Chapter2. FinancialBarrierstoAccessHealthCareServices: ACaseStudyofthePhilippines

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1 Chapter2 FinancialBarrierstoAccessHealthCareServices: ACaseStudyofthePhilippines HirokoUchimura 1 Abstract healthcareservicesbasedon thestructureofthehealthfinancingsystemandrecentexperienceinthephilippines. It suggeststhatfunctionsinthehealthfinancingsystem, inparticularpaymentschemes, haveapowerful influenceonthebehavior of all actorsinhealthsystemsandthis determines whobearsthefinancial risksandfinancial burdens of access tohealth services. InthePhilippines, thecurrentpaymentschemesappeartocausemoralhazard toproviders, andgiveastrongimpetustoincreasinghealthexpenditures. Inaddition, providers maycapture insurance benefits as rent, andthis maycriticallyimpede reductioninthefinancial burdens of thepoor. Usingtheaccreditationfunctionof PhilHealthwouldbe a pragmatic policytool tocontrol healthcare costs inthe Philippines. Monitoringwillbecrucialtorealizetheexpectedbenefitsofaccreditation. Inaddition, thequalityoffreepublichealthcareservicesneedstobeimprovedand informalpayments(donations)needtobereduced. 1 Inter-disciplinaryStudiesCenter,InstituteofDevelopingEconomies(IDE-JETRO),Japan. 25

2 1. Introduction Healthfinancingisthemechanisminwhichmoneyismobilized, allocated, andused tofinancehealthsystems, ofwhichtheoverall objectiveistocontributetoattaining better health outcomes. Accordingly, health financing includes various issues: availability of the fund, pool of financial risks, and payment for service providers/organizations. Thesefactorswillprovidestrongincentivesthatinfluencethe behavior of all actors (institutions andindividuals) inthehealthsystem, andwill determinewhohasaccesstocareandwhoisprotectedagainst catastrophicmedical expenses. Inthislight, thisstudyconsidershowit ispossibletoreducethefinancial barriersofpeople, inparticularthepoor, toaccesshealthcareservices. Theobjectiveisfirst, topresentasimplestructureofahealthfinancingsystemand analyzethefinancialbarriers, andsecond, toexaminethecaseofthephilippines. The Philippineshasbeenimplementinghealthsectorreformssince1999. TheHealthSector ReformAgenda(HSRA), whichaimedat improvinghealthsector performance, was implementedfrom1999to2004. Thesecondmid-termreform, FOURmulaONEfor Health, beganin2005. Healthfinancinghas beenafocal agendainbothreform programs. Against this, it is particularlyinterestingtoanalyzethehealthfinancing systeminthephilippinesanditsrecentexperiences. Theremainderofthisstudyisorganizedasfollows. Thenextsectiondescribesa simplestructureofahealthfinancingsystem, andsection3analyzesthefinancialrisks andbarrierstoaccess healthcareservices. Section4examinesthehealthfinancing systemof the Philippines and its recent experiences. The last section discusses preliminarypolicyimplications. 2. StructureofHealthFinancingSystem Thebasicfunctionsofahealthfinancingsystemarerevenuecollecting(funding), poolingresources(risks), andpurchasinggoodsandservices(who,2000, Ch.5;World Bank, 2006, Ch. 2). Therearevariousmechanismsineachfunction. Table1presentsa simplestructureofahealthfinancingsystembasedonthesethreefunctions. 26

3 Table1StructureofHealthFinancingSystem Rvenuecollecting Resource Pooling Purchaser Purchasing Payment Bypurchaser Bypatient Insured Noninsured Govt Insurance Tax Tax Premium National/ Region/Local Fundpooling Individual OOP None Govt Insurer Budget, Capitation, Case-based, Fee-for-service Capitation, Case-based, Fee-for-service Free Free InformalPayment Feeonschedule/Nonschedule Coinsurance/ Copayment All RevenueCollection Revenuecollectionisamechanismtoraisefundstofinancehealthsystems. In general, revenueiscollectedfromthegovernment, socialinsurance, orindividuals, and theresourceistax, premium, orout-of-pocketpayment(oop). Althoughraisingenough revenueisafundamentalofhealthfinancingtoprovideappropriatehealthservicesand financial protectionfor peopleagainst unpredictable medical expenses, developing countriesfrequentlyfaceaseverechallengetoraiseadequatefunds, notonlybecauseof theirlow-incomelevel, butalsobecauseoftheirlimitedinstitutionaloradministrative capacity. Hence, healthfundingis highlydependent onoopinmanydeveloping countries(tablea1intheappendix). RiskPooling Itisimportanttomanagelimitedresourcesbyriskpooling. Riskpoolingisto accumulateandmanageraisedfundstosharefinancialrisksamongmembers. Together withaprepaymentsystem, fundpoolingwillestablishinsuranceinwhichfinancialrisks will become predictable and will be spread between members. The pooling arrangements, i.e. poolinglevel, themembership, andcross-subsidiesbetweenpoolsetc., arecriticallyimportant. Therisk-poolinglevel dependsonfundingresourcetypesas describedintable1. OOPdoesnotpoolanyrisks, whichmeansthatindividualshaveto takeallrisksagainstunpredictableandevencatastrophichealthexpenses. Ingeneral, publicinsuranceappliesfirst topublicservantsor formal employeesindeveloping 27

4 countries. However, thosewhoarethemostvulnerabletounpredictableexpensesarethe poorwholargelyworkattheinformalsector. Atoughchallengefordevelopingcountries istoincludethepoorinthepublicinsurancesystem, andtoarrangethattheirpremiums aredeterminedaccordingtotheircapacitytopay. Purchasing Anotherfunctionisthepurchasingofhealthgoodsandservices. Purchasing involvesvariouselements: goodsandservicestobuy, providersandpurchasers, and paymentforprovidedgoodsandservices. Thepaymentschemescreateincentivesthat stronglyaffect thebehavior ofall actors(organizations, providersandpatients) ina healthfinancingsystem 2 (KutzinandBarnum, 1992). Inthissense, thepaymentscheme isacriticalfactorintheefficientandequitabledistributionoflimitedresources. Paymenthastwoaspects:paymentbypurchaserandpaymentbypatient. To assuretheprovisionofbasichealthcareservices, thegovernmentprovidesfreehealth careservicesthroughpublichealthinstitutions. People, includingthepoor, canaccess freehealthcareservicesiftheycanphysicallyaccesspublichealthinstitutions. Ifpeoplearechargeduserfees, thosewithoutinsurancehavetopaythefull charge. Paymentsbyinsuredpeopledependontheirinsuranceschemes. Coinsurance meansthatpatientsneedtopayforacertainpercentageofthetotalcosts. Copayment generallyimpliesthatpatientsneedtopayforacertainfixedpaymentforeachphysician visitetc. 3 (Hsiao, 2004, p. 204). Theothercopaymentschemeistofixthepaymentof insurers 4. Underthisscheme, theinsurerpaysadefinedpaymentfordefinedcategories ofservices, andtheremainingcostsarebornebypatients. Thisdistinctionincopayment schemesiscriticallyimportantwhenweconsiderwhobearsfinancialrisks. Theother important element is thefeeschedule. Medical fees areona scheduleinmost developedcountries but not necessarilyindevelopingcountries. Physicians(providers)canfreelydeterminethefeeforprovidedservicesifitisnoton theschedule. Underthenonfee-schedulesystem, medical costsareunpredictableand 2 Moralhazardisaclassicincentiveeffect(Arrow, 1963). 3 Theotherschemeisdeductibles, whichistorequirepaymentbypatientsbeforeinsurance beginstobenefittheinsuredpatients(hsiao, 2004,p.204). 4 For instance, the Philippines, analyzed later in this chapter, employs this type of copaymentscheme.china(medicalinsuranceinurbanareas)setsaceilingonmaximumcost coveredbyinsuranceperpatientperyear. 28

5 costly, aggravatingfinancialrisks, particularlyoftheuninsuredpoor. Therearevariousschemesinpurchaserpayment. Themostcommonpayment schemesforpublichealthinstitutionsareline-itembudgetingandglobalbudgeting. In theformerscheme, thepayment(budget)issetbasedonspecificlineitems, suchasthe numberofstaff, pastbudgets, andequipment maintenanceetc. However, thistypeof payment schemefrequentlycausesinefficient fundmanagement (Hsiao, 2004). The latterpaymentschemeincludesalloperatingbudgetstocoveraggregateexpenditure. Contrarytoaline-itembudget, aglobalbudgetgivesmanagersthediscretiontoallocate thefundamonglineitems. Itisthereforeexpectedthatthisschemewilluseresources theexpected benefitsarerealizedornotwoulddependonbudgetsetting(barnumetal., 1995). If budgetingisset basedoncost per acertainfacility/service(e.g., per hospital bed), managerswill increaserevenue(budget) byincreasingthecosts(numberofhospital beds/lengthofstay, etc.). The other commonpayment scheme inboth developedand developing countriesisfee-for-serviceinwhichthefeeispaidtoaproviderbasedonprovided healthservices. It is knownthat this payment schemegives strongincentives for providers(doctors, clinics, hospitals etc.) toprovideexcessiveservices. Thecostly medicalserviceseasilyconsumehealthfundsindevelopingcountrieswherebothpublic and private funding revenues are limited. If the cost is paidby OOPunder a fee-for-servicescheme, thepoorhavetobearheavyfinancialburdens. Thefollowingaremorecost-controllingpaymentschemesthanfee-for-service. Capitationisapaymentschemeinwhichpurchaserspayafixedpaymentperpersonto providersfortheprovisionofdefinedservices(who, 2000). Ithencegivesproviders strongincentivestocontrolcosts;otherwise, theylosetheirprofits. Anotherschemeis case-basedpaymentinwhichprovidersarepaidafixedpaymentthatispredetermined basedoncategoriesofservices(barnum, etal., 1995). Thediagnostic-relatedgrouping (DRG) is a case-based payment scheme that categorizes services by diagnosis characteristics. Under this payment schemeprovidersalsohavestrongincentivesto minimizetheir coststoprovideacertaincategorizedservice. Adrawbackof these paymentschemesisthattheytendtoresultinreducedcare, becauseprovidinglesscare 29

6 Most countries generallyemploya mixture of payment schemes. There exist numerouswaystocombinepaymentschemesandconnectthebasicfunctions(revenue collecting, riskpooling, purchasing) that comprisethehealthfinancingsystem. Each component of a health financingsystemas well as the interactionbetweenthe c provide/demandhealthservices. Weneedtodirectcarefulattentiontosuchaneffectin ordertoanalyzefinancialrisksorbarriersofthepoortoaccesshealthcareservices. 3. FinancialRiskandBarrierstoHealthServices FinancialRisk Basedonthestructureofahealthfinancingsystem, weanalyzefinancialrisks forhealthservicecosts. Table2WhoBearsFinancialRisk Purchaser Provider Who Govt Insurer Publicprovider Paymentmethod Paymentbypatient Risk-poolingsystem Fee-for-service/ Budgetwithadjustment, Free Yes andunconstrained Fee-for-service, esp. unconstrained Coinsurance Yes Budgetw/oadjustment, Capitation, Case-based Yes Privateprovider Capitation, Case-based Yes (d) Insured Fee-for-service Copayment* Yes (e) (a) (b) (c) Patient Noninsured Any Allexceptfreeprovision No (f) Insured/noninsured Informalpayment All No (g) Notes:Copayment*ismentionedhereiscopaymentbyinsurer. Table2describeswhobearsthefinancial risks of healthservicecosts, which dependonpaymentandinsuranceschemes. Patientsdonothavetobearanyfinancial risktohavefreepublichealthcareservices. Thegovernment willtakethefinancialrisks if it provides free healthcare services andthepayment methodfor providers is fee-for-servicewithnoceiling((a), Table2). Ifthepaymentmethodisbudgetingwithout expostadjustment, thefinancialrisksarebornebytheproviders((c), Table2). If the payment method is fee-for-service and the insurance scheme is 30

7 coinsurance, theinsurerwillbearthefinancialrisks((b), Table2). Undercoinsurance, patientspaypartofthecosts, buttheirfinancialburdensarelimited(acertainpercentage schemeiscopayment 5, patientswillbearthefinancialrisks((e), Table2). Underthe copaymentscheme, patientshavetopaytheremainingcoststhatexceedtheexpenses coveredbyinsurance. Payment bytheinsurer is definedfor certaincategories of servicesunderthecopaymentscheme, whereaspayment bypatientsisnot predictable becausetotalcostsdependonprovidedservicesunderthefee-for-servicescheme. Inthis case, insurancedoesnotcontroltheriskofinsuredpeoplebutofinsurers. If the feeis not ontheschedule, theinsurancesystemmight not pool rent. Providers(doctors, clinics, hospitals, etc.)canchargeinsuredpeoplehigherfees, and therebytakeadditionalprofits 6. Consequently, thefinancialburdenofpatientswillbe reducedonlyminimally, eventhoughtheyareinsured. Providersbearfinancialrisksunderacapitationscheme(Barnumetal., 1995; Hsiao, 2004) ((c), (d), Table 2). Because of this, capitation is a cost-effective/cost-controlling payment scheme. Capitation motivates providers to minimizecostsinordertomaximizeprofits. Case-basedpaymentwouldalsotransferthe financial riskstoproviders. Ifthecost ofprovidedservicesexceedsapredetermined case-basedpayment, theprovidershavetobeartheexcessivecosts. Providershavean incentivetocontrolthecosts, becausethedifferencesbetweentheactualcostsandthe predeterminedpaymentwillbetheiradditionalprofits/losses. Ifpatientsarenotinsured, patientshavetobearallfinancialrisksexceptwhen theyhavefreehealthcareservices. Inmost developingcountries, insurancecoversa verylimitednumberofpeople, mostlypublicservantsorformalemployees. Therefore, mostofthepoor, whoaregenerallynotemployedintheformalsector, arenotinsured. Whiletheyarethemost vulnerabletofinancial risks, theyhavetobearmost ofthe 5 Thecopaymentmentionedhereiscopaymentbyinsurer. 6 Supposetherearetwopatients:oneisinsured,andtheotherisnotinsured.Aphysicianis supposedtoprovidethesamehealthcareservicesforbothpatients. Ifthefeeisnotonthe schedule, thephysiciancancharge, forexample,us$500forthenoninsuredandus$1000 for theinsuredpatient, of whichus$500isreimbursedbyinsurance. Inthiscase, even thoughthepatientisinsured,insurancedoesnotreducethefinancialburdensoftheinsured patient;insurancebenefitsbecomeadditionalprofitsforthephysician. 31

8 financial risks. Bothinsuredandnoninsuredpatientshavetobear all financial risks againstinformalpayment((g), Table2). FinancialBarriers Table3describesfinancialbarriersandcostpredictability. Similartofinancial risks, patientfinancialbarriersandcostpredictabilitydependonpaymentandinsurance schemes. Table3FinancialBarriersandCostPredictability PaymentScheme Financialbarrier Predictability Purchaser Patient Insured Noninsured Insured Noninsured Free(freeprovision) None None (a) Capitation None (c/d) Case-based Low High (c/d) Feeforservice Coinsurance Schedule Medium Medium (b) Nonschedule High Low (b) Case-based Low High (c/d) Feeforservice Copayment Schedule Medium+ Medium (e) Nonschedule High+ Low (e) Feeforservice Schedule AllbyOOP High Low (f) Nonschedule Veryhigh None (f) Informalpayment High/veryhighHigh/veryhigh None None (g) Notes:Thesymbols(lettersontherightend)correspondtothoseinTable2. Freepublic healthcareservicescausenofinancial barrier toinsuredand noninsuredpatients((a), Table3). Freehealthcareservicesplayanimportantrolein assuringtheaccessofthepoor, whoaregenerallynot insured, tobasichealthcare services. However, free public healthcareservices frequentlydonot functionas expected. It ispointedthat qualityofpublicservicesistoolow, physiciansareoften absent, andmanagement isinefficient. Inaddition, thegeographical distributionof publichealthinstitutionsisfrequentlynot equitable. Ingeneral, hospitals/clinicsare concentratedinlargercities/urbanareas. Itmightbephysicallydifficultforthepoorin ruralareastoaccesshealthcareservices. Althoughfreepublichealthcareservicesdo 32

9 notpresentanyfinancialbarrierstopatients 7, thoseobstacleswouldimpedetheiraccess tohealthcareservices. Capitationdoesnotcausefinancialbarrierstopatientseither((c/d), Table3). It is, however, appliedonlytomembersandprovidesdefinedservices. Infact, capitation tendstogenerateriskselection(frank, 1998). Providerswhobearfinancialriskshavea strong incentive to enroll low-risk (healthy) persons in order to minimize their costs/risks. Capitationwouldalsocauseunder-provisionofhealthservices, whichwill fixedamount/fixedpercentage)underthecase-basedpayment method. Thisscheme, however, predeterminesthecostsbasedonservicecategories;therefore, thecostsborne bypatientsareratherpredictableaswellaslimited((c/d), Table3). Similartocapitation, case-basedpaymenttendstoprovidelesscare. Inaddition, itmaycausecaseselection. Providers tendtoaccept patients whoare at thelow-cost endof thecase-based predeterminedpaymentcategory (Barnumetal., 1995, p. 12). Patients will shoulder agreater financial burdenunder thefee-for-service payment methodthanintheabovetwomethods. Providerstendtoprovideexcessive services in order to raise their profits under this payment method. Because of information asymmetries, patients generally demand services depending on the informationofproviders, whomightbewillingtoprovidemoreservicesthannecessity. Theservicecostsarefinancedbothbypatientsandinsurers, ifthepatientsareinsured. Thefinancial burdenofinsuredpatientsthusdependsontheinsurancescheme. As observedintable2, patientshavetobeartheremainingcoststhatexceedtheinsurance heavierunderthecopaymentsystemthancoinsuranceinwhichcostsbornebypatients arelimitedtoacertainpercentageofthetotal costs. Iftheservicefeeisnot onthe predictable((b), (e), Table3). Thosewhoarenot insuredhavetobearall financial burdens. Apparently, financialbarrierstoaccesshealthservicesarehigh((f), Table3). Ifthefeeisnot ontheschedule, thebarrierswouldbehigher, andthecostsarenotpredictable. Themost 7 Ifinformalpaymentiswidespread,publicfreehealthcareservicesalsoprovidefinancial barriers. 33

10 vulnerablepeoplearefrequentlytheleastprotected. Iffreepublichealthcareservices areavailabletothem, theycanaccess healthservices withless financial burden. However, inadditiontotheabove-mentionedproblemswithfreepublichealthcare, informalpayment under-the-tablepayment isacriticalproblem. Informalpaymentisawidespreadphenomenonindevelopingcountries, which harmsfreehealthcareservicesandinsurancesystems ((g), Table3). Together with limitedinformationforpatients(informationasymmetries), missingservicesormaterials infree healthcare services will provideagoodconditionfor spreadinginformal payments. Ingeneral, patientslackenoughinformationontheirnecessaryhealthcare services. Patientswillhencepayfortherequiredservices, iftherequiredservicesarenot availablefromfree healthcare services (Killingsworthet al., 1999). Thelackof materialsorabsenceofphysiciansinpublichealthinstitutionsiscommonindeveloping countries, whichmightbringaboutwidespreadinformalpayment. Ifprivateservicesare available, peoplemayprefertoseekprivateservices. Thiswouldcriticallyhinderthe poorfromaccessinghealthcareservices, althoughthegovernment officiallyprovides freehealthcareservices that aresupposedtoassuretheprovisionof basichealth servicestoeveryone, especiallythepoor. Theother element, whichcloselyrelates toaspreadof informal payment, is reduction in or inadequate official payment for physicians. Widespread informal payment hasbeenobservedinmanycountriesof theformer Soviet Union, suchas Kazakhstan. Becausethemajorincomesourceofphysiciansthereisinformalpayment, insuranceandfeeschedulinghavealmost nomeaning(ensor andsavelyeva, 1998; Kutzin, 2001). Evenifthepaymentmethodiscapitation, undersuchsituations, patients havetopayinformalpaymentstoproviderstoreceivehealthcare. Aspreadofinformal paymentswouldincreasethefinancialbarriersofthepoor, andmightcorrodethewhole healthfinancingsystem. 4. TheCaseofthePhilippines Thegovernment hasbeenimplementingsubstantial healthsector reformsinthe Philippinessince1999. Thefirststepstoimprovehealthsectorperformancetookplace 34

11 from1999to2004andwereknownashsra(thehealthsectorreformagenda) 8. The HSRAarrangedasinglepackageofreformsthatincludedsocialhealthinsurance, public hospitals, localhealthsystems, healthregulationsandpublichealth, becausethesewere interdependent. Thesecondstep, knownasfourmulaoneforhealth 9, beganin2005andwillgo on to The reformfocuses on financing, regulation, service delivery and governance. Theoverallgoalsarebetterhealthoutcomes, amoreresponsivehealthcare system, andmoreequitablehealthcarefinancing. Withregardtoreformsinhealth financing, fiveagendaitemsareset asspecificobjectives: mobilizingresourcesfrom extrabudgetarysources, coordinatinglocalandnationalhealthspending, focusingdirect subsidiestoproprietyprograms, adoptingaperformance-basedfinancingsystem, and expandingthenationalhealthinsuranceprogram(nhip:socialhealthinsurance). The reformaims at mobilizingadequate andsustainedresources and managingthem efficientlytoultimatelyachieveimprovedhealthoutcomes, inparticularofthepoor. HealthFinancingSysteminthePhilippines Table 4 describes the structure of the health financing systemin the PhilippinesusingthesimplestructurepresentedinSection2. Table4HealthFinancingStructureofthePhilippines Govt Insurance Resource Tax Tax Premium Pooling National/ Regional/ Local Crosssubsidies between pools Individual OOP None Purchaser Govt Insurer Purchasing Payment Patient Purchaser Insured Noninsured Free Budget InformalPayment Nonschedule Fee-for-service Copayment All 8 Details are available from DOH website: 9 DetailsareavailablefromDOHwebsite:http://www.doh.gov.ph/f1primer/F1-Page.htm. 35

12 Majorfundingsourcesaregovernment(national/local), socialinsurance, and individualsinthephilippines 10. Eachtierofgovernmentdirectlyprovideshealthcare servicesthroughpublichealthinstitutions 11. Allpublichealthinstitutionsexceptregional hospitals/publicmedical centers providefree healthcareservices, whichcomprise primary/secondarycare. Peoplearehencesupposedtobeabletoaccessbasichealthcare freeofcharge. NHIP(thenationalhealthinsuranceprogram)ismanagedbyPhilippine HealthInsuranceCorporation(PhilHealth). There arefive programs dependingon employment status 12, andthe funds are cross-subsidizedbetweenthe pools. The sponsoredprogram, whichistheprogramfortheindigent, isfinancedbythenational governmentandlocalgovernmentunits(lgus). ThefollowingtwoschemesaretheprinciplepaymentschemesinthePhilippines: budgeting for public health institutions, and fee-for-service for private health institutions/providers. ThereisnofeescheduleforhealthcareservicesinthePhilippines. Noninsuredpeoplehavetobearall healthcostsbasedonfee-for-serviceandnonfee scheduleschemeswhentheyhaveprivatehealthservices. Theinsurancesystemis copayment; that is, insurancecovers definedcosts for certainhealthservices, and patientsbear theremainingcosts. Hence, thepayment systemfor insuredpeopleis composed of fee-for-service, nonfee schedule, and copayment schemes in the Philippines. FinancialBarrierstoAccessHealthServices Basedonthestructureof healthfinancingsysteminthephilippines, we analyzethefinancialrisksandbarrierstoaccesshealthcareservices. Table5describes whobearsfinancialrisksofhealthcostsinthephilippines. 10 There are alsoother private sources in the Philippines: private insurance, health maintenanceorganizations(hmos), employer-basedplans,andprivateschools. 11 DetailsaresummarizedinTableA2intheAppendix. 12 The five programs are: (1) Employed-sector program, (2) Nonpayingprogram, (3) Individualpayingprogram,(4)Sponsoredprogramand(5)Overseasworkersprogram. Details of the national health insurance programare available fromthe website of PhilHealth:http://www.philhealth.gov.ph/index.htm. 36

13 Table5WhoBearsFinancialRiskinthePhilippines Who Paymentmethod Paymentbypatient Purchaser/ Provider Govt Publicprovider Bugetwithadjustment andconstraint Free Patient Insured Noninsured Fee-for-service Copayment All Insured/noninsured Informalpayment All Asexplainedabove, thepublichealthserviceisbasicallyprovidedfreeof chargeinthephilippines. Therefore, patientsaresupposednottobearanyfinancialrisks whentheyaccessfreepublichealthcareservices. However, patientsmightberequested tomakeinformalpaymentsincludingdonations. Patientsalsoneedtotakefinancialrisks whentheyaccessprivatehealthcareservices. Insurancecoversadefinedpart ofthe medicalcostsforinsuredpatients, andpatientsbeartheremainingcosts. Therefore, the whoarenotinsuredhavetobearallfinancialriskstoaccessprivatehealthservices. Table6FinancialBarrierstoAccessHealthServicesinthePhilippines Paymentmethod Financialbarrier Predictability Purchaser Patient Insured Noninsured Insured Noninsured Free(freeprovision) None None Fee-for-service Nonschedule Copayment High+ Low Fee-for-service Nonschedule All Veryhigh None Informalpayment High High None None 37

14 38 healthcareservices. Both insuredandnoninsuredpeoplearesupposedtohavenofinancialbarrierstoaccessfree publichealthcareservices. However, asmentionedabove, ifpatientsarerequestedto make informal payments, financial barriers will be highfor patients 13. Informal paymentsarefullybornebypatients, andareunpredictable. Regardingprivatehealthservices, financialbarriersfornoninsuredpeopleare high, becausetheyhavetobearallofthefinancialburdenstoaccesshealthcareservices. Againstthis, afocalissueofcurrenthealthsectorreformsinthephilippinesistoexpand social healthinsurance, inparticular thesponsored/indigent program(social health insuranceforthepoor). Expandingsocialhealthinsurancewillcontributetoreducing thefinancialbarriersofthepoor. However, thereareseveralconcernsaboutnotonlythe insuranceschemeitselfbutalsothecombinationofinsuranceandpaymentschemes. Thenationalgovernmentandlocalgovernmentunits(LGUs)sharethecostof theinsurancepremiumsofthesponsored(indigent)program. Thisprogramisvoluntary, soitneedslgustoagreetosponsortheindigentprogram. IfanLGU(Mayor)agreesto sponsor thepremiums of theindigent program, all of theindigentsunder thelgu becomeenrolledinthesponsoredinsuranceprogram. Likewise, ifanlgu(mayor)does notagreetobeasponsor, noneofthepoorunderthelgucanenrollinthesponsored insuranceprogram. AsitdependsontheLGU(Mayor)whetherthepoorcanenrollin thesocialhealthinsuranceornot, thecoveragevariesbetweenlgus/regions. Theindigentarethosebelongingtothelowest25%ofthepopulationdefined throughcbis-mbn(community-basedinformationsystemforminimumbasicneeds). Weneedtonotethat thereexists over/under identificationor misidentification. In addition, itispointedthattheindigentmightbepoliticallyidentifiedsometimes. Itwill beatoughbutveryimportantchallengeforgovernmenttoimprovetheidentificationof thepoorinordertoreducetheirfinancialbarriersappropriately. Theotherissueisthe nearpoorwhoareveryclosetothepoor, whilenotidentifiedasthepoor. Becausethey arenotidentifiedasthepoor, theyarenoteligibletoenrollinthesponsoredprogram. 13 Inadditiontofinancialbarriers,thereareotherproblemsregardingpublicfreehealthcare servicesinthephilippines.acriticalproblemisqualityofcare. Lowqualitymakespatients avoidutilizingpublichealthinstitutions. Peoplepreferaccessingprivateservicestopublic freeservices. Theother critical issueis thegeographical distributionof publichealth institutions.thepoorwholiveinremoteareasmighthavephysicaldifficultiesofaccessto publichealthinstitutions.

15 Therefore, theyhavetopaythefullpremiumbythemselvestoenrollinsocialhealth insurance 14. Thisisacommonissuerelatingtotargeting:howtotreatthenearpoorisa crucialissueinthephilippineswherethequalityofindigentidentificationislow. Underthecurrent insurancesystem(copayment byinsurer), patientspayforthe remainingcoststhatexceedtheinsurancebenefits. Becausetheservicefeeisnotona schedule, physicians(providers) areabletoset providedservicefees. Thisscheme services. Morecritically, physiciansmightcaptureinsurancebenefitsasrentunderthe currentsystem 15. Ifinsurancebenefitsbecomerentforphysicians, insurancewillnotin financialburdenstoaccesshealthservices. HealthCost andfinanceinthephilippines Healthfinancingisoneofthefocalissuesonthehealthsectorreformsinthe Philippines. Howhashealthexpenditurebeenchanging?Hasthehealthfinancestructure changed? Figure1PerCapitaHealthExpenditureinthePhilippines (Pesos) 1994=100) current prices 1985prices priceindex basedondatafromphilippinenationalhealthaccounts2004. Figure1presentschangesinpercapitahealthexpenditureinthePhilippines from1994to2004. Thisfigureclearlyshowsthathealthcostshavesubstantiallyrisenin 14 Ifthepersonisformallyemployed, employerandemployeesharethepremium. 15 Detailsofthisissueareinpage31ofthistextandfootnote6. 39

16 theseyears. Healthexpenditureintermsofcurrentpricesincreasedbyabout140%from 1994to2004, whereasexpenditureintermsofrealprices(1985prices)increasedby 30%. Thehealthexpenditurepriceindexincreasedby85.2%overtheperiod, whichis higherthantheincreaseincpiby75.8%. Table7showsfamilyexpenditureonmedicalcostsinwhichweobservethe changesinmedicalcostsfromthedemandside. Table7TotalFamilyExpenditureonMedicalCare, 1997and2000 Currentprices(pesos) 1997prices %Growth %Growth Total 30,449,072 34,630, ,449,072 28,385, Drugsand medicines Hospitalroom charges 14,900,215 16,085, ,900,215 13,184, ,892,646 8,344, ,892,646 6,839, Medicalcharges 6,230,152 7,521, ,230,152 6,165, Dentalcharges 754, , , , Othermedical 1,193,116 goodsandsupplies 1,203, ,193, , Othermedicaland healthservices 478, , , , Source:2000FamilyIncomeandExpenditureSurvey(FIES). Demand-sidedataalsoconfirmthat medical costs havebeeninflated. In particular, hospitalroomchargesandmedicalchargessurgedbymorethan20%from 1997to2000. Onthecontrary, bothitemsdecreasedintermsofrealprices(1997price), whichsuggestsrealconsumptionoftheseitemsdecreasedovertheperiod. Eventhough serviceshasnotincreasedinthephilippines. Which funding sources pay for such increases in (nominal) health expenditure?majorfundingsourcesaregovernment, socialinsuranceandout-of-pocket 40

17 payment(oop)inthephilippines. Figure2showsthepercentagecontributionofeach fundingsourcetotheincreaseinhealthexpenditureintheseyears. Figure2Contribution(%)toHealthExpenditureIncreasebySourceofFunds 100% 80% 60% % 20% 0% Increasein totalhealth expenditure: %. 57.6% 200.7% (94-98) ( ) ( ) Others Otherprivate OOP Socialinsurance Govt AsweobservedinFigure1, total healthexpenditure(current price) surged from1994to2004. Theright-handbar graphinfigure2shows the percentage contributionofeachfundingsourcetothehealthexpenditureincreasefrom1994to OOPisthehighestcontributorinthisincrease. Themiddlebargraphshowsthat socialhealthinsurancehasbecomeamoreimportantcontributortohealthexpenditure sincehealthsectorreformsbeganin1999. However, itappearsthatincreasesinsocial healthinsurancecontributionsbrought reductionsnot inoopbut inthegovernment financialburdentoaccesshealthserviceshas beenreducedbyonlyaminimal amount eventhoughsocial healthinsurancehas expanded. Figure3HealthExpenditurebySourceofFund 41

18 100% 80% 60% % % % Others Otherprivate OOP SocialInsurance Govt Source:PhilippineNationalHealthAccounts2004. Figure3describessourcesoffundingforhealthexpenditurefrom1994to Asweobserved, thepercentageshareofsocial healthinsuranceintotal health expenditurehasincreased. OOP, however, havereducedonlymarginally. Thenewhealth reform, FOURmulaOneforHealth, beganin2005. Ourfiguresdonotreflecttheimpact barriershavenotbeenmuchreducedinrecentyears. Whathascausedthesurgeinhealth expenditure?whyhasoopnot beenreduced, eventhoughthegovernment hasbeen tryingtoreformthehealthfinancingsysteminthephilippines? Thepayment method, i.e., fee-for-serviceandnonfeeschedule, might bea critical factor inrisingpressures onhealthexpenditureinthephilippines. As we observed, thehealthexpenditurepriceindexhasincreasedatafasterpacethanincreases inthecpi. Healthserviceproviders(physicians, etc.) mayhaveastrongincentiveto provideexcessiveservicesunderfee-for-service. Inaddition, theyareabletosetthefee ofprovidedservicesundernonfeeschedule, whichwouldprovideastrongimpetusto increasehealthexpenditures(costs). Inadditiontothepaymentmethod, thesocialhealthinsuranceschememight beanotherfactorbehindthesteadyoopratiointotalhealthexpenditure. Socialhealth 42

19 insurancecoversdefinedexpensesofcertainhealthservices, andtheexcesscostsare bornebypatients. Physiciansset thefeeofprovidedhealthservices; therefore, how muchsocial healthinsurancewill beabletoreducethepatient financial burdenwill dependonthefeeset byphysicians. Ifphysiciansset thehigher feefor aninsured patient 16, the insured. Ourdataanalysisisverylimitedandprimitive;therefore, wecannotprovidea conclusiveviewonthisissue. However, westillinferthatinsurancemightnotfunction asexpectedundercurrent payment andinsuranceschemes, andthisappearstobea criticalfactorinkeepingtheoopatahighlevel. Theotherpossiblesourcemightbeinformalpaymentsincludingdonations. Patients aresupposedtobeabletoaccessfreepublichealthcareservices. However, ifinformal 5. Discussion Weanalyzedthestructuresofhealthfinancingaswell asoffinancial barriersto onasimplestructuralframework, westudied thecaseofthephilippinesandfoundseveralissuesinitshealthfinancing: - asurgeinnominalhealthexpenditures - heavyfinancialburdenduetotheincreaseinhealthexpenditurebornebyoop - stillrelativelyhighratioofoopintotalhealthexpenditure. Thefollowingpaymentmethodsandinsuranceschemesmightbecriticalfactors: - nonfeescheduleandfee-for-servicepayment - copayment(byinsurer)scheme - insurancecoverage. Whiletofixafeeschedulewouldbeanecessaryaction, itwouldnotbearealistic optioninthephilippinesbecauseitwouldbeverydifficulttodefinethefeepractically. Moreover, enforcementwouldbeacrucialproblem. Ifthefeeschedulewasnotenforced appropriately, itwouldfacilitatethespreadofinformalpayment. Whatwillthenbeapragmaticoptiontoaddresstheproblems?Itwouldbetouse 16 GertlerandSolon(2002)andObermannetal.(2006)suggestthatinsurancepaymentis capturedasrentbyprovidersinthephilippines. 43

20 the accreditationfunctionof PhilHealth. Together withthe accreditationfunction, monitoring is very important. Through PhilHealth accreditation with appropriate monitoring, governmentcouldencouragehealthinstitutionsto: - bemorecosteffective/costcontrolling - improvethequalityofhealthcareservices. Theotherimportantfactoristoimproveutilizationofpublichealthinstitutionsand reduceinformalpayment, includingdonations. Thekeysarequalityofcareandadequate funding. Peoplearenotwillingtoaccesspublichealthservicesbecauseoflowqualityof care. Majorfactorsinthelowqualityare: - insufficientfinancialresources - lowmotivationforimprovement. Againsttheseproblems, thegovernmenthasbeguntoapplythereimbursementand accreditation functions of PhilHealth to public health institutions. Public health institutionsarefundedbytax, however, manyofthepublichealthinstitutionssuffer frominadequatefinancialresources. Thatbringsaboutlowqualityofcareandmight encourageinformalpayment(donations). Byaccreditingandreimbursingpublichealth institutions, thegovernmentwouldbeableto: - injectadditionalfundsintopublichealthinstitutionsinordertoimprovequalityof care - motivatethemtoimprovetheirservices - substitutereimbursementforinformalpayment(donations). However, theactions of PhilHealtharenot apanacea. It isquiteimportant to monitorhowthehealthinstitutionsuseadditionalfunds(reimbursements)andwhether ornottheycontinuerequestinginformalpaymentfrompatients. expandinghealthcarecostsandinadequatefundingofpublichealthinstitutions, arealso commontootherdevelopingcountries. Ouranalysisisstillverylimited. Futurestudy willneedtoexaminetheseproblemsempiricallytoprovidemoreconclusivefindings. In addition, thereisaneedtoexamineempiricallytheimpactofcurrenthealthreformson healthoutputsaswellasoutcomestoevaluatethereforms. References 44

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