The public-private mix in health care in Bangladesh

Transcription

1 Health Economics Unit Policy & Research Unit, Ministry of health and Family Welfare Government of the People s Republic of Bangladesh Health Economics Unit The public-private mix in health care in Bangladesh Research Note 17 May 2000 Shamin Ara Begum, Senior Assistant Chief Tim Ensor, Senior Economist Priti Dave-Sen, Associate Economist Md. Abul Qasem, Joint Chief and Line Director Clinic Building - 4 th floor Bangladesh Secretariat, Dhaka Tel: Fax: lodiheu@dhaka.agni.com

2 Public-private mix in Bangladesh Past papers prepared by the HEU Research papers Working papers report on recent research carried out by, or in collaboration with, the Health Economics Unit. The research may be based upon new primary data or upon the fresh analysis of secondary data. 1. A public expenditure review of the health and population sectors, September An analysis of recurrent costs in GOB health and population facilities, July Balancing future resources and expenditures in the GOB health and population sectors, January Mobilising resources through hospital user fees in Bangladesh: a report on quality and ability to pay, August An assessment of the flow of funds in the health and population sector in Bangladesh, January Myemensingh Medical College Hospital: financial analysis (FY1994-5), July Cost analysis of caesarean section deliveries in public, private and NGO facilities in Bangladesh, March Cost-effectiveness analysis of caesarean section deliveries in public, private and NGO facilities, April Unofficial fees at health care facilities in Bangladesh: price, equity and institutional issues, September a Cost benefit analysis of reducing lead emissions from vehicles in Bangladesh, January b. Health and technical cost benefit analysis of options for reducing lead emissions from motor vehicles in Bangladesh, January Economic aspects of human resource development in Health and Family Planning: flow of funds, September Economic aspects of human resource development in Health and Family Planning: dual job holding practitioners, September Economic aspects of human resource development in Health and Family Planning: Costs of Education and Training, September A survey of private medical clinics in Bangladesh, September Bangladesh Facility Efficiency Survey, November Public Expenditure Review of the Health and Population Sector, 1998/9, February Resource allocation in the health sector of Bangladesh: a case study of Medical and Surgical Requisites Health Economics Unit, Policy and Research Unit, Ministry of Health and Family Welfare

3 Public-private mix in Bangladesh Research Notes Research notes are prepared by staff of the Health Economics Unit or other collaborating units. The objective is to raise important research questions that might later be researched in more depth. The series includes research concept notes, structured literature reviews and surveys of current research in a particular area. 3. Draft terms of reference and background briefing document: a pilot programme for resource mobilization through user fees in the MOHFW, Bangladesh, September Key issues in costing an essential package of health services for Bangladesh, May User fees, self-selection and the poor in Bangladesh, August An agenda for health economics research concerning antibiotics usage standards in developing countries: the case of Bangladesh, July Experiences with resource mobilisation in Bangladesh: issues and options, June A pre-feasibility analysis of social health insurance in rural Bangladesh: the NGO model, June Resource envelope for the 5 th health and population project: preliminary estimates, May Resource envelope estimation for HAPP5, November Health insurance for civil servants of Bangladesh, January Private medical clinics in Bangladesh, February Development of a Health Economics Database Archive for Bangladesh, September Pricing health services: where to now?, November Costing the ESP: overview of previous studies and current research needs, December Economic indicators for monitoring the HPSP, February The public-private mix in health care in Bangladesh, May 2000 Occasional Papers and other publications Occasional papers (OPs) are prepared by members of the HEU and PRU principally for internal use. OPs may also be prepared for special purposes such as the HPSP Annual Programme Review. Some OPs are later edited and issued as research notes or papers. Also available; Public-private mix for health sector development: proceedings of the fourth annual conference, th July 1999 Bangladesh National Health Accounts 1996/97, Final report, Data International/Health Economics Unit Health Economics Unit, Policy and Research Unit, Ministry of Health and Family Welfare

4 The Public Private Mix, research note 17 1 Contents Contents... 1 Summary... 2 Acknowledgements... 5 Introduction... 6 Conceptualising the public-private mix... 7 Providing health care Ownership of physical infrastructure Management of providers Distribution and size of surplus/profit... 9 Financing health care... 9 Financial accountability The public-private mix international and regional experience The public-private mix in figures The Public-private mix and health sector reform Types of public-private mix and partnerships: possible models and regional experience Passive development of the private sector Mixed service implicit partnerships and potential collaborations Contracting Primary contracting Secondary contracting ( contracting-out ) Implicit contracting Jointly financed facilities Public sector self-governance The public-private mix in Bangladesh Funding health care Providing health care Public-private partnerships in Bangladesh Management of MOHFW facilities Private sector primary contracting Secondary contracting ( contracting out ) Jointly financed facilities Developing the public-private mix in Bangladesh Regulating the private sector Strengthening and refining the role of Government Improving efficiency in public facilities Establishing an evidence base for best practice New models of financing Conclusion: an emerging policy Strategy toward the public- private mix Tertiary care District secondary inpatient provision Secondary and urban primary care Rural primary care References... 35

5 The Public Private Mix, research note 17 2 Summary All countries have a mixed economy in health care with both public and private providers delivering services. In developing countries the dominant form of provision is often a network of formal and informal private facilities and practitioners. In Asia more than 60 per cent of physicians practice in the private sector. The important policy decision is whether to treat this sector as a separate industry that must be regulated effectively like any other, or to harness the innovation, energy and resources of the private market to improve public services and raise overall standards of health. Efforts to change the public-private mix and harness the private sector to benefit public patients are becoming a common feature of health system reform world-wide. These debate has now gone well beyond a simple discussion of whether public or private is better and whether the public sector should be privatised. The literature recognises that there is nothing inherently better in either public or private forms of ownership. What is much more important is how facilities are managed and how they are held accountable to those that allocate resources on behalf of the population. Instead of a simple public-private distinction, it is more useful to view mix as a spectrum of possibilities ranging from publicly owned and managed institutions through forms of self-government within the public sector, to fully privatised facilities. Such a spectrum provides for a variety of public-private partnerships that are possible within the health sector. These include: implicit partnerships, implicit contracting, explicit primary and secondary contracting, jointly financed facilities, It also includes ways of applying management and governance methods that are more common in the private sector to public sector health facilities (new public management theory). Experience from within the Asian region of each of these methods is limited. It suggests, however, that developing strong private sector partnerships requires the development of a new approach to public sector health management and role of Government. Obtaining services from the private sector through contract is entirely different to the process of micro-management currently used in the public sector in most countries of the region (including Bangladesh). Development of a strong and integrated private sector requires policy development in a number of areas. 1. Regulatory structure A strong and effective regulatory structure is required that makes use of a combination of tools including government rule setting, strong professional bodies, availability of information on provider quality and a transparent system of patient rights. It also requires support for consumer groups that are en-powered to act on

6 The Public Private Mix, research note 17 3 behalf of patients including statutory access to information on the functioning of public and private providers. 2. Strengthening and refining the role of government Public-private partnerships require the development of new skills within government. They include a development of contracting guidelines, quality evaluation criteria, financial costing and a framework for local budget planning integrated with national accountability. These new functions of Government may partly substitute for roles it is no longer required to have an active part in such as the micro-management of health facilities. 3. Improving the efficiency of public facilities The development of partnerships with the private sector and a new role for government takes time to develop. Unless it is carefully managed and evaluated the changes may have no beneficial impact and even cause harm. In the meantime it is possible for government to improve the efficiency of the public sector through careful application of devolved management mechanisms to health facilities. 4. Establishing an evidence base for best practice Current and future attempts to involve the private sector in finance and delivery of care must be documented and evaluated. While many research organisations might undertake such work, it is important that the government focuses, and draws lessons, from this research for future policy development A strategy towards the development of the public- private partnerships will encompass each of these areas. There may, however, be a different emphasis at each level of the system. Tertiary facilities already demonstrate a number of public-private collaborations. These need to be formalised into explicit performance contracts and evaluated to assess their impact on provision of services at this level to vulnerable groups. District hospitals operate as virtual monopolies in many areas. These facilities are often crowded and but appear to deliver relatively low cost care. The development of new management practices, that emulate the best methods used in the private sector, might enable these facilities to utilise funding, both public and private, in a more effective way. Primary service in urban areas are extremely heterogeneous. Service delivery, a mixture of primary and some secondary, is provided through a combination of public and private hospitals. A first requirement at this level is for more effective regulation that places a greater emphasis on provider organisations and patient rights in addition to government control methods. Beyond this, the multiplicity of service providers offer the prospect of some innovative contracting for services. Contracting with certain providers could also provide a way of signalling to users of services which facilities offer best value for money.

7 The Public Private Mix, research note 17 4 In rural areas primary care public-private partnerships are likely to largely be with local NGOs and encouraging more efficient management of public facilities. Innovations in this area are currently aimed at co-operative commissioning of services rather than competitive contracting

8 The Public Private Mix, research note 17 5 Acknowledgements We are grateful to Professor M. A. Quadrei, Vice chancellor, Professor M. A. Taher, Pro Vice Chancellor and Dr. K. Iqbal, Head of Anaesthesiology of BSMMU, and Dr. Liquat Ali BIRDEM for supplying information for the case studies. Also to Ms. Monica Burns and others at NICARE/British council for supplying information on the Public-Private Partnerships SHAPLA component and Tony Drexler on the ADB ESP contracting of services by Dhaka City. We are grateful to the Joint Chief and Line Director, PRU, Mr. Abul Qasem, for his support in writing this paper.

9 The Public Private Mix, research note 17 6 Introduction Efforts to change the public-private mix in health care provision are becoming a common feature of health sector reform programmes world wide. There are a number of reasons for this trend. First, rising health costs and the growing demand for health services have led many governments to realise the goal of universal free care may not be attainable. Second, growing acceptance of the principles of New Public Management. Theory which seeks to inject a more business oriented approach to public sector management, including the separation of responsibilities for purchasing and providing health care. Third, the recognition that the private sector is already a significant player in health sector financing and provision and benefits of the sector should be harnessed. The Health and Population Sector Programme (HPSP) emphasises the importance of forging partnerships with the private sector for the provision of services as well as making management changes that change the nature of the relationship between public purchaser and provider. The Project Implementation Plan (PIP) accompanying documents recognise the need for additional sources of funding and provision to complement what can be financed and provider by the state. References include (page 31-32, PCC, 1998): the need to provide non-esp services through partnerships with or commissioning of services from NGOs and private not-for-profit hospitals ; the need to reform the existing system of providers cum purchaser of the public sector such that the local authority will be formed to act as local purchaser ; decentralisation of health and FP services to the peripheral level. The identification of one HPSP component (Public-Private Partnerships financed by DFID) is another indication that the Government is looking very seriously at utilising the capacity of the private sector to enhance services provided to improve public health. In order to develop a clear and appropriate policy response to the public-private mix it is important first to elaborate a number of sometimes ambiguous concepts such as: What does the public-private mix in health care mean? What are the main reasons for this interest in changing the mix? Have new public-private partnerships improved health sector performance? What is the current public-private mix in Bangladesh, and how can it be more positively enhanced? These are some of the questions that are addressed by this research note. The paper begins by suggesting a framework for conceptualising the public-private mix. This framework is then used to investigate some of the public-private partnerships and then to show the extent to which these mechanisms have been used both regionally and in Bangladesh. The final section describes some of the important

10 The Public Private Mix, research note 17 7 pre-requisites for the greater involvement of the private sector and suggest some of the main ways that partnerships might be encouraged in the future. Conceptualising the public-private mix When examining the public-private mix in health care it is useful to distinguish between financing and provision components. This distinction provides four possible types of mix of public-private financing and provision (see figure one). Box A describes the traditional command and control system where services are both financed usually through general taxation but also through state insurance - and provided publicly. At the other extreme box D accounts for those services of private facilities paid for directly by consumers through user fees or voluntary insurance. Mixed service-funding are illustrated in Box B, private funding in public facilities such as public user charges - and Box C, public funding in private facilities where Government contracts with the private sector to provide care. Figure one: Separating financing and provision roles FINANCING PROVISION Public Private Public A B free services in user fees in public government health facilities facilities private beds in public hospitals Private C services contracted to private providers (both clinical and non-clinical) D private health care funded by private insurance over the counter drug sales It is, however, increasingly being realised that this straightforward division between public and private on the funding and provider side, while useful, is limited in its ability to explain some of the more sophisticated features of health service structure. It is perhaps useful to view public-private mix as a continuum with pure public provision and financing at one end and pure for-profit private provision and financing at the other with varying degrees of mix of public-private financing and provision between. The public sector, for example, may essentially remain public, but still adopt some of the features of the private sector, such as internal markets or it may allow public sector doctors to do private practice on government premises. Figure two develops the above framework to allow for more detailed description and analysis of the public-private mix in health care. Vertically, different forms of provider management and ownership are illustrated from publicly owned and managed facilities where no surplus is generated through forms of self-management and local autonomy to those facilities that are both owned and managed privately. Along the top are different types of funding arrangements ranging, from government

11 The Public Private Mix, research note 17 8 own revenue from general taxation, donor finance and earmarked payroll taxes. On the private side are various forms of voluntary insurance and official and unofficial user charges. Figure two: a more sophisticated typology of the public-private mix FINANCE Public finance Private insurance User charges Unofficial Official Shareholding Non-profit - mutual, reinvest Public - earmarked taxes/insurance Public consolidated fund - including general taxation and donor contributions. Use of profits or surplus Management Ownership PROVISION Public Public Central Autonomous or local management Reinvested or no surplus Reinvested or no surplus A B Reinvested C Public Private Dividends to shareholders and/or staff. D Reinvested E Private Private Dividends to shareholders and/or staff. F Providing health care On the provider side, the growing interest in the concept of planned markets and managed competition has demonstrated that it is not necessary for the public sector to be privatised in order to incorporate some of the features of private behaviour into health sector provision. In fact there several dimensions of public-private mix that should be considered including ownership, management and distribution of profits/surplus. 1. Ownership of physical infrastructure One dimension is the ownership of the building and land. This can take one of a number of forms including public ownership in central or municipal trust, or out-right private freehold or some form of leasehold of land and buildings. 2. Management of providers Management that is based on centrally planned micro-management through line input budgets might be regarded as the archetypal form of purely public management. One of the features is often that there is little local flexibility over the use of resources. Finances are allocated for specific input led purposes such as staff, medicines or maintenance. Further, since budget cuts often effect items such as supplies and maintenance before payment for salaries, lower overall spending may generate a technical inefficiency through a mismatch in the inputs for providing health care. This

12 The Public Private Mix, research note 17 9 leads to the observation made in so many countries that adequate buildings are filled with many staff not able to provide care because there are no medical supplies. Increasingly, however, within the public sector more flexible systems of management are being tolerated and even encouraged. Public sector organisations can be given an increasing level of autonomy to manage their own affairs. The level of management autonomy can include ability to manage spending within line items, power to reallocate spending between line items (virement), purchase large capital items, retain and use any efficiency savings, raise revenue and hire, fire employees and set terms and conditions of employment including rates of pay. Extensive devolution of power is probably most feasible at higher levels of the system (tertiary-secondary care) where management capacity is usually greater. But limited devolution is possible even at lowest levels where small changes, for example to user charge revenue to improve service, may have considerable impact. 3. Distribution and size of surplus/profit A third dimension are the rules on use of profit or surplus. In the pure state model, with norm based line budgets, no surplus is earned since by definition budget is equivalent to expenditure. Any savings from spending less on individual patients are recaptured by the state through reduced budget. Once a level of local autonomy is permitted the question about how much surplus and how it can be used becomes more important. Restrictions may be placed on how much surplus can be made. In the UK, for example, NHS trust hospitals can earn no more (and no less) than a six per cent return on the value of their net assets. The distribution of the surplus, even more than the amount perhaps, often demarcates the public from truly private sector. In most state models of local autonomy surplus is mostly re-invested through equipment purchases and building development. It may also be used to pay for some recurrent items such as building maintenance and consumables. More controversially it may also provide bonuses for staff. Where profits are distributed several models are possible. One is co-operative where profits are redistributed to workers who are also shareholders in the firm. Another model, particularly applicable to insurance companies, is where profit is redistributed to those purchasing insurance in the form of lower future premiums. The form of distribution which perhaps best characterises a capitalist model is where profits are distributed to external shareholders that have chosen to invest in the business. Once again, though the later form is most commonly associated with the private sector, the alternative models highlighted here indicate the range of possibilities along the publicprivate spectrum. Financing health care On the finance side the simple division between public and private also requires development. Public sources of funding can be divided into those obtained from general (consolidated) revenue from the ministry of finance (made up of direct and indirect taxes) and those that have an earmarked purpose when paid (forms of social insurance for example).

13 The Public Private Mix, research note Additionally, it is necessary to divide donor funding into public and private sources. Donor funding that is under the control of government can be regarded as a public source this is true of those funds provided as part of the donor consortium for HPSP. In contrast donor funding over which government has little or no control might be regarded as private. So funding provided by international NGOs (such as Oxfam) that is directly allocated to local NGOs might be thought of a private source although it is likely to allocated in a different way from private money spent by individuals out of their own pocket. Some allocations lie on the border between public and private. In Bangladesh allocations by some donors outside the donor consortium directly to local NGOs for family planning and ESP services, might be regarded as private although government may be able to influence the allocation to some degree. Out of pocket payments for health, could also be sub-divided. Where payments have official sanction they can be regarded as official or formal payments. Yet there is substantial evidence in many countries that many of the payments are not officially sanctioned but still paid by patients and collected by providers. Of these a further distinction might be made between payments collected by facilities that are not officially registered and those received by individual members of staff. Unofficial payments can have a direct impact on the effect of official incentive systems. If the main source of income of a facility is a budget from the government, then it is likely that provider responses will follow the pattern of provision planned by government. In contrast if unofficial payments rise to become the main source then government control is less likely to be effective. Instead staff are more likely to respond to private incentives from patients making individual payments. This is a phenomena that has been described variously as privatisation from within and creeping privatisation (Smithson 1993). In China, for example, rural health posts, once funded publicly through co-operative medical system are now largely providing a privately run and financed service with little budget support even though these facilities remain nominally state providers (Bloom & Tang, 1999). Financial accountability A question that often dominates the debate on how much central versus local control is permitted is the question of financial accountability. Permitting facilities to use funds in a way that has not been officially sanctioned through advanced line budgets may undermine public confidence in the regulated use of public money. Several approaches are applicable here. First, it is important to recognise that concern over control is a legitimate one. In Russia, for example, much greater local autonomy over spending through the creation of regional health insurance funds has led to widespread reports of abuse of power and fraudulent behaviour including embezzlement of funds (Ensor and Duran, forthcoming). An adequate level of accountability is, therefore, a fundamental pre-requisite for developing public-private partnerships. Second, the development of devolved budgeting systems and greater local management is usually undertaken on the basis that health facilities are better able to judge what inputs are required to deliver a given service than central planners. The

14 The Public Private Mix, research note outputs and outcomes of the service are more important than the input. Auditing is, therefore, not restricted to ensuring that input spending is well accounted for but also examines outputs through value for money studies. In some countries such studies have become a routine part of the audit function of national offices. Third, value for money and monitoring of outputs does not obviate the need for audit of financial inputs to ensure that money is spent as planned. Given the difficulty in monitoring many health service inputs it is important to continue detailed input accounting. Facilities should still account for what they have spent according to the accounting input and activity codes in existence. To completely dismantle this system would run of the risk of placing too much reliance on output data that may manipulated and is often difficult to measure. Rather than abolish the system of financial accountability, a more productive solution is to re-orient the way in which budgets are set and monitored. Instead of detailed budgets that are fixed according to norms at the centre, facilities can be asked to develop their own business plans that indicate how they will use resources for desired health outcomes. These plans, once approved, then become the basis for financial as well as performance monitoring. Spending is still monitored according to detailed budget line. Deviations from the plan may be permitted within limits but explanations for the deviation is required. Such a system is still as strong, perhaps stronger, than the past system in exercising control and accountability. Yet it does require new skills - the contractors (Ministry of Health, Local authorities, finance authorities) require skills in monitoring spending according to bottom-up plans. The health facilities require skills in business planning. The above discussion suggests that the scope of the public-private mix would be broadened well beyond whether or not something is privately owned. Rather it should encompass characteristics that make provision more or less private-like. In this context private-like might be thought to be the concern and ability to respond to consumer needs, whether directly from a patient or through a third party. It is clear that consideration of private characteristics extend far beyond the pursuit of profit. The public-private mix international and regional experience The public-private mix in figures All countries have a mixed economy in health care. It has been estimated that in developing countries private physicians constitute 55 per cent of the total number while across Asia the figure rises to 60 per cent (Hanson & Berman, 1998). According to a recent a review of health care systems the proportion of GDP devoted to funding private health care increased within all major country groups between 1990 and 1995 (Jowett, 1998). The increase is especially marked outside the established market economies (see figure three). In addition the proportion of total health sector funding obtained from non-government sources also increased over the same period for all groups with the exception of the established market economies.

15 The Public Private Mix, research note Table three: Public-private division of health expenditures by region (1990, 1995) 100% 80% 60% Public Private 40% 20% 0% Established Market Economies (1990) Established Market Economies (1995) Economies In Transition (1990) Economies In Transition (1995) Middle Income Countries (1990) Middle Income Countries (1995) Developing Countries (1990) Developing Countries (1995) Least Developed Countries (1990) Source: World Bank 1990, 1997 complied by Jowett, Least Developed Countries (1995) Across the region growth in the private sector is less consistent (see figure four). The same World Bank/WHO database suggests that while private sector funding appears to be growing substantially in Pakistan, Sri Lanka and Nepal, the size, at least as a proportion of GDP it is levelling off or declining in India and Thailand. It should be observed that in Thailand, recent national health accounts suggest that spending and share of spending is lower than suggested by regular data provided by the National Economic and Social Development Board (NESDB) (Tangcharoensathien et al, 1999). Accounts prepared for 1994 suggest that total spending was around 3.6 per cent of GDP (NESDB, 5 per cent) while the proportion of private expenditure was around 50 percent (NESDB more than 70 percent). Figure four: regional public and private spending on health care (1990,1995) 1 Percent spending on health care Public Private 0 Bangladesh (1990) Bangladesh (1997, NHA) India (1990) India (1995) Nepal (1990) Nepal (1995) Pakistan (1990) Pakistan (1995) Sri Lanka (1990) Sri Lanka (1996, IPS) Thailand (1990) Thailand (1995) 1 There are inconsistencies in various data-sets available, particularly on the size of the private sector. Recent in-country household surveys tend to show a larger private sector that do previous estimates reported by international agencies.

16 The Public Private Mix, research note Source: World Bank 1993, 1997 complied by Jowett, 1999; Data International, 1998 In Bangladesh, the National Health Accounts suggested that more than 63 per cent of funding for the health sector is obtained from private sources (Data International/ Health Economics Unit, 1998). In Nepal the proportion is even higher with one survey suggesting that households account for more than 73 per cent of national health spending (Shrestha & Shrestha, 1995). Table one: public-private provision in three regional countries India Bangladesh Thailand Population 961, ,000 61,000 Hospitals 11,174 Private hospitals 6, Beds 642,103 29,124 72,683 private beds 206,888 10,380 12,501 % private beds 32.2% 35.6% 17.2% Beds/10000 population Private beds/10000 population Table one summarises public-private provision in Bangladesh and two contrasting regional countries India and Thailand. Of the three countries, it appears that Bangladesh has the highest level of proportionate private sector provision. As a proportion of total bed stock Thailand, perhaps surprisingly, has the lowest level of private provision. In per capita terms, however, both India and Thailand have around three times as many private beds. In India the private sector is large but also marked by substantial inter-state variation. In Andhra Pradesh, for example, it is estimated that there are more private than public hospital beds while in West Bengal the private sector contributes only 10 per cent of the bed stock (World Bank, 1997) The Public-private mix and health sector reform The earlier discussion recognises that a public-private mix already exists in most countries of the world. A recent conference, hosted by the Health Economics Unit, noted that the real choice was not between the presence or absence of a private sector but whether to encourage an active private sector or permit it to grow passively (HEU Proceedings, 2000). An active mix attempts to utilise the capacity, capabilities and characteristics of private sector funding and provision and combine them with public activity in order to improve health services for the population. A passive mix still requires effective regulation, in order to maintain the quality of provision and avoid consumer harm, without any planned attempt to harness capacity for public benefit. The conference suggested that an active participation was preferable since it minimised waste and duplication between sectors while utilising private capacity to deliver that are inadequately provided in the public sector. Reforms introduced in a variety of countries over the last years have placed considerable emphasis on the introduction of private sector disciplines and collaboration. OECD countries that have historically depended on a centralised health structure have embraced features of the private sector such as service contracting and private finance for public capital developments (Saltman, 1995). Many of the changes have ambiguous and not fully evaluated impacts. Yet few researchers or politicians can see a return to the command and control public sector pattern of former years.

17 The Public Private Mix, research note In developing countries similar trends are apparent. Several studies highlight the development of decentralised and privatised organisations as a central feature of much of the reform change in Africa (Gilson & Mills, 1995; Sahn & Bernier, 1995). Similar trends are noted in transitional Asia (Ensor, 1999). Evidence suggests that while there is much rhetoric that public-private partnerships can improve the system the reality is rather more ambiguous. Sometimes this is because the regulatory structure necessary to administer and monitor contracts and other instruments of collaboration are not sufficiently developed. Mills & Broomberg, for example, argue that efficiency gains from contracting appear to be contingent on government capacity to act as an efficient purchaser (Mills & Broomberg, 1998, page 29). The need to develop public sector capacity to regulate and purchase care is also echoed by Perrot et al. (1997) in the context of developing health service contracting. There are a variety of reasons why greater private sector participation may benefit the health sector. Most boil down to three key factors. On the finance side, the private sector may contribute additional funding and relieve the pressure on state resources. Arguably, this is already happening unofficially and so to increase the use of out of pocket payments or voluntary insurance simply legitimises a pervasive practice. The issue is more complex than this since there are many reasons why patients might pay unofficially for services only some of which would be ameliorated by official payment. Another advantage is that out of pocket payments may help to control the demand for un-necessary care and encourage providers to be more responsive to the needs of patients. On the provider side there are two key reasons. First, the private sector may be able to supply higher quality services for a given price. Second, that the private sector may provide a given quality of services for at a lower prices. While it is tempting to hope that the private sector will provider better quality at a lower price the reality is that this is often not possible (see Bhatia & Mills, 1997 for some evidence of the qualityprice trade-off in hospital catering in West Bengal).Third, private or NGO providers may sometimes be able to provide certain services or deliver services in particular areas in a way that is not possible for government providers. That patients perceive a difference in quality between public government and private facilities is amply demonstrated in studies of household health service demand in a variety of countries (for Bangladesh see, for example, Khan, 1996) 2. Many reasons may account for this preference. One picture is of an over-stretched public sector struggling to deliver an unrealistically large state guaranteed package of services with a small and perhaps dwindling health budget. In this context it might be suggested that the private sector could do no better under the circumstances and the real answer lies in increasing resources for the public sector and/or reducing the services promised. 2 A contrasting picture is not hard to find. Bennett et al, cite a number of studies that find the private sector cutting costs and quality of service to boost profit. Often the way in which this is done, by using less qualified staff, is not noticed by patients who can only measure some, often mostly non-medical, aspects of quality.

18 The Public Private Mix, research note A second picture is of intense bottle necks in the public sector leading to technical inefficiency. This is exemplified by idle staff and equipment, lack of supplies but also an excess of infrastructure, low morale and an lack of positive financial incentives for staff. Also, a leakage of resources through petty pilfering and private practice in public working hours. Under these circumstances greater private sector provider involvement might offer scope for better management of resources and increased efficiency. It is likely that the truth lies somewhere in between these extremes. It will be important, therefore, to disentangle these factors in order to assess the potential for greater private sector involvement in health care and greater application of private sector management characteristics. Types of public-private mix and partnerships: possible models and regional experience Active public-private policies can be characterised as a deliberate attempt to influence the structure of the public-private mix to improve service provision. There are several ways this might be done in terms of the typologies presented in figures one and two. One type of active mix could be characterised as a deliberate attempt by government either to move finance or provision from one box (type) to another. So, for example, a government might encourage the development of some local autonomy over decision making through management decentralisation. A second variant is where government encourages a collaboration between different types of providers. An example, would be to encourage state facilities to contract out ancillary services such as cleaning to the private sector. Passive development of the private sector Most countries in the region have seen an increased in the level of private provision financed through private payments. Perhaps the two most common forms, because of the relatively low capital costs involved, are pharmacies and out of hour clinics outside normal office hours. Private pharmacies can be situated in purpose buildings but may also be on a road side or market stall. In general, the less formal the building the less likely staff are to be qualified. In Vietnam, for instance, selling of medicines has assumed epidemic proportions. People even open stores through the widows of their own dwellings. It is estimated that there are more than 7,000 licensed drug dealers mostly run by unqualified staff (Bloom, 1998). In Laos, it is estimated that more than 80 per cent of drugs are prescribed privately (Stenson et al, 1997). Private clinics are often run by public practitioners either after-hours or once retired. They may offer more convenient times for services than public facilities. Patients may also be referred from the public facilities but be treated by the same doctors in the private facility Lack of regulation and uncontrolled demand for medicines often appears to led to rapid growth of low quality providers. In India surveys have revealed large number of private providers practising allopathic medicine often together with complementary forms of medicine. Most of these are not qualified. Many have certificates purchased (often at considerable expense) from unrecognised institutions (Bhat, 1998). There are

19 The Public Private Mix, research note complaints that complications arising from surgery performed by these practitioners often end up in public facilities to rectify. Mixed service implicit partnerships and potential collaborations There are a number of examples where a passive public-private mix leads to a type of implicit partnership whereby a private supplier fills a gap left by public providers for part of the care process. One example of this is the private provision of ambulance services in West Bengal (Bhat, 1999). This has arisen because the public sector has failed to provide an adequate service. It has lead to increasing interest in more formal partnerships with explicit public-private contracting. An important consideration in any such relationship is the way in which the poor and indigent are provided with free or subsidised services through such a policy. Another type of potential collaboration is where public and providers work together to improve the referral chain. A good example of this is to reduce the prevalence of unnecessary or inappropriate self-medication when patients visit drug-stores rather than first seeking the help of medical practitioners (a problem cited by Gilson & Mills, 1995 in the context of Burkino Faso). A collaboration between health practitioner (often public) and drug-store (usually private) could help reduce this poly-pharmacy. There are, of course, strong financial incentives at work that mitigate against control of prescriptions. Any partnership must include ways of controlling this incentive. One way would be to develop a system of approved or preferred pharmacies to which facilities would send patients. In return, these pharmacies would agree to adhere to a code of best prescribing practice enforced through self-regulation and regular monitoring. Contracting Another form of public-private partnership is where a public institution, funded by public money, contracts out clinical or non-clinical services to the private sector or to an autonomous public sector facility (public ownership and private/self-management). There are two main types of contracting. The first type, what we might term primary contracting, is where the state, acting as a purchaser of care, contacts the provision of a medical service to a public or private provider. The second type, termed secondary contracting or contracting-out is where a publicly owned and managed provider purchases a sub-service required by the facility rather than providing the doing the work in-house. Often the service contracted-out is an ancillary service such as laundry or cleaning. In principle, however, it can include medical services such as diagnostics or laboratory. Primary contracting Primary contracting can potentially develop in a number of ways. One way is where the state decides that it is unable to provide a particular medical service in an effective way. In this case government may contract with a private facility to provide the service. Another way is where a separation is made between the purchaser and provider of care within the state system. This is based on the idea that it may be difficult for an agency responsible for planning and funding services to properly represent patient interests if, at the same time, it also manages health facilities and

20 The Public Private Mix, research note hires and fires staff. This separation can be introduced by giving state facilities autonomy to manage resources subject to a legal requirements on managing finance and maintaining quality standards. One part of the Ministry continues to monitor the way in which these standards are maintained. Another part of the Ministry then contracts with these state facilities to provide specific services. Contracts can be designed in a number of ways. They include 3 : Block or capitation contracts - where a facility is given a fixed sum of money to provide a particular service (e.g. emergency outpatient care) for a given geographic population; Volume contracts - where a facility is given a fixed amount of money to provide a fixed volume of service (e.g appendectomies) but with a contingency to provide more of a service at a lower price should there may be a need; Fee per episode or cost-per-case where facilities receive a fixed amount for each patient or procedure provided. Contracts tend to become more complex over time with more attention given to monitoring quality and increasing the number of cost categories on which to base reimbursement. Primary contracting of this type is now common within a number of state systems in OCED countries including the UK, Sweden and New Zealand. (Maynard, 1994; Saltman, 1995). Primary contracting has also been used in a range of transitional and developing countries including Colombia, Trinidad, Russia and countries of Central and Eastern Europe (Saltman & Figueras, 1997; Londono, 1996; England, 1997). Contracts may help to clarify the relationship between provision and funding of care and focus evaluation on activities and outputs rather than inputs: the facility earns money for treating patients and maintaining quality rather than employing staff. The main challenge is that contracts can be complex to design and monitor. Providers become adept at playing contracts to their advantage. If there is scope in the contract they may, for example, cut the quality of service or select low risk patients who can be treated at low cost. Secondary contracting ( contracting-out ) Secondary contracting requires an explicit contract for a service required by patients. As with primary contracting it can incorporate time, volume and price elements. A contract for meals could be formulated in terms of a given number of meals to provide during a particular period at a given cost per meal. Alternatively, it may simply state that all patients are to be given a meal during a specific period for a fixed total expenditure. Although the contract may often be with a private provider situated outside the health facility this need not always be the case. In-house teams of staff bidding against outside private companies might, for example, win the contract. The main point is that there is a competitive tender process that is then embodied in an explicit contract. 3 More detail is provided in Mills & Broomberg, 1998 and Piercy, 1997.

21 The Public Private Mix, research note Reneging on the contract, through inferior quality can lead to financial penalty or even loss of the contract. There are a few regional examples of both types of contracting. Primary contracting in Thailand is mostly between the compulsory health insurance fund and hospitals. The insurance fund is financed by a combination of employer, employee and government contributions (Health Economics Unit, 2000). Public money is, therefore, used through contract in either in private or public facilities according to the choice of the employee. Another Asian example of this type of contracting can be found in China in the payment of hospitals by the Labour Insurance Scheme (Ensor, 1999). Using an autonomous or semi-autonomous insurance fund as an intermediate agency for purchasing health care on a contractual basis is one of the most common ways of allocating public money to private and autonomous-public providers. In contrast it is relatively rare for Ministries in rich or poor countries to spend money on privately provided services. The reason for this is probably political rather than economic. It is often unpopular for a health ministry to be seen to be giving money to private, particularly for-profit, institutions. Secondary contracting is rather more common across the region. In Thailand a university hospital (Mahidol) contracts with a for-profit company to supply MRI technology to the hospital (Tangcharoensathien et al., 1997). In Mumbai, a number of hospitals contract out catering services (Bhatia & Mills, 1997). In other parts of West Bengal public primary health care facilities have begun hiring private doctors on a contract basis to ensure that they are staffed (Bhat, 1999) Several lessons are revealed from this experience. Hospitals in Thailand funded directly from the Ministry of Health budget have experienced some difficulties in developing contracting out relationships. The semi-independent university status accorded to Mahidol hospital has made it easier to develop more flexible funding relationships. Second, even in this case the money for the contracts has been obtained entirely from user charges. In none of the hospitals is public money actually paid to the private company. This similar to the Bangladesh experience of funding autonomous hospitals (see below). One of the most important lessons on both types of contracting is that it requires the development of sophisticated management skills that are quite different from those employed in the traditional command and control management structure. Since the quality of the work is judged on the basis of the contract it is essential that these are formulated in extremely concrete terms. Simple references to the need for good quality service will be insufficient to make a quantitative judgement on whether a contractor has met the service agreement. For primary contracting it is the government department purchaser that requires these skills while for secondary contracting it is the managers of the health facility. The development of good contracts entails significant transaction costs both initial preparation and later monitoring. Estimates for the UK are put at between 6 and 8 per cent for initial preparation and perhaps the same again for monitoring while in the US