

Source Maynard
103
Payment Mechanisms for Physicians, Financial Risk
and Incentives
Source Maynard and Bloor
104
Hospital Payment Mechanisms Financial Risk and
Incentives
Source Maynard and Bloor
105
Managed Care Defined

• Systems that integrate financing and delivery of
  contractually defined health services to
  enrollees
• arrangements with select providers (networks)
• explicit standards to select providers
• formal programs for quality improvement,
  utilization review, and demand management
• focus on prevention, limited cost-sharing
• financial incentives for enrollees to use network
  doctors

Source modified from HIAA, 1995
106
Standard Health Insurance vs Managed Care
Health Insurance (U.S. 15 20 yrs ago)
Managed Care

• free beneficiary choice of provider
• fee-for-service payments to providers
• not integrated with the delivery system
• insurer accepts all the financial risk
• little quality measurement and very limited care
  management

• selected provider network
• gatekeeper role of primary care physician and
  other utilization managers
• negotiated payments and incentives for cost
  control
• integrated systems
• risk is shared
• measures quality appropriateness
• generally, more covered services / benefits
• low out-of-pocket costs for members using the
  network

Source modified from modified from HIAA, 1995
107
Managed Care Features
Governments Employers Individuals
Contributions by employee or household
Premiums/ Risk-Adjusted Capitation
Managed Care Organization
Beneficiaries
Cost-sharing
Network/ Preferred Providers Staff Group Network
IPA
Extra Payment For out of plan use In POS plans
Services
Selection criteria Reimbursement Procedures Risk
sharing arrangements Quality assurance
Non-Network Providers
Utilization/ Demand mgmt
108
Provider Payment Systems are One of Many
Approaches for Improving Efficiency

• Supply 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)
• 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 side approaches
• Indirect mechanisms
• Employing payment incentives to encourage
  treatment of patients in primary or ambulatory
  care
• Introducing user charges and co-payments
• 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
109
Basic Health Reform Issues
110
Some Generic Health Reform Priorities
111
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 shouldnt 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

112
How Much Should Be Spent for a Basic Package of
Essential Health Services

• A few health conditions are responsible for a
  high proportion of the worlds health deficit
• These conditions largely affect the poor
• Cost-effective health interventions to deal with
  these conditions exist
• CMH proposes universal coverage for programs of
  essential interventions to be funded by public
  and donor contributions
• The costs per capita would be on the order of 34
  per capita according to CMH

113
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
  healthrelated 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.

114
But Rapid Gains Are Possible

• Promote economic growth
• Application of known and emerging interventions
• Changes in national policies, capacity building,
  and increased financial support
• Strengthen health systems
• Initiate complementary actions across sectors
  (education, water, energy, transport)
• Enhance donor mobilization and harmonization

115
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 US130 billion
per year), need an average increase of about 8
per year Source OECD DAC database.
116
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
117
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.
118
Donor Aid for Health has Increased Significantly
Source Michaud 2007
119
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
• 1990s structural adjustment provided a larger
  share of aid as general budget resources.

120
Aid Effectiveness

• Aid has diminishing returns
• There are limits to country absorptive capacity
• Aid is fungible overall (can offset budget
  contributions) and among sectors
• Aid achieves better results in good policy
  environments
• Aid requires ownership by countries (e.g., donor
  imposed conditionalities rarely work)
• Aid is related to increased investments and
  growth
• Debt repayments have a negative impact on
  economic growth
• Aid has high transaction costs for countries
• Aid makes governments accountable to donors as
  opposed to their citizens
• Aid in the form of grants instead of loans may
  reduce domestic resource mobilization efforts

121
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 ME 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 doesnt even enter into the balance of
  payments or the governments budget
• Countries need to create fiscal space to absorb
  these large increases in external assistance, a
  potentially problematic situation given IMF
  fiscal ceiling

122
Donor Commitments for Health are Volatile and
Unpredictable
Try managing this
123
Donor Collaboration is a Challenge
INT NGO
WHO
CIDA
3/5
UNAIDS
GTZ
RNE
UNICEF
Norad
WB
Sida
MOF
USAID
T-MAP
UNTG
PMO
CF
DAC
GFCCP
PRSP
PEPFAR
HSSP
GFATM
MOEC
MOH
SWAP
CCM
NCTP
CTU
CCAIDS
NACP
PRIVATE SECTOR
CIVIL SOCIETY
LOCALGVT
Source WHO Mbewe
124
Bilateral Donor Support to Tanzania, 2000-2002

Source Foreign Policy, Ranking the Rich 2004
125
Vertical Aid Distorts Priorities
Case management
Community Management
Drug Use
Skilled birth attendance
New born care
PMTCT
Safe and Supportive Environment
Health system
Maternal health
Source WHO, Mbewe
126
Fragmentation in international effort .
Source Don De Savigny COHRED
127
Absorptive Capacity Constraints are
Multi-Dimensional
128
Constraints to Improving Access to Health
Interventions
129
The Face of the HRH Crisis
RECRUITMENT
ATTRITION

• Pre-service training
• Clinical vs Managerial
• Specialist vs polyvalent
• Professional vs volunteer

• Death
• Braindrain loss vs gain
• Pension

Social Franchising
DISTRIBUTION
RETENTION

• Monetary salary vs allowances
• Secondary housing, transport, communication,
  electrification, child education, training
  opportunities etc.
• HR management

• Geo rural vs urban
• Type key-staff vs others
• Level central vs service delivery
• Sector public vs private

130
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