Tunisia - Health Sector Development Strategy - Achieving a Balanced Public Private Sector Mix

Document of THE WORLD BANK For official use only CONFIDENTIAL Report No. 14737 - TUN REPUBLIC OF TUNISIA HEALTH SECTOR DEVELOPMENT STRATEGY: ACHIEVING A BALANCED PUBLIC /PRIVATE SECTOR MIX January 18, 1996 Human Resources Division Maghreb and Iran Department Middle East and North Africa Region This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. •開• LIST OF ACRONYMS AND ABBREVIATIONS AMG Assistance M6dicale Gratuite (Free or Subsidized Health Care) CAVIS Caisse d'Assurance Vieillesse Invalidit6 et Survivants CNRPS Caisse Nationale de Retraite et de Pr6voy*iceSociale CNSS Caisse' Nationale de S6curit6 Sociale, CPSEGT Caisse de Pr6voyance Sociale des Services Publics de l'Electricit6, du Gaz, et des Transports CREGT Caisse de Retraite et de Pr6voyance Sociale des Services Publics d'Electricit6, du Gaz et des Transports DC Developing Country DRG Diagnostic-Related Group EPS Etablissements Publics de Sant6 FONASA National Health Fund GOT Government of Tunisia HMO Health Maintenance/Managemen't Organization HSA Health Service Area INAMPS Instituto Nacional de Assistencia M6dica da Previdencia Social (National Institute for Medical Assistance and Social Security) ISAPRE Institutos de Salud Previsional (Private Prepaid Health Insurance) MENA Middle East North Africa. MOPH Ministry of Public Health NIC Newly Industrialized Country OECD Organization for Economic Cooperation and Development ONFP Office of the Family and Population PAD Payment Associated with Diagnosis PPS Preferred Provider System SMIG Salaire Minimum Intexprofessionnel Garanti (Agricultural Minimum Wage) TD Tunisian Dinar VYHO World Health Organization Currency Unit: Tunisian Dinar (D) In 1994, 1 US$ = D 1.0126 This report is based on two missions that visited Tunisia from October 21 to November 5, 1994 and from January 30 to February 7, 1995. Missions included Guy Ellena (Sr. Health Economist), Eva Jarawan (Sr. Health Specialist), Janet Nassim (Population Specialist), Richard Saltman (Health Economist Specialist) and Claire Voltaire (Operations Analyst). Ms. Akiko Maeda contributed to the report writing. This rep?rt, after the white cover, was prepared by Ms. Jarawan, followmig Mr. Ellena's reassignment. Peer reviewers are: Helen Saxenian, Cornelis Kostermans and Willy de Geyndt. At the time of writing, Roslyn Hees was the Division Chief, John Underwood, the Lead Economist and Daniel Ritchie, the Dgartment Director. † s REPUBLIC OF TUNISIA HEALTH SECTOR DEVELOPMENT STRATEGY: ACHIEVING A BALANCED PUBLIC/PRIVATE SECTOR MIX Table of Contents Executive Summary ................................................................................................................... i I. IN T R O D U C T IO N ......................................................................................................... 1 II. CONCEPTUAL FRAMEWORK.................................................................................4 A. The Economics of Public Versus Private Health Care...........................................4 B . International T rends .............................................................................................9 III. PUBLIC-PRIVATE HEALTH CARE IN TUNISIA: CURRENT SITUATION...... 12 A . Service D elivery ................................................................................................. 12 B . H ealth F inancing ................................................................................................ 14 C. Constraints in the Public H ealth System .............................................................. 16 D . Expanding Role of the Private Sector ................................................................. 18 IV. KEY ISSUES IN ACHIEVING A BALANCED PUBLIC-PRIVATE SECTORM ............................................................................................................. 20 V. IMPLICATIONS FOR GOVERNMENT ACTION: DEVELOPING A NATIONAL HEALTH STRATEGY FOR TUNISIA................................................24 A. Redirecting the Use of Subsidies Toward the Most Cost-Effective Priority H ealth Interventions .............................................................................. 24 B . R ational Total Available Care.............................................................................24 C . Linking Finance to Production........................................................................... 25 D. Correcting for Distortions in Prices Created by the Payment System and Introducing Cost-Containment Measures ......................................... 26 E. Promoting Public Hospitals as Public Firms........................................................27 F. Promoting the Complementarity Between Private and P ublic P roviders................................................................................................. 28 G. Regulating the Expansion of the Private Insurance Market .................................29 H. Planning for Human Resource Development....................................................... 30 I. C onsum er E ducation ..........................................................................................30 J. Strengthening the Regulatory System of Government and N ongovernm ental G roups..................................................................................31 -2- V I. CONCLUSION ............................................................................................................ 32 ANNEXES Annex A: Korea: Health Sector Reform in a Newly Industrialized Country (NIC) Annex B: The Tunisian Health Care System Annex C: The Tunisian Health Insurance System Annex D: Chile: Balancing the Public and Private Health Systems Annex E: Health Systems Reform in Progress: The Case of Brazil Annex F: Investing in Health: Key Messages of the 1993 World Development Report BOXES Box 1: Alternative Combinations of Health-Care Delivery and F inancing System s .................................................................................. 10 Box 2: Promoting of the Private Sector Initiatives: The Example of the Indonesian and Tunisian Family Planning Programs....................... 13 Box 3: Public Physicians and Private Practices ................................................... 14 Box 4: Suggestions for Attaining an Optional Public-Private Mix.......................25 BIBLIOGRAPHY Executive Summary 1. The Government of Tunisia (GOT) cannot continue to be the main provider and financier of health care and expect to achieve sustained equity as well as improve the quality of health services available. Mobilizing private resources to supplement public funds, in addition to facilitating the private provision of services, may be necessary to maintain and improve the quality and quantity of services currently available. Using the private sector to finance and provide health services presents the Government with an opportunity as it faces two major challenges in the years ahead: (i) it must adapt services to the changing age structure and geographic distribution of the population; and (ii) it must secure a sustainable system for financing growing health care costs and demand for higher quality services. The challenge, however, is to draw a line between Government action and private economy, without compromising Government's commitment to equitable access to health services. 2. At first glance, the economic model of private competitive markets might seem applicable to the health sector. Nonetheless, market failure may occur due to the special characteristics of the demand for, and supply of, health care -- e.g., externalities, imperfect consumer information, imperfect insurance markets. A number of considerations (e.g. social justice, equity, and political) enter into a country's priorities and determine the role of Government in the health sector. Commitment to equity is a strong value among Tunisian authorities and underlies the predominance of the public sector. Yet, with adequate government monitoring and regulations, the private. sector sometimes can achieve those goals, sometimes, more efficiently. 3. The private sector can contribute to better health care by: (i) mobilizing resources and relieving some of the burden on public resources; (ii) introducing competition into the system which would improve efficiency and quality of care, and potentially even lower costs; and (iii) responding to growing consumer demand for a greater range and choice of services. At the same time, the Government will need to identify constraints to the development of the private sector, and to adjust for distortions and disincentives in the market which could contribute to cost-escalation, inefficient allocation of resources, and inequitable distribution of services. Implications for Government Action: Key Policies and Strategic Options 4. . To improve sustainability and quality of the system while maintaining Government commitment to equity and access, the report suggests the following broad outline for a comprehensive strategy that should serve as a starting point for discussion. Such a strategy should focus on: => Redirecting the use of subsidies toward the most cost-effective, priority health interventions aimed mainly at the poor. * The GOT has launched activities to develop the concept of a basic health benefits package, comprising public health interventions and essential clinical care services, which may be standardized and made universally accessible.' Such a benefits package could be promoted indirectly through a pricing mechanism (e.g. by directing subsidies toward high priority interventions or raising the reference fees for lower priority interventions), or directly through regulation or legislation (e.g., requiring a minimum benefits package for insurance coverage). * For the public health system, various options could be explored to expand the scope of cost-recovery and reduce the level of subsidization going toward lower priority services and higher income groups, e.g., an expansion of the contribution base of the social security system, a reduction in the number of the Assistance Mdicale Gratuite (AMG) holders, and a revision of the co- payment system to increase the cost-share burden for those able to pay, while protecting the provision of free medical care for the indigent population. * Introducing revenue-generating activities into the public health system (e.g., subcontracting medical facilities and services) could be considered to improve the public health system's ability to capture the private willingness to pay, thereby reducing its reliance on the central government budget. Rationing Total Available Care. With the expansion of private providers, the likelihood of cost-escalation will increase, unless measures are introduced to improve incentives for cost-containment, or to introduce some form of rationing of services. => Linking Finance to Production. Payments to providers and institutions could be linked to the quantity and quality of the care given. For example, within the public system, the principle of "public competition" should be adopted. This model removes all or most of all fixed institutional budgeting, and pays hospitals only on the basis of the services they provide. => Correcting for Distortions in Prices Created by the Payment System. A competitive private market system can operate efficiently only as far as the pricing mechanisms and other market signals are in place to direct the activities toward the most efficient use of resources. A review of the fee schedule and payment system would be tantamount to ensuring that incentives are in place for the efficient and cost-effective provision of health services and management of cases. * Tertiary and secondary care: Global experience indicates that a fee-for- service reimbursement system is liable to cost-escalation and could lead to For this purpose, the Bank-financed Maghreb: Health Priorities Study would be expected to generate essential data on the country's epidemiological profile and cost-effectiveness of various health interventions. ii inefficient resource allocation. Consideration may be given to the development of a strategy for introducing a prospective payment system, based on a per-case, "Diagnostic Related Groups" type, fee schedule, so as to improve incentives to provide cost-effective treatment. Since the success of a prospective payment system depends upon obtaining reliable and up-to-date production cost information from the health providers, the process would require improvements in information management and financial accounting systems within the health facilities. Cost information on inpatient care generated from the public tertiary hospitals undergoing restructuring through the Bank-financed project2 may provide a useful starting point for reviewing the feasibility of developing a prospective payment system. Primary care: Due to a lack of knowledge on the part of the patients and to externalities associated with preventive care, there is a tendency for private providers to treat patients preferentially for curative rather than preventive care. Many countries have introduced a capitation payment system whereby providers are paid a periodic fixed amount per insured person to finance the costs of a defined package of services. This is a way to improve incentives for private providers to extend primary care services to their clients, and could be considered as one of the options for increasing the utilization of primary care services. In addition, the expansion of preventive care services offered by private practitioners would be promoted. Promoting Public Hospitals as Public Firms. A crucial element of either the patient-based or purchaser-provider, contact-based model is that hospitals become quasi-autonomous. That is, although still publicly-owned, hospitals are not reimbursed on the basis of a fixed budget, but on the basis' of the volume of the patients they attract. They thus receive a reasonable degree of managerial autonomy that allows them to be more efficient and effective. Quality of care is likely to improve accordingly. Promoting the Purchase of Services Between Private and Public Providers. Obstacles to the growth of the private sector would need to be identified, and strategies to remove them developed, while at the same time protecting equity and access to services for the vulnerable groups. = Regulating the Expansion of the Private Insurance Market. The lack of information on the sector points to the absence of any form of monitoring and regulating mechanism in the country. The Government would need to play a more active role in its regulation to avoid the detrimental effects of adverse selection which occurs when insurers select groups with lower than average risk (and therefore cost), thus excluding certain groups from coverage, and leaving them to catostrophic illnesses. 2 Hospital Restructuring Support Project (Loan 3308-TUN) approved February 1991. ii1 => Planning for Human Resource Development. Growth in the number of private health professionals calls for a reexamination of the current policies on medical education, training and other human resource development activities in the sector. * The development of a system to collect and monitor information on health personnel for planning, policy-making and regulatory purposes would be needed. * Government policies on subsidizing medical education and training would need to be reexamined in light of the rapidly. expanding number of health personnel now entering the private sector. Promoting Consumer Education. Consumer education to promote preventive care and a healthy lifestyle is an essential factor in generating a more efficient utilization of health services. The growth of the private market for health services will increase the importance of the public sector's role in disseminating information and providing health education. => Strengthening the Regulatory System of Government and Nongovernmental Agencies. To function effectively in its regulatory role, the Ministry of Health would need to enhance its capacity to monitor and evaluate the private sector with regard to: compliance with standard procedures, adherence to medical ethics, quality of services, choice of medical technology and case-mix, cost-effectiveness of treatment and consumer satisfaction. It also should play a supportive role and liaise with professional associations and other nongovernmental agencies. Such groups are likely to play a critical role in the monitoring and regulation of private providers. iv Table 1. Summary of Recommendations Issues * The demographic and epidemiological transitions have resulted in a growing and evolving demand for health care; * The public health system has been facing difficulties in generating sufficient revenues to cover its operational and investment costs; * The private sector has been expanding without clear government policies and regulations with which to monitor issues of equity and universal coverage, risk management and demand stabilization, cost-containment, microeconomic efficiency, and quality improvements and responsiveness to demand. Strategic Objective Policy Action Studies Continue to guarantee access to * Redirect the use of subsidies toward the most * Finalize collection of epidemiological basic health care for all citizens cost-effective, priority health interventions; and cost data; within a constrained fiscal envelope * Expand the scope of cost-recovery and reduce * Define package of effective the level of subsidization going toward lower interventions; priority services and higher-income groups; * Improve targeting for AMG; * Expand the contribution base of the social . security system; * Reduce the number of AMG holders through better targeting, and revise the co-payment system to increase the burden-sharing for those who are able to pay, while protecting the provision of free medical care for the indigent; v Strategic Objective Policy Action Studies Develop the incentive structure to * Link payment to the quantity and quality of * develop over the longer term a promote efficiency and to contain the care given by: (i) making the payment system mechanism for the continuous adjustment costs in the public sector. consistent with the actual cost of providing the of reimbursement rates under social services; and (ii) making the system more health insurance; performance-based and transparent; * review the possibility of developing a * Continue to promote public hospitals as public prospective payment system for tertiary firms by making managers more accountable while and secondary care and capitation system giving them more autonomy to manage their for primary care; resources, including human resources; * Study feasibility of increasing * Correct for distortions in prices created by the autonomy of hospitals to manage human payment system and introduce cost-containment resources; measures; * Review different measures of cost- containment and their applicability to the Tunisian context. Promote the complementarity * promote purchase of services between private * Survey the Tunisian private health between private and public and public providers; sector; determine what kind of obstacles providers * allow publicly-financed patients to access the private providers face. private providers; Rationalize human resource * reexamine government policies on subsidizing * develop a system to collect and development medical education in light of the growing number monitor information on health personnel of health personnel who enter private practice; for planning, policy-making and * improve regulation, adaptability and delivery regulatory purposes; of medical education; * study medical education with respect Vi Strategic Objective Policy Action Studies * develop new programs for training in health to needs assessment and cost recovery; management and hospital administration. * examine the professional role of the hospital administrator at various levels of the health system; Promote efficient use of health * educate consumers; * review role of public sector in services * encourage responsible participation of private disseminating information to the public providers to public health concerns; regarding the effective use of health * improve complementarity of financing services and the performance of different schemes to avoid "excessive" use of services providers in terms of quality and cost of care. Ensure quality of care * strengthen the regulatory system of * review Government's role, government and non-governmental groups (such particularly its regulatory and monitoring Ensure compliance with medical as medical and dental associations); functions; ethics as well as financial * promote a changing role for government that * examine Government's capacity to accountability focuses on quality assurance and control rather monitor and evaluate the private sector than on the provision and financing of health with regard to: compliance with standard services. procedures, adherence to medical ethics, quality of services, choice of medical technology and case-mix, cost- effectiveness of treatment and consumer satisfaction; * review system of accreditation and licensing of private providers. vii TUNISIA -- HEALTH SECTOR DEVELOPMENT STRATEGY: ACHIEVING A BALANCED PUBLIC/PRIVATE MIX I. INTRODUCTION 1.1 Tunisia has made significant strides in improving the health status of its population through improved living conditions, greater access to education, and significant expansion of both curative and preventive health services, including family planning. In 1993, Tunisian life expectancy at birth was 68 years (66 in the MENA region), and infant mortality was 42 per 1,000 live births (52 in MENA).' Although the total fertility rate has declined from 6.2 in 1970 to 3.1 births per woman of reproductive age, the population growth remains high at 1.9% per year. The epidemiological profile reflects a pattern typical of a country undergoing demographic and epidemiological transition, which creates new challenges in improving and providing new services. 1.2 The Government of Tunisia (GOT) has actively pursued a policy of securing universal access to health care for all citizens. This is reflected in the level of public expenditure in health (3.1% of GDP in 1990), which is above the 2.0% average for countries of comparable per capita GDP level. Today, 90% of the population resides within a one-hour walking distance of a health facility, a population identified as indigent is provided free medical care, and lower income families have access to public health care at highly subsidized rates. 1.3 However, the growth of the public health system has been curtailed following the economic downturn in the mid-1980s, which forced the government to institute a more stringent fiscal policy, including cutbacks in the government budget. Public expenditure to the health sector has remained at a nearly constant percentage of GDP which has not been sufficient to meet the growing demand for health care. At the same time, total health expenditure has increased by more than two thirds from 3.9% in 1980 to 5.6% in 1993 of GDP. Clearly, the inability of the public health system to adequately meet the quantitative and qualitative rise in health care demand has been compensated by both the growth in the number of private providers and in the percentage of financial contributions from private sources, which expanded from 34% to about 50% of total health expenditure between 1985 and 1993. (See Figures 1, 2 and 3) I World Bank, 1995 Figure 1: Total Health Expenditures by Financing Source 450 400* 350- 300 * E Government Mil 250 - NHealth Insurance Funds of M Medical Enterprises DH 200- *0 Private Payments 150 * 100- 60- 0-1 -C Cn a Years Figure 2: Percent Allocation of Health Expenditures by Financing Source 60 45 4 Government 35 30 Health Insurance % 26- Funds 20 M Med. Enterprises 15 10 0 Private Payments 6 0- Years 2 Figure 3: Ratios of Health Expenditures to GDP (%) U Government 2.5 2-- N Health Insurance Funds 0.5 - - Private Payments 0 K. 06 In a, a, a , M Cn 1.4 The expansion of private sector involvement in the financing and provision2 of health services presents the Government with an opportunity as it faces two major challenges in the years ahead: (i) it must adapt services to the changing age structure and geographic distribution of the population; and (ii) it must secure a sustainable system for financing growing health care costs and needs. Mobilizing private resources in addition to public funds and encouraging the private provision of services are necessary to increase (and maintain) the quality of services available. The challenge however, is in drawing the line between Government action and private economy, without compromising Government's commitment to equity in health care. 1.5 This paper looks at the various options available to policy-makers. It begins by reviewing briefly the conceptual basis for public and private roles in the health sector based on economic theory and international experience. It then describes what is known about health services finance and provision in Tunisia. The third chapter looks at key issues in achieving a balanced public/private sector mix. The paper concludes with a discussion on implications for Government action. 2 It is important to make the distinction between "provision" and "financing" of health services. Similarly, distinction should be made between the "provision" or production of health services and the production of health itself. The health of the population depends on many factors in addition to health care, namely standards of living, housing, life-styles, diet, genetics and environmental circumstances. 3 II. CONCEPTUAL FRAMEWORK 2.1 The balance between the public sector and the private sector in health care that works best is country-specific, and should be determined according to the particular social and cultural values and economic conditions that affect the health priorities of each country. A review of the global experience in health systems reveals diverse approaches to public and private health care that reflect differences in the economic base of the country, its social and cultural perception of fairness and accountability and different attitudes towards private market and government intervention; and the relative power of competing interest groups. Most countries share common objectives and visions for the health care system: the variety of financing and delivery mechanisms attest to the existence of many different paths to a common goal. 2.2 There are two sections in this chapter: the first examines economic concepts useful in the analysis of the public/private roles; and the second summarizes international trends. A. The Economics of Public Versus Private Health Care 2.3 The competitive market might seem at first glance to be quite pertinent for the health sector: health care is mainly a personal service which can be provided by potentially competing professionals and private institutions. Nonetheless, potential market failure may occur due to special characteristics of the demand for and supply of health care which may warrant a more significant government role. First, many health-related services, such as information and control of contagious diseases are puble goods (example: control of malaria-carrying mosquitoes). Other health services have large "externalities", i.e. consumption by one individual affects others (immunization, polluters, and drunk drivers). For example, immunization against infectious diseases, treatment of sexually-transmitted diseases, and limiting smoking in public places not only protect the person directly affected but also reduce the chance of disease transmission to others. Private markets alone provide too little of the public goods and only governments are motivated to encourage behaviors that carry positive externalities and to discourage those with negative externalities (World Bank, 1993).3 It is sometimes argued that given an adequate incentive structure and risk-sharing arrangement, even commercially-driven health services can be motivated to provide these services. For example, Health Maintenance Organizations (HMOs) in the US include health promotion and preventive activities in their services. However, setting up the institutions and the mechanisms for such a program is costly, particularly in a developing country (DC) context such as in Tunisia. Therefore, it is more realistic to assume that only governments finance and provide "public health services" to the population, particularly in rural areas. 2.4 Second, the requirement for income redistribution is particularly pressing where health care is concerned; it is commonly accepted that medical care of good quality should be available to all who need it without their suffering an unacceptable financial Much of the argument presented in this report comes from the World Development Report , 1993. 4 burden. Because of the "free-rider" problem, private charity is unlikely to provide an adequate means of meeting this demand for altruism (OECD, 1992). Thus, the government plays the role of an arbitrator and a guarantor of basic services to all citizens. 2.5 Third, while the need for health care is predictable and can be quite affordable for large groups, it is highly unpredictable and can be very costly for individuals, hence the need for insurance to spread the burden of payment. Without such an arrangement, both the providers and the patients are subject to financial risks: the patients are either unable to make use of medical care or unable to pay after using health services, and the providers either incur heavy losses by performing health services without adequate compensation, or fail to achieve the volume of services needed to sustain their activities. The possible roles of the government are to directly provide the risk-spreading arrangement (through direct provision of health services financed by general tax revenues); mandate some form of financial risk-pooling (social insurance); or regulate the private insurance market. The fact that risk-sharing arrangements are needed does not solely justify government's involvement; it is the way in which they are made that carries the potential for market failure, and consequently justifies government intervention. Regulation of private insurance is one important domain of government intervention for many reasons. The private insurance market may allow insurers to practice adverse selection, i.e. select groups with lower than average risk and therefore cost. As a result, certain groups are excluded from coverage and are left vulnerable to catastrophic losses. Moreover, health insurance brings a tendency towards over-consumption since neither the patient nor the physician has an incentive to economize (moral hazard). While regulation of the insurance sector is necessary, experience in many countries (such as Chile) shows the difficulties associated with it. The other two modes of risk-sharing, i.e. social insurance and a comprehensive public health system, are not without their difficulties. There is some evidence from OECD cross-country comparison, that health systems based on social insurance schemes carry a higher administrative cost than national health systems. 2.6 Finally, as a result of information asymmetry, the consumer is in a weak position in the market for health care, since the physician is often the one who decides about the course of treatment. This feature of the health care market not only affects the patient- provider relationship, but is also closely related to the problem of moral hazard. It arises because the insurer cannot adequately monitor and control the behavior or the health status of the insured. Health care services provide multiple products that require complex and often unpredictable levels of inputs, often with uncertain outcomes. Furthermore, pricing a "unit of health service product" and measuring its quality are generally difficult to do. To deal with these difficult issues, the government should be heavily involved not only in regulations, but also in promoting the development of systems and institutions for information management, accounting, quality control and technical assessment -- needed as a whole to maintain and enforce the regulatory system. 2.7 The above concepts were discussed by Musgrove (April, 1995) in a recent draft paper on the subject where he presents a public finance approach to the subject in a conceptual model for public and private roles. Health-related activities are classified along 5 two dimensions: first by the degree to which they are private or public goods4, and second by how much they cost (see Fig. 4). The ensuing three domains correspond to public goods, to low-cost private interventions, and to catastrophically costly private goods. 2.8 Because of externalities, people may be unwilling to purchase -- and private markets may produce too little, if at all --public goods. Therefore, "public intervention to assure efficient provision of true public goods and goods with significant positive externalities usually requires public finance, because free-riding makes it difficult to get the same results by other means" (Musgrove, 1995). As resources are scarce, governments have to decide which activities to promote or pay for. For that, they need to answer two questions: which goods are sufficiently public that private markets cannot provide them adequately? and how to value a public-good health intervention? Musgrove argues that often, Ministries of Health try to cover too wide a range of interventions and seem to regard all of health as a public good. While the decision is indisputable for some public goods such as disease surveillance, it is not always evident for others. Furthermore, if they decide to intervene, governments must ensure maximum health gains for the money spent. The domain of cost-effectiveness and cost-benefit analyses provide some guidance to policy-makers who are facing the difficult decisions regarding allocation of public resources. 2.9 In the domain of private goods (most health care), one needs to distinguish between health interventions that can be paid "out-of-pocket" versus those which represent a "catastrophic" financial burden. The band at the bottom of Fig. 4 corresponds to the area of low-cost private interventions which necessitate out-of-pocket spending. It includes activities that are repeatedly undertaken, with little health impact per episode. Instead of intervening directly, governments should focus on improving the economic environment for households -- boost economic growth, reduce poverty, expand basic schooling (especially for girls), and help strengthen women's ability to care for their families. Direct public intervention should focus on the areas of information and regulation to correct for some possible market failure. The only justification for public financing is on the basis of equity and poverty.s 2.10 Catastrophically costly private goods present the most complex issues in health care. They are "interventions which are needed unpredictably, because disease strikes randomly, and are also too costly for households' ordinary budgets or savings to finance" (Musgrove, 1995). Risk-sharing through group insurance is the only way to deal with the combination of high cost and uncertainty. Government action is generally needed in this domain because private insurance markets tend to fail for reasons mentioned in paragraph 2.5 above. As a result of these failures, the poor will not be insured by competitive private market insurance and individuals with chronic conditions or high 4 The boundary between public and private goods is not always well-defined as some interventions provide strong externalities As with food and other basic needs, it is argued that some people are too poor to pay even for "inexpensive" care (Musgrove, 1995). 6 health risks will be under-insured or terminated. It is also believed that administrative costs in the insurance market will be unnecessarily high and procedures of low or questionable value will be performed because neither the provider nor the consumer pays for them. Therefore, governments have the important role of regulating privately provided health insurance, or in mandating alternatives such as social insurance, in order to ensure widespread coverage and hold down costs. 2.11 The model presented in Fig. 4 does not specifically represent "merit goods" -- interventions which society deem to have merit, and therefore everyone should have. Societies make different choices about what health services are meritorious and therefore justify government's intervention through financing, mandating or regulating. The definition of what the minimum level or "essential health package" should be is dependent on the political and cultural values related to the notion of social justice, as well as economic considerations. In all cases, it is useful to examine the basic or essential package along the following three issues: (i) identification of the priority benefits to be covered and protected by the public (i.e. what is the content of the package); (ii) eligibility criteria (who will have access to subsidized benefits); and (iii) the delivery mode (how will the benefits be packaged and by whom will they be provided). It is also important to work out the process of who will be involved in the priority setting, since the composition of the decision-making group will have a profound effect on the substance of the consensus. In industrialized countries, governments struggle to balance the interests and resolve the conflicts among the individual stakeholders in the system, which may include: the medical association (and other professional associations), labor unions, the -insurers (private and public), pharmaceutical industries, hospital associations, local health boards or municipalities, and consumer advocate groups. 2.12 It is often argued that a more efficient means of guaranteeing access to these goods is through income transfers. However, transfers cannot ensure adequate or appropriate consumption of specific goods (Lewis, 1994). Even for merit goods, government financing does not necessarily involve government production and/or delivery of services. It is important to keep open the option of working through the private sector. Several possibilities exist for government: (a) financing privately delivered services; (b) contracting out services to private groups; (c) providing direct transfers to private programs; and (d) jointly financing and delivering services (Lewis, 1994). 2.13 Clearly, there are other markets for goods and services that possess some of these characteristics. However, very few possess all the peculiarities of the health care market. Therefore, a government role is largely warranted. The issue of whether this role has to be as large as it is in many countries remains controversial. 7 Figure 4: Three Domains of Health Finance 6666 6666 6666 6666 555555555 555555555 555555555 555555555 555555555 555555555 U.- '-33333 0 .33333 E I 33333 22 4-- 44 Public Private Nature of Good or Intervention Domain of Intervention Public of Goods or Servives 1. immunization with Large Externalities 2. Vector ContFkOc Low-Cost, mostly Private 3. Treatment of Tuberculosis (Out of Pocket Spending) Catastrophically Costly 4. Treatment of Minor Trauma Private (Risk-Sharing or S. Normal Obstetric Care Insurance) 6. Surgery for Cancer Soure: Philip Musgrove. Public and Private Roles in health. Draft of April 17, 1995, the World Bank. 8 B. International Trends 2.14 In the last decade, privatization of health services has been at the center of increasing and controversial debate on the health sector reform in both industrialized and developing countries. The rise of the new liberal movements in the 1980s challenged the premise of welfare economics. Proponents of this school have argued that state- controlled enterprises lack incentives to function as efficient cost-minimizers, and that increasing levels of public outlays reduce national savings needed for efficient capital formation. Furthermore, rapid cost escalation and the drain on public resources have raised concerns about the capacity of the public sector to manage resources efficiently. The problem of cost escalation and the attempt to control it are well-documented for the industrialized countries, and are also reported in some of the newly industrialized countries (see the Korean case, Annex A). The main causes of cost escalation have been attributed to the rising demand for health care in response to the expansion of third party payment system and state subsidization during the period of rapid economic growth in the 1960s, the advances in medical technology that contributed to both supply and demand-induced increase in the intensity of health care, and the growing size of the aging population. 2.15 Recent evaluations of the health sector reforms of the 1980s indicate that the pace of cost escalation has been brought under control in most OED countries (Hurt, 1991; Wolf, 1991). It is worth noting that they have managed to do so while maintaining a near universal coverage in basic health services (Wagstaff and Paci, 1993). Notwithstanding the rhetoric on privatization, the health sector reforms have not resulted in an outright retreat of the state from participation in the essential health services (Scarpaci, 1989). In 1989, most OECD countries expended around 6-9% of the total GDP on health services, of which 76% was channeled through the public resources (Schieber, 1989). One notable exception is the United States, where the predominance of a largely unregulated private insurance and provider market may have contributed to the high cost of care and the persistence of a large segment of the population who remain without insurance coverage. 2.16 What appears to be occurring in the industrialized countries may best be described as a process of experimentation to achieve a new balance of private and public involvement in the financing and provision of health services, accompanied by institutional innovations and development of new management tools to facilitate the process. The reforms in most of these countries include efforts to infuse the positive elements of competitive market behavior in the public system to improve microeconomic efficiency. Examples of this include the promotion of competition among both public and private providers, the decentralization of financial and managerial authority and responsibilities to local district health systems, the corporatization of the public hospital system and the introduction of managed care system which transfers part of the responsibilities of risk management and cost containment from the state to independent groups of insurers and providers. This trend is even observed in countries like Sweden and the UK which have traditionally supported a highly centralized form of national health system. At the same time, private insurers and providers have been brought into active negotiations with the 9 central and local governments in setting contributions and fees, in negotiating service contracts, in establishing regulations and in planning investments in the sector. 2.17 While the industrialized countries experienced rising public expenditures on health services in the 1980s, the less developed countries have registered an overall decline in the level in the same period. The pressure to contain costs in these countries has come primarily from the fiscal and monetary constraint following the debt crisis of the 1980s. Some governments have actively promoted cost recovery programs to pass on an increasing share of the costs to the households and individuals, whereas others have relied on the policy of global budget freeze to contain costs, leaving the excess demand to be met by the private sector. As a result, the public health system was underfunded and in many cases, the private market grew in an unregulated manner and did not necessarily contribute to a more equitable and efficient delivery of services or complement the shortcomings of the public sector. Box 1Alernative Combin"ti o HelhCr elVe. n ia igSses FINANCING COLLECTIVIZED (SOCIALIZED) FINANCING OF DIRECT HEALTH CARE FINANCING PRIVATE HEALTH INSURANCEb" Government within a within an Out of Pocket DELIVERY Financed statutory unregulated by Patients Insurance framework market at Point of Service Purely Government A D G J Owned _ Private Not-for-Profit B E H K Entities . Private For-Profit C F I L Entities I I__ _ _ _ The Tunisian health care system falls in almost every cell, although predominantly in cell A. Technically, whenever bills for health care services are paid by a third party rather than by the recipient of care, costs are financed out of a collective pool, in other words through "socialized" financing. In this sense, private health insurance is just as much "collectivist" or "socialized" as is government-provided health insurance. Both forms of financing substitute for the normal working of a market because both eliminate the individual benefit-cost consideration. Source: Reinhardt, U.E. Princeton University, Princeton, New Jersey, 1989. 2.18 Although the privatization of the health system has at times been narrowly construed as a solution to the fiscal crisis of the state, it is evident from the diverse responses of the health systems to recent health care reform measures that the evolution of private-public interaction is part of a profound social and institutional development 10 process that accompanies economic growth. A cross-country comparison of aggregate expenditure estimates indicate that private spending as a proportion of total health expenditures is generally higher among the developing countries than in developed countries (See Fig. 5). Tunisia falls within the range of middle income countries, i.e. about 50% of spending through the private sector. East Asian countries as a group tend to have a lower percent of their spending through the public sector, although even within this group the higher income countries finance a larger percentage of their health services through the public sector. 2.19 As countries develop economically and politically, the health services sector also develops from a relatively simple system of direct central government financing and provision of services, with very limited quality and range of services, toward the establishment and growth of a third party payment system, the diversification of the provider-payer relationship and the expansion in the range and scope of services offered. Coordination among the different actors becomes increasingly complex, and with it comes the need to develop a more sophisticated institutional, technical and managerial capacity. These countries also face multiple challenges from demographic and epidemiological transitions which place new demands on the health services. Moreover, rural-urban disparities become more pronounced and dichotomies between private and public systems begin to emerge as the rise of urban middle income increases demand for higher quality and choice of services which can be provided through the private sector. It is frequently at this juncture in development that low to middle income countries face the greatest difficulties in achieving a balance of incentives and accountability between the public and private domains of the health system. 11 HI. PUBLIC-PRIVATE HEALTH CARE IN TUNISIA: CURRENT SITUATION 3.1 This chapter briefly reviews what is known about the financing and delivery of health services in Tunisia ( See Annex B for a more detailed overview). Following a brief description of service delivery in the public sector and health financing, it discusses the constraints faced by the public system and the expanding role of the private sector in the absence of clear government policies. A. Service Delivery 3.2 The Government of Tunisia has taken the lead in establishing a comprehensive network of public health services, comprising tertiary and secondary hospitals and specialized institutes, and primary care health centers that extend into rural districts as well as urban centers. The public health system continues to be the main provider of health care services. It supplies 90% of all hospital beds and 50% of the outpatient services. The majority of health workers (more than 90%) are public employees accounting for about 65% of medical staff, over 90% of paramedical, and more than 75% of administrative personnel. (See Figures 6 through 9) For specialized procedures that are still unavailable in the country, foreign care (mainly France) is still relied upon, though this amounts to only about 1% of total health care expenditures. 3.3 The social security fund, (Caisse Nationale de Scuritg Sociale, CNSS) operates a para-public health network whose clinics provide general outpatient services, specialized care, and diagnostic services to private sector workers and employees of some public enterprises affiliated with the CNSS and their dependents. The private sector also offers health care services, primarily ambulatory care. Though still modest in scale, the private health sector is expanding rapidly. 12 Box 2. Promotion of the Private Sector Initiatives: The Example of the Indonesian aid Tunisian Family Planning rograms The National Office of the Family and Population (ONFP) has undertaken several initiatives to stimulate pnvate provision of contracepuon The most important is the markeing of contraceptives through private phaimacies. DHS data indicate that the majority of women (60.5%) using "supply-methods" of contraception - the pill, the condom, and vaginal methods - obtain them through the private sector. 46% of women using these methods obtain them through a pharmacy. The private sector is less important in supplying climcal methods of contraception. though pharmacies are increasingly seUing the IUD, then inserted by a private physician. Altogether some 23% of women using modern methods of contraception obtained them through the private sector according to DHS data. This compares with a similar figure for Indonesia of about 22% in 1991. The Tunisian family planning program is often compared with the Indonesian, both have been very successful. The Indonesian program has also been looking to the private sector in response to increasing budget constraints. In the latter, it launched the mult-media "Blue Circle" social marketing campaign to expand private provision. It aims to make existing or potential family planning clients aware that private doctors and midwives offer some contraceptive services; it also encourages those who can pay private sector pnces to refrain from using free public facilities, and introduces certain contraceptives at subsidized prices. In addition, it hopes to help train private doctors to provide contraceptiom While the program seems to have made some headway, prehminary indications are that it has not met the sales figures hoped originally (unpublished and as yet confidential paper by Kenney, to be checked into). A further caveat provided in the Bank report "Indonesia; Family Planning Perspectives in the 1990s" was that there could be some conflict between extending coverage and contraceptive prevalence, and cost-recovery - depending on the elasticity of demand for contraception. This issue needs also to be investigated further in Tunisia. At present contraceptives are supplied at nominal cost to the pharmacies and private suppliers. There is little information available on willingness to pay, or the strength of demand. At present, the majority of contraceptive commodities are supplied by donors, reducing government incentive to charge. Yet donors are unlikely to continue to fund contraceptive supply - and future sustainability may rest on cost-recovery. Even if supply is assured, income from sales could support extension of services, or quality upgrading in other areas. Testing willingness to pay for commodities and services would be a very useful pilot project for a group such as the Tunisian family planning association. Other initiatives tried by the ONFP were the introduction of family planning services into medical services offered in places of employment. Unfortunately, these services are monitored by a ministry other than the Ministry of Health (The Ministry of Social Affairs), and permission to introduce contraceptive services was refused. 13 Box.3. Publi&:Physicians and Private Practices In Tunisia, operational relatibs between public medicine and private practices are long-standing and turbulent The major events should be mentioned: .(i) Up to the end of the 1960s, the regulation in force peritsjtwopractices in the public sector: full-time and part-time. These rules apply to all types of physicians regardless of their status (university, attending or not) and/or their seniority. (ii) At the end of the 1960s, for the first time, public physicians had to make a decision: all public or all private. The removal of possibilities for mixed practices seems to reflect better the changes in the overall Tunisian society which had witnessed a strong drive towards collectivization. It accelerated mass migration from the public sector towards the private sector. (iii) In 1973-74, the rules became weaker with the opportunity offered to university physicians only to practice the "converted full-tine": two private sessions a week (two half-days) within the hospital. Furthermore, opportunities for entering into a National Health Contract were offered to private physicians. (iv) Fifteen years later, the 1988 reform reviews the tightness of the rules and the break between public and private sectors. with the return of complete full-time and the drop of National Health Contracts. Two main reasons are suggested to explain this evolution. First, excess and abuses of the converted full-time system became unbearable and poorly controlled ("the public hospital had become an annex of the private clinic"). Secondly, the strong position of public unmons of umversity physicians in the 1980s assisted in imposing this "upgrading". As noted at the end of the 1960s, the public sector witnessed mass out-migration. notably among university physicians who are the most experienced and renowned. (v) In 1991, the complete full-time schedule remains, but the rules become more flexible with the re-introduction of opportunities for the private sector to enter into National Health Contracts. (vi) Finally, at the end of 1994, a return to a situation similar to that of the years 1973 to 1988 could be witnessed. Two main axes remain: * university physicians (professors and lecturers with some years of expenence) could have an outside practice in addition to public hospital practice, * in order to encourage the installation of specialized physicians in areas that are poorly equipped in personnel, hence allowing a better utilization of existing hospital structures (regional hospitals), important salary complements (+ 25%) and the possibility of an additional private practice (2 sessions a week) in public hospitals are allowed. B. Health Financing 3.4 Existing health financing mechanisms constitute what could be described as a mixed system. The production and delivery of services are-financed from: (i) general revenues; (ii) compulsory social insurance contributions shared by employers and employees; and (iii) private sources, either through direct payments at the time of service (user fees and co-payments) or through private health insurance contracts. 14 3.5 Soon after independence, Tunisia passed laws (in 1959 and 1960) that assigned a central role to compulsory health insurance for both public and private employees. Employees of all enterprises, including most public enterprises, are required to be insured through the CNSS, while retired employees from these enterprises are insured under CAVIS. Active and retired workers of the public sector and some public institutions are insured either through the CNRPS or through the CREGT. The "collectivized" financing mechanisms (budget and health insurance)6 were designed to support the development and operation of a large and dominating public sector. However, the contribution of health insurance funds to public providers has not evolved as a significant share of public resources, which suggests that health insurance mechanisms are not playing their anticipated role. As a result, government transfers are the major source of funds for the public sector. 3.6 The State's large financial responsibility in this area is due to two phenomena. First, the Government provides free or subsidized care to the lowest income groups through two public schemes. The Assistance M6dicale Gratuite, Type I (AMG I), provides free health care for about 117,000 families classified as needy; and the Assistance Midicale Gratuite, Type II, (AMG II) provides subsidized health care to about 660,000 families whose annual income does not exceed the industrial minimum wage (SMIG). These families are issued a passbook (carnet d'indigence) for a small annual fee (DT 10) and pay reduced fees for care (ticket mod6rateur) -- about 20-25% of the regular fees for outpatient visits in the public sector (1993)7 and about 60% of the regular one-day inpatient charge, regardless of the length of the stay. Altogether, about 800,000 families, more than 50% of the population, enjoy free or heavily subsidized health care. Access to the AMG II is easy and gives a strong incentive to evade CNSS affiliations, thus constituting the major cause of budgetary outlays for public health care.' 3.7 Second, allocations from the compulsory social insurance funds to the public health sector have not corresponded to the volume and cost of services. The Ministry of Health, as the main provider of health care, and social insurance funds have long debated the correct size of the allocation to the public health sector (i.e. what are the real utilization rates and what are the costs to be charged) and how it should be set. It is now clear, under all hypotheses, that supporting the real cost to the MOPH budget in addition to financing their other existing services (own polyclinics network, services in the private 6 "Collectivized" refers to the financing out of a collective pool, i.e., whenever bills for health care are paid by a third party rather than by the recipients of care. Additional diagnostic exams, drugs and supplies are provided at no additional charge. 8 Another form of evasion occurs through the underdeclaration of incomes as the CNSS provides all of its subscribers with the same level of benefits, regardless of their declared income category and their contributions. The availability of budgetary subsidies reduces the incentive of the funds to collect and to combat the evasion. 15 sector and outside the country) would extend beyond the funds' capacity' to pay for it, even if the funds used health insurance proceeds solely to finance health activities. 3.8' Under the Assistance M6dicale Gratuite (AMG) program, as many as 40 percent of the patients are exempted from payments or are provided highly subsidized medical vouchers. According to government guidelines defining the poverty threshold, only 8 percent of the population should be eligible for this form of subsidized care, but a liberal policy of the government has permitted a large number of families to continue to be eligible. A detailed analysis of the distribution of subsidies may reveal a substantial portion of subsidization accruing to higher income groups with the ability and willingness to pay for health care. The public health system extends subsidization to patients who are covered under the social security system. In 1989, the social insurance funds contributed just TD (Tunisian Dinar) 21 million of the total expenditure of TD 86 million for the public health system which covered only about a quarter of the cost of services provided to the social security holders.10 The remaining TD 65 million were expended on the parastatal" and private providers, and for overseas treatment. At present, the health insurance component of the social security fund collects more than it reimburses for health care, and there is evidence to suggest that some of the proceeds are diverted to other sectors. C. Constraints in the Public Health System 3.9 The public health system has been facing difficulties in generating sufficient revenues to cover its operational and investment costs. On the expenditure side, the Government has deliberately imposed cost-containment measures on the public health system through global capping of overall expenditure, while the public system continues to carry the major burden of the more costly curative care.12 Since the cost-containment measures have not yet been accompanied by improved management and efficiency in the system, the results have been underinvestment in the system and declining quality of services, as evident from the deteriorating conditions of the physical equipment and facilities, and frequent A description of the Tunisian health insurance system is provided in Annex C. 10 This estimate is based on the observation that in 1989 social security holders accounted for 38% of admissions and 41% of visits at public health facilities, but social security contributions covered only TD 21 million (about 9%) of the TD 235.2 million expended in the public health system). It assumes that the case mix and treatment pattern of the patients with social security are the same as for the rest of the public health users. 'Parastatal" facilities refer to the CNSS (Caisse Nationale de S6curit6 Sociale) clinics financed and operated directly by the CNSS fund, one of the major social security funds which serves the privately-employed workers. 12 In 1989, it was estimated that the public tertiary facilities, which account for about 50% of hospital beds in the country, assisted 43% of deliveries, 45% of all hospital admissions, 60% of hospital days and 70% of surgical interventions (World Bank, 1991). 16 THE TUNISIAN HEAL TH SYSTEM GOVERNMENT PUBLIC SECTOR BUDGET ANATY o]NSS POLYCLINICS - INSURANCE CvePo. CONTRIBUTIONS Clnc COMPLEMrvENTARY Sec INSURAN 1E rGROUP INSURANCE EVMRPISESWORK.NMICINE -HOUSEHOLDS RETMENS ABROAD The Public Sector Hospitals: - Military U *eit - Security ospitat Regional. CNSS Polyclinics H4ospnital District hospitals Basic Health Care Outreach Activities Medical and Dental Private Practices Pharmacies Private Labs Paramedical Practices Specialized Clinics Polyclinics rivate Ho i S The Private Sector Sourv!: Ministry ofrHealth - TUNISIA 1 shortages in drugs and supplies in the public facilities. Weak management and internal inefficiencies in the system continue to hamper efforts to achieve a more cost-effective use of the limited resources. Furthermore, because the insurance funds are not paying their health care bills to the public sector, insufficient coordination among health insurance schemes has resulted in the duplication of services and procedures and in the waste of resources. 3.10 On the revenue side, the system has not succeeded in capturing the growing private willingness-to-pay for health services. For example, co-payments and direct private payments accounted for just 6% of the total revenues of the public health system, and this proportion has not increased. in recent years. The reimbursement rates are set by a reference fee schedule which appears to underestimate the full production cost of care and therefore results in inadequate cost-recovery. D. Expanding Role of the Private Sector 3.11 The shortcomings in the public health system have prompted among other factors3 an expanding private participation in the health sector, both in terms of increasing private outlays for health services (either through private insurance or direct payment) and the increasing number of private practitioners and private health services available to the consumers. The private share of health expenditure expanded from 34% 1985 to about 50% in 1993 (see Fig. 2). There is as yet no disaggregated data available to indicate how much of the private outlays are direct out-of-pocket payments, and how much are made through private insurance plans, sickness funds or other forms of third-party payment mechanism. Group health insurance represents about 20% of total premiums and there is evidence pointing to a growing private insurance market. Some of the better run private companies report gains in this line of business, despite charging higher premiums than state-owned companies. In some cases, state entities or state controlled enterprises have transferred their group health insurance to private sector companies (Vittas, 1995). 3.12 The total number of private practitioners and private hospitals remains small relative to the public sector, but in view of the continuing resource constraints in the public sector it is surmised that the number and size of private providers would increase in the coming years. Since detailed data are not yet available on the activities in the private sector, the constraints to the growth of private sector and its impact on the health system as a whole can only be inferred at this stage from anecdotal evidence and general descriptions of the sector. Most of the private services are in ambulatory care, and private hospitals are still small in size and offer limited inpatient care. These characteristics suggest the existence of some constraints to growth. For example, private providers may face bottlenecks in mobilizing capital for investment in large facilities and equipment, particularly for secondary and tertiary care. They may encounter difficulties in generating a sufficient volume of demand, especially where the availability of highly subsidized care Other contributing factors are an increase in revenue, a development of group insurance, and reforms in the medical profession. 18 through the public system is likely to divert clients who would otherwise have paid for private care. It is also possible that the number of patients who would seek inpatient care from private hospitals is limited by the exclusion of catastrophic illness from private insurance plans. Finally, as most of the private practitioners must rely on the public facilities to refer patients requiring more sophisticated tertiary care, they may be constrained by the limitations in access to, and the declining quality of, the public health system. 3.13 The above considerations point to the need to address simultaneously .the constraints existing in both the public and private sector in order to achieve a more efficient and equitable health system. The government has already initiated efforts to address the problem of shortage in public revenues by reviewing the eligibility criteria for those receiving free or subsidized medical vouchers, examining ways to raise the enrollment rate in the social security system, and increasing cost-recovery in public facilities by an upward revision of the co-payment system. It has also initiated a restructuring of the public hospitals to improve its management and financing capabilities, thereby achieving greater efficiency within the system. 3.14 These reforms are likely to take time before they realize substantial improvements in the public resource picture. For one, the population contributing to the social security system pays for the bulk of the public resources and carries a high tax burden.14 It is unlikely that a higher contribution rate is feasible at this stage. Contributions to the social security funds would have to increase through the expanded enrollment rate in the social security system," but the large number of people working in the informal sector is likely to hamper progress in this area. The reduction in the size of AMG holders may also take time to achieve, given the political sensitivities associated with cutbacks in subsidies and the time required to mobilize sufficient political consensus to enforce such policies. Meanwhile, the growth in demand for health care will likely outstrip the growth in available public resources. The situation calls for a more forward looking policy in mobilizing private resources to complement and support the efforts in the public sector. 14 It is estimated that the average tax burden on the employed amounts to about 40 % of the wage rate, which is comparable to European countries, but very high for a country at the lower middle income level. 15 The latest estimates of the social security system show that at least 300.000 households could be covered by one of the national health schemes. This number could be deducted from the present number of AMG II beneficiaries. 19 IV. KEY ISSUES iN ACHIEVING A BALANCED PUBLIC-PRIVATE SECTOR Mix 4.1 The private sector could contribute to better health care by: (i) mobilizing resources and relieving some of the burden on public resources; (ii) introducing competition into the system which could improve efficiency and quality of care, and potentially lower costs; and (iii) responding to growing consumer demand for a greater range and choice of services. At the same time, the government will need to examine its role and capacity to meet the new demonds created by the expanding private sector, and to develop new policies and strategies based on a planning process coordinated between the two sectors. In particular, the government will need to identify constraints to the development of the private sector, and to correct for distortions and disincentives in the market which could contribute to cost-escalation, inefficient allocation of resources and inequitable distribution of services. The following section lays out some of the challenges that should be addressed as Tunisian officials think through this important subject. 4.2 Equity and universal coverage: Most governments espouse the principle of ensuring access to a basic minimum health care for all citizens, limited by the economic capacity of the country. This entails the provision of compensated care for the vulnerable group, including the poor, the disabled, and the elderly, and involves some form of resource transfer from the working population who are able to pay, to those who are unable to pay for the services. The expansion of the private sector carries both opportunities and challenges in the achievement of equity and universal coverage. By mobilizing additional resources, the private sector could widen the resource base for extending greater range of health services for a larger segment of the population. But it also risks the creation of a two-tiered system by drawing the resources of the well-to-do clients away from the public health system, thereby impoverishing further the public system. The Tunisian government can address equity through better targeting of government investments, by limiting public spending on services that generate predominantly private benefits, and by increasing subsidies for those that meet the "public goods" test. The government may also consider raising co-payment and cost-recovery schemes on services which are deemed affordable and less essential, and applying more stringent eligibility criteria and means-testing for AMG privileges. A definition of entitlement or essential benefits package may help to define those services which are targeted for priority financing from the public resources. 4.3 Multiple and fragmented health financing system: Given the catastrophic and unpredictable nature of acute illnesses and injuries, the development of some form of third-party payment system, ranging from sickness funds and private insurance to national health insurance, is an essential feature of all health care systems. Experiences in both developed and developing countries indicate that the expansion of private insurance market increases the likelihood of adverse selection. This phenomenon of "dumping" by the private insurance carriers breaks the principle of risk-pooling which is essential for a sustainable insurance scheme, and transmits the higher cost of care to the public sector. 20 Therefore, the health financing system is fragmented into a part that serves those who have no choice but to depend on the MOPH system, and the rest who have other options, including private insurance. 4.4 Because of the fragmentation of the financing system, it is difficult to monitor and evaluate the levels of benefits and coverage provided through these different systems, and hence to regulate their activities. This can also lead to wasteful duplication and inefficient allocation of resources, not to mention the adverse selection problems. The GOT may consider health sector reforms that include efforts to reorganize the financing system in order to make it more consistent with the set priorities and to improve efficiency. One approach is to reconstitute the financing system into a purchasing agency, responsible for looking after the health of a geographically defined group of population. Chile's health sector reform is an example of that (see Annex D). Spain also followed this pattern of health sector reform. Many of the European health systems are also organized around regional or local health authorities, which act as a purchasing agent looking after the health care needs of their geographically defined constituency. South Korea which had fragmented social insurance schemes prior to the reforms in the 1970s and 1980s, gradually expanded and consolidated these schemes into a national health insurance system which provides universal coverage. 4.5 To prevent this fragmentation of the health financing system by adverse selection, most OECD countries regulate the private insurance market. However, in such systems, private insurance provides supplementary coverage in a well-functioning health system. Recent experience of Chile's ISAPRE is quite sobering: private insurance has become so large and politically powerful that the government is unable to enforce any regulation that would mitigate the adverse selection problem. This is a crucial issue in Tunisia given the commitment of the Tunisians to solidarity and equity. 4.6 Cost-containment: The growth of the private sector is likely to lead to an increase in demand for care, higher total health expenditures, and greater diversity and the increase in the use of potentially costly medical technology. The experience of Korea illustrates a case where the existence of a large and vibrant private sector probably contributed to rapid cost-escalation in health services. The growth of the private sector adds to the problem of cost-escalation, since they are not readily subject to global budget control as in the public sector. Most OECD countries recently emerged from.a period of rapid cost- escalation which occurred in the 1980s, and are now beginning to achieve some measure of success in cost-containment through various combination of global budgeting, revisions in the payment system and adjustments in the regulatory system. 4.7 The recent experiences of OECD countries in this regard will be especially helpful in preparing Tunisia to deal with cost-containment issues from an early stage. Most OECD countries are phasing out the fee-for-service reimbursement system in which the provider has been reimbursed on the basis of procedures. Instead, a case-based payment system was introduced which pays the provider for treatment based on a contractual arrangement between the payer and the provider which prospectively sets the price and level of service. The growth of health management organizations (HMOs) in the United States and other 21 forms of managed care exemplifies the new arrangement among the payer, the provider and the patient. Many middle income countries are beginning to experiment with the approaches developed in OECD countries (see examples of Chile and Brazil in Annexes D and E, respectively). However, these reforms require the development of institutional and staff capacity to manage a more sophisticated information and accounting system -- often difficult to achieve in a developing country context. A controversial but important issue in cost-containment is the identification of priority health interventions and the allocation of resources to those priority measures which the system can afford. 4.8 Microeconomic efficiency: Most public health systems in both developed and developing countries have been criticized for their poor performance and inefficient delivery of services. Public systems lack managerial and financial autonomy, which in turn contribute to lack of incentives to minimize cost, improve efficiency or respond to client needs. Most proponents of the private sector focus on these shortcomings of public providers and recommend that the expansion of the private sector could infuse an element of competition and cost-consciousness into the system. In practice, however, the health sector carries certain structural features that render it particularly susceptible to market failure. These conditions include high externalities, information asymmetry, restricted entry into market and uncertainty as discussed in paragraph 2.5 above. 4.9 In particular, information asymmetry and technical specialization create opportunities for monopolistic behavior among providers and prevent the development of a competitive market -- an argument used in public finance to justify the continuing direct involvement of the public sector in the provision and financing of health services. For these reasons, the expansion of private health services may not readily translate into an increasingly competitive environment, or necessarily lower costs and improve efficiency and performance of the system. However, recent experiences in OECD countries show that innovative ways can be devised to promote various public-private interactions in the interest of improving efficiency and quality of services. For example, some of the European reform measures feature the creation of an internal market. The objective is to make the public hospital system more efficient by making the hospital managers more accountable while giving them, at the same time, more autonomy to manage their resources. In such a system, the relationship between the government and the hospital will shift from one governed by centralized management and budget transfers, to autonomous management and contractual payment system. This is distinct from privatization as the government does not completely divest itself of the hospitals. Clearly, such an approach will fundamentally change the relationship between the financing agents (mainly MOPH and social security funds) and hospital management and should be accompanied by a strengthening of the information system on costs, utilization and quality. This is essentially the direction the Tunisian government is heading with the Bank-funded hospital restructuring project. 4.10 Quality improvements and responsiveness to demand: One of the expected benefits in the expansion of the private sector is an improvement in the quality of care. Quality has many dimensions in the health service sector, but it generally refers to compliance to standard or recommended treatment protocol, efficiency in management of 22 patients in terms of accuracy (minimum error in diagnosis, treatment), timeliness and effective use of available resources, as well as treatment outcome and patient satisfaction. Often, private providers compete for patients on the basis of perceived quality (by the patients), e.g. use of expensive high technology equipment, or the availability of hotel-like amenities and accommodations, that may not be directly relevant to the quality of care in terms of health outcomes. In such a case, competition among private providers can lead to cost-escalation without any substantial improvements in the health status of the population. 4.11 Alternatively, the private providers may compete on the basis of volume rather than quality if the price incentives are structured in that manner. In such cases, the private practitioner may offer low-quality service to a large number of patients, with negligible or even detrimental health impact. Thus, there is a need to develop a system of quality assurance for establishing, monitoring and enforcing medically and ethically accepted standards and norms of practice, to protect the public against dangerous or unethical practices and to evaluate efficiency between facilities or practitioners, and between treatment types. 23 V. IMPLICATIONS FOR GOVERNMENT ACTION: DEVELOPING A NATIONAL HEALTH STRATEGY FOR TUNISIA 5.1 Implementing change in the new public-private mix will present the government of Tunisia with new opportunities and challenges for improving the efficiency, quality and equity of the health system. As mentioned previously, the Government has already started to tackle the main issues described above. However, those efforts have been ad-hoc and reactive. Experience in Tunisia and elsewhere indicates that to achieve a more efficient and equitable system, constraints in both the public and private sectors should be addressed. Considering the most important problems and steps the government has already taken, the following is a broad outline of a comprehensive strategy for discussion. A comprehensive national health strategy should focus on: (a) redirecting the use of subsidies toward the most cost-effective, priority health interventions; (b) correcting for distortions in prices and introducing cost-containment measures; (c) promoting the purchase of services between private and public providers; (d) regulating the expansion of the private insurance market; (e) planning for human resource development; (f) educating consumers; and (g) strengthening the regulatory system of government and non- government groups. A. Redirecting the Use of Subsidies Toward the Most Cost-Effective, Priority Health Interventions 5.2 Tunisia's extensive public health system provides a highly subsidized system of health care which in principle guarantees universal access to basic health care for all citizens. However, government revenues are not sufficient to sustain the current level of subsidies, and much of the subsidies appear to benefit those who are willing and able to pay higher fees for the health services received. The on-going Bank-financed "Maghreb: Health Priorities Study" is expected to generate essential data on the cost-effectiveness of various health interventions together with data on the country's epidemiological profile. This should lead to the definition of an essential or basic health care package. At the same time, recent proposals for reforms have included adjustments in the cost-sharing arrangements to redirect the use of subsidies toward the most cost-effective, priority health interventions. Specifically, the proposals recommend an expansion in the contribution base of the social security system, a reduction in the number of AMG holders by tightening eligibility criteria, and a revision of the co-payment system to increase the cost-sharing burden for those able to pay, while protecting the provision of free medical care for the indigent population. B. Rationing Total Available Care 5.3 The demand for private health care may increase as a result of an increase in the coverage rate under the social security system. This will happen as a growing number of AMG holders, who formerly had access only to the public health system, enter the social 24 security system and become eligible for reimbursement for services delivered by the private sector. An overall reduction in the subsidization of the public health system would have the effect of raising the relative price of public health care to that of private health care. With the expansion of private providers, the likelihood of cost-escalation will increase, unless measures are introduced to improve incentives for cost-containment, or to introduce some form of rationing of services. Attention will also be needed to control the administrative costs associated with the social insurance funds. Box 4. Suggestions for Attaining an Optimal Public-Private Mix * Focus public efforts on what governments do best - i.e., prviding public goods and services and a .regulatoy framework that ensures minimum standards of quality and prevents fraud. One often-overlooked public good is access to information regarding the quality and efectiveness [social service providers. Governments an help to empower users by providing such information on a regular basis. * Strive to guarantee access to basic health and education services for all. Governments should not attempt to provide services but rather to ensure more equitable access to them through a combination of insurance schemes, voucher systems, subsidies, and tax credits that make at least basic services affordable to all. * Price higher-level facilies reahsucally and reallocate public resources toward essential basic services. Althoujh basic health and education services have the highest economic and social payoff current public spending frequently favors higher-level facilities. This pattern needs to be reversed More equitable access to higher education and hospitals can be facilitated by scholarships, school loan programs, and health insurance schemes. * Facilitate a pluralistic system of supply. Ifhen users are empowered with information and resources, they need several providers to choose from. Where private providers compete with public ones, consumers have this choice. Furthermore, competition will increase overall quality and efficiency. Source: Van Der Gaag, Jacques, 1995. Private and Public Initiatives: Working Together for Health and Education. The World Bank, Washington DC. C. Linking Finance to Production 5.4 A key element of the strategy would be to link payments (to providers and institutions) to the quantity and quality of the care given. This implies: (i) making the payment system consistent with the actual cost of providing the services; and (ii) making the system more performance-based and transparent. For the insurer, this involves making the premium payments more consistent with the benefits provided under a certain plan, 25 and the premium rates should be set on the basis of a sound, actuarial-based information. For the service providers, this not only means getting the payment system in line with the costs of service, but making sure that there are built-in measures for cost-containment, quality assurance, and protection of access for the indigent. Case-based reimbursement systems, like the DRGs and capitation can convey some of these incentives, but they are costly to develop and maintain. Reforms in the financial incentives and reimbursement systems will also need to be supplemented by non-financial incentives such as quality assurance/medical audit, and utilization reviews. D. Correcting for Distortions in Prices Created by the Payment System and Introducing Cost-Containment Measures 5.5 The next step of the reform will be to update payment mechanisms. The current reference fee schedule for medical procedures is not based on reliable production cost estimates, and probably underestimates the cost of most procedures. The low reimbursement rate effectively raises the co-payment rate for patients who go to private practitioners as the latter are more likely to charge the cost of production. Anecdotal evidence suggests that double-billing by users of the private system to make up for the shortfall in the reimbursement rate would be common. Distortion in prices undermines the incentives for efficient allocation of resources and can lead to cost-escalation and inequitable distribution of public resources. 5.6 The pricing mechanism, comprising the fee schedule and payment system, is a powerful tool for developing an incentive structure to promote efficiency and to contain costs as seen in OECD countries. The reform of the pricing mechanism comprises at least two steps. The first is to establish a mechanism for generating reliable cost information on a regular basis; the second involves the development of an appropriate payment system, which defines the relation between the payer and the provider. The ongoing restructuring of the public hospital system, which includes strengthening financial management and cost accounting systems, has begun to generate cost information. But the development of new payment systems is likely to require time and strategies are needed for introducing the reforms in stages. 5.7 The social health insurance fund reimburses on a fee-for-service basis for established medical procedures, and on a per diem basis for hospital stays. Tunisia could examine the possibility of moving away from the public fee-for-service reimbursement system and increasingly turning to capitation systems for primary health care, and prospective payment systems in hospital settings, as a means of containing costs and achieving more efficient allocation of resources. 5.8 A potential drawback of the capitation system is that the provider may be prone to under-serve the patient in order to realize maximum profit from each client. This problem would need to be counteracted through a quality assurance system and a strong consumer education program to ensure that each client is aware of his or her benefits package and how they should best be utilized. 26 5.9 For hospital care, the applicability of the Diagnostic-Related Group (DRG) Fee schedule to the Tunisian context could be studied. This prospective payment system sets the reimbursement rate for each diagnostic group on the basis of the estimated cost of medical procedures associated with a standard treatment protocol for the diagnosis. By paying the hospitals a prospectively set fee for specific diagnosis, the system gives incentives to the hospitals to select the most cost-effective treatment. Clearly, a quality assurance program will be needed to ensure that the provider is not undercutting procedures to save costs on each diagnosis or discharging patients earlier than necessary to readmit them with another DRG. Brazil is an example of a middle-income country which has introduced the prospective per-case payment system. Its experience so far points to the difficulties developing countries face in obtaining accurate up-to-date cost information, essential for a prospective payment system to be effective. 5.10 The establishment of a prospective payment system has been the basis for the development of managed competition. Managed competition refers to a health purchasing strategy in which an insurance group or some third party payer contracts with a group of health providers to manage a certain, specified basic benefits package for their clientele. The contractual arrangement allows the payers to establish performance criteria for a predetermined benefits package, and to allow different groups of providers to compete for the contract on the basis of the cost and quality of services offered. Managed competition is attracting widespread interest and application in OECD countries, since it allows the use of financial incentives and management to achieve efficient care, while permitting sufficient control over the terms of service to protect the interest of the poor and ensure universal access. In the developing countries, some middle income countries are introducing elements of managed competition but the results remain mixed: its success depends on the existence of a well developed financial and managerial capacity on the part of both the provider and the payer, and a quality control and performance evaluation system to ensure accountability and transparency. These prerequisites suggest that countries contemplating the introduction of managed competition would need to examine carefully existing capacities, and take time to develop those capacities in the health system. E. Promoting Public Hospitals as Public Firms 5.11 A crucial element of either the patient-based or purchaser-provider contract-based model is that hospitals become quasi-autonomous. In the United Kingdom, these re- structured public hospitals are termed "self-governing trusts; " in Sweden, they are "public firms." The central characteristics, however, are the same: although still publicly owned, they are not reimbursed on the basis of a fixed budget but on the basis of the volume of patients they attract. They receive a reasonable,degree of managerial autonomy that allows them to be more efficient and effective. Beyond better value for the money, the quality of care is likely to improve, since hospitals' need to compete to attract new patients. While competition within the public system should be promoted, its potentially negative effects, such as favoring the admission of less severe cases, long waiting time for the poor and severe cases, ought to be avoided through government regulation and monitoring. 27 5.12 While the creation of the new Etablissements Publics de Sanit (EPS) through the hospital restructuring project financed in part by the World Bank is a move in that direction, further steps are needed. First, the EPSs need to have more autonomy, particularly with respect to managing human and physical resources which should make it possible to reward health personnel on the basis of good performance. Second, the internal efficiency of regional hospitals should be improved to allow these hospitals to play their designated role in the health pyramid. This entails, among many measures, the introduction of improved management procedures. Finally, with respect to primary care services, as the geographical and financial barriers to accessibility are minimized, more emphasis should be placed on improving the quality of such services, particularly at the level of district hospitals. 5.13 Once more efficient management is introduced, hospitals will find it in their own interest to revise their staffing arrangements to reduce redundancies in certain services and resolve shortages in others. Clearly, this presents several socio-cultural problems and should be carefully approached with the utmost degree of transparency. A meticulous analysis of this problem may lead to a gradual change in the civil service status of hospital personnel. F. Promoting the Complementarity Between Private and Public Providers 5.14 At present, there is insufficient information to determine what kind of obstacles are faced by the private sector. Promoting the purchase of services between private and public providers is often regarded as a means of optimizing available resources and raising the efficiency of the health system as a whole. For example, by admitting privately insured patients, public hospitals can generate additional resources for their operation, assuming public facilities are permitted to charge private patients the full cost of care. As public hospitals are decentralized and given greater freedom to manage their own finances, this will be an attractive way to expand their revenue base. However, as the experiences of Ireland (OECD, 1992) and Australia show, public hospitals will try to attract more private patients, leaving public patients on a waiting list. Most OECD governments restrict the number of private beds or control additional revenues. Public hospitals will need to strike a balance between increasing their revenues and meeting the needs of public patients. 5.15 Conversely, allowing publicly financed patients to access private providers will increase the range of options and choices available to the public patients, and alleviate the problem of waiting time which commonly occurs in the public system. Potentially by increasing the number of patients who seek private care, this will also help to expand the market share for the private providers, which may be of particular importance if the health system is predominantly public, as in Tunisia. The potential difficulties are that this may lead to supply-driven cost-escalation and induced demand, unless some form of cost- containment measures are built into the system. Any distortions in the pricing of different procedures and treatment groups are also likely to be reflected in the private market response toward those treatments which generate the largest revenues, irrespective of whether they are the most cost-effective method of treating the patient. It would be 28 important to ensure that the fee schedule and payment system are in line with the actual cost of production, and that they provide appropriate signals for directing services toward the most cost-effective use of resources. 5.16 Private practitioners could be given better access to support facilities and specialized services which are available in the public system, by means of a more effective referral system between the private and public providers, or by allowing subcontracting of public facilities and services for a fee. Since most of the private practice in Tunisia is for ambulatory care, it is possible that a lack of access to good referral system may be a constraining factor in the expansion of private services. Such a strategy may also help to improve the efficiency of lower-level facilities or to promote primary care and the utilization of primary care facilities. For example, under the capitation system it may be feasible to subcontract a group of private practitioners to provide primary care services to public patients as part of a priority primary care benefits package. The public health centers may then be used to support the activities of these private practitioners for services included in the benefits package. G. Regulating the Expansion of the Private Insurance Market 5.17 Although detailed information is not available on the volume and types of policies provided by the private insurance market, still in its infancy, there is growing evidence that the sector is expanding and likely to play an increasingly important role in the financing of health care in Tunisia. The lack of information on the sector points to the absence of any form of monitoring and regulating mechanism in the country. Yet, -it is well established that an unregulated growth in private insurance is liable to adverse selection and moral hazard, which can lead to cost-escalation and exacerbate inequities in the system and the arbitrary termination of policies. 5.18 In order to avoid these detrimental effects, many countries have introduced regulations and legislation and promoted greater transparency in the private insurance market. For example, private insurers may be required to offer a minimum benefits package, including preventive care. They may also be prohibited from excluding individuals on the basis of their chronic or high-risk conditions. For the regulatory framework to be effective, there should be a well-organized system of collecting information and monitoring the performance and cost of the private insurance market. Such a system should allow the dissemination of information to employers and individuals so that they are able to make informed decisions on the types of policies available. It may be necessary to consider forming a committee to monitor, regulate, and accredit the private health insurance carriers. 5.19 In addition, the relationship of the private insurance market to the social insurance funds should be examined. Based on the experience of OECD countries, at least two options could be envisaged: (i) replacement insurance: in the German system, social security affiliates are permitted to apply their social security contributions toward the purchase of private insurance policies, provided the latter meet Government guidelines on minimum coverage and other requirements. In such an arrangement, the social security 29 funds contribute a pre-established amount toward the premium with the employee and/or employer paying the balance; .(ii) supplemental insurance: individuals affiliated with a social insurance plan have the option of purchasing supplemental coverage through private insurance groups. Many countries (e.g. the Netherlands) have this option. H. Planning for Human Resource Development 5.20 At present, only anecdotal evidence is available on the movement of health personnel between public and private sectors. The restraints which have been placed on the growth of the public health system may mean fewer openings in the public system for new medical school graduates. As a result, a large proportion of new graduates may be entering private practice. Alternatively, the private sector may be attracting the more experienced practitioner with a loyal client base, whose broad contacts in the public health system provide easy access to support and referral services available through the public system. Health planners would need to gather more detailed information on geographical distribution of human resources, type of services provided, and the movement of personnel within the private sector, in order to identify the training and educational needs of the health personnel. Government policies on subsidizing medical education and training need to be examined in light of the rapidly expanding number of health personnel now entering the private sector. 5.21 Training and continuing education for health personnel could form an important basis for: (a) quality assurance; (b) upgrading their knowledge and skills in management tools and financial accounting as new forms of payment and management systems are introduced; and (c) accreditation and licensing of private practitioners. I. Consumer Education 5.22 Given the inherent information asymmetry in the health sector, consumer education is an essential aspect of promoting efficient use of health services by patients. Inefficiency could be introduced by either the patient or the provider. In their efforts to attract clientele, private providers may attempt to compete on the basis of hospital amenities or the availability of costly medical equipment, irrespective of the effectiveness of these technologies. This trend is reinforced by the patient's belief that costly procedures are more effective. Consumer education to promote healthy lifestyles, to make greater use of preventive care, and on the most cost-effective treatment for common illnesses could generate considerable savings. With the expansion of the private sector and of the range and type of services available, the public sector would probably need to play an even more active role in disseminating information to the public regarding the effective use of health services and the performance of different providers in terms of quality and cost of care. Such information will help the patients to make a more informed decision about their health care. 30 J. Strengthening the Regulatory System of Government and Nongovernmental Groups 5.23 To deal with the many challenges and opportunities presented by the expansion of the private sector, the' Government will need to review its roles and functions, particularly with regard to its monitoring and regulatory functions. This is particularly important now that with the expansion of the private sector, a larger part of the health sector will fall outside the direct control of the Government. To regulate and set policies on the private provision of health, there is first a need to collect and have regular access to information about the private sector. In particular, the Ministry of Public Health would need to enhance its capacity to establish, monitor and enforce standards and norms on quality of care, compliance with medical ethics, as well as financial accountability. It may consider doing so by strengthening the system of accreditation of hospitals and licensing of medical professionals, laboratories, and pharmacies. These functions will involve the active participation of professional associations (medical associations, dental associations), insurers and consumer group advocates. The active role of government agencies and consumer groups may be especially important in counterbalancing the monopolistic tendencies of medical professionals or major insurers. The challenge is to promote consensus building among the potentially adversarial interest groups. 31 VI. CONCLUSION 6.1 The Tunisian Government must first aim to ensure accessible, affordable, quality health service. One strategy to reach that aim is to achieve the most effective balance between the private and public sector in health care provision and financing. The expansion of the private sector presents Tunisia with new opportunities as well as challenges for enhancing the capacity and improving the efficiency and equity of the existing health system. Given the rising demand for health care and the limited capacity of the public sector to meet this demand, the private sector will continue to expand. However, its expansion is faced with a number of constraints that should be addressed. At the same time, an unregulated expansion of the private sector could exacerbate existing inefficiencies in the health system and may result in greater inequities. Therefore, it is important for the Tunisian Government to identify at this early stage in the development of the private sector the sources of the inefficiencies and inequities, and to develop specific plans and strategies to promote an effective interaction between the two sectors. Table 1 summarizes possible policy measures and their linkages. 6.2 The GOT has initiated discussions on a number of the issues presented above. The Ministry of Planning (now Ministry of Economic Development) organized a workshop on "the development of medium-term and long-term strategies for human resources" which was held on October 27-29, 1994. In the context of the preparation of the 5-year plan (9th plan), several task forces with representatives from all ministries concerned with the sector are developing a strategy for the health sector. The task forces are focusing on three main themes: epidemiological transition, organization of the health sector, and health sector financing. 6.3 Although discussions of the medium-term health strategy are still on-going, there is a consensus on a number of immediate steps. First, the following topics need to be studied further: (i) the existing private contribution to public health activities; (ii) the predominant supply and demand conditions underlying this contribution; and (iii) the incentives necessary to increase this contribution. 6.4 Second, GOT needs to reassess the appropriateness of the public sector subsidies; in particular, it needs to assess the impact of two policies: (i) increasing direct charges to users of public health care facilities; and (ii) expanding health insurance. With respect to (i), the present structure of health care prices should be examined in light of three key principles of pricing policy -- cost recovery, efficiency incentives, and equity. This should result in appropriate targeting of subsidies. As to (ii), the GOT has initiated discussions on reforms in the health insurance sector. The financial and institutional conditions for feasibility have yet to be specified. A study is needed to help decision-makers establish the main actuarial and regulatory aspects of a proposed reformed social health insurance system. It should include recommendations for contribution rates that will ensure the system's long-term sustainability. 32 6.5 Third, a key element of the proposed comprehensive health sector strategy is the introduction of competitive incentives within the existing public sector system. This could be achieved through the adoption of patient-led "public competition," through a managerially-led negotiated contract approach among public sector providers, or through a mixed public-private market that incorporates both approaches. What is crucial is that public sector providers would not have fixed annual budgets; rather they would be funded on the basis of productivity and efficiency. However, before such a new system is introduced, the government needs to invest in upgrading its facilities, and staff need to be trained in financial management. 6.6 Finally, with any expansion of the private sector, it is crucial that the government remains accountable to the population and that abuses be prevented. Therefore, in addition to removing barriers and providing a conducive environment for the private sector, the government should modify its role from that of a predominant provider to that of a regulator of health care. This is particularly important for the system's long-term sustainability. It is therefore important to analyze thoroughly the government's role in setting quality standards and monitoring and evaluating the performance of insurance carriers as well as providers in the new system. The analysis should suggest regulatory inducements and sanctions to achieve desired behavior. 33 Annex A Page 1 of 4 KOREA: HEALTH SECTOR REFORM IN A NEWLY INDUSTRIALIZED COUNTRY (NIC)' In keeping pace with the rapid economic growth of the country, the Korean health system has undergone major adjustments over the last two decades. Of this process, four salient features need to be underscored: (i) the achievement of universal health coverage through the expansion of national health insurance; (ii) a significant increase in the hospital capacity and the number of physicians, supported by an active Government policy to raise the number of medical graduates; and (iii) a rapid increase in total per capita health expenditures as a consequence of rising income, the epidemiological transition and, most notably, the availability of services and expansion of health insurance coverage. These developments have occurred in a health system that i:s characterized by the active and dominant role taken by private providers in the delivery of health services at all levels. Private clinics and hospitals account for 95% of all medical facilities, 80% of hospital beds, and 72% of physicians. The potential relationship between the predominance of the private sector and the effectiveness of Government's policies and strategies, particularly in terms of containing costs and improving equity, are discussed below. Expansion of National Health Insurance Social welfare programs were introduced at a relatively late stage in Korea. Typically, the expansion of a national insurance scheme is associated with an increase in the demand and utilization of health care services. Compulsory health insurance wa first introduced in 1977, and systematically expanded until universal coverage was attained in 1989. Its establishment coincided with the period of rapid growth in personal income levels, which considerably amplified the growth in demand for health care. In that context, the existence of an active and vibrant private sector has reinforced the receptive supply response to the rising demand, including the diversification of services into more costly forms of care. The effect has been a rapid increase in total health expenditures, which rose from 2.8% in 1975 to 7.3% of GDP in 1991. Source of data: Willy De Geyndt, "Managing Health Expenditures under National Health Insurance: the Case of Korea", World Bank Technical paper Number 156, The World Bank, Washington, DC, 1991. Annex A Page 2 of 4 Increasing the Supply of Health Service Providers The Government policy of promoting the training of an increasing pool of medical graduates, so as to achieve a physician-to-population ratio comparable to that of industrialized countries2, was intended to: (i) alleviate the shortage of physicians and health services in rural areas; and (ii) promote competition among physicians to lower unit costs. On these two objectives, results are disappointing. Raising the overall number of physicians has not, in itself, succeeded in improving access to health care in rural areas. Since the vast majority of health practitioners are private and the Government had neither adequate tools nor the regulation to exert its influence over the choice of location, most health care facilities and services have remained concentrated in urban areas, where the rising demand for care has absorbed the larger supply of services. To counter this urban bias, the Government has introduced incentives to entice medical school graduates to serve in rural areas, e.g. by exempting them from military services, and by offering public subsidies for investment in rural health infrastructure. These efforts appear to have helped to extend the availability of services in rural, underserved areas. It is not known, however, whether this better distribution of resources was not also due to the saturation of urban areas. Experience in the US and most other industrialized countries with large numbers of private providers has shown that increasing the number of physicians does not necessarily lead to increased competitive pressure and price reduction. Imperfections in the health market -- mainly, information asymmetry and controlled entry into the market -- are the explaining factors for a large "induced demand," which describes the ability of physicians to induce greater utilization of health services by the patients, resulting in even higher price of services. This way, physicians hold on to their market share despite the increasing supply of physicians. In effect, it is likely that Korea's increase in its physician population not only did not decrease costs, but actually contributed to the rising cost of care. Cost-escalation and Cost-containment Measures The rapid escalation of health care costs has raised major concerns among policy-makers on the country's social and economic capacity to sustain such a pattern over the long run. In addition to the factors noted above -- i.e., rise in health demand; expansion in supply of health services; availability of more intensive and more expensive technologies -- the payment system based on a fee-for-service reimbursement scheme, and rising administrative costs associated with the high overhead cost of managing insurance companies, are believed to have contributed further to the rapid cost increase. 2 Japan's physician-to-population ratio is approximately double that of Korea's. Annex A Page 3 of 4 Under the National Health Insurance, the health providers are reimbursed on a fee-for- service basis, according to a cost-plus fee schedule established by the Government on an annual basis. Higher mark-up rates are permitted for higher level facilities. This payment system guarantees a certain profit level for each facility or practitioner, but offers no incentive to the providers to contain costs or improve their efficiency. From the demand side, the system of co- payments, deductibles and capping of hospital days has not been sufficient to balance the population's willingness and ability to pay, and to help contain the rapid growth in per capita health expenditures. Experience in other countries suggests that the administration of a national health insurance system managed by private carriers can be costly. Examples similar to the Korean health financing system can be found in Germany and in Chile (ISAPREs), where the compulsory health insurance funds are administered by a large number of private insurance carriers. In both countries, administrative costs associated with private insurance have been relatively high as compared to other countries with comparable levels of economic development. Conclusion To summarize, the recent experiences of the Korean health system may provide the following potentially relevant lessons for the other middle-income countries entering the transition phase to a higher level of health expenditure: (i) Expansion of universal coverage through national insurance can lead to a major increase in demand and cost of care, particularly when the country is simultaneously experiencing a rapid rise in income levels. (ii) Increasing the supply of physicians and medical facilities does not necessarily lead to increased competition or to lower cost of care, unless other incentives and measures for cost-containment are also in place. (iii) Third-party payment systems based on fee-for-service reimbursement schedule are liable to cost-escalation, and offer very little incentives or systematic controls for cost- containment, especially when the demand and supply conditions are likely to push the volume and cost of services higher. (iv) Where the majority of the health facilities and practitioners are private, the response to cost-escalation pressures could be more immediate and pronounced than in systems that 3 Clinics and private practice physicians receive the fee plus 7 % mark-up; general community hospitals receive fee plus 13 %; multi-specialty hospitals receive fee plus 23 % and the large university hospitals receive fee plus 30 %. Annex A Page 4 of 4 are predominantly public and which could be subject to global budget capping. In the long term, the system, whether predominantly public or private, would have to respond to the rising demand for care and increase in per capita income levels associated with economic development. Annex B Page 1 of 5 THE TUNISIAN HEALTH CARE SYSTEM Health and Demographic Status In the last two decades, the health status of the Tunisian population has improved significantly as a result of better living conditions, greater access to education, improved nutrition, the development of both preventive and curative health care services, and lower birth rates. Life expectancy (for females) has risen from 57 years in 1975 to 70 years in 1993, and the crude death rate has decreased from 16 per 1000 population in 1965 to 6 in 1995, as a result of determined Government action and a GNP average annual growth rate per capita of 1.7% in real terms (1972-93). The infant mortality rate (LIR), which decreased dramatically (4.7% per year between 1972-93), from 120 deaths per 1,000 live births in 1975 to 42 per 1,000 in 1993, is the lowest in the Maghreb. However, this progress has not occurred uniformly across the country, and disparities between urban and rural areas are still significant. The population of Tunisia, which was 8.7 million in 1993, has grown at a rate of 2.3% per year since 1980, despite a decline in the total fertility rate from an average 6.2 children per woman in 1970 to 3.1 children per woman in 1993. While growth has leveled off for the Tunisian population overall, it is noteworthy that the population growth rate in urban areas fell from 4.0% in 1970 to 3.2% in 1993. Factors contributing to these improvements include an increased marriage age and family planning efforts. The morbidity patterns in Tunisia parallel the evolution of its population structure. Not only do they reflect the existence of communicable diseases typically found in developing countries, but also a rapid increase in the degenerative diseases and chronic conditions (e.g., cancer and cardiovascular diseases) common among industrialized countries (which exhibit longer life expectancies and, therefore, older populations). Health Services Delivery System The Tunisian health care system has also improved its infrastructure significantly. Designed as a coherent network, Public Health Facilities are strategically located and classified according to the level of care provided. At the first level, the 1505 basic health centers, 95 district hospitals and 6 free-standing maternities (maternit6s autonomes) are intended to provide basic ambulatory health care and hospital services. At the second level, there are 22 regional hospitals, located primarily in rural areas and designed to provide some specialized care and hospital services. Finally, the third level of care, encompassing teaching, general hospitals and specialized care institutes, is located in the four largest urban centers (i.e., Tunis, Monastir, Sousse and Sfax), and offers high-level services. Annex B Page 2 of 5 The Parapublic Health Network belongs to the Caisse Nationale de Securit6 Sociale (CNSS) and consists of six polyclinics located in the major cities. These clinics provide ambulatory general practice, specialized care and investigation services to private sector workers (and their dependents) affiliated with the CNSS. The parapublic network was developed in the mid-80s in response to the perceived low quality of public health services and an insufficient level of services offered by the private sector. Finally, the Private Health Sector is concentrated in urban centers and consists of 1567 medical offices, 602 dental offices, 968 pharmacies, 338 nursing health centers and 101 laboratories. There are 35 private hospitals which offer a total of 1062 beds. However, more than 60% of these beds (mainly maternities) do not qualify as hospital beds, considering the low level of medical technology available (see below). Health Sector Resources Human and Physical Resources. In the post-colonial era, emphasis has been placed on increasing access to health care services. The ratio of population per physician decreased from one physician per 5,900 in 1975 to one physician per 1,537 in 1993. Attention also has been focused on the training of specialists. Almost 50% of physicians- of whom 72% have teaching responsibilities-are specialized. This specialization reinforces the urban hospital-based orientation of the Tunisian health care system, since specialist services are primarily available in the University hospitals or specialized institutes. In 1991, Tunisia had about 17, 400 hospital beds, of which more than 90% were part of the public sector. The ratio of 2.2 hospital beds per 1000 population compares well with other (lower) middle-income economies. However, this figure may be misleading, as a number of beds may not qualify as hospital beds considering the low level of associated medical equipment and staffing. This cautionary remark applies to a large portion of private sector hospital beds, as well as to those in public district hospitals. The private sector accounts for more than 1,000 hospital beds, largely concentrated in the Tunis area, where 35% of all medical offices are located, along with 39% of the private dental offices, 20% of private pharmacies, 32% of labs, and about one-half of private hospitals. More than 60% of the 1,000 hospital beds in the private sector do not qualify as hospital beds, considering the low level of technology available. Annex B Page 3 of 5 Figure a. Figure b. Health Personnel by Provider Administrative Staff by Provider Policlinics Prvate FbliciInics of CNSS Sector 3% 24% 8% .9MOMM Public Public Sector Sector 76% 88% Figure c. Figure d. Physicians and Nurses by Provider Paramedical Staff by Provider Pliclinics Private Polyclinics of CNSS Sector of CNSS Private 4% 1% 3% Sector Public 31% d MPublic Sector Sector 96% 66% Financial resources. In 1993, total health expenditures in Tunisia equaled approximately 5.6% of GDP, or about US$100 per capita (see Table A). In 1993, the Government budget contributed 37% of the total sector resources, while social insurance programs and households contributed 14% and 47%. While Government and health insurance funds have declined since 1986, private payments have risen 13% (see Tables A and B). Reduced tariffs are estimated to cover up to about 6% of the total recurrent costs of the public health care system, while regular user fees average around 2%. The remaining 92% may be covered by the state (77%), or by contributions of public mutual funds (15%). In 1992, per capita (recurrent) subsidies were estimated at about TD 27 per person per year (falling to about TD 9 per person per year if only operating costs are accounted for). In addition to the AMG-I and AMG-II beneficiaries, Caisse affiliates benefit substantially from the present financing system of public health care. For example, in 1992, CNSS and CNRPS affiliates accounted for 50% of hospital stays and 42% of outpatient services at public health facilities. Assuming a share in the Ministry's recurrent budget proportionate to the utilization patterns recorded in public facilities, CNSS and CNRPS should have jointly contributed about TD 136 million (i.e., 45% of the Ministry's recurrent Annex B Page 4 of 5 budget), instead of the combined TD 45 million that they did finance. The shortfall of the costs (more than TD 90 million in terms of recurrent costs and TD 35 million in terms of operating costs) are met out of the budget as direct payments to the public sector rather than being totally financed by the funds. As a result, the funds tend not to adjust the contribution rates of their affiliates, nor to increase collection. Moreover, since a large share of health expenditures of the social insurance programs are spent on services provided by the parapublic and private sectors, as well as on health care outside the country, health services provided by the public sector are underfunded. In effect, the social insurance programs are subsidizing, in relative terms, parapublic and private providers. Finally, it has been observed that social insurance programs have repeatedly used extra resources generated through their health insurance schemes to compensate for deficits incurred through other benefit schemes (pensions) or to invest in activities outside the health sector, thereby inducing further distributional effects. Table A: HEALTH - TOTAL EXPENDTURES. ____ 1986 1990 1991 1992 1993 Ratios to GDP (%) Government 2.3 2.2 2.2 2.1 2.1 Health Insurance Funds: 0.7 0.8 0.7 0.8 0.8 Med. Enterprises. - - - - Private Payments 1.6 2.5 2.5 2.6 2.7 Total 4.6 5.5 5.4 5.5 5.6 Allocation by Provider and Program (%) Government: 50 40 40 38 37 Recurrent Expenditures, of which: 88 87 90 91 91 - University Hospitals n.a. 16 16- 15 16 - Regional Hospitals n.a. 7 7 7 7 - District Hospitals n.a. 4 5 5 5 - Basic Health Centers n.a. 5 5 5 6 - Wages and Salaries n.a. 68 67 68 66 Capital Expenditures, of which: 8 9 9 8 8 - Preventive Care n.a. 29 32 38 40 Financial Operations 1 2 - - - Fonds de Concours I 1 - - - Fonds Spkiaux du Tr6sor 2 1 1 1 1 Health Insurance Funds: 15 14 13 14 14 CNSS 74 65 65 64 65 CAVIS 1 3 2 3 2 CNRPS 24 32 31 34 31 CREGT 1 1 2 2 2 Med. Enterprises 1 1 1 1 1 Private Payments 34 45 46. 46 47 Total 100 100 100 100 100 Note: (i) "n.a." denotes unavailable data. (ii) Fonds the concours included in 1992 the Fonds pour iAmdlioration et le Fonctionnement des Hopitaux, and the Indemnith de Soins des Femmes; in the same year Fonds Sp6ciaux du Trdsor included the Fonds pour les Accidents du Travail. Annex B Page 5 of 5 Table B: REALTH- EXPENDITURE BY *ROVIDER ______________(in_ milions of TunisiaDnar) __ Expenditure by Provider 1986 1990 1991 1992 1993 Govemment: 162 240 270 296 319 - Recurrent Expenditure 144 210 242 267 289 - Capital Expenditure 13 21 25 24 27 - Financial Operations 1 5 1 1 - - Fonds de Concours 1 3 1 1 1 - Fonds Spéciaux du Trésor 3 2 2 2 2 Health Insurance Funds: 51 86 89 112 124 - CNSS 38 56 58 72 81 - CA VIS 1 3 2 3 3 - CNRPS 12 25 27 35 38 - CPSEGT 1 2 2 2 2 Medical Enterprises 3 5 6 7 7 Private Payments 111 270 311 358 410 Total 327 601 676 773 860 Source: World Bank, from official data. Annex C Page 1 of 5 THE TUNISIAN HEALTH INSURANCE SYSTEM The Tunisian social insurance system provides cash benefits against insurable risks, such as retirement, disability and survivors' pensions, health care, and family benefits. It does not, however, include an explicit unemployment scheme. At first, the system only covered urban wage-earners, but it was gradually expanded, on a more or less ad-hoc basis, to include agricultural workers, the self-employed and unpaid family workers. Although according to existing legislation the entire population is eligible for social insurance through membership, the system actually covers only about 1.4 million people (64% of the labor force) and its expenditures correspond to about 4% of GDP. The bulk of the Tunisian health insurance system is made up of four main public health insurance funds ("caisses") with various schemes. They are: the Caisse Nationale de S6curit6 Sociale (CNSS), the Caisse d'Assurance Vieillesse Invalidit6 et Survivants (CAVIS), the Caisse Nationale de Retraite et de Pr6voyance Sociale (CNRPS), and the Caisse de Retraite et de Pr6voyance Sociale des Services Publics d'Electricit6, du Gaz et des Transports (CREGT). The former two run schemes for the private sector, with the latter two administering the public sector schemes. In addition to these four core funds, mutual funds and a growing number of group insurance schemes developed by private insurance companies exist throughout the country. A lack of close regulation in the sector has led to its fragmentation, as the various health insurance mechanisms duplicate rather than supplement each other. Inequitable coverage for the various segments of the population and wasted resources thus characterize the Tunisian health care system. Caisse Nationale de Sdcuritd Sociale (CNSS). Insuring employees in the agricultural and non-agricultural private sector (including self-employed workers), Tunisian workers abroad, students, and even the employees of some government affiliated enterprises (e.g., Tunis Air), CNSS covered 14% of the country's total health care expenditures in 1990. In terms of benefits', against a 3% flat payroll contribution equally shared by employers and employees, CNSS: (i) funds the direct delivery of services for its affiliates through, its polyclinics network; linked to major investment realized in the 80s, this constitutes a rapidly growing share .of the health benefits that CNSS distributes, from less than 6% in 1980 to 18% in 1985 and 26% in 1990; (ii) allocates a negotiated annual lump-sum to the Ministry of Public Health (MOPH) and specific subsidies (and recently investments) for selected services to a limited number of public hospitals, in exchange for access to all public facilities; the share of the financial transfers to the public health sector has dropped from 55% in 1980 to 50% in 1985 and 40% in 1990; 1 The following refers to the CNSS Non Agriculture Salaried Workers scheme (RSNA) known as the General scheme, which constitutes over 85% of the affiliations. Annex C Page 2 of 5 (iii) contracts specific services with selected private health care providers (conventionnements), devoting a still limited but growing share of the benefits provided (8% in 1990 against 4% in 1980); and pays for treatment abroad (foreign care), with prior agreement, for a share of the benefits provided declining over the decade from 21% in 1980 to 7% in 1990; and, finally, (iv) provides its members maternity, sickness and death allowances for an average 18% of its benefit-related charges over the decade. Caisse d'Assurance Vieilesse. Invaliditj et Surie (CAVIS) and Caisse de Privoyance Sociale des services publics de l'Electricitd, du Gaz et des Transports (CPSEGT). CAVIS and CPSEGT provide similar health coverage to that of CNSS, for private sector retirees and for active and retired employees of public utilities (e.g. electric power, gas and transport), respectively.2 These two finds contributed a limited 0.45% and 0.25% to total health expenditures in 1990. Caisse Nationale de Retraite et de Privoyance Sociale (CNRPS). In 1990, CNRPS expenditures for health services amounted to approximately 6% of total health expenditures. CNRPS provides health services coverage for active and retired workers in the public sector under two schemes: (i) the compulsory scheme which draws its resources from a 2% payroll contribution for active workers (1% employee and 1% employer) and from a 1% contribution on pensions paid by retirees. It offers two alternative coverage options: - First, beneficiaries may opt for a "health care voucher" (carnet de soins) which gives them full access to public health facilities, where they are only asked to contribute the co- payments applying to all insured persons (except AMG I users). For these services, CNRPS contributes a yearly negotiated lump-sum to the MOPH budget, which, as in the case of the CNSS contribution to MOPH, is not linked to the quantity or complexity of services provided. Over the past decade, the compulsory scheme has accounted for a fluctuating 12% to 23% share of CNRPS compulsory health insurance scheme benefits, with the exception of 1990, when it increased significantly, reaching 41%. 2 Public sector refers to the civil servants, employees in the EPA (Etablissements Publics Administratifs), employees in the EPIC, and the wage earners in the Utility and Transport sectors. The wage earners in the public enterprises are covered by the CNSS and CAVIS and are, therefore, classified as the private sector. Annex C Page 3 of 5 - Alternatively, CNRPS beneficiaries may elect to get health care either in the public or the private sector for coverage limited to long illnesses and surgery. In that case, they are reimbursed the services received on the basis of public sector taxation. This range of benefits accounts for a growing share of CNRPS provisions (from 26% in 1980 and 30% in 1985 to 47% in 1989). Both options also cover treatment abroad following prior agreement. As in the case of CNSS, while these benefits represented more than 50% of overall benefits in 1980, their relative share decreased between 1985 and 1990 from 46% to 18%. (ii) an optional (voluntary) scheme is also offered to active or retired public employees. Initially financed out of a 3% payroll contribution from the employee and a 2% contribution from the pensions of retirees, it has been supplemented since 1988 by a 1.5% payroll contribution from the employer (for active workers only). This scheme gives members the freedom to choose their health care provider; and reimbursements are based on public health care facilities' tariffs, with a ceiling imposed on pharmaceutical expenditures covered. For the past decade, this scheme has run financial deficits (with the exception of 1988, when the employer contribution was introduced), although this has been decreasing steadily, from 63% in 1980 and 56% in 1985 to 8% in 1990. Finally, the spectrum of financial mechanisms to cover health care cost is complemented by the optional.schemes offered by mutual associations and group insurance contracts with private insurance companies, that either individuals or corporations may elect for their employees. Very little is known about the level of contribution and benefits provided under these schemes. To a large extent, however, they duplicate CNSS and CNRPS compulsory and voluntary schemes. Together with direct out-of-pocket payments from the households they are estimated to account for more than 30% of national health expenditures (31.8% in 1990). Issues in Health Insurance: Present Situation and Prospects for the Future Over the last decade, the main compulsory health insurance schemes managed by CNSS and CNRPS have experienced annual, financial surpluses. For the CNSS general scheme, these have fluctuated between 2% of its income in 1985 and 31% in 1990, depending on the level of recovery of contributions and penalties for late payment (which has improved significantly since 1988), and the products drawn from financial investments. Similarly, CNRPS' compulsory health insurance scheme has accumulated sizable annual financial surpluses, ranging between 25% of its income in 1985 and 44% in 1989. Only in 1990 and 1991 did these surpluses decline, due to the increased participation in the public health sector operation through the program of investments which both CNSS and CNRPS support. Conversely, the voluntary scheme managed by CNRPS is plagued by a chronic financial deficit (see above). There are two main reasons for the present financial situation of the various schemes. First, and most importantly, the present enviable financial status of the two compulsory schemes managed by CNSS and CNRPS is the result of massive, although indirect, government subsidies which compensate for their low contribution to the MOPH budget. Assuming a share in MOPH Annex C Page 4 of 5 operating budget proportionate to the utilization patterns recorded in public facilities, CNSS and CNRPS combined should have contributed about 80 DT million, instead of the combined 36 DT million they did finance.. Such reasoning carries strong implications for the near future. Assuming governing increases in the utilization of services and in public tariffs, and the needed growth of MOPH resources as a share of GDP in order to improve the quality of services, and assuming that the public health insurance funds' members would continue to use public facilities at the same level, it is estimated that by 1996, the contribution of current public health insurance schemes to MOPH resources should be multiplied by 8 (in constant 1990 Dinars). The second reason for the present financial situation is that the public health insurance schemes have benefited since their creation from a privileged combination of supply and demand factors and provider financial incentives. On the supply side, as was described, the Tunisian health system is still largely dominated by the public health sector, which is financed largely through Government budget transfers. Due to budget constraints, investment in the public sector has remained limited and the introduction of costly medical technology has been controlled. Other segments of the health system have developed slowly over the last decade and remain small in size and in scope of services provided. Nevertheless, their expected development carries the potential for stronger pressures on health insurance funds' resources. Provider-induced demand has been limited by the lack of economic incentives to order more services for their patients. Therefore, and until only recently, the public health insurance funds have functioned within a rather closed-ended system. With global budgets for hospitals, salaried health workers, and a small private sector with public tariffs - well below actual unit cost - as a basis for reimbursement of private providers, public services have resulted in controlling health expenditures. Strong opposition to the law passed by the Tunisian authorities in 1986 has come from the social insurance funds. The law was providing for an integration of the various schemes into one single health insurance fund to cover all employees in the public and private sector, as well as independent workers. Implementing the law would have required a quick harmonization of benefits and contributions, leading, among other things, to the access of all participants in the fund to the CNSS polyclinics network. Also, it was perceived that the creation of this unique fund would quickly lead to a generalized fee-for-service reimbursement system, which would threaten the financial equilibrium and sustainability of the system. 3 The real contribution to the MOPH operating budget is even less, as far as the 36 DT millions include investment expenditures. 4 See: "Republic of Tunisia; Hospital Restructuring Support Project"; Report No 9157-TUN; February 26, 1991 Annex C Page 5 of 5 The analysis conducted so far indicates that the closed-ended nature of the Tunisian health system has resulted in reasonably good health care coverage and strong control over health expenditures which remained relatively low and stable over the decade (4.5% of GDP). However, the organization and operation of the funding mechanisms exhibit features that, in the short and medium term, may result in the financial imbalance of health insurance funds, decline in the quality of services, and inequitable access to health care. First, the burgeoning poorly coordinated health insurance schemes have resulted in the duplication of services, proliferation of procedures and, in fine, the waste of resources. Large segments of the population benefit from multiple coverage. This is the case for members of the CNSS who, for the same episode of illness can combine access to their polyclinics and to the public health sector facilities, and for those provided with group insurance coverage through their employer, to the private sector. This is equally true for CNRPS beneficiaries who have opted for the voluntary scheme. Moral hazard arises as these situations clearly create incentives for over- consumption. The devices existing in Tunisia to control this phenomenon (which is characteristic of any health insurance system), are currently limited by the co-payments which, although generalized, remain low and therefore are not very effective, and, in the case of reimbursement of private provider services, can be offset (for example a physician can record two visits instead of one). Another constraint exists on the supply side, which imposes additional costs, such as waiting time. Second, there are currently conditions that encourage or promote under-enrollment in health insurance schemes and under-declaration of income. Upholding the current government budget-sponsored AMG II as it stands right now, clearly encourages its beneficiaries not to seek coverage through health insurance, but also does not provide any incentive for CNSS to develop attractive schemes. In addition, leaving the choice to join the program at any time during the year, leads to a situation of adverse selection: only sick people enroll and pay their contribution. Affiliates of the CNSS scheme for independent workers can choose to declare a very low income out of nine categories and, as a result, 85% elect for the lowest category of two-thirds SMIG. This has a strong negative effect on the finances of the scheme and on the health system, since they are provided with the same level of benefits. Although enrollment is compulsory, this also constitutes a case of adverse selection. Third, within the present financing structure of the public health sector, future budget constraints may endanger the quantity and quality of services provided and the equity of the system. The subsidization of public health insurance funds which corresponds to the under- funding of public health services constitutes a direct financial support to the Tunisian middle and upper classes. This is detrimental to actions that could be targeted towards poorer segments of the population. The perpetuation of the current health financing arrangements threatens the principle of solidarity that underlies the Tunisian health care system and reduces its overall cost- efficiency. Annex D Page 1 of 4 CHILE: BALANCING THE PUBLIC AND PRIVATE HEALTH SYSTEMS1 Chile's experience is a good example of a comprehensive yet step-wise approach to the implementation of health sector reform, one which aims at achieving a balance among the public health system, private providers and insurers. In particular, an examination of the Chilean case provides some valuable insights into the problems typically faced by lower-middle income countries striving to make the transition toward a more efficient and equitable health care system. Early Phase of Reform: Identification In the early phase of the reform process, Chile decentralized its government-run national health system into twenty-six Health Service Areas (HSAs) responsible for the operation of all public hospitals (secondary and tertiary care), and also for the technical oversight of the primary health care system, which was devolved to the municipalities. It also promoted the establishment of private, prepaid health insurance funds, known as ISAPREs, in which the population covered under the social security system has the option of applying their payroll deductions toward the purchase of private prepaid health insurance plans. The Government subsequently consolidated the administration and distribution of all public resources for financing health care under the National Health Fund (FONASA). Along with general tax revenues and compulsory payroll deductions, FONASA receives revenues from the sale of services offered by the public health system to private payers, and from the sale of vouchers for the Preferred Provider System (PPS). The PPS offers social security holders the option of using private providers who are reimbursed by FONASA according to a fixed price system for specific medical services offered. FONASA pays for only part of the ambulatory and inpatient services, while the remaining portion is paid with a voucher purchased from FONASA. While the decentralization of the national health system and the creation of ISAPREs did bring about some improvements in the performance of the system, they failed to address some of its constraints and even generated new problems in some areas. Some of the shortcomings of the system, and the current efforts to address these issues, are described below. Improving Efficiency and Quality of Care in the Public Hospital System Decentralization did not lead to marked improvements in the efficiency of the public hospital system, which continues to suffer from under investment, weak management, distortions in the resource allocation mechanism (due to the application of an out-dated fee-for-service schedule), and 1 Source: Staff Appraisal Report: Chile - Health Sector Reform Project, World Bank Report No. 10987-CH, October 23, 1992. Annex D Page 2 of 4 copayment arrangements which limit the mobilization of additional resources for the system. In addition, the current fee-for-service system encourages cost escalation. It reimburses on the basis of individual procedures rather than on the treatment or management of a specific case, and provides no incentives to contain costs. Furthermore, the fees have been set at levels which have encouraged curative over preventive care, and reimbursement rates for most procedures have not kept pace with inflation. Increasingly, the resulting shortfall has been covered by supplemental central budget allocation, which has eroded the autonomy and incentives of the public hospitals to maintain quality and contain costs even further. A system of per-case payment associated with diagnosis (PAD) is being developed for secondary and tertiary inpatient care as a basis for the new prospective payment system. The new fee schedule will be based on actual production cost information obtained from one-hundred and three secondary and tertiary services, covering the average input costs (excluding capital costs, which will continue to be budgeted separately) for each type of service rendered. Costs of individual services and inputs will be grouped into a fixed payment schedule associated with a specific diagnosis (similar to the Diagnostic-Related Group payment system used in the U.S. Medicare Program). So far, the PAD system has been developed for twenty-three priority diagnoses. The PAD system is expected gradually to replace the old fee-for-service payment system as information becomes available on other diagnoses. Subsequently, the PAD system will be used as a basis for negotiating an annual Service Provision Agreement between the Ministry of Public Health (MOPH) and the Health Service Area. This Agreement will establish the type and volume of services to be provided, as well as the level of payment, will link performance with the allocation of resources from central funds and strengthen the public hospital system's managerial and financial autonomy. The Agreement was initiated on a pilot- basis in 1993 in five HSAs. An evaluation of the process is currently ongoing. Improving Cost-Recovery and Promoting Purchase of Services between Private and Public Sector At present, as many as three-quarters of the users of the public health system fall in the zero- payment category. The low level of co-payment can be attributed to the fact that most of the higher income groups do not use public services, and that adjustments need to be made on the boundaries of the income categories for FONASA beneficiaries to bring them in line with actual demand for health services and willingness to pay. The co-payment schedule is being reviewed to find ways to mobilize additional resources for financing the public health system without adversely affecting access to care for the indigent population. Revising the co-payment system is expected to raise the number of FONASA affiliates that will have to pay to increase cost-recovery. The sale of services by public hospitals to ISAPRE affiliates and private users is permitted under a cost recovery scheme, including the use of private rooms and beds for inpatient care. The public hospitals are now able to charge private patients the full amount of fees for discrete services. Revenues from these sources contributed up to 9% of the National Health Fund in 1990. There is a Annex D Page 3 of 4 proposal under consideration to charge private patients a constant mark-up over the PPP schedule. Similarly, the purchase of private health services by FONASA for PPS beneficiaries has permitted publicly insured patients to access private services, thereby expanding consumer options and increasing the client base for the private providers. Expanding the Primary Care System In an effort to compensate for the distorted financial incentives in the primary care system, the government is introducing a per capita payment system for primary care to replace the current system. The basic capitation rate would be set on the basis of actual cost and utilization information obtained from sample primary care facilities. The rate would cover the full average cost of providing a recommended level of services in basic child and maternal care, adult care and oral hygiene, to include labor costs, administrative costs and a percentage allowance for non-labor input costs, such as pharmaceuticals. By offering payments based on the number of primary care patients served, the capitation system is expected to provide incentives to expand the number of affiliates within the geographical area, and be given adequate resources to render quality service. However, experiences in other countries have shown that a per capita payment system could lead to underservicing by the providers unless it is accompanied by strong monitoring of the utilization rate and quality of care, and an adequate consumer education program to ensure full utilization of available services by the clients. ControfHing for Adverse Selection in ISAPREs The creation of ISAPREs and PPS helped to introduce more competition and consumer choice in the financing and delivery of services, and contributed to the expansion of the number of private practitioners and hospitals. However, inadequate regulation and oversight have brought forward the problems of adverse selection into the system. ISAPREs have been allowed to target the well-to-do population and to rate individual health risks rather than group risks. This policy has weakened the contribution base of the social security fund, which relies upon the participation of the wealthy to ensure a sustainable resource transfer mechanism for the poor. Meanwhile, it has allowed the ISAPREs to select the low-risk population, and the "dumping" of the high-risk, high-cost population onto the public system. ISAPREs also receive government subsidies, such as the free distribution of vaccines and food supplements to children and pregnant women, tax rebates granted to employers who contribute additional payroll deductions to ISAPREs, and government benefit payments for maternity leave of ISAPRE affiliates. These subsidies place an additional burden on the public resources. A Superintendency of ISAPREs was created in the MOPH to oversee the activities of the private health insurance market. So far, however, it has not exercised its regulatory function to counter these effects. A revision of the ISAPRE law is under consideration to strengthen the role and function of the Superintendency and to encourage the development of a more fully transparent private insurance market. The Superintendency is considering the adoption of more stringent regulations on ISAPREs. Among these would be the required use of a community risk-rating system by all private plans; acceptance of all applicants who are able to pay the community-rated premia, including the elderly and Annex D Page 4 of 4 those with chronic conditions; and the provision of similar basic medical plans in order to promote direct competition on the basis of quality rather than on risk selection. The government is also reviewing the option of reducing some government subsidies to ISAPREs (e.g., eliminating the deduction for employer contribution). Redefining the Mandate of the Ministry of Public Health In keeping with the decentralization policy, the government has taken steps to remove executive responsibilities from the central administration of MOPH, and to delegate service provisions to the decentralized, autonomous executing agencies. These include:* - the Health Service Area authorities for the management of public health system, the Central Supply Facilities for procurement and distribution of medical supplies and equipment, and the Public Health Institute for the evaluation and implementation of public health programs. MOPH's primary roles of formulating national policies, strategies and programs; establishing norms and standards for all public health services in the country; and monitoring the compliance with those norms and standards are being strengthened through its reorganization. Recruiting and training personnel in these functions, and introducing new management tools to oversee and evaluate the performance of a decentralized system are among the steps being undertaken. Annex E Page 1 of 4 HEALTH SYSTEMS REFORM IN PROGRESS: THE CASE OF BRAZIL The health care reform in Brazil offers some lessons for the lower-middle income countries that are complementing a simultaneous expansion of public health insurance programs and a greater private sector role in the delivery of health services. The salient features of the recent reform measures in Brazil include: (i) decentralization of the public health system to state and municipal authorities; (ii) development of a national health insurance system based on a prospective payment system (fixed payment per diagnosis) for outpatient and inpatient services; (iii) promotion of a private sector delivery system as an alternative to the overextended public health system, and (iv) a commitment to universal access through publicity financed services financed by progressive payroll taxes. Brazil has one of the largest public insurance systems in the developing world, with a social security benefit package which covers the entire population through a sophisticated prospective payment system (PPS). The PPS established a standardized system of clinical procedures, defined along the International Classification of Diseases Codes of the World Health Organization (WHO); fixed reimbursement levels for hospital and professional services for specific diagnoses or procedures; hospital adjustment payment that applies a multiplier to billings of tertiary care facilities to compensate for costly infrastructure and higher operating costs; and the adoption of a point system for each procedure or diagnosis, based on the Diagnostic-Related Group system used in the US Medicare Program. Over the last decade, Brazil has experienced a rapid growth in the volume and variety of private financing mechanisms and delivery of services under social security financing, the incentives provided by federal income tax deductions on health insurance and health services paid under fee-for- services, and the rising income of the population. As a consequence, there has been a proliferation of new forms of finance and services, in addition to the traditional third-party health insurance plans, which include prepaid group practices, (in which beneficiaries prepay and have access to specified providers of care), medical cooperatives (in which a group of physicians is prepaid for a specified set of services), and company health plans (in which employers organize and offer employees access to services under various arrangements). Deregulation in the private sector, combined with the severe fiscal constraints in the public sector, has led to serious problems in the quality and efficiency of the Brazilian health system, and has exacerbated the worsening equity situation which resulted from a lack of public resources with which to subsidize the public health system. Cost increases and mounting demand also have raised concerns over cost-escalation among public and private payers and providers alike. A series of reform measures have been introduced over the last ten years to address these concerns. The following summary highlights some of the key outcomes of these efforts. Annex E Page 2 of 4 Introduction of the Prospective Payment System (PPS) As an incentive to improve the quality and efficiency of health care services, PPS was introduced to the public insurance system (INAMPS) in 1984. The new system was expected to provide better financial incentives among participating providers for more cost-effective treatment, thereby achieving cost-containment and quality control at the same time. INAMPS also introduced measures to establish better controls over participating hospitals (e.g. controlling the total number of admissions; restricting the use of standardizing procedures and materials for some high-cost procedures, such as organ transplants and cancer treatments). However, attempts to institute a standardized cost accounting in public and private hospitals were not followed through. As a result, INAMPS has no means to obtain reliable cost information from the participating hospitals, and is therefore unable to monitor and properly assess costs across hospitals over time. Over the years, the reimbursement rates have been revised, not on the basis of actual production costs, but rather on delayed and inadequate adjustments for inflation which have eroded the value of reimbursements. Furthermore, the rates have not been adjusted for changes in the mix of inputs and input costs. These shortcomings have led to the increasing shortfall of INAMPS payments against actual costs, creating serious distortions in the health financing system. Inadequate payment schedule have led hospitals to bias their patient loads toward treatments that provide relatively higher payments per diagnosis, or to seek other ways to circumvent the system. The number of participating private hospitals declined from 67% in 1978 to 58% in 1984. Initially, the prospective payment rates appeared to have contributed to cost-containment and to some degree of improvement in efficiency at the hospital level, e.g. through standardization of materials, computerization of accounts and improved accountability. Unfortunately, the continuing shortfall in payments appears to be leading to the deterioration of the quality of services nonetheless. This lack of reliable cost accounting systems, standardized treatment protocols, quality control systems, and utilization reviews has made it difficult to evaluate the effect of the new payment system or to keep it current and relevant to changing costs and demand in the country. These shortcomings have seriously hampered the effectiveness of the PPS in providing the necessary incentives and for enabling the government to establish priorities. Prioritizing Health Needs No efforts have been made to identify priority health needs, nor to ration benefit entitlements in such a way as to direct the public resources toward the most effective treatments or to those most in need. Recently, IAN'S restricted medical treatment overseas, but the rationing of health care remains a politically sensitive issue and is thus very difficult to implement in the absence of political will. Annex E Page 3 of 4 Protecting Universal Access and Maintaining Solidarity Brazilian taxpayers finance the bulk of the public health system through general and payroll taxes, but receive relatively few benefits from the public insurance and health system. This weakens the commitment of the middle-and upper-class to the social security system, thereby threatening to erode the level of support needed to maintain equity and ensure the transfer of resources to the poorer segments of the population. Household expenditure and utilization surveys are needed to measure the actual equity effects of the recent health reforms. Comparing the Production Costs and Efficiency of Public and Private Hospitals To understand how best to achieve a balance of private and public mix in the financing and delivery of health services, Brazilian policy-makers and health administrators need accurate information regarding the performance of the public and pnvate sector. For this purpose, a comparative analysis of the cost structure of private and public hospitals was attempted in Brazil. Unfortunately; the quality of data is limited b the lackof information availabl ca Xor seventy of illness. Based on dus preliminary study, some tentative observations and conclusions were made. As compared with the public hospnal system, private hospitals seem to: (i) spend a lower proportion of resources on personneL reflecting a healthy balance of inputs in the private sector and over-employment in the public sector, or underemployment in the private sector in order to cut costs (with consequent quality problems); and (ii) exhibit more slable expendinure patterns, possibly reflecting the greater control over the source and utilization of resources Finally, bed occupancy rates - a measure of production output - were found to be inversely related to unit cost, indicating some efficiency in scale. No such discernible correlation was found in the public hospitals. Private Insurance Market The government has not yet taken adequate measures to regulate the private insurance market, which has led to patient "dumping" and has left it up to the public sector to look after the high risk groups (i.e., the poor, the elderly with chronic conditions). Consequently, the basis for sound risk management has been compromised. The private insurance plans also exclude benefits which have high externalities (most public health concerns, such as immunization), chronic conditions and conditions caused by accidents, etc., which are too costly to be covered under the premium. Annex E Page 4 of 4 Regulatory Environment Brazil's health care system is characterized by the weakness of its regulatory system. Stronger regulatory functions of government agencies or medical and consumer associations are needed to protect universal access to basic services, maintain quality control, achieve cost containment, and enforce financial accountability. Among the priority regulatory requirements to be implemented are: (i) the establishment of a routine hospital accreditation program; (ii) the regulation of standards for the construction of new facilities; (iii) guidelines on the renewal of operating licenses; (iv) the setting of standards for education and licensing medical personnel; (v) the strengthening of enforcement procedures (e.g., a code of medical ethics and consumer representation on the medical council); and (vi) the regulation of private health insurance plans. Currently, the federal insurance regulatory body oversees only indemnity insurance, which represents just 4% of all private financing. In addition, there must be some way of monitoring the establishment and operation of pre-paid group practice, medical cooperatives, and company health plans, all of which finance a significant portion of the health services. Annex F Page 1 of 2 INVESTING IN HEALTH: KEY MESSAGES OF THE 1993 WORLD DEVELOPMENT REPORT This report proposes a three-pronged approach to government policies for improving health. Foster an environment that enables households to improve health Household decisions shape health, but these decisions are constrained by the income and education of household members. In addition to promoting overall economic growth, governments can help to improve those decisions if they: * Pursue economic growth policies that twill benefit the poor (including, where necessary, adjustment policies that preserve cost-effective health expenditures) * Expand investment in schooling, particularly for girls * Promote the rights and status of women through political and economic empowerment and legal protection against abuse. Improve government spending on health The challenge for most governments is to concentrate resources on compensating for market failures and efficiently financing services that will particularly benefit the poor. Several directions for policy respond to this challenge: * Reduce government expenditures on tertiary facilities, specialist training, and interventions that provide little health gain for the money spent. * Finance and implement a package of public health intervention to deal with the substantial externalitites surrounding infections disease control, prevention of AIDS, environmental pollution, and behaviors (such as drunk driving) that put others at risk. * Finance and ensure delivery of a package of essential clinical services. The comprehensiveness and composition of such a package can only be defined by each country, taking into account epidemiological conditions, local preferences, and income. In most countries public finance, or publicly mandated finance, of the essential clinical package would provide a politically acceptable mechanism for distributing both welfare improvements and a productive asset - better health - to the poor. * Improve management of government health services through such measures as decentralization of administrative and budgetary authority and contracting out of services. Annex F Page 2 of 2 Promote diversity and competition Government finance of public health and of a nationally defined package of essential clinical services would leave the remaining clinical services to be financed privately or by social insurance within the context of a policy framework established by the government. Governments can promote diversity and competition in provision of health services and insurance by adopting policies that: * Encourage social or private insurance (with regulatory incentives for equitable access and cost containment) for clinical services outside the essential package. * Encourage suppliers (both public and private) to compete both to deliver clinical services and to provide inputs, such as drugs, to publicly and privately financed health services. Domestic suppliers should not be protected from international competition. * Generate and disseminate information on provider performance, on essential equipment and drugs, on the costs and effectiveness of interventions, and on the accreditation status of institutions and providers. Increased scientific knowledge has accounted for much of the dramatic improvement in health that has occurred in this century-by providing information that forms the basis of household and government action and by underpinning the development of preventive, curative, and diagnostic technologies. Investment in continued scientific advance will amplify the effectiveness of each element of the three-pronged approach proposed in this Report. Because the fruits of science benefit all countries, internationally collaborative efforts, of which there are several excellent examples, will often be the right way to proceed. BIBLIOGRAPHY 1. De Geyndt, Willy. 1991. "Managing Health Expenditures under National Health Insurance: the Case of Korea." World Bank Technical Paper Number 156 - Asia Technical Department Series. World Bank, Washington, DC. 2. Hurst, Jeremy W. 1991. "Reforming Health Care in Seven European Nations," Health Affairs, pp. 7 - 21. 3. Lewis, Maureen. 1994. 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