REGIONAL COMMITTEE Sixty-second Session Kathmandu, Nepal 7–10 September 2009
Provisional Agenda item 11 SEA/RC62/10 21 July 2009
ENGAGEMENT WITH THE PRIVATE SECTOR Engagement with the private sector was put forward for discussion by Thailand at the Sixtyfirst Regional Committee for South-East Asia in 2008, to be developed as an agenda item for the 124th Executive Board in January 2009. The Executive Board agreed that the topic be further deliberated upon at the Sixty-second World Health Assembly in 2009. In light of the urgent issue of the influenza A (H1N1) outbreak, Member States agreed that the topic of engagement with the private sector be postponed for discussion at the Sixty-third World Health Assembly in 2010. This background paper highlights key technical issues that underline the central importance of governance in effective engagement of the private sector. A large and varied private sector plays a dominant role in health in the South-East Asia Region in terms of both finance and provision of services. Evidence indicates that households in the Region rely on private provision even for essential services like maternal and child health care, and that this is financed through high out-of-pocket payments – more so than anywhere else in the world. However, much of this activity is unregulated and does not contribute effectively to the national health agenda. Where the role of the private sector is already large, the relative costs and benefits of effective engagement for universal coverage compared with scaling-up public provision make it an option for serious policy consideration. Such mixed strategies would need appropriate modalities for partnership and new capacities to be developed on both sides. Furthermore, this approach does not preclude political and social stands on the preferred roles of government and private sector in health based on ideology as well as the strengths and weaknesses of government. Importantly, “more” private sector does not mean “privatization” or “less” government; rather, it implies a strong government presence, only in a different role, one that emphasizes governance and financing rather than direct provision. Based on country experience, this paper underlines the importance of government capacity in strategic engagement of the private sector in health. The High-Level Preparatory (HLP) Meeting considered the working paper SEA/HLPMeet/2.2 on the subject. This revised working paper is now being submitted to the Sixtysecond Session of the Regional Committee for its consideration. The HLP meeting also proposed a draft resolution for consideration of the Regional Committee. The paper is now submitted to the Sixty-second Session of the Regional Committee for its consideration, and for its decision regarding the resolution proposed by the HLP meeting.
SEA/RC62/10
Background 1. Engagement with the private sector was discussed at the Sixty-first Regional Committee for South-East Asia in 2008 as a potential option for scaling up services and advancing on national health goals. The topic was put forward by Thailand and endorsed by Member States to be proposed as an Agenda Item for the 124th Executive Board in January 2009. The Report from the Executive Board highlights Member State emphasis on the importance of government capacity to regulate the private sector for its contributions may be effectively garnered into the national health effort. Members States agreed that the issue be further deliberated at the Sixtysecond World Health Assembly 2009 and, later, postponed to the Sixty-third World Health Assembly in 2010 in light of the swine ‘flu outbreak.
Introduction 2. The private or non-state sector in health in countries of the Region consists of varied actors that have, over the years, come to dominate health finance and provision. Political and social ideology has systematically excluded this sector from national health policy planning. The exclusion of the private sector from public policy has meant that strategies to implement it effectively have been missing—and without legislation and regulation to restrict the private sector as well as feasible alternatives to health finance and provision, there has been de facto privatization of health in the Region, with over one-third of both finance and provision being private sector-based. 3. The evidence suggests that households, even from lower income quintiles, rely on the private sector for essential services—care that falls squarely within the domain of the ideology underlying state financing and provision. Government capacity to fulfill this role has been severely constrained, resulting in weak health systems and poor health status. A pragmatic approach would be to engage existing private providers to bridge this gap and scale-up services towards universal coverage; the following discussion focuses on feasible mechanisms to do this. As noted above, private financing also plays an important role in health in the Region and is highlighted as appropriate in relation to service provision—a more in-depth discussion is beyond the scope of this paper. 4. The limited experience in public-private partnerships in the Region suggests that the private sector can effectively supplement public provision through strategic contracting and use of provider payment mechanisms, including targeting the poor and improving quality of services. Best practices in countries indicate substantial scope in improving health systems performance with such engagement at little or marginal cost. Much of the costs in fact relate to developing government capacities for engaging the private sector—at policy, technical, regulatory and operational levels. Importantly, this means a continuing, central role for government, albeit in stronger governance and finance rather than direct provision.
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Defining the private sector 5. A key concept used to distinguish the private sector from the public sector is ownership, with the definition of private encompassing all that is non-state, i.e. not owned by the state. Table 1 presents a simple typology of the wide variety of private sector actors in health on both the financing and provision sides as well as vis-à-vis the profit motive of each actor. Table 1: Typology of private actors in the health sector Formal Individuals/households NGOs/faithbased/community-based and other charities Foundations For profit Private companies Private insurance Pharmacies and pharmaceutical companies Suppliers of other healthrelated products NGOs/faithbased/community-based and other charities Private facilities -- clinics and hospital Private practitioners Informal Individuals/households Not-forprofit
Finance
Both
Provision
Not for profit For profit
Un-registered NGOs/faithbased/community-based and other charities
Private practitioners
6. In the context of countries of the Region, it needs to be noted that the informal private sector has particular relevance. In low-income settings, payment in kind is an important financing option as is informal provision of care, especially alternative therapies and remedies.
Ideology of the private sector in health 7. In most countries the ideology of private sector involvement in health is distinct from participation in other areas: societal values rather than the market mechanism underline national ideologies on health and these reinforce equity in access to care. Health services are regarded as “merit goods”, provision of which should be motivated by need rather than ability to pay or market demand. Moreover, every country is party to at least one human rights treaty that establishes health as a right. Market principles that are the basis of the private sector are at odds with this ideology, and the policy interpretation is the dominance of state-financed provision of health services for universal coverage. Public policy in the United States is possibly the only exception to this, where, on the efficiency argument, the market mechanism is relied upon to address all demand, including for health.
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8. Based on the nature of health services as a commodity, there are sound economic grounds for state intervention in health as well. Goods like health information are non-rivaled and nonexcludable in consumption; smoking has (negative) externalities, impacting the health of the consumer as well as others through secondary smoking. Benefits accrued and related costing in such cases cannot be arrived at by the market, causing failure of the mechanism and constraining private provision. 9. In the SEA Region the strongest argument for restricting the role of the private sector is the “merit good” argument and political commitment to protect the poor. Consecutive policies assigned the public sector responsibility to provide free or subsidized services, minimally primary care and/or vertical programmes to address public health issues. Consequently, national planning, organization and management of health financing and provision have systematically excluded the private sector. However, this exclusion of the private sector itself needed to be adequately planned, legislated and regulated. In the absence of this and coupled with government failure in its mandated role in health, there is, de facto, privatization of health financing and provision in the Region today.
The significance of the private sector in health in the SEA Region 10. As Figure 1 shows, the share of private financing in total health expenditure is by far highest in the SEA Region and, especially with respect to direct household out-of-pocket payments. Figure 1: Composition of health spending
Composition of he alth e xpe nditure me asure d in US$, 2006 100%
80%
60%
40%
20%
0% AFR Territorial government**
AM R
EM R
EUR Private prepaid plans
SEAR
W PR Other Priv ate
Social health insurance
Out-of -pocket
Source: National Health Accounts 2006
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11. Importantly, the private sector is the key provider of essential care, services for which the public sector has assumed the main responsibility in policy. Figure 2 presents comparative provider information on two health-related MDGs from developing countries. The data indicate a significant role of the private sector in providing access to services in the Region. Figure 2a: Service provider for most recent delivery Figure 2b: Service provider for most recent delivery
Source: Global Monitoring Report 2009
12. Figure 3 compares utilization of private services between the bottom two income quintiles with the population as a whole. Overall, there is no clear indication that private sector use is mainly by the better-off while the poor largely use public care. Separating these results for formal and informal private providers indicates that the poor rely more on the informal sector; without regulation on cost or quality, formal private providers capture consumers with greater ability to pay, while informal providers tend to be more accessible to the poor. Figure 3: Probability of using private providers by entire population versus lowest quintiles for South Asia and sub-Saharan Africa
Source: Global Monitoring Report 2009
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13. There are very few comprehensive studies of technical quality of care in either the public or private sector and the results are inconclusive on the extent to which providers adhere to best practices in medical efficacy and cost-effectiveness. Patient-perceived quality or process quality referring to non-medical aspects of consumer satisfaction favour the private sector – for example, physical accessibility, flexible working hours, shorter waiting time, and availability and attentiveness of staff. The private sector also scores well on structural quality (better equipment and general environment) and access to medicines – the latter is in fact often used as a proxy for overall quality.
Strategic engagement of the private sector in advancing universal coverage 14. Health financing and service provision in the Region do not merely include the private sector; they are dominated by the private sector. Policy that continues to exclude the private sector needs to be reviewed for a more pluralistic strategy for better outcomes. This is not to suggest a compromise on political ideology or societal values on health in any way by privatization of health—it is, rather, a strategic engagement of the private sector to advance towards the goal of universal coverage embodied in political ideology and societal values. 15. There is limited experience in working with the private sector in countries of the Region. Nonetheless, it is useful to examine the available evidence for technical and other issues in strategic engagement. The starting point is an upstream policy decision on expanding access towards universal coverage: with reference to Figure 4 this means prioritizing which services are provided (depth of universal coverage) for whom (breadth of universal coverage) and at what price (height of universal coverage). The remaining policy question then is by whom: who is to provide these services? Figure 4: Three ways of advancing towards UC
Source: World Health Report 2009
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16. In the Region, the overall priority in policy for universal coverage is the poor—addressing their health needs with financial protection. However, as noted above, the private sector dominates in both finance and provision of such services without policy, legislation or regulation to integrate this contribution into the national health agenda. There is very little evidence from the Region on engagement of the private sector, but it is helpful to try to extract key issues in effective public private partnerships from these. 17. The most cited example of private sector engagement in health from the Region is in TB control, particularly in Bangladesh and India. Both countries established centrally funded National Tuberculosis Programmes (NTPs) as priority public health interventions as well as to subsidize “a disease of poverty”. Nonetheless, private practitioners provide a significant proportion of TB-related care on a fee-for-service basis. Health outcomes have been well below national targets—both Bangladesh and India are among the 22 high-burden countries for TB. The decision to engage the private sector involved three strategic choices: •
Given the large role of the private sector in provision of TB-related services, the costeffectiveness of improving quality here was higher than substituting provision with public services. Public financing could then be used to improve performance, including equity targets, through appropriate incentives to change private provider behaviour. Requisite governance and other government capacities for successful implementation either existed or could be developed effectively at low cost.
• •
18. The standard arrangement is as follows: NTPs contract with private providers for service delivery using drugs for performance agreements. While contracts are neither legally binding nor detailed, they do include mutual obligations of both parties: • •
NTPs undertake to distribute free drugs and supplies; to provide necessary training; and to ensure general management and coordination of the programme. The obligations of the private providers include the following basic diagnostic and case management principles in line with set guidelines; provide drugs free of charge and services at low cost, and accept supervision and performance evaluation by NTPs based on which contracts are renewed.
19. Engagement of the private sector has allowed both countries to scale up access to quality services within available public resources, especially for the poor. Moreover, the arrangement includes accountability with credible action in case of inadequate performance. Depending on local capacities (health is a subnational area of responsibility in India), this basic model has been extended to include: • •
A triangular arrangement with NGOs partnering NTPs to supervise and evaluate private for-profit providers. Monetary incentives—the basic model includes an implicit incentive in increased utilization of providers in response to free drugs; more explicit incentives are, for example, some form of payment to providers.
20. Another illustrative case along the same operational principles is the Chiranjeevi Yojana in Gujarat, India. To meet the MDG targets for maternal and child health (MCH), the state government set up a public private partnership in 2005 that contracted with private obstetricians
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already practicing in rural areas to provide MCH care specifically to poor women who may not otherwise have access to facility deliveries. The programme was initially implemented in five pilot districts where facility deliveries increased from 38% to 59%. The programme has since been expanded to cover the entire state. 21. Engaging the private sector in MCH service delivery has increased access to care for below poverty line households—in less than two years, the number of obstetricians through the government programme increased from the original 7 in the public sector to more than 800 in the private sector. Further, the additional cost of the scheme for the whole state is estimated to be only about 3.5% of the total health budget. 22. Experience from public-private partnership indicates that considerable progress can be made on the depth, width and height of coverage (Figure 5). Best practice indicates that for such engagement to be successful, there needs to be requisite government capacity to effectively implement two main mechanisms: contracting and provider payments. Each is examined in detail below.
Key technical issues 23. “Contracting is a purchasing mechanism used to acquire a specified service, of a defined quality and quantity, at an agreed on price, from a specific provider, for a specified period” Harding A.; Preker A.S. (2003). WHO Member States recognize the potential of contracting to harness the positive attributes of the private sector to improve overall systems performance, including supplement any resource availability in health, both financial and workforce; promoting healthy competition; and taking risks to innovate on technology and processes. The World Health Assembly Resolution WHA56.25 on “The role of contracting arrangements in improving health systems’ performance” captures this consensus. 24. Table 2 illustrates the options for contracting arrangement for health services. Table 2. Options for contracting arrangements in health services and related areas with the private sector Health service delivery arrangement Public sector services Internally contracted Example Financing Provision Organization and management Public sector Public sector Infrastructure Monitoring and Evaluation Public sector Public sector (higher level) Public sector
- Through public hospitals and PHC centers -Arrangement between central and district governments in a decentralized system -NGO provides PHC services - Private hospital provides specialized services - Private firm manages public hospital or health centers - Arrangement between central government and autonomous parastatal organization - CBO, FBO receives grant to provide services - GPs through private clinics
Public sector Public sector (higher level) Public sector
Public sector Public sector (lower level) Non-state provider
Public sector
Public sector
Contracted out
Non-state provider
Non-state provider
Contracted in
Public sector Public sector
Non-state provider Parastatal or Nonstate provider Non-state provider Non-state provider
Non-state provider Parastatal organization
Public sector
Public sector Parastatal organization
Grants to parastatal bodies Grants to nonstate providers Franchising
Parastatal or Non-state provider Non-state provider Private sector
or public sector Public sector Private & 13 public sector
Public sector Private sector
Non-state provider Private sector
Source: Siddiqi 2009
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Contracting in services like cleaning or waste management at a public facility is the most common type of private engagement and the simplest contractual arrangement in health. Diagnostics is the most frequently contracted out service from the public sector; again the contracts are commercial in nature and therefore easiest to implement. 25. Figure 5 categorizes contracts by their complexity. As shown, arrangements based on relationships alone without distinct deliverables and related monitoring are the most difficult to define and/or enforce. However, they may not necessarily be ineffective in their outcome vis-àvis performance. Successful use of contracting depends on government capacity to oversee strategic implementation. 26. Experience in contracting in the Region is limited, but best practices from countries in other regions highlight the importance of the role of government in using this instrument to engage the non-state sector. Following are some of the key findings: •
There are risks associated with contracting: limited providers in rural areas, which constrains positive competition; vested interests in gaining control over the contracting process; and, both of these are exaggerated by poor monitoring and evaluation mechanisms. Needed legal and administrative capacities are quite specific in contracting and this support has depended on the duration of experience with contracting. Figure 5: Range of contracts by complexity Completeness Enforceability
Classic Contracts Separation of actors Simple activity with clear deliverables Regulation to enforce implementation
Relational Contacts Partnership requiring confidence/cooperation between parties Complex activity with broad, long term mandate Self-enforcing with little scope for legal action against noncompliance Open-ended, unenforceable contracts on negotiation basis
Complete, enforceable contracts on principle-agent basis Source: WHO
• •
Contracting does provided an opportunity to have greater control over private providers, and if used judiciously could improve health system performance. Five elements have been found to be useful in effective contractual arrangements: -
a few, clearly defined deliverables; supportive stakeholders;
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trust between purchaser and contractor to deliver services; independent source of monitoring information; and a legal/political environment that ensures both sides that contract will be enforced.
27. Figure 6 depicts a systematic government approach for using contracting to engage the private sector in health. As shown, this requires capacity at four levels: policy, regulatory, technical and operational. Figure 6: Systematic approach for engaging the private sector through contracting
Policy level
National Health Policy National policy on contracting
Technical level
Framework for contractual arrangements with standardized texts in the national context
Regulatory framework with authority for credible action against non-compliance
Regulation
Operational level
Drawing up and implementing contractual arrangements based on the nature of nature of activity/deliverables; type of provider; and government capacity to implement contracts
Source: WHO
28. Provider payment mechanisms broadly refer to the way in which funds are transferred from a purchaser to a health-care provider. Through arrangements between providers and purchasers, such as incentives and risk-sharing, payment mechanisms can bring a provider’s behaviour more into line with the objectives of the purchaser. Payments are made either to an individual provider or to a health-care facility, and in either case can be prospective (i.e. determined and/or made in advance) or, retrospective (i.e. made after the service has been provided). Table 3 summarizes different types of provider payment methods and the advantages and disadvantages of each, as well as suggesting strategies to minimize the disadvantages. The most effective way of maximizing positive incentives and minimizing perverse incentives (incentives that have unforeseen, unintended, and/or adverse effects) is to use a mix of payment mechanisms. However, capacity constraints in low- and middle-income countries may preclude complex combinations of payment mechanisms. The more fragmented a health financing system and the greater the number of independent purchasers (as in the Region), the more difficult it is to exert pressure on providers to contain costs.
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Table 3: Advantages and disadvantages of different provider payment mechanisms Payment to Individual providers Payment mechanism Salary Advantages Predictable expenditure Low administrative costs Disadvantages Ways of minimizing disadvantages Peer review of provider practices Link part of payment to performance Adjust payments to risk Monitoring and peer review of provider practices (including referral patterns) Patient choice of provider Global caps and/or adjusting fee to keep within resource limits Link part of payment to performance Monitoring and peer review Payment time
Provider Individual providers or Facility
Capitation
Possible underprovision and/or poor quality of care Little incentive for efficient behaviour and productivity unless linked to performance Incentive for Incentive for underservice technical efficiency Possible cream-skimming and preventive care (attracting low-risk patients) Administration costs Possible cost shifting (referral to reasonably low another provider)
Determined prospectively Paid retrospectively
Determined prospectively Paid prospectively
Fee for service
Facility
Budget allocation
Facility
Per diem
Incentive for technical efficiency (where fee schedules are fixed) Predictable expenditure and tight control Low administrative costs Some incentive for technical efficiency
Incentive for overprovision and cost escalation High administrative costs Limited direct incentives for efficiency unless linked to performance Can lead to underservicing and cost shifting Incentive to extend length of stay and/or increase number of admissions Unpredictable expenditure Relatively high administrative costs Incentive for cream-skimming
Determined prospectively Paid retrospectively
Determined prospectively Paid prospectively Determined prospectively Paid retrospectively Determined prospectively Paid retrospectively
Case-based Strong incentive for (includes efficient operation diagnosis related group payments)
Global caps/budget limits Lower fees for longer stays Adjust for case mix, i.e. by grouping people according to their use of resources
Source: Adapted from McIntyre 2007: Carrin and Hanvoravonchai 2002; Kutzin 2001
29. Figure 7 indicates the kinds of systems and governance skills, capacities and infrastructure that need to be in place before one or a mix of provider payments may be implemented successfully. Figure 7: Requisite support systems for alternative provider payment mechanisms
Facility
Source: Partners for Health Research (PHR)
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30. The discussion above underlines that an integrated approach to systems strengthening is called for, with requisite changes in the role of government and its capacities at all levels, if the private sector is to be engaged effectively. Figure 8 presents a simple illustration of this using the two health systems functions discussed here. Figure 8: Financing and delivery arrangements with requisite government capacities Service delivery Government Private Publicly owned health facilities financed Contracting out with non-state from public budgets providers Voucher and conditional cash transfers to the poor to access care Improve financial and operational Ability to design, bid, award, monitor management and accountability mechansims for and evaluate contracts, voucher schemes better performance and similar arrangement Out of pocket payments for patients Privately owned health facilities financed from public services Private health insurance payments to government providers Private Community contributions of land, buildings Ability to collect, manage and operational Ability to monitor and regulate nonmanagement and account for fees and donations state provider behaviour in line with national health priorities and goals, especially affordable universal coverage Ability to use funds effectively inlcuding at the local level
Source: Adapted from World Bank 2009
31. Government capacity for engaging the private sector has been examined in a multicountry study in low-and middle-income countries. The study found five main regulators and three key constraints to their effective use by governments to regulate the private sector. Figure 9 captures this in a useful framework for similar analysis in other countries. Figure 9: Five main regulators and key constraints Regulate private health sectors price, quantity, quantity and distribution and information
Financing
Government
III. Hospital accreditation agencies
Accreditation quality improvement certification
Qualification professions, control for entry to market Watch dog role, media to ensure consumer voice heard
IV. Professional councils
II. Financing agencies
Competitive contracting, financial incentive
Command and control, registration, licensing, inspection, sanction non-compliance I. Government agencies
V. NGO, consumer protection agencies
Three main constraints: 1) Political constraints [e.g. regulatory capture], 2) Administrative constraints, and 3) Information constraints
Source: Viroj Tangcharoensathien et al. (forthcoming)
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32. The study found five main regulators available to align the private sector with the overall national health agenda: (i) government agencies; (ii) financing agencies; (iii) hospital accreditation agencies; (iv) professional councils; and (v) NGOs and consumer protection agencies. These agencies have the potential to regulate the private sector price, quality, quantity, distribution and information on health services. 33. However, all regulators are subject to the three common critical constraints that limit the systems capacity to effectively engage with the private sector. Findings from the study indicate that the challenges from these constraints are very significant in the context of weak health systems in low-income settings. The study makes the following observations on political, administrative and information constraints to government capacity to regulate private contributions in health: •
Political constraints are difficult to overcome but may be removed through empowerment of communities. For this, it may be useful to strengthen the role of nongovernmental and community-based organizations (including consumer protection agencies), especially to uphold accountability in the system. Administrative constraints are easier to remove. This will require targeting professional councils and government regulatory agencies on issues like accreditation, licensing and quality control. Importantly, beyond rule setting, strengthening capacity on enforcement and monitoring of compliance is equally crucial. Information, particularly access to information for consumers, is a constraint that is relatively easier to remove.
•
•
34. The study also highlights the supportive role of a simultaneous strengthening of social and community-based insurance that allows improvements in equity and efficiency in finance and provision of services.
Conclusion 35. The private sector plays a dominant role in health in the Region and this needs careful consideration in policy and planning. There is limited systematic engagement with the sector in countries of the Region, but available experience does suggest a potential to integrate the private contribution into universal coverage efforts based on the principles of primary health care: •
Ideologically, engagement with the private sector does not mean privatization of health; it is a pragmatic choice to use all available resources effectively to advance the national health agenda. “More” private sector has not meant “less” government; rather, it implies a strong government presence, only in a different role that emphasizes governance and financing rather than direct provision. In terms of policy, based on national objectives and goals, engagement of the private sector needs to be a strategic choice between using existing private providers versus scaling up public services, including cost-effectiveness of the two alternatives. Technically, there are mechanisms through which private sector contributions may be effectively engaged for progress on universal coverage. Their successful implementation rests crucially on government and systems capacities.
•
•
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Government capacity is critical for successful engagement of the private sector – policy and planning, regulatory, technical and operational capacity to use multiple mechanisms across the health system. Options to align and consolidate public and private contributions to health systems goals are challenged by three key constraints that must be addressed for effective engagement of the private sector: influence of vested interests in the political arena; administrative weaknesses in setting and monitoring/enforcing regulation; and lack of information, especially to support community empowerment.