Universal Health Care and Sustainable Healthcare Financing in India: Lessons from other Major Healthcare Markets

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1 Organisation of Pharmaceutical Producers of India Universal Health Care and Sustainable Healthcare Financing in India: Lessons from other Major Healthcare Markets Ashoke S. Bhattacharjya and Elizabeth Fowler

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3 Universal Health Care and Sustainable Healthcare Financing in India: Lessons from other Major Healthcare Markets Ashoke S. Bhattacharjya and Elizabeth Fowler * I. Introduction... 1 a. Goals and function of health systems and the role of financing b. Relationship between health spending and the economy II. Access to Healthcare and Health Spending Patterns in Developed and Emerging Economies... 4 III. a. Public vs. private spending b. Spending by sector c. Hospital resources and use d. Quality of care Resource Mobilization, Infrastructure and the Role of Public and Private Sectors in Healthcare Financing... 7 a. Healthcare financing challenges in emerging economies: Implications for public and private sectors in a hybrid model of financing IV. Public Policy Principles for Universal Coverage... 9 V. Current Situation and New Developments in India a. Access, infrastructure and coverage b. New developments: draft national health plan c. Challenges and limitations of predominantly public financing of healthcare VI. Role of Health Infrastructure, Capacity and Regulatory Standards in Sustainable Access VII. Specific Recommendations on the Design and Framework of a Sustainable Financing System and Some Projected Cost Estimates VIII. Cross-Country Analysis: Lessons from Major Healthcare Markets Comparative analysis of the relative roles of public and private sectors, payer mix, provider and patient choices, challenges and advantages of each system in the UK, Germany, United States, Singapore, Mexico and China IX. Implications of Healthcare Financing on Provider Payments Macro-Level Controls Micro-Level Controls Demand-Side Reforms Lesson of cost containment measures in the U.S. and UK X. Summary and Recommendations XI. Appendix * The authors are both affiliated with Johnson & Johnson. We wish to acknowledge the valuable inputs and contributions provided by Ajay Sharma, Kunal Khanna, Brian Corvino and Jessica Lin.

4 Universal Health Care and Sustainable Healthcare Financing: What Lessons can India Learn from Major Healthcare Markets I. Introduction Goals and functions of health systems and the role of financing Every healthcare system must fulfill certain fundamental objectives in order to ensure the health and wellbeing of the population it serves. These objectives and rationales derive from three main considerations: i) Mobilizing resources for improving the health of its constituents; ii) Providing protection from financial hardship in the event of catastrophic illness; and iii) Achieving allocative efficiency and equity in the provision of health care. Universal health coverage (UHC) has gained renewed attention and urgency as a platform for achieving these goals throughout the world, in developed and developing countries alike, in the context of the recent global economic crisis, increasing health care demands, and unmet medical needs. A survey of major health systems in mature and emerging economies around the world suggests that each is engaged in an ongoing and continuous effort to balance competing concerns and challenges related to fiscal sustainability, social justice and political feasibility by testing different approaches. There are various models for implementing the basic functions noted above, such as a national health insurance system, social health insurance fund, private health insurance, community-based insurance and self-pay or direct out-of-pocket expenditures. A comprehensive and meaningful analysis must consider the relative merits of these various financing and insurance approaches to meeting the unique needs of population segments in emerging economies, and incorporate the lessons of recent experiences of developed economies that already have universal or near universal healthcare access and coverage. This paper attempts to provide such an analysis. In addition, the paper outlines the role of regulatory and financial policy in expanding healthcare coverage and access. According to recent analyses by the World Bank and the International Monetary Fund, a number of emerging economies are in various stages of working towards the provision of access and coverage for healthcare, including China, Brazil, India, Mexico, and South Africa, among others. 1, 2 While some countries have taken significant steps to promote healthcare access in the last few years through expansion of health insurance schemes to provide reasonable coverage for basic care and inpatient facilities, major gaps remain. Gaps also remain with respect to coverage for outpatient benefits, including prescription drugs, many of which are still paid out-of-pocket. Prior to embarking on an analysis of how to build a sustainable architecture of healthcare financing that can achieve the goals mentioned above, it is instructive to first examine the underlying relationship between health and spending overall. 1 World Health Organization, Arguing for Universal Health Coverage (Geneva, Switzerland: WHO, 2013). 2 Bernard Clements et al (Editors): The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (2012)

5 Relationship between health spending and the economy In recent years, much of the discussion on healthcare reform has focused on the need to manage costs, limit the growth of spending, or improve efficiency. While these are critical policy issues given budgetary constraints faced by governments around the world, the policy debate should also consider the fundamental question of priorities in societal expenditures and how these priorities relate to healthcare versus other forms of social spending. Recent studies have demonstrated that in most developed countries that are part of the Organization for Economic Cooperation and Development (OECD) and certain emerging markets in Latin America, other social spending such as public pensions has grown faster than public spending on health and education, 3 suggesting that the real issue may not be paucity of resources for healthcare but the priorities attached to various forms of social spending. Whereas countries with developed and mature healthcare systems are primarily concerned with increased spending and cost containment to maintain or marginally expand the provision of existing healthcare services and products, emerging and developing economies are now recognizing the need for allocating additional resources for healthcare. Several prominent economists argue that providing quality universal health coverage is an investment in socio-economic well-being and a key contributor to the wealth and economic productivity of countries. 4 President of World Bank, Jim Kim, has reiterated the same view at several international fora. 5 Robert Hall and Charles Jones of Stanford University considered a question central to this debate: Is the growth of health spending a rational response to changing economic conditions notably the growth of income per person? 6 The basic theory and structure of consumption suggest that health spending is a superior good in the sense that its income elasticity is well above 1.0. In other words, the demand for health rises more than proportionately with increases in income, unlike that for basic food and shelter, which tends to decline in percentage terms with increasing income. Hall and Jones further note that spending on health to extend life allows individuals to purchase additional periods of utility. Thus, they continue, [t]he marginal utility of life extension does not decline. As a result, the optimal composition of total spending shifts toward health, and the health share grows along with income. Accordingly, developing economies are driven to invest more in health care, though at the same time recognizing that higher spending is a necessary but not sufficient condition for a successful healthcare system. As noted by Harvard economist William Hsiao, many countries must reform their health care financing systems to address underfunding of healthcare to improve health and also to prevent impoverishment due to health expenses as well as contain rapidly rising healthcare costs. 7 The theoretical arguments for increased investments in healthcare alluded to in the foregoing discussion are buttressed by a substantial empirical literature on the idea that health is wealth. A recent article in 3 Policy Wisdom: Report of the Roundtable Discussion on Universal Health Coverage in Latin America and the Caribbean, Dec 6, 2013, Washington D.C. 4 Robert Hall and Charles Jones: The Value of Life and the Rise in Health Spending, Quarterly Journal of Economics, 122(1), February 2007; William Savedoff: What Should a Country Spend on Health Care? Health Affairs, July/August 2007, Volume 26, Number 4; JD Sachs: Macroeconomics and health: Investing in health for economic development, Report of the Commission on Macroeconomics and Health (Geneva: WHO, 2001). 5 Jim Yong Kim: Speech at Global Conference on Universal Health Coverage (UHC) for Inclusive and Sustainable Growth, December 6, 2013, Tokyo; also speech at CSIS Conference on UHC, January 14, 2014, Washington D.C. 6 Robert Hall and Charles Jones: The Value of Life and the Rise in Health Spending Quarterly Journal of Economics, 122(1), February William Hsiao: Why a Systemic View of Health Financing is Necessary? Health Affairs, July/August 2007, Volume 26, Number

6 Lancet on global health observes that: There is an enormous payoff from investing in health. The returns on investing in health are impressive. Reductions in mortality account for about 11% of recent economic growth in low-income and middle-income countries and improved health not only translates into economic well-being but better health is of value in and of itself. This intrinsic value, the value of additional life-years (VLYs), can be inferred from people s willingness to trade off income, pleasure, or convenience for an increase in their life expectancy. 8 This comprehensive and holistic view of the economic value of improved health provides a strong rationale for improved resource allocation that emphasizes higher health spending but also greater effectiveness of that spending. 9 In summary, there is substantial evidence that economic development contributes to better health, enables better nutrition, and wealthier countries have greater capability to invest in medical care and public health measures. However, there are reasons to believe the relationship also runs in the other direction, i.e., health improvements can contribute to economic development. There are several avenues through which a causal effect operates: 10 Improved productivity: Better health care makes workers more productive through fewer days off or through increased output while working. Improved health of family members can have a similar impact through reducing time lost to caring for dependents. Improved learning: Improved nutrition and reduced disease, particularly in early childhood, leads to improved cognitive development, enhancing the ability to learn. Healthy children gain more from school, having fewer days absent due to ill health. Enhanced learning through either of these mechanisms will add to human capital a vital determinant of economic growth. Demographic effects: Investments in family planning and health can lead to reduced poverty by allowing for optimal family size. At a societal level, similar investments may lead to demographic changes conducive to economic development. In particular, they may lead to a period in which countries have a high ratio of workers to dependents leading to increased national savings. Economic theory suggests that increased savings ought to enhance growth by providing funding for investment. In 1996, for example, Barro examined the role of health in economic growth, 11 finding that an increase in life expectancy from 50 to 70 years led to an economic growth rate of 1.4 percentage points per year. Bloom and Canning have extensively researched the role of health in national productivity. In a 2004 study, they distinguished between the effects of health (measured by life expectancy) and the effects of workforce experience. Prior studies examining the effect of life expectancy alone, argue the authors, were unable to determine whether the effect on economic productivity was in fact owing to health gains or something else, such as the greater experience and knowledge that come with longer life. Bloom, Canning, and Jamison (2004) further argue that a more accurate measure of gross domestic product (GDP) should include measures of health. On the other hand, in the medium term, population growth due increased life expectancy and reduced infant mortality could reduce GDP per 8 Dean Jamison et al: Global health 2035: A World Converging Within a Generation. The Lancet; Volume 382, Number 9908, 7 December Ibid. 10 New Zealand Govt. International Aid Programme, Ministry of Foreign Affairs, The Role of Health in Economic Development: Knowledge Note, June Barro, Robert J., Determinants of Economic Growth: A Cross-Country Empirical Study. National Bureau of Economic Research, working paper no Barro provided one of the first analyses based on endogenous growth theory, which holds that endogenous factors such as investment in human capital, education, and innovation drive economic growth, as opposed to external forces

7 capita if population growth outpaces growth of available resources and capital. On balance, the effects are likely to be positive in the long run. 12 Health and capital accumulation: Healthier individuals have the ability and incentive to save more, and as noted above, the accumulation of capital may help fuel growth through investment. Similarly, companies may be more likely to invest when workforces are healthier or better educated. Improved disease environments may also support the development of sectors such as tourism. Reduced treatment burden: Initiatives that prevent certain illnesses or provide for their early treatment can help avoid the major downstream costs associated with illness and subsequent complications. Because of this, such initiatives can reduce health care burdens on families and governments, freeing capital for investment in productive activities. While there is some variation in the studies underlying these findings, the balance of macro evidence to date provides sound rationale to believe that improvements in health contribute to economic development. II. Access to Healthcare and Health Spending Patterns in Developed and Emerging Economies This section reviews comparative data on spending for health care, hospital resources and use, and selected quality indicators (where available) for seven countries: India, Germany, Mexico, China, Singapore, the United Kingdom (UK) and the United States (U.S.). Public vs. private spending Total public and private health care spending, including out-of-pocket spending, varies across countries as a percent of gross domestic product (GDP) (Table 1)., Health spending as a percent of GDP ranges from a low of 3.8 to 4.1 percent in India (depending on the year) to a high of 17.0 percent in the U.S. Similarly, government spending as a share of total health spending ranges from 27 to 30.5 percent in India and 35.9 percent in Singapore up to 84 percent in the UK. In general, the seven countries allocate between 11 to 20 percent of their total governmental budgets to health spending, except for India which allocates just 4.3 percent of its government budget to health spending. Table 1. Health spending and governmental health spending, 2000 and / Total health spending as % of gross domestic product (GDP) Government health spending % of total health spending % of total government spending India Germany Mexico China Singapore United Kingdom United States / WHO. World Health Statistics, Accessed June 27, David Bloom et al, The Effect of Health on Economic Growth: A Production Function Approach, World Development, V 32, No 1 (2004); Darren Acemoglu and L Johnson, Disease and Development: The Effect of Life Expectancy on Economic Growth: Journal of Political Economy, Vol. 115, No 6 (2007)

8 Private health spending comprises the non-governmental share of spending, accounting in the most recent year for approximately half of spending in the U.S. (53.0 percent), Mexico (48.2 percent) and China (44.0 percent) and almost two-thirds of spending in Singapore (64.1 percent). In India, however, private health spending accounted for almost three-quarters of spending in 2000 and still accounts for more than twothirds of spending as of 2012 (Table 2). Table 2. Private health spending, including out-of-pocket spending, as a percent of total health spending in selected countries, 2000 and / Private health spending as % of total health spending Out-of-pocket spending as % of total health spending India Germany Mexico China Singapore United Kingdom United States / WHO. World Health Statistics, Accessed June 27, Out-of-pocket spending as percent of total health spending calculated by authors. The World Health Organization (WHO) collects and reports data on private prepaid plans as well as outof-pocket spending (i.e. outpatient drug costs, diagnostics costs, administration costs). Table 3 illustrates that, of the private share of spending calculated for 2000 and 2012, private prepaid health plans comprise nearly two-thirds of private spending in the U.S (63.7 percent) and one-third of total spending (33.7 percent). Private prepaid plans constitute 40.0 percent of private spending in Germany and a much smaller share in the UK (17.1 percent), Mexico (8.5 percent), China (7.0 percent), Singapore (4.0 percent) and India (3.3 percent). Table 3. Prepaid private plans as a component of private health care spending, selected countries, 2000 and / Private health spending as % of total health spending Private prepaid plans as % of private health spending (total health spending) India (0.8) 3.3 (2.3) Germany (8.3) 40.0 (9.3) Mexico (2.5) 8.5 (4.1) China (0.6) 7.0 (3.1) Singapore (2.6) United Kingdom (4.1) 17.1 (3.2) United States (34.0) 63.7 (33.7) 1/ WHO. World Health Statistics, Accessed June 27, Prepaid plans as percent of total health spending calculated by authors

9 Spending by sector Spending by provider sector is dominated by three sectors: (1) hospitals, with spending ranging from 10.3 percent of total spending in Mexico up to a high of 32.1 percent in the U.S.; (2) providers of ambulatory health care, with spending ranging from 18.9 percent of total spending in Mexico up to 35.1 percent in the U.S.; and (3) retail sales and other providers of medical goods, with spending ranging from 6.6 percent of total spending in Mexico up to about 20 percent in Germany (Table 4). The remaining areas of spending are nursing and residential care facilities, with Germany showing the highest share at 7.6 percent; general health and insurance administration, with Mexico the highest at 9 percent of total spending; and provision and administration of public health programs, with Mexico and the U.S. the highest at 2.7 percent of total spending. Table 4. Health care spending as a % of total health spending, by sector, / Total current expenditure (individual and collective health care) Hospital Nursing Ambulatory Goods Health Retail/ Public Capital Admin. Other facility India Not reported Germany Mexico China Not reported Singapore Not reported United Kingdom Not reported United States / OECD StatExtracts Downloaded 6/27/2015. Hospital resources and use As reflected in the spending data, the hospital sector varies substantially among the selected countries (Table 5). Acute care bed supply ranges from 0.7 beds per 1,000 people in India to 8.2 beds per 1,000 in Germany. Discharge rates range from 48 per 1,000 people in Mexico to a high of 251 per 1,000 in Germany. The OECD notes that discharge rates for circulatory diseases and cancers are both relatively high in Germany. The average length of stay (ALOS) ranges from a low of 3.9 days per stay in Mexico to 7 days in the UK. Table 5. Hospital beds, discharges, and average length of stay (ALOS) Beds per 1,000 (2011) 1/ Hospital discharges per 1,000 (2012) 2/ ALOS in days (2012) 2/ India 0.7 Not reported Not reported Germany Mexico China 3.8 Not reported Not reported Singapore 2.0 Not reported Not reported United Kingdom / 7.0 3/ United States / 4.8 4/ 1/ World Bank, Accessed June 27, / OECD StatExtracts Accessed June 27, / /

10 Quality of care One measure of the quality of a healthcare system is the rate of hospital admissions for conditions that could, to some extent, be avoided with adequate access to primary care. Three such conditions include adult asthma (generally severe), chronic obstructive pulmonary disease (COPD) and diabetes. Admissions for these conditions vary widely across countries (Table 6). A second measure of quality is the case fatality rate within 30 days of admission for selected diagnoses, reflecting a death in the same hospital in which the case was treated. The rates for acute myocardial infarction (AMI) vary from a low of 5.5 fatalities per 100 discharges in the U.S. to a high of more than 27 in Mexico. The fatality rate for ischemic stroke ranges from a low of 4.3 per 100 discharges in the U.S. to a high of 19.6 percent in Mexico. Data were not available for India and China. The OECD notes that a patient-based measure for fatality within 30 days of discharge regardless of the location (in or out of the hospital) is a better measure, but among these countries this measure is reported only for the UK. The OECD also reviews five-year cancer survival rates, but less variation is seen among these selected countries (not shown in Table 6 below). The five-year survival rate for breast cancer ranges from 82 percent in the UK to 89 percent in the U.S.; the five-year survival rate for cervical cancer ranges from 61 percent in Singapore and the UK to 65 percent in Germany; and the five-year survival rate for colorectal cancer ranges from 55 percent in the UK to 65 percent in the U.S. Table 6. Quality indicators: potentially avoidable hospital admissions and case-fatality for adults over age 45 within 30 days for selected admissions, selected nations, 2011 (agesex standardized measures) 1/ Potentially Avoidable Hospital Admissions, adults, per 100,000 population, 2011 Case-fatality for adults 45 and over within 30 days of admission, per 100 discharges (same hospital) Asthma COPD Diabetes AMI Ischemic stroke Germany Mexico Singapore United Kingdom United States 2/ / OECD StatExtracts Accessed June 27, / 2010 data III. Resource Mobilization, Infrastructure and the Role of Public and Private Sectors in Healthcare Financing In view of the data provided above, many developing countries must address complex fiscal and policy challenges in terms of identifying and mobilizing the resources needed for healthcare as well as finding a viable mix of financing mechanisms that can be used to allocate these resources for building capacity, purchase services and products, and deliver care efficiently. Policymakers must contend with critical choices regarding the scope and levels of coverage and must make trade-offs within and among these goals and dimensions. Specifically, the competing coverage goals include financial protection against catastrophic medical expenses, inpatient costs, outpatient coverage, prevention, etc. And, policymakers must also consider the dimensions of who is covered, what is covered, and the share of costs covered. All - 7 -

11 too often, the debate over health policy is focused on the narrow question of how to generate funds for health care and ignores the subsequent questions of financing and payment methods. 13 Healthcare financing challenges in emerging economies: Implications for public and private sectors in a hybrid model of financing For many emerging economies, the fiscal resources necessary for a single-payer national health program covering the entire population may be prohibitive due to their relatively small tax and fiscal bases, large informal sectors, low wages, substantial income discrepancy between population segments, and current tax policies. 14 Ambitious single-payer government programs in countries with limited fiscal resources relative to the size of population and average income could ultimately lead to limited access or reduced coverage, utilization restrictions and/or unmanageable levels of public spending. According to a recent article on global health in the Lancet 15, progressive universalism, a pathway to universal health coverage (UHC), is an efficient way to achieve health and financial protection. The Lancet Commission 16 endorses two pathways to achieving UHC within a generation. In the first, publicly financed insurance would cover essential health-care interventions to achieve the goals of financial protection and basic coverage and address non-communicable diseases (NCDs) and injuries. This pathway would directly benefit the poor because they suffer disproportionately from these conditions. The second pathway provides a larger benefit package, funded through a range of financing mechanisms including market-based mechanisms, with low-income individuals and families exempted from payments. These recommended pathways are not mutually exclusive. Public and private funding mechanisms can coexist and serve as complementary means to achieving universal health coverage. Moreover, recent studies by the International Monetary Fund (IMF) and World Bank suggest that no clear formula emerges as the single best answer for emerging markets. Several enabling factors for success were shared among study countries that have achieved some measure of success, however. These factors include an increased commitment of financial resources to healthcare; consideration of a role for private financing and patient copayments as a financing mechanism; focus on primary care; increased efficiency in the provision of care; and flexibility that allows for consideration and adoption of mid-course corrections. 17 Recognizing that sheer population size and socioeconomic and geographic diversity in countries like China, India, and Indonesia will preclude a formulaic approach to health insurance financing, a segmented approach to health insurance coverage might provide a more viable and sustainable solution. Each country will resolve these policy dilemmas in its own way, but substantial evidence suggests that an optimal solution is likely to be a mixed public-private model. Thus, for example, a social health insurance system designed to provide basic healthcare for the millions of citizens of India and China with very limited or no other means may fit the needs of the rural and poor socioeconomic segments, and may be fiscally feasible given available public funds but such an approach may be poorly suited for urban employed socioeconomic segments. Alternate forms of financing such as private health insurance could be targeted to segments with different healthcare need profiles and higher levels of access and income. It is important 13 William Hsiao: Why a Systemic View of Health Financing is Necessary? Health Affairs (July/August 2007): Volume 26, Number M. Pauly. Private Health Insurance in Developing Countries, Health Affairs (March/April 2006): Dean Jamison et al: Global health 2035: A World Converging Within a Generation. The Lancet; Volume 382, Number 9908, 7 December Ibid. 17 Gottret, Schieber and Waters. Good Practices in Health Financing: Lessons from Reforms in Low and Middle Income Countries (The World Bank, 2008)

12 to note that while a segmented approach may be appropriate for some emerging economies, the segmentation in each individual country may be different in practice. Private coverage can also be supplementary rather than being fully substitutive. In a recent Guardian article, Amartya Sen agrees that providing UHC is compatible with allowing the purchase of extra services for the affluent (or those with private health insurance). 18 In Germany, for example, private health insurance can provide choice of hospitals, private beds, and full coverage of dental services, without incurring the full premium risk and cost. Any private health coverage must be subject to regulations and patient protections that ensure all contracts are fair, and generally terminable only be the insured. Arbitrary denials or exclusions should be avoided. In general, insurers should neither deny coverage based on pre-existing conditions nor resort to unfair increases in premiums once the contract is in place for any adverse health or other reasons. This should address the concerns expressed by some policy analysts and experts. IV. Public Policy Principles for Universal Health Coverage A successful and balanced transition to universal health coverage is conducive to the interests of all stakeholders in the healthcare system. Based on existing literature and documented experience in other countries, a set of broad principles emerges that should underpin all universal health coverage systems. As countries work towards universal health coverage, policymakers should consider these widely accepted criteria that include equity, efficiency, quality, choice, innovation and effective stakeholder engagement. Equity implies that all should have access to a basic package of essential, quality health care services, with the government providing a public safety net. Efficiency derives from allocative mechanisms and the infrastructure. Strengthening health infrastructure is integral to the sustainability of health systems. Training health workers to expand capacity, addressing inefficiency within the supply chain, and developing financing mechanisms to improve overall access are all aspects of an efficient health infrastructure. Health systems should ensure access to quality care including preventive services, care coordination, treatment and disease management for patients with chronic conditions. This would require a unified national framework for quality improvement and better population health. Governments should ensure implementation of global quality standards in the manufacture of healthcare products and services and develop appropriate policy solutions to protect patients against substandard or counterfeit products. The aforesaid goals of health systems can be addressed most effectively when patients are well-informed and given choices about their coverage and care. A concerted effort by policy-makers, patients, provider groups, and payers to identify important health care needs and ensuring that services delivered reflect patient preferences and needs is essential to the long term success of a healthcare system. Last but not the least, the viability of a healthcare system depends critically on stimulating and sustaining innovation. The public and private sectors should be focused on developing holistic, sustainable approaches to health care financing and supporting continuous innovation. Public-private partnerships can play an important role in promoting investments in research and development to produce solutions across the continuum of prevention, treatment, and care. 18 Amartya Sen, Universal Healthcare: The Affordable Dream. Guardian January 6, Available at: Accessed June 2,

13 V. Current Situation and New Developments in India Access, infrastructure and coverage While the Indian economy has pursued a path of expansionary growth and economic development, the Central and State Governments face significant challenges as they seek to provide citizens with affordable and reliable access to high quality healthcare, including treatments involving drugs and medical devices. Increased economic growth has provided the government with greater means to support investments in healthcare. However, those means are still limited and India has not yet been able to achieve its goal of universal and equitable access. In an environment of constrained fiscal resources and the growing needs of a huge population, the government is forced to confront competing objectives of social equity, political acceptance, and fiscal sustainability. 19 Furthermore, the nation continues to face challenges in balancing a healthcare system of polarized healthcare delivery infrastructure capabilities and varying capacity among patients (and states) to afford quality healthcare services and products. Historically, the share of public sector health expenditures in India has been rather low, and even today it stands at roughly 1.04 percent of GDP out of total expenditures of about 4.1 percent of GDP 20, with approximately two thirds of public health expenditures attributed to contributions from states (see Figure 1). The resulting high levels of private spending are mostly out-of pocket and vary by state as seen in Figure 2. Approximately 60 percent or more 21 of total health expenditures are out-of-pocket payments by individuals or families to purchase health products and services. The Indian government purchases just 29 percent of health products and services, which is the lowest among BRIC countries (Figure 3). 22 The public health system has proved inadequate to the demands of the general population in terms of primary and secondary care and the growth of the healthcare sector has not been balanced and broad-based in terms of basic health indicators, notwithstanding some successes in disease areas like polio, leprosy, etc. Life expectancy in India in 2013, for instance, was below the 30 th percentile among all countries in the world. 23 In response to the growing needs and demand for improved healthcare, past government has launched a number of important initiatives like the National Rural Health Mission (NRHM) and Rashtriya Swasthya Bima Yojana (RSBY), which will be discussed below. Perhaps the single most important policy pronouncement of the National Health Policy 2002 articulated in the 10 th, 11 th and 12 th Five year Plans, was the recommendation to increase public health expenditure to 3 percent of GDP. 24 The current Draft National Health Plan, which is discussed below, reaffirmed plans to increase the share of government spending from about 1 percent of GDP to 3 percent of GDP by 2025 and introduce some form of universal healthcare coverage. Figure 1. Per capita healthcare spend (in Indian rupees) 1/ 19 Ashoke Bhattacharjya and Puneet Sapra, Health Insurance in China and India: Segmented Roles for Public and Private Financing, Health Affairs 27(4) (Jul/Aug 2008): Ministry of Health and Family Welfare, National Health Policy 2015 Draft (New Delhi, India: Government of India, 2014). p1at: Accessed July 2, The World Health Report 2009 (Geneva, Switzerland: WHO, 2009) puts the percentage out of pocket expenditures at close to 70%. 22 IHS Global Insight, Health System Financing Framework in PhRMA s Key Advocacy Markets (2014). 23 World Health Organization, World Health Report 2015 (Geneva, Switzerland: WHO, 2015). 24 Ibid

14 1/ IMS analysis, WHO estimates Total Figure per capita public expenditure (in Indian rupees) and percentage out-of-pocket expenditures by state 1/ 1/ National Health Accounts, , Indian Ministry of Health and Family Welfare (2009) Figure 3. Indian health system revenue collection, pooling, and purchasing 1/ 1/ IHS Global Insight, March 2014 Health System Financing Framework Key Markets New Developments: Draft National Health Plan The current government is seeking to overhaul the health system with an aim to advance universal health coverage and focus on social indicators of healthcare. In December 2014, the Ministry of Health & Family Welfare put out a draft of the new National Health Policy for public comment. The Objectives of the National Draft Policy are, as follows. Improve population health status through concerted policy action in all sectors and expand preventive, promotive, curative, palliative and rehabilitative services provided by the public health sector

15 Achieve a significant reduction in out of pocket expenditure due to health care costs and reduction in proportion of households experiencing catastrophic health expenditures and consequent impoverishment. Assure universal availability of free, comprehensive primary health care services, as an entitlement, for all aspects of reproductive, maternal, child and adolescent health and for the most prevalent communicable and non-communicable diseases in the population. Enable universal access to free essential drugs, diagnostics, emergency ambulance services, and emergency medical and surgical care services in public health facilities, so as to enhance the financial protection role of public facilities for all sections of the population. Ensure improved access and affordability of secondary and tertiary care services through a combination of public hospitals and strategic purchasing of services from the private health sector. Influence the growth of the private health care industry and medical technologies to ensure alignment with public health goals, and enable contribution to making health care systems more effective, efficient, rational, safe, affordable and ethical. We believe that most stakeholders, including the pharmaceutical industry, would endorse the general objectives in the draft NHP document. In particular, the key policy principles put forward in the draft NHP are substantially aligned with the principles underpinning UHC as envisioned by the industry at large, including OPPI, PhRMA, and IFPMA. In the NHP, there is a clear recognition of the fact that attaining its stated goals will require a substantial increase in public health expenditure to about 4 percent of GDP (page 14). However, the NHP document concedes that even the relatively modest previous (2002 NHP) goal of 2 percent was not achieved due to fiscal and infrastructural constraints. On the other hand, as multiple global studies have shown 25, the minimum threshold of health expenditures for robust and stable long term growth is likely closer to the 2012 OECD average, which is now about 9 percent (the NHP suggests about 6 percent of GDP). As the draft NHP document itself shows (page 12), India s per capita as well as overall health expenditures lag its peer countries within BRICs as well as all OECD countries. This shortfall is compounded by the gaps in India s health systems capacity and infrastructure, which result in various measures of health indicators falling well short of desired levels, notwithstanding some notable gains with respect to a few MDG goals, etc. As noted above, in a bid to reduce out-of-pocket expenses on healthcare, the government had announced a National Health Assurance Mission that was to include entitlement to free drugs and free diagnostics to the patients in government healthcare centers. At the time of its announcement, the scheme was to make it mandatory for the public hospitals to make available a basket of drugs and diagnostics free of cost. 26 Covered drugs were supposed to include widely used life-saving drugs as well other drugs, to be handpicked from the list of essential drugs. Diagnostic tests will include all routine tests, X-rays, blood tests, etc. However, as discussed more fully, current fiscal and budget deficits have already led to a suspension of the proposed programs. 25 Dean Jamison et al: Global health 2035: A World Converging Within a Generation. The Lancet; Volume 382, Number 9908, 7 December 2013; William Savedoff, What should a country spend on healthcare? Health Affairs (July-August 2007): Teena Thacker, PM Narendra Modi s Health for All to Take Off in January. Deccan December 22, Available at: Accessed June 15,

16 In spite of the ambitious plans that have been announced, public health expenditure as a percentage of total expenditure in recent years has decreased over time at the central level and in many states as seen in Figure 4 and Table 7 below. Furthermore, according to a recent report, the government has asked for a drastic cutback of an ambitious health care plan after cost estimates came in at $18.5 billion over five years, several government sources said, delaying a promise made in his election manifesto. 27 Moreover, the latest budget has made no allocation for increased healthcare spending overall in the next fiscal year. While there has been a reallocation of centre vs state shares of public healthcare spending, the total amount is well below acceptable thresholds even by standards of India s peer group countries within BRICS. This purported reconsideration of the feasibility of the NHP goals highlights the challenges and pitfalls of any large monolithic public health coverage program, as discussed below. Figure 4: Central health expenditure as a percentage of total expenditure 1/ 1/ National Health Accounts Cell Ministry of Health & Family Welfare Government of India Table 7: State expenditure in health (as % of total spending) 1/ (estimated) Andhra Pradesh Bihar Gujarat Karnataka Kerala Madhya Pradesh Maharashtra Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal / National Health Accounts Cell Ministry of Health & Family Welfare Government of India Most developed nations have established private and public mechanisms that collectively ensure provision of health insurance coverage for a majority of the population. Although some state funded and employerfunded health insurance schemes do exist in India, enrollment in such schemes has been limited to a mere fraction of the population, and coverage through the private sector, while growing, has a long way to go in developing robust markets for health insurance coverage for the broader population. 27 Aditya Kalra, Modi Government Puts Brakes on India's Universal Health Plan. Reuters March 26, Available at: Accessed June 15,

17 While the health insurance market was opened to private insurers in 1999, by 2010, only 54 million in the population had enrolled in private health insurance. 28 Over the past two decades, publicly-supported community health insurance has become more prevalent. 29 According to the Insurance Regulatory and Development Authority of India, 18 percent of the Indian population was enrolled in some form of health insurance coverage by In more recent years, the Public Health Foundation of India and some other recent analyses 31 suggest that coverage has reached nearly one-quarter of the population due to the spread of community insurance schemes. 32 However, effective coverage of healthcare services and products remains very limited under these community schemes. As a result of limited health insurance coverage, an estimated 60 to 70% of healthcare expenditures in India are paid out-of-pocket by patients and their families. 33 Large and unpredictable payments required to obtain needed healthcare services expose households to significant financial risk, at times resulting in bankruptcy and impoverishment. According to one study, low-income families in India faced with catastrophic illness and hospitalization devoted nearly 60% of their total annual household income to healthcare. And about 40% of those hospitalized relied on loans and sale of assets to finance the care; with 25% of those with a hospitalized family member fell into bankruptcy as a result of that hospitalization. This same study indicated that the poverty head count in India increased by 3.7% when accounting for the impact of out-of-pocket payments for healthcare. 34 Over 63 million persons are faced with poverty every year due to healthcare costs alone due to lack of financial protection. 35 In an effort to expand access to coverage for low-income citizens and address system inefficiencies, the previous Indian Government had begun to implement a widespread health insurance scheme, Rashtriya Swasthya Bima Yojna (RSBY, English translation: National Health Insurance Programme ), in This scheme was projected to provide coverage for up to 60 million families (300 million people) who are below the poverty line (BPL). As of April 2014, the RSBY program had enrolled 37 million families/cardholders. 36 The RSBY program has been heralded as an opportunity to alleviate health insurance access challenges for BPL families by providing basic health insurance coverage for common inpatient medical and surgical procedures. This program of expanded healthcare access aims to provide additional benefits to enrolled families, including reducing the burden of out-of-pocket payments and the 28 Insurance Regulatory and Development Authority of India, Annual Report (Hyderabad, India: IRDA, 2011). Available at: Accessed August 2, PricewaterhouseCoopers, Healthcare Infrastructure and Services Financing in India. Available at: Accessed July 2, Industry estimates at the time were closer to 15% insurance coverage. See Vikas Bajaj, Cigna in Deal to Sell Health Insurance in India. New York Times November 21, Available at: 31 Aarogya Bharat, India Healthcare Roadmap for 2025, Bain & Company, Insurance Regulatory and Development Authority of India (2011). 33 World Health Organization, World Health Report 2009 (Geneva, Switzerland: WHO, 2009). Also, see footnote David H. Peters, Abdo S. Yazbeck, Rashbmi R. Sharma, G. N. V. Ramana, Lant H. Pritchett, and Adamin AVagstaff. Better Health Systems for India s Poor: Findings, Analysis, and Options (Washington, DC: World Bank, 2002), p Eddy van Doorslaer, Owen O Donnell, Ravi Rannan-Elyia, et al., Effect of Payment for Health Care on Poverty Estimates in 11 Countries in Asia: An Analysis of Household Survey Data, The Lancet 368(9544) (2006): Ministry of Health and Family Welfare, National Health Policy 2015 Draft (New Delhi, India: Government of India, 2014). Available at: 36 Ministry of Labor and Employment, RSBY: About the Scheme (New Delhi, India: Government of India, 2009). Available at:

18 consequent risk of bankruptcy and debt traps, preventing loss of worker productivity and wages due to illness, and promoting access to quality healthcare. However, the program focuses heavily on inpatient medical treatment of communicable diseases and provides limited coverage of non-communicable whose burden, as noted in the draft NHP, is growing rapidly. Despite the high burden of chronic disease, the health system provides prioritized care for communicable diseases and services, yet limits access to selected new technologies that may address management of acute episodes that manifest from complications associated with chronic diseases. Challenges and Limitations of Predominantly Public Financing of Healthcare The magnitude of even the modest investments proposed by the government (e.g., at % of GDP), requiring the government to more than double public health expenditures in the next five years suggests that the notion of a universal healthcare system, as envisaged in the NHP, funded and managed by the government with the private sector playing a limited role, except in the provision of healthcare delivery and services, is unrealistic and myopic. Countries such as Mexico and China have attempted to implement single payer systems, and their experiences suggest that a more balanced hybrid approach is required. The immediate practical challenges to the implementation of the draft NHP are manifested in the recent announcement, alluded to above, which states that government has asked for a drastic cutback of health care plan after cost estimates came in at $18.5 billion over five years. While public funding is vital, alternative funding mechanisms are needed to overcome the constraints of public funding. Thus, recent actions that limit the role of private insurers in Rashtriya Swasthya Bima Yojana may exacerbate the fiscal pressures faced by the scheme to meet all of the new goals under the NHP. 37 States have reportedly been asked to end their contracts with private insurance companies and to set up a trust that would run the scheme, which has led to concerns given that many states do not have the expertise and human resources to support enrollment and empanelment with hospitals through trusts. While much can be learned from the experience of healthcare trusts in Andhra Pradesh, a single model cannot be applied to all of India s states, and health systems in India should be customized at the state level. The rationale underlying the above government action, suggesting that the private sector is ill-suited to address the needs of the healthcare system, is misplaced. In their book India s Tryst with Destiny, Jagdish Bhagwati and Arvind Panagariya argue that owing to private sector enterprise and competition, the mass health insurance model has developed numerous innovations and capabilities to manage large healthcare delivery, which would otherwise be unlikely in a government setup due to lack of incentives. Panagariya and Bhagwati note that the superior performance of the much cited Kerala Model of development and healthcare is not a function of a publicly funded model alone. While Kerala s health indicators are clearly the highest amongst all Indian states, its achievements derive from a number of attendant factors, including high levels of literacy, and the combined contributions of a robust private sector and a well- functioning public sector, whose efficiency is attributable in part to competition from the private sector. Again, according to Panagariya and Bhagwati (pp 90), good health in Kerala (which has the highest level of private expenditures in India) is being financed primarily by private expenditures. Strong primary health care and public health delivery are and should be a core focus of government. Government may also play a role in addressing BPL, vulnerable and near poor populations, including informal sector workers, senior citizens, differently abled, agricultural workers with a basic and essential 37 Soma Das & Yogima Seth Sharma, Government Shuts Doors on Private Insurers in Rashtriya Swasthya Bima Yojana. Economic Times January 6, Available at: 06/news/ _1_rsby-rashtriya-swasthya-bima-yojana-insurance-companies. Accessed June 15,

19 universal health insurance package consisting of primary, secondary and tertiary care. Private health insurance mechanisms may play a role in providing coverage for necessary secondary care, such as hospitalization and defined day care surgeries, and tertiary care, such as selected critical care procedures, to non-vulnerable, formal sector middle to higher income populations. The contention of some critics, such as Amartya Sen, that the private sector generally performs well in the presence of strong public model does not discount its integral role in the appropriate financing and delivery of healthcare but further reinforces the need for a balanced model as described above. VI. Role of Health Infrastructure, Capacity and Regulatory Standards in Sustainable Access In developed nations, the dialogue on healthcare access is often focused on the extent of availability of affordable health coverage. In a developing economy such as India, challenges include not only inadequate access to health insurance coverage but also a capacity-constrained healthcare delivery system and inadequate supporting infrastructure. As noted above, India trails most developed and comparable lowmiddle income countries on health expenditures as a percentage of GDP. Thus, India s relatively limited investment in healthcare has resulted in access challenges for health insurance coverage as well as supportive health infrastructure that enable successful provision of necessary healthcare services. Developing countries face many challenges as they seek to bring the fruits of medical innovation to both the patient and their national economy. Much of the healthcare access debate remains focused on inadequate reimbursement mechanisms and affordability of medical products and healthcare services. However, as noted above, medical products and services are only one part of an effective and sustainable healthcare delivery system solution. While inadequate health insurance coverage represents an obvious barrier to patient access to novel medical technologies, major challenges also result from the lack of healthcare delivery infrastructure capacity. In most emerging markets, including India, manufacturers already have a wide variety of competitive and affordable medical technologies. In spite of the resulting wide range of products available at various price points, access challenges remain with regard to the capacity of domestic healthcare infrastructure to appropriately support the delivery of novel medical technologies. Even with expanded access to health insurance coverage, India s healthcare system does not have the capacity to service current demand, let alone accommodate any growth in the demand for healthcare services. India s healthcare delivery infrastructure faces capacity constraints in urban areas, a systemic shortage of facilities and care providers in rural areas, and a shortage of well-trained, certified physicians and nurses. In fact, India lags behind many nations on a number of key healthcare infrastructure metrics, including the population ratios for necessary health infrastructure inputs such as hospital beds, nurses, and physicians. 38 For instance, according to one common health infrastructure metric, hospital beds/1,000 patients, India s is less than half of the OECD average of approximately The above challenges are not necessarily associated with medical technology reimbursement or insurance coverage, but rather with the healthcare system s capacity to adopt these medical technologies for their intended use and consequently realize the benefits to the patient and system. Public health insurance schemes such as the RSBY program aim to address the challenge of access to health insurance for the lower income population, but India s healthcare delivery infrastructure faces severe capacity constraints to meet increasing demands for the provision of needed healthcare services. This strain is expected to amplify as demand for healthcare services increases, due to both escalating prevalence of chronic diseases and 38 World Health Organization (2009). 39 IMS Health Analysis 40 OECD StatExtracts Accessed June 18,

20 expanded access to and enrollment in health insurance schemes. While some investments have been made to begin the monumental effort of infrastructure improvement, investments in innovative medical technologies and adoption of other enabling technologies such as telemedicine offer the promise of increased efficiencies to the system that may help to bridge the capacity gap. Both public and private investments in healthcare delivery infrastructure, together with government support of an open and competitive healthcare delivery system, are critical elements of an environment conducive to absorbing advances brought forth by medical innovations and services. In the complex environment of healthcare delivery, financing, and innovation, alignment of interests and incentives among various stakeholders (such as physicians, hospitals, patients, regulators, public and private payers, industry, and government) is critical to addressing the issues of access, effective delivery and medical innovation. Sustainable access, infrastructure and regulatory standards: additional considerations Recent experience in developing countries suggests privatization without established rules of the game can contribute to unintended income inequalities, inequity in access to public services, rising costs of care, and quality of care disparities. 41 In the United States, various design flaws in private health insurance offerings and gaps in regulations and standards have led to significant problems such as inappropriate balance billing, denials or lack of coverage and other problems. 42 To avoid unintended consequences of lax or unclear codes and standards, governments must consider new or rectify existing legal, regulatory and technical standards to enable the sustainable growth of healthcare financing mechanisms. In general, insurers should be prohibited from denying coverage based on preexisting conditions or imposing unfair premium increases once the contract is in place for any adverse health or other reasons. In fact, Obamacare sought to address these gaps in the private insurance market, such that recent U.S. health reforms may offer examples in approaches to insurance market reform and consumer protection standards. Contract law represents a fundamental area for consideration. In health insurance markets, enforceable contracts form the basis of agreement among patients, providers, insurers and government, without which the benefits of economic efficiency, quality of care, and equity cannot be realized. In transitional economies, or court systems and legal precedence that may exist but are fraught with delays and red-tape, as in the case of India, can lead to economic distortions and perverse activities. These take the form of skimming profitable patients, discrimination against patients with pre-existing and chronic health conditions, and over- or under-use of healthcare services by providers, fraud and abuse by patients or providers, and selective changes to benefit plan designs by insurers. Tax policy represents another tool to promote expansion of health insurance. Frequently adopted by developed economies, tax incentives or subsidies can encourage individuals and employers to participate in health insurance programs. The political debate of transferring funds from economic, defense or other initiatives to healthcare sometimes complicates the follow-through of instituting tax legislation, however. 45 And in fact, in India, the share of GDP dedicated to health care is decreasing; a clear sign that health care does not always benefit as much from an expanding economy compared to other sectors. Government 41 K. Eggleston et al, From Plan to Market in the Health Sector? China s Experience. Tufts University, 2005: Michael Porter et al. Redefining Health Care Harvard Business School Press (2006). 43 K. Eggleston et al, From Plan to Market in the Health Sector: China s Experience. Tufts University, 2005: A. Bhattacharjya and P. Sapra. Private and Public Health Insurance Models in India: A Balanced Approach. India Infrastructure Report (2008). 45 M. Pauly. Private Health Insurance in Developing Countries. Health Affairs (March/April 2006):

21 may consider offsetting the expense of tax incentives against other social savings programs or subsidies to other economic interests such as agricultural or defense enterprises. Establishing standards of access to information among health insurance stakeholders is a critical requirement for health system efficiency. Standardization of healthcare data and meta-data structures used in medical records, billing coding and processing by providers and insurers underpins the availability of reliable data by which to price insurance plans, regulate healthcare quality and utilization and control claims. 46 Data sharing among third-party administrators and regulatory bodies for adjudication of claims for employers and insurers, subject to the legal protection of contractual enforcement and information protection, would support market confidence in pricing and coding practices. From a technical perspective, regulatory standards on product design and claims control establish common grounds among insurers introducing new plans into the market. In other countries, regulatory features such as co-payment and deductible guidelines, mandatory inclusion criteria, and actuarial ranges have proven to be effective in addressing pricing and adverse selection distortions, and fraud. 47 VII. Specific Recommendations on the Design and Framework of a Sustainable Financing System and Some Projected Cost Estimates In light of the above discussion of the budgetary and infrastructure constraints facing India as well as the nature of the centre vs state responsibilities in implementing healthcare policies and investments, we now propose an outline of some specific design elements for achieving universal health coverage India. As noted above, there are several central government and state level schemes and the approach described below may be pursued through existing and potentially new schemes, depending on the target populations. For example, CII has proposed a phased and iterative approach 48, including both an expansion of covered populations, as well as levels of coverage within government schemes for low income groups. For such groups a first step would be increase the level of coverage from 30,000 to 60,000 rupees per capita for all low income groups. This approach may first seek to expand coverage to vulnerable groups, informal workers, senior citizens, disabled citizens and mandatory base coverage for any residual formal sector, over a 2 year period. Subsequent to this, expanding access to the agricultural sector and residual segments, such as self-employed, may be considered. For middle and higher income groups, one can envision a combination of public and private insurance schemes that may be either substitutive or complementary, as in the case of many other countries such as Germany and Singapore and now being considered in China and Mexico. The sections, in this paper below, on these countries describe the various elements of such mechanisms and the lessons that can be learned in adapting them to India. As is well known, there are many public and private health insurance schemes already in India. Public employers, such as the Railways and Defense Ministries, offer health coverage to employees and their families. Approximately 8 million individuals use health services provided by Railways-managed healthcare facilities, and working employees and their families receive care at no or very little cost. 49 CGHS (Central Government Health Scheme) provides coverage for a wide range of healthcare services and products for about 4 million civil servants. Products and services provided under these schemes are 46 Swiss Re, Reforming Chinese healthcare through public-private partnership. (March 2007): D. Drechsler et al. Private Health Insurance in Low- and Middle-Income Countries. OECD Development Centre, (March 2005). 48 Confederation of Indian Industry (CII), Health Insurance Working Group Report, September Lawton R. Burns. India's Healthcare Industry: Innovation in Delivery, Financing, and Manufacturing (Delhi, India: Cambridge University Press, 2014), p

22 procured and reimbursed by the government at negotiated rates. However, several new and innovative treatments, drugs and devices are excluded from even these schemes, which are considered to among the superior coverage options available in India. Expansion and growth of coverage with additional budgets and more efficient utilization can improve up the quality and range healthcare provided closer to global standards accredited by independent international organizations. In turn, they can serve as benchmarks for other nascent public and private schemes that can emerge both nationally and via state level programs. A recent example of a new private insurance scheme for upper middle income and higher income groups comes from Max Bupa (Heartbeat Health Insurance Plan), which has been designed to offer coverage up to 1 crore rupees, including cashless hospitalization, cover for new born children from birth and many more new features that are new to the Indian market. Additionally, it includes features benefits such as rebates and discounts for longer term insured patients, whose premiums can decline over time, irrespective of claims. Similarly, ICICI Lombard offers coverage up to Rs. 10 Lac and allows for cashless medical treatment in more than 4,000 network hospitals across India. 50 Other employers in both the public and the private sectors also offer health benefits to their employees. Benefits may take the form of lump sum payments, reimbursement of hospitalization or outpatient expenses, a fixed medical allowance, or coverage in a group health insurance plan. 51 For instance, some private companies have made an effort to improve employee access to health care by offering regular health check camps that are conducted to ensure that its employees are healthy as well as a medical room with a doctor and nurse to provide basic medical help in case of an emergency. The companies also create awareness of health related issues through discussions and seminars led by health experts. 52 As potential universal health coverage unfolds in India along the lines above, by 2020, health expenditures will need to approach about 6.1% (3.1% government spend and 3.0% private). Table 8 describes a possible scenario of health care expenditures and allocations by the various areas of the healthcare delivery system. As one can see in the Table 8 below, this could likely consist of an allocation among hospitalization expenditures of 1.9%, outpatient coverage of 2.9% and healthcare infrastructure of 1.4% of GDP. 53 Infrastructure investment required to achieve this would be a doubling in beds (from 1.8 beds per thousand in 2013 to 3.5 beds per thousand people in 2020) and an additional requirement of 3,40,000 doctors, by 2020 (Table 9). 54 The proposed increase in the government s expenditures on healthcare from the current 1% to 3.1% of GDP will obviously have to be funded by reallocating of budgetary resources from other public projects (such as defence) or through additional levies such as an education cess, specific taxes on certain industries such as alcohol or tobacco or some other transaction taxes. Improved efficiency of existing public health programs through administrative consolidation and economies of scale can also help. These investments may take the form of infrastructure developments such as new and improved public hospitals and primary care facilities, increased healthcare subsidies through various public insurance schemes discussed above or training of additional doctors and healthcare professionals. The rationale for increased healthcare investment has been discussed at length in the preceding analysis. The appropriate allocation of the government s budget to healthcare and the implied trade-offs against 50 ICICI Lombard, Complete Health Insurance Plan. Available at: Accessed June 24, Decision Resources Group. Global Market Access Solution - India Bharti Airtel, Benefits and Environment. Available at: Accessed June 24, IMS Health Analysis. 54 Ibid

23 other public investments being considered (such as high-speed train networks, highway or defence projects) are political choices that must be made by the government, in view of its election manifesto as well as goals articulated in the draft NHP. But the case for expanded public sector investment in healthcare, albeit in the context of a mixed public-private financing system, is indisputable. Table 8: Health expenditure by setting in India 1/ Spend on IP Hospitalization Spend on IP Hospitalization (% of GDP) Unit Source Cr 153, , , , , , , ,496 (A) 1.4% 1.5% 1.5% 1.6% 1.7% 1.8% 1.9% 1.9% Calculated Spend on OP Cases Cr 179, , , , , , , ,694 Calculated Spend on OP Cases (% of Calculated GDP) 1.6% 1.8% 2.0% 2.2% 2.3% 2.5% 2.7% 2.9% Total Spend on Treatment Cr 333, , , , , , ,374 1,043,189 (B) % of GDP 3.0% 3.2% 3.5% 3.8% 4.1% 4.3% 4.6% 4.8% (A) +(B) Spend on Infra (% of GDP ) 0.8% 0.9% 1.0% 1.1% 1.2% 1.3% 1.4% (C ) Total Spend Cr 333, , , , , ,321 1,163,092 1,342,896 Total Spend (% of GDP ) 3.0% 4.1% 4.4% 4.8% 5.1% 5.5% 5.8% 6.1% 1/ IMS Health Analysis Table 9: Health resources in India 1/ Current no. of beds (A) +(B)+ (C) Unit Source beds IMS per 1.8 Analysis 1000 Targeted no. of beds beds per Growth of 10% to reach WHO average of 3.5 by 2025 Increase in doctors per year currently (Lacs) Lacs Additional requirement Lacs / IMS Health Analysis Based on current no. of seats Broad and diversified health insurance coverage is an essential pillar of any access framework that would have capacity to accommodate reimbursement of both existing and novel medical innovations. In order for value derived from advances in medical technology and services to be realized, the system must have the

24 capacity to absorb these advances. Incentives to new private start-up companies that offer home-based care and monitoring can also significantly reduce infrastructure and administrative burdens. While many healthcare insurance and reimbursement models exist, it has been shown that the co-existence of robust private financing models and public funding mechanisms for the poor and other vulnerable segments represent an optimal means to balance patient access needs while also providing the capacity to support the development of innovative medical technologies and their market trial and adoption. Given these principles as a framework of reference, we can now turn to cross-country studies of international health systems and their lessons for India. It is instructive to examine how these systems perform and compare in terms of the principles enunciated above. VIII. Cross-Country Analysis: Lessons from Major Healthcare Markets What follows is a comparison of six health care systems: U.K., Germany, U.S., Singapore, Mexico and China. These countries represent a wide range of systems, from a single-payer system in the UK in which providers are also salaried government employees, to the U.S. which has a highly fragmented system with substantial gaps in coverage, some of which will be addressed by the recent health reforms. Two countries in Asia were selected, China and Singapore, because they too represent a contrast in coverage and role of the private sector. Cross-Country Analysis: Lessons from the UK The UK s National Health Service (NHS) is a publicly-funded and operated integrated healthcare system with largely free universal care, including hospital and physician services and prescription drugs. It is a highly centralized and regulated healthcare system with well-defined controls and gatekeeping. The NHS covers all residents of the UK health care, which is largely free at the point of use. The predominant share of healthcare is accounted for by central government budget financing of health care provision, although the regional governments of Scotland, Wales and Northern Ireland have autonomy to determine how to spend funds in their own NHS systems. Hospitals are part of the public sector. In 2012, the UK spent about 9.3 percent of its GDP on health care. 55 Public expenditure, primarily the NHS, accounted for about 82 percent of total health spending in An estimated 76 percent of NHS funding comes from general taxation and 18 percent from a payroll tax. Income to support the NHS also derives from patient copayments, those using NHS services as private patients. The NHS provides or pays for preventive services, including screening and immunization and vaccination programs; inpatient and outpatient care; physician services; inpatient and outpatient drugs; dental care; some eye care; mental health care, including some care for those with learning disabilities; palliative care; some long-term care; and rehabilitation. At this time, there are only a few cost-sharing arrangements for publicly covered services. Outpatient prescription drugs are subject to a copayment; drugs prescribed in NHS hospitals are free. NHS dentistry services are subject to higher copayments per course of treatment. There is an additional safety net for certain people who are exempt from prescription drug copayments: children under the age of 16 years and those in full-time education ages 16 18; people age 60 or older; 55 Organization for Economic Cooperation and Development, OECD Health Statistics 2014 Frequently Requested Data,

25 people with low income; pregnant women and those who have had a baby in the past 12 months; and people with cancer and certain long-term conditions and disabilities. Waiting times for services has been a perennial problem in the UK. Since 2001 there has been considerable effort to reduce long waiting times, driven by a strictly enforced system of waiting-time targets for individual hospital trusts but improvements have been modest. And last year as part of recent reform efforts, revisions to the NHS Constitution sets guidelines for patients rights and the standards of service they can expect from the NHS, such as reduced waiting times and increased responsiveness. Organization and structure of health services under the NHS Primary care in the UK is delivered mainly through GPs, who are normally the first point of contact for patients, acting as a gatekeeper to specialist care. Everyone must register with a GP and the government will allow patients to choose their GPs in the near future. Generally, specialists are salaried employees of NHS hospitals. However, specialists may supplement their salary by treating private patients within private hospitals. Over 50 percent of NHS specialists also work in the private sector. With regard to hospital care, publicly owned hospitals are the primary source of care and treatment. These hospitals are organized either as NHS trusts, which are controlled directly by the government, or as Foundation Trusts. Foundation Trusts benefit from some level of autonomy from central control compared to government hospitals. They also have easier access to capital funding, and are able to accumulate surpluses or run deficits on a temporary basis. In a move towards greater decentralization, the government intends that all hospitals will become Foundation Trusts in the future. Both types of hospitals contract with local commissioners to provide services to local populations and are reimbursed for most of these services at the same nationally determined diagnosis-related group (DRG) rates. 56 Public funds have always been used to purchase some hospital care from the private sector, for example mental health services, but the level has grown in recent years. From 2003 onward, some routine elective surgery and diagnostic services have been procured for NHS patients from freestanding treatment centers owned and staffed by private sector providers. Patients are able to choose which hospital to visit and the government has introduced though not yet fully implemented the right to choose a particular specialist within a specific hospital. Most outpatient specialist consultations are carried out in hospitals, although consultation may take place in GP practices. Some GPs, called GPs with specialist interests, also offer specialist consultations. Primary care dental services are delivered through contracts with dentists or dental practices for an agreed level of dental services per year within the framework of a nationally determined contract. Most dentists also provide private care. Eye services outside hospitals are provided almost entirely by the private sector. The NHS Commissioning Board now has overall budgetary control and, together with Monitor (which is responsible for authorizing NHS Trusts to become Foundation Trusts and monitoring financial performance) has responsibility for setting DRG rates for NHS services. The National Institute for Health and Care Excellence (NICE) makes recommendations and sets guidelines for the NHS on clinically effective treatments and appraises new health technologies for their efficacy and cost-effectiveness. All drugs or interventions that NICE evaluates as clinically effective and cost-efficient are available in the NHS. The Care Quality Commission ensures basic standards of safety and quality through a provider registration system and monitoring of the care standards actually achieved. 56 Commonwealth Fund, International Profiles of Healthcare Systems, 2012 (New York, NY 2012)

26 Role of the private sector in the UK Despite deep public support for the NHS, over time there has been dissatisfaction among the public due to long waiting times for elective procedures, which have been a feature of the NHS since its inception. Concerns about waiting times were heightened as a result of cost containment efforts since 1976, though there was a marked improvement in access between 2001 and 2010 due to increased government funding. Starting in 1989, the UK introduced market-based measures and competition to provide incentives for efficiency and responsiveness. 57 In order to reduce long waiting times and improve patient satisfaction with quality of care, a number of reform measures have been introduced in the last three decades, leading to an expansion in the availability of private coverage. Most private hospital care largely for elective conditions is financed through supplementary private voluntary health insurance. In the last two decades, public contracting models have been introduced. Private health care exists in parallel to the NHS and is paid for largely by private insurance. Currently, it is used by about 8-10 percent of the population and generally as a supplement to NHS services. Most private expenditure is for over-the-counter drugs and other medical products (accounting for just under half of private spending), and private hospital care, including both insured and uninsured costs. Most private hospital care, largely for elective conditions, is financed through voluntary health insurance. Just over ten percent of the population has voluntary private insurance, mostly through an employer as work-related benefits. An additional one million people are covered through self-insured employer plans. Private providers must be registered with the Care Quality Commission, but charges to private patients are not regulated, nor are they publicly subsidized. Recent news reports suggest that unused private sector capacity has been used to increase NHS capacity, and in some cases the NHS has commissioned the private sector to establish and run new facilities on a sub contracted basis. These measures have been combined with budget caps and target setting with performance measurement criteria. Lessons from the recent NHS reforms The NHS Health and Social Care Act of 2012 set out a large-scale program for reform to be implemented by the end of 2014, though many of the changes took effect on April 1, 2013 or earlier. The chief aim of the reform is to decentralize the way the NHS is run. Thus, these changes will impact who makes decisions about NHS services, how these services are provided, and the way money is spent. Organizational changes are expected to decrease management costs by 45 percent. The NHS Commissioning Board and Monitor will be free from the day-to-day control of the Department of Health, while new local purchasing organizations, Clinical Commissioning Groups or CCGs, will give clinicians greater flexibility in how services are designed and delivered. The CGCs have replaced Primary Care Trusts (PCTs) and Strategic Health Authorities (SHAs). NHS services will be opened up to competition from providers that meet NHS standards on price, quality and safety, with a new regulator (Monitor) and an expectation that the vast majority of hospitals and other NHS trusts will become Foundation Trusts by To address budgetary pressures and quality of care concerns, the NHS has introduced a number of measures. For acute hospital services, the NHS has introduced a DRG-like funding system known as Payment by Results (PbR) with plans to extend it across all health care services. 57 Justin Tyson and Izabela Karpowicz. Public Health Expenditure Reforms in Canada. Finland, Italy, the Netherlands, Sweden, the United Kingdom, and the United States in The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (2012)

27 Other initiatives include bulk purchasing of medical supplies, etc. NHS Shared Business Services a joint venture between the Department of Health and a private company provides shared functions such as finance, payroll, and e-procurement for an estimated 100 NHS organizations to reduce the costs of backoffice services. The new government is continuing existing policies to promote competition in providing NHS services and encouraging new entrants to the market. Efforts to improve care quality and control costs will also continue, through there are some concerns about the long term impact on incentives for innovative treatments. However, there are some encouraging signs in the form of commitment to competition by placing a new duty on CCGs, the NHS Commissioning Board, and Monitor to promote service integration. Cross-Country Analysis: Lessons from Germany The German health system is the oldest national social health insurance system, dating back to 1883 when it was established by Otto von Bismarck, the first chancellor of Germany. Health coverage in Germany is universal and health insurance is mandatory for all citizens and permanent residents. Prior to 2009, a small minority of people could choose not to have insurance, but such exemptions no longer exist. The principal vehicle for providing health insurance are so-called sickness funds, competing, autonomous, not-for-profit, nongovernmental health insurance funds in the statutory health insurance scheme (SHI). Voluntary substitutive private health insurance (PHI) is also available. In sum, there are about 145 SHI funds covering about 92 percent of the population, and 43 PHI, 24 of which are for-profit and the other 19 of which were non-profit organizations, covering 6 percent. The remaining 2 percent are covered by the Social Fund. Total health spending in Germany represented 11.3 percent of the German GDP in SHI sickness funds are funded through compulsory contributions imposed as a proportion of wages up to a ceiling ( 52,200 or about $71,000). SHI covers almost all preventive services, inpatient and outpatient hospital care, physician services, mental health care, dental care, optometry, prescription drugs, medical aids, rehabilitation, and hospice and palliative care. Preventive services include regular dental checkups, well-child visits, immunizations, maintenance for chronic conditions, and cancer screening. Most prescription drugs are covered unless explicitly excluded by law or pending evaluation. Until 2004 there were only a few cost-sharing provisions for pharmaceuticals and dental care under SHI. Since then, copayments are imposed for ambulatory care office visits for adults, outpatient prescription drugs, and hospital and rehabilitation stays. Sickness funds can offer their insured a range of deductibles and no-claims bonuses. Preventive services do not count toward the deductible. SHI-contracted physicians are not allowed to charge above the fee schedule for SHI covered benefits and services. These fees and limits are set by the sickness-funds. However, a list of individual health services outside the comprehensive range of SHI coverage may be offered to patients paying out-ofpocket. Out-of-pocket spending accounted for 12.9 percent of total health spending in As in the case of the UK, there is an additional safety net for certain people who are exempt from prescription drug copayments. For example, children under 18 years of age are exempt from cost-sharing. 58 Organization for Economic Cooperation and Development, OECD Health Statistics 2014 Frequently Requested Data,

28 For adults, there is an annual cap on cost-sharing equal to 2 percent of household income. For qualifying chronically ill patients, the cap is reduced to 1 percent of annual income. Those who are unemployed contribute to SHI in proportion to their unemployment entitlements; the long-term unemployed are subsidized by the government. In response to increased spending and financing shortfalls, payroll taxes dedicated to the statutory health insurance (SHI) scheme increased from 14.9 percent to 15.5 percent of gross wages in Future spending increases will be financed through income-based surcharges paid by individuals, while employer contributions are capped. Low-income individuals will receive subsidies financed by taxes. The recent payroll tax increase accompanied other reform measures that have shifted the German health system away from global budgets and toward adoption of market-based mechanisms and incentives to steer the behavior of payers and providers within a competitive environment. 59 Though essential health care services are still covered through the publicly-funded SHI, workers above a certain income level can opt into private insurance. Organization and structure of health services in Germany General practitioners and specialists in ambulatory care offices must be members of regional physician associations. Regional associations negotiate contracts with the sickness funds, organize care, and act as financial intermediaries. However, ambulatory physicians work in their own private practices around 60 percent of them in solo practice and 25 percent in dual practices. Most physicians employ physician assistants, while other non-physicians practice independently. Individuals have free choice among general practitioners (GPs), specialists, and inpatient hospitals. Registration with a primary care physician is not required and GPs do not serve as formal gatekeepers. Since 2004, however, sickness funds have been required to offer their members the option to enroll in a family physician care model, which has been shown to provide better services and often also provides incentives for complying with gatekeeping rules. In January 2007, about 24.6 million SHI insured had the option of subscribing to a family physician care model; about 4.6 million subscribed. Specialized medical care provided by hospital specialists in outpatient care was also introduced in It includes treatment of severe progressive forms of disease and of rare diseases, as well as highly specialized procedures. Physicians in ambulatory care settings are reimbursed on a fee-for-service basis under a fee schedule negotiated with the sickness funds, allowing for regional variations. Payments are limited to predefined maximum numbers of patients per practice and reimbursement points per patient. Pay-for-performance has not been established yet but is being considered by the current government. In the fee schedule for PHI (set by the government), a maximum charge is set. States own most university hospitals, while municipalities play a role in public health activities and own about half of hospital beds. Public non-profit hospitals make up about half of all beds, while private notfor-profits account for about a third. The number of private, for-profit hospitals has been growing in recent years (around one-sixth of all beds). Regardless of ownership, hospitals are staffed principally by salaried doctors. Doctors in hospitals are typically not allowed to treat outpatients (similar to hospitalists in the U.S.) but exceptions are made if necessary care cannot be provided by office-based specialists. Senior doctors can treat privately insured patients on an FFS basis. 59 Michael Stolpe. Containing Public health Spending through Market-based health reform in Germany in The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (2012)

29 Hospital capacity is determined by the 16 state governments (Länder), while ambulatory care capacity is subject to delegated decision-making according to rules set by the Federal Joint Committee. Prospective payment through diagnosis related groups (DRGs) was introduced to hospitals in 2004 and is currently based on 1,148 DRG categories. The system is revised annually to account for new technologies, changes in treatment patterns, and associated costs. Further discussion of hospital payment methods is included in section VI. Role of the private sector in Germany The private health insurance system is based on individual risk assessment, which is determined before enrollment. Thus, it is not a private insurance scheme based on community rating. This helps avoid or mitigate the problem of adverse selection and potential moral hazard by those with skewed risks. On the other hand, the private health system is subject to regulations that ensure all contracts are lifelong, terminable only by the insured. Arbitrary denials or exclusions are not possible. Insurers can neither deny coverage based on preexisting conditions nor increase premiums once the contract is in place for any adverse health or other reasons except for general expenditure increases in the entire pool of the insured for a given class of contracts. PHI is regulated by the government to ensure that the insured do not face large premium increases as they age and are not overburdened by premiums if their income decreases. Private insurance can also be supplementary rather than being fully substitutive. This offers many of the benefits of private health insurance, such as choice of hospitals, private beds, and full coverage of dental services, without incurring the full premium risk and cost. Public sickness funds are increasingly partnering /collaborating with private insurers in promoting these supplementary insurance schemes to their own enrollees. Private insurance offers free choice of hospitals and doctors as well as other amenities (drug/device). PHI also plays a mixed complementary and supplementary role, covering minor benefits not covered by SHI, access to better amenities, and some copayments (e.g., for dental care). The federal government determines provider fees in both substitutive and supplementary PHI through a specific fee schedule. There are no government subsidies for supplementary PHI. In 2010, all forms of PHI accounted for 9.3 percent of total health expenditure. Lessons from the recent German healthcare reforms Germany has addressed the challenges of increasing public health expenditures with a variety of reforms. While the German system has been successful in delivering good quality healthcare to the majority of its patients, it has faced a combination of demographic and political developments over the last two decades increasing number of pensioners and the unexpected addition of 17 million new beneficiaries. As mentioned above, the government has tried budget caps and increasing SHI contributions but a key factor in stabilizing the German health care finance system has been played by rising out of pocket payments. Initially, the government found budget caps appealing, as they seem to provide quick fixes without the need to fully understand the causes of spending or shortfalls in the available funds. Given the demand for a choice of treatments including new therapies and technologies, such caps have resulted in bottlenecks and limitation on access to innovative medicines. The German experience with caps

30 leading to therapeutic reference pricing and cost-based generic substitution of drugs resulted in lack of availability of several new drugs in the last decade. 60 An important reason for limited effectiveness of past reform such as global budgets within sickness funds has been the behavioral response of enrollees who left for private insurance. There were also adverse effects on doctors and hospital incentives. It has also been have argued that this led to limits on access to innovative treatments. Certain analysts have also suggested that these policies have translated into deleterious industrial policy in that they had led to a shift in the focus of healthcare innovation away from Germany. 61 By keeping pharmaceutical prices and utilization artificially low, Germany and other European countries may have lost more than they gained. In 2004, Europe spent about 50 percent less per capita on pharmaceuticals than the U.S. Yet, lower drug prices and utilization for Europeans entailed other costs, which may be harder to quantify but equally real, in local industry competitiveness and health outcomes. According to Gilbert and Rosenberg, in the 1990s and early 2000s, drug R&D spending largely shifted to U.S. shores. They show that the social and economic costs to Germany and other parts of Europe in the form of delayed access to drugs, poorer health outcomes for some drug-sensitive diseases, and competitive decline of the Europe-based pharmaceutical industry imposed additional costs on their economies. 62 Cross-Country Analysis: Lessons from the U.S. The U.S. health system is a multi-payer approach with numerous private and public sources of coverage and wide gaps in coverage. In 2010, the year health reform became law, public spending accounted for 49.1 percent of total health spending, and private health care accounted for 34.7 percent. Out-of-pocket payments accounted for the remaining 12.3 percent of total national health spending in In 2013, growth in U.S. health spending remained relatively low for the fifth consecutive year, increasing by only 3.6 percent to $2.9 trillion, and health expenditures as a portion of GDP actually remained at In fact, the growth in health spending during the past five years has been the slowest rate on record in the 53-year history of the National Health Expenditure Accounts that the U.S. Department of Health and Human Services (HHS) estimates each year. Despite the recent slowdown, compared to other developed countries, the U.S. spends a much higher portion of its GDP on health care. According to OECD data, in 2012, the U.S. spent 16.9 percent of its GDP on health care, compared to the OECD average of 9.3 percent. 64 Based on the amount spent, it might be expected that the U.S. would outperform other countries on health indicators but that is not the case. Compared to other OECD countries that spend far less on health care as a percent of GDP and on a per capita basis ($8,745 in the U.S. compared to the OECD average of $3,484 in 2012), the U.S. has a higher infant mortality rate, a slightly lower life expectancy, and the 60 Jim Gilbert and Paul Rosenberg; Imbalanced Innovation, In Vivo, volume 22, Number 3 March Ibid. 62 Ibid. 63 CMS, National Health Expenditures, ( Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html); Anne B. Martin, Micah Hartman, Lekha Whittle, Aaron Catlin, National Health Spending In 2012: Rate Of Health Spending Growth Remained Low For The Fourth Consecutive Year, Hlth Aff 33, NO. 1 (2014): Organization for Economic Cooperation and Development, OECD Health Statistics 2014 Frequently Requested Data,

31 highest rate of obesity. 65 Beyond these more fundamental health outcome measures, the U.S. has performed relatively well compared to other developed countries with regard to cancer survival rate. For example, the five-year survival rate for breast cancer and colorectal cancer in the U.S. was the highest among eight countries with available data in a comparison of health systems conducted by the Commonwealth Fund. 66 Financing for the various public programs and private coverage depends on the specific program or source of private coverage. Similarly, benefits and cost sharing for patients in the U.S. varies by type of coverage. Level and type of payments to hospitals, physicians and other health providers also depends on coverage. Hospital payments are mostly based on DRGs, and payments to physicians are mostly fee-forservice using a fee schedule. But capitation is widespread, as 13 percent of workers with employersponsored health benefits and an estimated 16 million Medicare beneficiaries are enrolled in an HMO or managed care plan. 67 After decades of debate, the U.S. adopted significant health reforms in The law was intended to fill gaps in coverage that left millions uninsured and also to curb the rate of growth in health spending by giving hospitals and other health providers new incentives to improve quality and lower costs. The most important coverage provisions of the new law took effect January 1, 2014, and several of the delivery system and payment reforms are being implemented over the next few years. What follows is a more detailed discussion on U.S. health care financing, organization and structure of health services, the role of the private sector, and lessons from the recent health care reform law, which has become known as Obamacare. Sources of coverage and financing for health care in the U.S. In 2010, the year the Affordable Care Act (ACA) became law, about 56 percent of the U.S. population had private health insurance coverage (51 percent received health coverage through an employer-sponsored plan and 5 percent purchased coverage from the individual market). Public programs covered about 27 percent of the population: 14 percent through Medicare (a federal social insurance program for seniors and the disabled), 12 percent under Medicaid (a shared federal-state program for certain low-income populations including poor elderly and people with disabilities, children, pregnant women, and in some states parents and/or childless adults) and the Children s Health Insurance Program (a federal-state program for children in low-income families that do not qualify for Medicaid), and another 1 percent in military health programs). About 9.4 million Americans qualified for both Medicare and Medicaid socalled dual eligibles who tend to be low-income elderly. Also in 2010, an estimated 16 percent of the population (50 million) was uninsured. An additional 29 million were considered to be underinsured in other words they had coverage but were vulnerable to high out-of-pocket expenses. The ACA expanded coverage to the uninsured by building on the existing healthcare system rather than replacing the current system with a new structure. Beginning January 1, 2014, adults below 138 percent of 65 Ibid. 66 David Squires, The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations, omparison_12_nations_intl_brief_v2.pdf (July 2011). 67 CBO, 2015 Medicare baseline, Medicare.pdf (March 2015); Kaiser-HRET, Employer Health Benefits: 2014 Annual Survey,

32 poverty became eligible for Medicaid in states that chose to expand coverage. 68 Middle income individuals and families up to 400 percent of poverty who do not have employer-based coverage are eligible for sliding scale premium tax credits to purchase private insurance. When fully implemented, the Affordable Care Act is projected to cover about half of the uninsured, or 25 million people. 69 Those remaining uninsured include undocumented immigrants, those who are eligible for Medicaid but not enrolled, and individuals who choose to pay a tax penalty rather than obtain insurance as the health reform law requires. With regard to financing, the funding for each source of coverage is as complex as the patchwork of coverage. Medicare, total spending for which was about $590 billion in 2013, is financed through a combination of a dedicated payroll taxes on working adults and employers, general revenues, premiums collected from beneficiaries, and payments from states for outpatient prescription drugs. Of the $590 billion, about $90 billion is generated through premiums. Sources of financing changed little under the health care law. The only changes were an increase in payroll taxes for high-income working adults and an increase in premiums for high-income Medicare beneficiaries. Medicaid is financed jointly by states and the federal government. Federal support for Medicaid varies by state under a formula that provides greater assistance to states with lower per capita income and a floor of 50 percent federal funding for higher income states (e.g., New York). Under the ACA, the federal match rate for adults newly eligible for Medicaid is 100 percent for three years and phasing down to 90 percent. Employer-based health coverage is not counted as income to employees, a tax expenditure that reduced federal tax revenues in 2013 by $250 billion. 70 The tax exclusion for employer-sponsored health benefits is the largest tax expenditure in the tax code. This tax advantage makes employer health benefits attractive to workers, and because health care costs increase faster than wages and inflation, employees are willing to trade wages for health benefits. The new tax credits that can be used by eligible middle income families to purchase private coverage are financed through general tax revenues. In 2015, an estimated $28 billion will be spent for these tax credits (and cost sharing subsidies for those below 250 percent of the federal poverty level), and the average subsidy in 2015 is $3, Organization and structure of health services in the U.S. Hospitals in the U.S. are mostly private. An estimated 70 percent of hospital beds are private non-profit, 15 percent are private for-profit, and another 15 percent of beds are public. 72 Public hospitals can serve 68 As drafted, the law required states to expand Medicaid, but a 2012 U.S. Supreme Court decision made the expansion optional. 69 Congressional Budget Office, Insurance Coverage Provisions of the Affordable Care Act (March 2015). 70 KFF, Tax Subsidies for Private Health Insurance, (October 27, 2014). 71 Congressional Budget Office, Insurance Coverage Provisions of the Affordable Care Act (March 2015) 72 International Profiles of Healthcare Systems, 2012: Australia, Canada, Denmark, England, France, Germany, Iceland, Italy, Japan, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United States, Sarah Thomson, Robin Osborn, David Squires, and Miraya Jun, editors. The Commonwealth Fund, (New York, NY, 2012) es_hlt_care_systems_2012.pdf (hereafter referred to as Commonwealth Fund, International Profiles of Healthcare Systems, 2012 (New York, NY 2012)

33 private patients. Hospitals are paid primarily on a prospective payment system based on DRGs, though some receive per service or per diem amount. The ACA introduced a number of new payment incentives to encourage quality improvement and care coordination and new penalties for avoidable readmissions and hospital acquired conditions. These payment methods are described in more detail below in section VIII. A majority of physicians in the U.S. are in private practice, though increasingly physicians are becoming hospital based and in many cases salaried. About one-third of all physicians in the U.S. are in primary care, and a majority of primary care physicians practice in small groups with fewer than five colleagues. In integrated care plans, such as Kaiser Permanente, Group Health, and Intermountain, physicians are salaried and incentives for coordinating care are aligned with those of the other providers in the system as well as the payer. These plans are the minority, however, and most physicians are paid under a fee-forservice system with fees set by a statutory formula under Medicare or negotiated with private payers under private insurance. The ACA tried to introduce the notion of shared savings in Medicare. A new voluntary program, Accountable Care Organizations, encourages doctors and hospitals to coordinate care, improve quality and lower costs. Any savings generated are shared between Medicare and participating providers. Role of the private sector in the U.S. health system Among the most important coverage provisions in the ACA were those that reformed the private individual insurance market. Prior to the ACA, individual insurance was regulated at the state level. Some states enforced restrictions on medical underwriting that discriminated against people with pre-existing health conditions by denying them coverage altogether, charging higher premiums, or excluding coverage for those health conditions. Other states, like New Jersey, New York and Massachusetts, had already enacted laws to protect consumers. The ACA applied these important consumer protections to all states. The law requires guarantee issue and renewal, bars insurers from rescinding policies for bogus reasons, prohibits medical underwriting, and allows rating differences only based on age, geography, family size and smoking status (and not for gender, health condition, or other risk-based factors). Private insurance plans are also prohibited from imposing annual or lifetime limits on coverage. The ACA also set up Exchanges, or state-based marketplaces, in order to make it easier for consumers to shop for private health coverage based on benefits, cost and quality. To make the shopping experience easier, ACA established four separate tiers of benefit levels based on actuarial value: bronze (60 percent actuarial value); silver (70 percent); gold (80 percent) and platinum (90 percent). The higher the actuarial value, the more generous the benefit and the lower the cost sharing and the higher the premium. All plans selling coverage in these Exchanges must offer a set of essential health benefits that encompasses 10 categories of benefits. 73 Plans must use plain language and a standard format in explaining its coverage to consumers. And because a standard format is used with uniform definitions, consumers will be better able to compare one plan against another. Because competition among plans is limited in some states, the ACA also established two new types of plans. The multi-state plan is a new option that will be administered by the U.S. Office of Personnel Management (OPM), which currently administers health benefits for federal employees. The law requires OPM to establish two new health plans that will operate nationally (after a four year phase-in period). One of these plans must be non-profit, and both plans must operate on a level playing field with other private 73 The ten categories include: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. U.S. Department of Health and Human Services,

34 options offered through the Exchanges. The second type of new plans established by the health reform law is the CO-OP plan, which stands for Consumer Operated and Oriented Plan. These plans are owned by the consumers who enroll in them such that the plans are not allowed to make a profit and must return any revenue back to the consumers in the form of lower premiums or better benefits. The ACA set aside government funding for these plans in the form of loans, which must be paid back by the plans once they are established. Funding for this program was cut by Congress and eventually eliminated. It is unclear whether this program will be successful some plans are thriving but others appear to be unstable. 74 In addition to consumer protections, standard benefits, and new plan options, the ACA included important provisions designed to ensure transparency in the private insurance market. Specifically, the health reform law established a medical loss ratio (MLR) that all plans in the fully insured private market must meet. The MLR requires insurance companies to spend at least 80 or 85 percent of premium revenue on medical services and quality improvement activities. If they fail to meet this threshold, they must issue a rebate back to customers. In 2012, the first year this policy was in effect, private insurance companies issued $1.2 billion in rebates back to consumers. Under the ACA, premium increases are also subject to greater scrutiny. Plans that propose to raise premiums more than 10 percent in the following year must justify the increase. If the increase cannot be justified, the plan is posted on the HHS website. Lessons from the U.S. healthcare reform The U.S. healthcare system is unique in its complexity and reliance on private coverage. As a general rule, the American public distrusts government to a greater degree compared to citizens of other countries, and Americans abhor the notion of rationing care, which has made it difficult for policymakers to contemplate policies that could be characterized as limiting choice or imposing restrictions on providers or services. Nonetheless, the recent U.S. health reform law offers many lessons to other countries contemplating farreaching, comprehensive health reforms. The first lesson is that each country must develop a plan that fits their needs. The specific policies and the approach to covering the uninsured in the ACA probably would not work in most other countries. But general principles, and potentially even specific policies related to incentives for care coordination, quality improvement and error reduction; greater transparency and accountability by private insurers; and consumer protections that ensure value in the private insurance market are all lessons that could translate to other health systems. To the extent private insurance is contemplated, either as a replacement for or supplement to publicly financed health benefits, consumer protections should be adopted to ensure that products purchased: meet minimum standard for benefits and coverage, provide value for the premium paid, set premiums in a way that is transparent and justifiable, and do not discriminate against patients with existing health conditions. And importantly, no country, not even the U.S., uses voluntary private insurance as the main source of coverage for the poorest and most vulnerable segments of the population. Even in the U.S., with the largest portion of privately-financed health care, low-income populations are primarily covered by public programs, for example Medicaid or the Children s Health Insurance Program (CHIP). Government assistance is often necessary for low-income individuals and families, and for high-risk vulnerable populations, to ensure access to healthcare services and coverage. Enrolling low-income and vulnerable populations into private coverage without careful consideration of consumer protections and rules against gaming and risk avoidance by private insurers risks a potential collapse of private risk pooling. 74 Jerry Markon, Health co-ops, created to foster competition and lower insurance costs, are in danger, Washington Post, October 22, 2013 (

35 Finally, comprehensive health reform that expands coverage and addresses financing offer an opportunity to, at the same time, consider provider payment and delivery system reforms. In the U.S., for example, expanding coverage to the uninsured provided a unique opportunity to also focus on payment incentives to reduce hospital associated infections and unnecessary readmissions, improve quality and focus on population health. These reforms are described in greater detail below in section VIII. Cross-Country Analysis: Lessons from Singapore Singapore s healthcare system has attracted considerable attention in recent years due to its unique attributes, combining the public and private sectors, as well as an impressive record of general health outcomes relative to expenditures on health. The National Health Plan (NHP) of 1983 and the White Paper on affordable healthcare of 1993 are regarded as two of the cornerstones of the policy framework that underpins the Singaporean healthcare system. Prior to reforms introduced in the 1980s, medical services in Singapore were provided mainly by the public sector and financed through general taxes. Such services generally were provided free or at a nominal charge. This was changed in 1981 when the Minister for Health announced that a cradle-tograve health system, like that of the British National Health Service and those of other welfare states, was not for Singapore. This was due to some of the challenges of a single payer system in delivering healthcare to satisfy the differing patient preferences across a broad spectrum of the population with varying needs and abilities to pay. Two major changes were made in the 1980s: the shifting of the financial burden of health care from the government to individuals and employers and the privatization of government hospitals. Individual responsibility is underscored as a fundamental principle of the country s healthcare financing philosophy. Besides the individual, the family also plays a primary responsibility in caring for the elderly. However, while individual co payments are intrinsic to the system, providing affordable healthcare to all Singaporeans is a principal objective of the public healthcare financing scheme. Organization and structure of health services and the private sector in Singapore The National Health Plan (NHP) was announced in February 1983 and the declared objectives of the NHP were to secure a healthy, fit and productive population through active disease prevention and promotion of healthy lifestyles, and to improve cost-efficiency in the health care system. The government provides fund for subsidizing the provision of health care services and for promoting health. Personal income tax is levied on residents of Singapore at progressive rates on the previous year s income. Companies are taxed on adjusted net profits less capital allowances. Currently, healthcare accounts for about 4.5 percent of GDP, up from 3 percent a decade or so ago, and is likely to increase as the population ages and demand for high quality care rises with growing incomes. Individuals and organizations have various sources of financing for health care. These sources include the government-administered schemes, Medisave and Medishield, private medical insurance and savings. Medisave is a compulsory savings scheme introduced by the government in 1984 to pay for the hospitalization needs of individuals and their immediate family. Medisave covers roughly 85 percent of Singapore s population. Under this plan, the Medisave scheme (a compulsory savings scheme) was introduced in 1984 to meet rising medical expenditure. Medisave is an extension of the Central Provident Fund (CPF), which was established in 1955 to provide retirement protection for the working population. Singaporeans contribute 40 percent of their salaries to their CPF account: a 22 percent employee contribution matched by an 18 percent employer contribution. Out of the 40 percent, 6-8 percent are now used for Medisave

36 The Medisave account allows members to withdraw funds from their accounts to pay for hospital services, within certain limits, of themselves and their immediate family members. The rationale behind the savings approach adopted by the government is that the current generation of wage earners should save for their healthcare needs in old age instead of relying on uncertain tax revenues from the future generations for support. Thus, the system would not place an unduly heavy burden on the declining number of the young and productive. Moreover, it was believed to generate efficiency gains by restraining overconsumption of health services common in any third party financing system 75. As mentioned above, the Ministry of Health began a concomitant restructuring of the government hospitals in the late 1980s to form corporations outside the government with independent management. The objectives were to enable hospitals to be more flexible and autonomous in management and to promote greater cost awareness and financial discipline. These hospitals can decide on the employment and remuneration of their staff. The government pursues a policy of price discrimination or differential pricing, based on different ward classes in public hospitals ranging in ascending order of comfort from class C, through B2 and B1 to A. This allows subsidies to be targeted to poorer users based on individual choice of amenities. In January 2009 the government introduced a means testing scheme for class C and B2 ward admissions to ensure that the government subsidies are provided to those with the greatest financial burden and need. Subsequent to the above reforms in the 1980s, two complementary schemes, MediShield and Medifund, were implemented later. MediShield is a low cost, relatively high deductible catastrophic health insurance scheme introduced by the government in 1990 to help patients cope with unusually high hospitals bills. The premiums can be paid using Medisave balances. A series of incremental changes have been made over time in MediShield to expand its coverage and benefits. Medisave and MediShield operate within a broader government regulated compulsory savings scheme called the Central Provident Fund. Medifund is an endowment fund set up by the government in April 1993 to help needy Singaporeans pay their medical bills. Medifund provides the safety net for the poor who cannot afford the charges at public hospitals and specialist out-patient clinics. Indigent patients have to apply for help, and the amount of financial assistance they receive depends on individual circumstances. To qualify for help from Medifund, a person must be a Singapore citizen who has received or will be receiving medical treatment at a Class B2 or Class C hospital ward or subsidized outpatient clinic and is unable to pay for the charges incurred. In addition to the 3M system (Medisave, MediShield, Medifund), a special insurance scheme for the elderly, ElderShield, was launched in September It covers long term care associated with severe disabilities in old age. As with MediShield, it is an opt out scheme and premiums can be deducted from Medisave. In addition to these schemes, government subsidies (financed through general taxation) play a crucial role in financing hospital costs. 76 Lessons from the Singapore experience The structure of Singapore s health system is unique, particularly its reliance on medical savings accounts and individual choice and responsibility in financing decisions, even as it ensures a safety net for with lower incomes and critical medical needs. 75 Tilak Abeysinghe, Himani and Jeremy Lim, Singapore s healthcare financing: Some Challenges (2010). An earlier version of this paper was presented at the Singapore Economic Policy Conference on October 27, 2009, 76 Ibid

37 However, opinions vary on how certain aspects of the system have fared and their future prospects. Those in favor of medical savings accounts argue that it has successfully mitigated many of the problems of overutilization and reduced inefficiencies due to moral hazard. In part, this may account for the relatively low share of healthcare costs as a share of GDP, even though it is now increasing. In addition, it is claimed that MSAs create an alternative non-budgetary resource and obviate the pressures of intergenerational transfers via increased taxation of the young to pay for an aging population. Phua and Yap 77 have argued that this enables the government to focus on the most critical needs and services and allocate resources more efficiently. Others like Hsiao have argued that MSAs have not been as effective in curtailing costs since the government has had to resort to restrictions on the supply side by regulating the supply of hospital beds and physicians as well as limits on access to newer innovations in medical services and products. The government does play a crucial role in subsidizing basic medical care though family savings accounts play an equally important part. Private insurance plays a relatively minor role in financing the expenses of the elderly but it seems to perform better than MediShield in providing catastrophic coverage. On the other hand, given Singapore s large expatriate population, private coverage has increased to address their needs, generally at the higher end of the income scale. Overall, the need for greater insurance coverage, both public and private, is expected to go up in Singapore in the coming years. Barr 78 makes an important and insightful observation on Singapore s low healthcare spending as attributable to not only strict government control of healthcare inputs and outputs and segmentation or rationing of services based on wealth, but to social and demographic features peculiar to Singapore. While the degree of choice and flexibility in individual choice in the modes of financing healthcare are attractive features of the Singaporean healthcare system, it is important to recognize that the same choice does not generally apply to the types of care, services and products for the population at large. Indirect means of managing healthcare may not reflect all of the costs in the conventional accounting of healthcare. Due to its geographic size and unique economic composition and political structure, Singapore s experience may be difficult to generalize. Cross-Country Analysis: Lessons from Mexico While Mexico views healthcare as a constitutional right and offers basic levels of universal healthcare, its healthcare system is underfunded and inefficiently organized. Total healthcare spending accounts for just 6 percent of Mexico s GDP the third lowest out of all OECD countries after Turkey and Estonia. 79 Furthermore, the decentralized healthcare system may lead to inefficiencies that lead to high administrative costs. As seen in Table 4, the proportion of healthcare spending attributed to administrative expenses is higher in Mexico while the proportion of healthcare spending attributed to hospital and other services is lower in Mexico relative to other countries discussed in this paper. Mexico s public healthcare sector, which is predominantly funded by taxes, consists of social security institutions and government-sponsored healthcare. Each of these public sectors covers approximately 40% of the Mexican population. The social security institutions cover private employees, retirees, and their 77 KH Phua and MT Yap (1998): Financing health care in old age: Policy issues and implications in Singapore. Asian Journal of Political Science 6(1): MD Barr (2001); Medical savings accounts in Singapore: A critical inquiry. Journal of Health Politics, Policy and Law 26 (4): OECD, StatExtracts. Available at: Accessed June 1,

38 families. Those who are not eligible for social security have the option to subscribe to Seguro Popular (SP; Popular Insurance), which is government-sponsored health insurance. In addition to Seguro Popular, other programs have been established to provide access to affordable healthcare coverage for Mexicans who are self-employed, informally employed, or unemployed and therefore not entitled to enroll in social security. For example, to increase access to healthcare for the vulnerable and marginalized population living in remote rural areas and/or in abject poverty, the Mexican government has established programs that provide free basic preventive (such as vaccination), diagnostic and treatment services to those who qualify based on need. In spite of the availability of basic universal healthcare, approximately 20% of Mexicans remain uncovered and health equality in Mexico remains low even for those with healthcare coverage. The decentralized public healthcare system in Mexico has led to regional disparities in access and quality of care. These inequalities and limited resources have resulted in the emergence of a robust cash market for healthcare, in which out-of-pocket payments accounted for approximately 44% of total healthcare expenditures in Mexico in While many insurance programs cover innovative and some expensive drugs and patients enrolled in social security programs or the SP receive medications free of charge, programs have limited budgets and consequently availability of innovative drugs is limited. Patients have to pay full price out-of-pocket for listed drugs if the stock has been exhausted for the year and if drugs are not included in program formularies, or if they cannot afford to pay, they must go without their therapies. Organization and structure of health services in Mexico This healthcare system in Mexico is fragmented, and several health provider organizations work in parallel to finance and provide care for different patient groups. There is little cooperation or integration between health providers. Patients are linked to their particular insurance provider and, unless it is an emergency situation, will usually seek care in facilities associated with this provider. This national healthcare structure leads to inefficiencies and occasions when clinical staff and equipment are overtaxed at one hospital while similar staff and resources are relatively idle at a nearby facility. To avoid long wait times and travel, many Mexicans have turned to inexpensive private pharmacy clinics even when they are covered only by public health insurance. Pharmacy clinics account for approximately 20% of all outpatient visits in Mexico. Since prescriptions became required for the sale of antibiotics in 2010, pharmacy clinics have grown in number at a rate of 197% to 13,000 across Mexico in The Comisión Federal para la Protección contra Riesgos Sanitarios (COFEPRIS; Federal Commission for the Protection against Health Risks) regulates pharmacy clinics to ensure quality of treatment by authorized medical personnel, proper pharmacovigilance, and detection of chronic diseases such as diabetes, which is a growing problem in Mexico. While almost 80% of the population in Mexico is covered by public health insurance and less than 5% is covered by private insurance, healthcare resources in Mexico are disproportionately allocated to private hospitals. Per one thousand people, Mexico only had 1.03 hospital beds in 2014, which is markedly inferior to the average ratio among OECD countries of 4.8. Moreover, 28% of hospital beds are in the private sector, leaving only 0.74 hospital beds per one thousand citizens in the public sector. In particular, residents of rural areas have limited access to public hospitals. In addition, healthcare equipment is often inadequate or lacking in public healthcare facilities. In comparison to the public sector, the number of private clinical laboratories and operating rooms listed is also disproportionately high. Per one thousand people, Mexico only had 2.4 doctors and 2.7 nurses in To reach the average number of human healthcare resources among OECD member countries, the number of doctors would have to increase by 50% and the number of nurses would have to more than triple in Mexico. Moreover,

39 nurses are underutilized in auxiliary roles, and there is a deficiency of doctors specializing in areas of high epidemiologic need, such as nutrition, gerontology, oncology and nephrology. In addition, 80% of specialists are concentrated in major cities, and healthcare access is particularly low for residents of suburban and rural areas. Role of the private sector in Mexico Less than 5% of the population in Mexico is covered by private health insurance, which is typically supplementary insurance that is funded by individuals and employers. These individuals are generally middle and upper class citizens with the ability to pay, and these citizens are incentivized to pay for private health insurance given that private hospitals are generally well-equipped and staffed. 80 The private healthcare system consists of private hospital groups, insurance clinics and individual hospitals and clinics. The two most common types of private insurance are offered by Gastos Médicos Mayores plans (GMM; Major Medical Expenses) and Instituciones de Seguros Especializadas en Salud (ISES; institutions specializing in health insurance). GMMs provide insurance for catastrophic medical care and are typically offered by large insurance companies that do not necessarily specialize in health insurance. ISES plans vary by insurer but typically cover inpatient medicines and sometimes outpatient medicines. Lessons from Mexico s healthcare system Mexico is unique in that its public healthcare system has not leveraged the economies of scale that often benefit large healthcare systems, and the fragmented healthcare market has led to inefficiencies and disparities in the quality of care. In addition, Mexico s healthcare system appears to be underfunded relative to other OECD countries when comparing healthcare spend as a percentage of GDP. To address these shortcomings, the Mexican government has begun to implement policies and procedures to unify the public healthcare system. Mexico s efforts to unify its healthcare system seem to contrast with the U.K. s efforts to decentralize its healthcare system. However, it s important to the note that the U.K. s reforms include efforts to purchase medical supplies in bulk and to provide shared functions such as finance, payroll, and e-procurement for an estimated 100 NHS organizations to reduce the costs of backoffice services. A balance between decentralization and unification may benefit healthcare systems in many countries, including the U.K., Mexico and India. While the administration of President Enrique Peña Nieto is expected to reform healthcare in 2015, declining oil prices led to a significant budget cut in February 2015 amounting to approximately 750 million US dollars for the Ministry of Health in Mexico. These cuts are expected to delay the reform of Mexico s universal healthcare system. Nevertheless, Mexico s universal healthcare system has undoubtedly provided basic yet life-saving therapies to countless individuals. While wait times can be long at public hospitals and healthcare access in suburban and rural areas can be limited, pharmacy clinics in Mexico continue to grow and provide underserved populations with an inexpensive and convenient way to obtain medications. These pharmacies are also being used to detect chronic conditions. Mortality rates from diabetes and cardiovascular diseases continue to rise in Mexico, and presently, these two conditions are the leading causes of death in Mexico, closely followed by malignant tumors. Neighborhood pharmacy clinics may allow for early detection and treatment of these increasingly prevalent diseases. The pharmacy clinic model that is growing in popularity in Mexico may also find success as a cost effective, quick and nearby option for suburban and rural populations in other countries, including India. 80 T. Hutzul et al. Mexico Healthcare System. Ethicon Global Health Economics and Market Access Report (2013) (based on internal Johnson & Johnson analysis)

40 Cross-Country Analysis: Lessons from China 81 China is tasked with providing healthcare to more than 1.3 billion people in a geographically and economically diverse country. Access to healthcare varies enormously from the relatively affluent cities to the agrarian heartland of China. China also faces the challenge of an underfunded healthcare system. Although China has increasingly invested in its healthcare system, the level of public funding of healthcare in China is among the lowest in the world. The country s hospitals, clinics and health centers are largely self-funded: much of their revenue comes from price markups on drugs they dispense and from patient fees. The cost of healthcare was for many years beyond the means of many Chinese residents, and until very recently, approximately half the population lacked health insurance. In recent years, healthcare reform has expanded coverage to more people, improved the payment system, and begun the process of hospital reform. In 2015, the government is extending reform to the pharmaceutical sector modifying price policies and adding sales channels in an effort to expand access to drugs, stamp out inefficiencies and corruption and let market forces set drug prices. Organization and structure of health services in China China's population is covered by three major types of public health insurance. In urban areas, the Urban Employee Basic Medical Insurance (UEBMI) covered almost 50 percent of the urban population and the Urban Resident Basic Medical Insurance (URBMI) covered about 25 percent of the urban population in All employers are required to participate in UEBMI, which is funded through payroll taxes totaling nearly 8 percent of employee's monthly salaries: 6 percent is paid by employers while 2 percent is paid by employees. UEBMI covers outpatient medical expenses and in-hospital services. For urban residents who do not qualify for UEBMI, URBMI covers hospitalization and outpatient expenses resulting from catastrophic diseases. The program mainly aims to reduce urban residents financial burden for expensive treatment of diseases such as cancer and kidney disease. In rural areas, New Rural Cooperative Medical Scheme (NRCMS) covered 90% of the rural population in NRCMS restricts the reimbursement allowance for treatments and procedures, particularly for highpriced Western medicines. In addition, transfer approval from county hospitals and clinics is required for reimbursement for patients who seek better care in territory or university hospitals in urban areas. While rural residents under NRCMS have health coverage, high out-of-pocket copayments continue to discourage NRCMS insurers from seeking medical care. To aid vulnerable populations, some cities and counties offer Medical Financial Assistance (MFA) programs to help poor residents in both urban and rural regions. The eligibility criteria and benefits of this program are determined locally. While the majority of the Chinese population now has health coverage, economic disparities among China s provinces affect access to Western medicine. Over the past two decades, the central government invested heavily in the eastern coastal region of China; as a result, the eastern provinces/municipalities are wealthier than other regions. Accordingly, the country s best healthcare facilities, particularly specialized centers, are concentrated in the eastern, south-central, and capital regions of the country. For example, Beijing and Shanghai, municipalities located in east China, have about three times the number of beds per 81 China Development Research Foundation, Draft Research Report on China s Healthcare Reform, April

41 100,000 people compared with Guangxi and Guizhou, two provinces in south China. Beijing also has the highest number of medical personnel per capita among the select regions. While high income countries have almost twice as many hospital beds per thousand people (average of 5.6 versus 3.8 in China per thousand people), the average length of stay in Chinese hospitals is 20% longer than the OECD average (10.3 days in China versus 8.6 days in OECD countries). 82 Li et al. suggest that incentives are not in place for the timely discharge of patients in China. They note that while countries like the U.S. use a DRG-based payment system where payment does not depend on length of hospitalization, China largely uses a fee-for-service mechanism that may incentivize hospitals to prolong hospitalization to generate more revenue, especially when hospital beds outnumber patient demand. 83 Healthcare institutions in China must compete with one another for patients as a source of revenue. Chinese patients are free to choose the level of healthcare they want, provided that they can afford the premium and copayment. Given a free choice of healthcare facilities, patients typically choose the highest level of care they can afford. Consequently, urban tier 3 hospitals are frequently overcrowded, whereas lower-tier hospitals are underused and attract less wealthy patients. This situation results in a vicious circle for lower-tier hospitals: with a limited and relatively poor patient base, these institutions cannot raise the revenues to improve their facilities, thereby deterring patients from coming to these hospitals. Conversely, higher-tier hospitals can generate substantial revenue to upgrade their facilities, thereby attracting additional patients. Role of the private sector in China The private health insurance market in China served only 7 percent of China s residents and accounted for less than 2% of healthcare spending in However, it is expected to grow 10 to 26 percent annually over the next decade due to numerous factors, including increased personal income, decreased tolerance for risk among younger Chinese citizens, and government support for private health insurance. China s government has emphasized private health insurance as a necessary supplement to public insurance, and partnerships between government and private companies appear to be gaining momentum. 84 Relaxation of foreign ownership policies has also spurred significant growth of the private sector. Previously capped at 70 percent private ownership through joint ventures, regulations on foreign investments have been relaxed such that hospitals can now be fully foreign-owned. Commercial insurance coverage varies from policy to policy, and these plans typically offer moregenerous benefits than do government-sponsored insurance programs, but the drawback is often higher premiums. In early 2012, about 1,000 different private healthcare plans existed, most of which were supplemental plans or catastrophic disease plans. Wealthier residents often supplement a governmentsponsored program with private insurance. Commercial health insurance policies generally allow members to select the benefits that are most important to them, such as catastrophic disease coverage or premium hospitalization care. 82 World Bank, World Development Indicators: Health Systems, Accessed July 6, 2015; OECD, StatExtracts. Available at: Accessed June 4, Qian Li et al., National Trends in Hospital Length of Stay for Acute Myocardial Infarction in China, BMC Cardiovascular Disorders 15(9) (2015): H. Chen et al, Waiting for the Boom, China Economic Review, March 2012:

42 Lessons from China s healthcare reform After many years of underinvestment in healthcare, the Chinese government has resolved to make healthcare reform a top priority. China s difficulties in combating an epidemic of severe acute respiratory syndrome (SARS), which originated in Guangdong province in early 2003, provoked widespread criticism of the national healthcare system and prompted the government to review its healthcare policy. In April 2009, the Central Committee of the Chinese Communist Party and the State Council published Guidelines on Deepening the Reform of the Healthcare System, a blueprint for a radical overhaul of healthcare provision in China from 2009 to The plan had five broad objectives: Accelerating the establishment of a basic medical security system. Creating a national essential medicines system. Improving the grass-roots healthcare system. Achieving greater equity in access to basic public health services. Implementing pilot projects for reform of the public hospital system. In support of the health reform program, the government pledged an additional 850 billion RMB ($132 billion) of investment in healthcare in the period , including an additional billion RMB ($51.4 billion) from the central government. Given that China s regular annual healthcare budget is approximately 200 billion RMB ($31 billion) per year, the additional funding more than doubled public healthcare expenditures over three years. China s increase in health spending is also reflected in Table 1. China's health expenditures as a percent of GDP have grown 9 percent from 4.6 percent in 2000 to 5.0 percent in Given that China's GDP grew 7.7 percent annually in recent years (versus 2.2 percent annually in the U.S.), 85 the dollar value of China s increase in health expenditures has been even more significant than the increase in health expenditures as a percent of GDP might suggest. Furthermore, government spending has markedly increased in China. In 2005, government health spending accounted for 39 percent of total health spending. In 2010, government health spending increased to 54 percent of total health spending (see Table 1). China s investment in healthcare has led to a dramatic increase in access to health insurance: by the end of 2012, more than 95% of the population was covered by medical insurance programs. Wider access to more generous healthcare benefits has enabled more Chinese residents to afford prescription medicines and other treatments. However, high out-of-pocket payments continue to discourage many with public health insurance from seeking medical care, and collaboration between the public and private healthcare sectors may help to address this challenge. Penetration rates of private health insurance indicate that the population in China is beginning to rely on private health insurance to cover services that are not covered by public health insurance. 86 Furthermore, China s government recognizes the importance of private health insurance and has begun developing partnerships between the government and private companies. 87 China may soon reap the benefits of its reforms in the form of cost savings. A primary goal of the MOH's Five-year Plan for 2011 to 2015 is to complete the financial reform of hospitals by separating the 85 World Bank, "Data - GDP growth (annual %)." Available at: Accessed June 2, Ashoke Bhattacharjya and Puneet Sapra, Health Insurance in China and India: Segmented Roles for Public and Private Financing, Health Affairs 27(4) (Jul/Aug 2008): H. Chen et al, Waiting for the Boom, China Economic Review, March 2012:

43 prescribing and dispensing of drugs. By the end of 2015, the separation is intended to be complete for all county level hospitals, followed next by the separation in tier 1 and tier 2 hospitals in big cities. To compensate hospitals and physicians for lost income, the government plans to increase physicians compensation, increase government funding and subsidies, and link payments to physicians to the quality of medical services and not to drug sales. Pharmacies will become largely responsible for dispensing medicines. With the proposed elimination of previously distorted incentives based on drug mark ups at public hospitals, physicians will be more inclined to consider less costly therapeutic options, and other countries, including India, may also see benefits in terms of cost savings coupled with better patient care if the right incentives are put in place. IX. Implications of Healthcare Financing on Provider Payments In view of the challenges faced by healthcare systems to control costs and improve the quality of care, countries have instituted a variety of reforms to address these challenges and improve their healthcare systems. This section focuses on the UK and the U.S. with special attention to their experiences with global budgeting, price controls, prospective payment, and capitation. The discussion will distinguish between public sector and private sector reforms. 88 As a way to think about cost control initiatives, a recent report by the International Monetary Fund, The Economics of Public Healthcare Reform in Advanced and Emerging Economies, categorizes reforms implemented in advanced countries over the past three decades into three groups based on the work of Oxley and MacFarlan 89 : macro-level controls, micro-level controls and demand side reforms. The policies included in each group include the following: Macro-Level Controls Budget caps: Policies in this category apply caps or limits on overall healthcare spending or subsectors, such as hospitals or pharmaceuticals. Examples of budget caps include global budgets for hospitals and expenditure ceilings for general practitioners. Supply constraints: Policies in this category control spending by regulating the volume of inputs or outputs from the health system. Examples of these policies include limits on the number of positions in physician training programs, drug formularies, limits on high-tech capital equipment, non-coverage for certain treatments like dental treatment. Price controls on inputs or outputs: Examples of these policies include wage controls on healthcare providers, reference pricing for outpatient prescription drugs, and case or episode-based payments such as capitation or diagnosis-related groups. Micro-Level Controls Public management and coordination: Health care costs can be reduced through reforms that change organizational arrangements across different parts of the system, for example through improved coordination, better alignment of accountability, incentives to improve quality, and 88 The descriptions of international experiences in this section are drawn principally from two sources: The Economics of Public Healthcare Reform in Advanced and Emerging Economies, Benedict Clements, David Coady, and Sanjeev Gupta, editors (International Monetary Fund, Washington, DC, 2012) and Commonwealth Fund, International Profiles of Healthcare Systems, 2012 (New York, NY 2012). 89 Oxley, H., MacFarlan, M. (1995), Health care reform: controlling spending and increasing efficiency, OECD Economic Studies, no 24, Paris

44 reduction in redundancy. Primary care gatekeeping arrangements are a more specific example of such a policy. The gatekeeping provider would be responsible for managing a patient s health care services, coordinating referrals for specialty care and screening out unnecessary services. Contracting: One of the most critical factors influencing health care spending is provider reimbursement. In the U.S., a well-known aphorism is that the most expensive device in the health care system is a physician s pen. Three of the most common methods for paying physicians, hospitals, and other providers, among many others, are (1) salaries, (2) case-based payments such as capitation or diagnosis-related groups, and (3) fee for service. As the U.S. experience has shown, the last approach has proven to be one of the least efficient and most costly. Market-based mechanisms: Examples of market processes include: separating the purchase of health services from the provision of services (thereby encouraging competition among providers), promoting patient choice (e.g., in which patients can choose among primary care providers and hospitals), and creating internal markets (e.g., establishing a mechanism by which primary care physicians purchase services from hospitals). Demand-Side Reforms Demand-side reforms increase the share of costs borne by patients in order to reduce excessive consumption. Patient cost sharing (e.g., deductibles, co-payments, and coinsurance) and tax treatment of private health insurance (e.g., reducing or eliminating tax incentives for purchase or consumption of employer-sponsored health benefits) are two of the most common examples of demand-side reforms. 90 The discussion below will consider reforms in the UK and the U.S. with this framework in mind. United Kingdom: budget caps, price controls and supply constraints Over the years, the UK has introduced numerous cost controls, including budget caps (1970s); public management, which replaced consensus-style teams with hierarchical general management to better hold health care providers accountable for resource use and the levels, types, and quality of services (1980s); market mechanisms and competition to enhance incentives for efficiency and responsiveness (1990s); and pharmaceutical reforms. Each of these approaches met with variable degrees of success. Budget caps imposed on the NHS in 1976 reduced the growth in health spending temporarily, although the limits were renegotiated every year and expenditures began to climb again in subsequent years. Improving management practices and accountability in the 1980s had greater success in controlling expenditure growth, even five years after initial implementation. Results from introducing market processes and competition in the 1990s are mixed because they brought productivity gains but also increased transaction costs, emphasized spending over quality, and increased inequity. Since at least the 1990s, reforms have focused on improving performance in the NHS by setting quantified targets and measuring performance against targets. Additionally, the NHS Constitution, revised in May 2013 sets out rights for patients, public and staff. It outlines NHS commitments to patients and staff, and the responsibilities that the public, patients and staff owe to one another to ensure that the NHS operates fairly and effectively. All NHS 90 The typology is taken from Justin Tyson and Izabela Karpowicz, Public Health Expenditure Reforms in Canada, Finland, Italy, the Netherlands, Sweden, the United Kingdom, and the United States, chapter 10 of The Economics of Public Healthcare Reform in Advanced and Emerging Economies, Benedict Clements, David Coady, and Sanjeev Gupta, editors. (International Monetary Fund, Washington, DC, 2012)

45 bodies and private and third sector providers supplying NHS services are required by law to take account of this constitution in their decisions and actions. The figure below illustrates health care spending growth in the UK and the impact of key reforms during the period United Kingdom: Excess Cost* Growth and Key Reform Episodes, (Percent) *Excess cost growth is defined as real growth of per capita public health spending minus real per capita GDP growth. Source: Organization for Economic Cooperation and Development, OECD Health Data; and IMF staff estimates. Recent NHS reforms: Responding to challenges of a largely static NHS budget and rising demand for services, the recent NHS reforms included specific policies designed to control hospital spending. The reforms adopted in 2012 set a target of 20 billion (about $32 billion) in savings to be achieved over four fiscal years ending New initiatives include reducing NHS staff salaries; establishing a DRG-like activity-based funding system (Payment by Results, or PbR) for acute hospital services, later to be extended across all healthcare services; setting DRG rates assuming annual improvement in efficiency such that current rates have not increased as much as cost inflation; and reducing management costs as much as 45 percent by streamlining governance structures; encouraging use of generic equivalents (83 percent of prescriptions are now written for generic drugs, although only 69 percent are dispensed as such); developing a new value-based approach to the pricing of branded medicines; and cutting the costs of purchasing medical supplies, in part through national and regional contracts designed to achieve savings through bulk purchases. Pharmaceutical pricing policies: Since 1957, the UK government has regulated the profitability of pharmaceutical companies instead of product prices primarily through the Pharmaceutical Price Regulation Scheme (PPRS). Between 1993 and 1998, the UK limited return on capital deriving from pharmaceutical sales to the NHS. Other pharmaceutical controls include deleting products from the NHS formulary (1985 and 1993) and instituting a prescribing scheme in 1992 and 1994 to influence GP prescribing practices by comparing actual prescription costs with a target. Today, negotiations with the pharmaceutical industry as part of the PPRS are one of the instruments of cost-containment. While there is good coverage of essential medicines, relying heavily on generic medications where available, concerns about reduced and delayed access to new innovative medicines and technologies, especially in areas such as cancer and Alzheimer s disease has led to public dissatisfaction

46 NICE is consulting on a new value-based approach to the pricing of branded medicines as part of the evolution of a future PPRS. The intention is for drugs to be available to the NHS at a price reflecting their value although how this will be determined remains to be seen. There are some questions on whether the value based pricing approach takes proper account of the different types of innovations that are required for a full spectrum of medicines to be developed and available in the long run. United States: prospective rate setting, managed care, bundling, accountable care Both private and public U.S. health costs have increased steadily since the 1970s and at a fast pace in many periods, driving total spending in 2011 to 17.7 percent of GDP. At the same time, the quality of healthcare lags on many indicators, as discussed above. Cost control initiatives in the 1970s through 1990s in the private sector centered on managed care through capitation and in Medicare on price or spending controls. Growth and retraction of managed care: The 1990s saw a rapid expansion in capitated managed care and away from the traditional fee-for-service reimbursement, which involves a separate payment for each service performed. Managed care is a general term for health plans that are proactive in seeking to affect the type or amount of care their enrollees receive. They tend to have detailed contractual or employment relationships with healthcare providers. Cost containment approaches used in managed care include requiring preauthorization for services (gatekeeping), selective contracting with providers who are willing to accept the plan s payment arrangements, and utilization reviews. Managed care spread particularly in the private sector, where employers embraced it as an opportunity to gain control over sharply increasing costs. The popularity and success of managed care in the private sector encouraged its adoption by the public sector, for example, through the expansion of Medicare managed care. Enrollment in Medicare managed care plans increased from 1 million in 1991 to more than 6 million in 1999 and 16 million today. State governments also adopted managed-care plans in their Medicaid programs to constrain cost growth; currently, most children and non-elderly Medicaid adults are enrolled in managed care plans. Studies have found evidence that managed-care arrangements particularly health maintenance organizations (HMOs) can reduce healthcare costs, at least in the short term, resulting from the transfer of purchasing power toward well-informed and price-sensitive insurers and employers. Also, their presence is associated with reduced cost growth in areas with a higher penetration of managed-care plans. 91 However, the same strategies (i.e., limits on patient choice of provider and treatment, intervention in physician practice decisions, and selective contracting with alternative providers and suppliers) that helped contain costs fueled discontent among both healthcare providers and patients, resulting in a backlash against managed care s most restrictive characteristics and a move away from such tight plan management. One result was broad popularity for the concept of patients rights, leading to Congressional debate on national patients rights legislation. Sweeping federal legislation did not pass Congress but smaller amendments succeeded (such as requirements for length of stay of maternity patients). In addition, some state-level patients rights laws were enacted and many purchasers, including the federal government, imposed patient rights requirements on the health plans with which they do business. Hospital prospective payment: A major strategy for Medicare reform was implementation of prospective payment systems (PPS), with the first such system introduced in 1983 for inpatient hospital services, where Medicare revenue accounts for about 40 percent of total revenue. The PPS pays for all hospital 91 Docteur, E. and Oxley, H. (2003) Health-care systems: Lessons from the reform experience. Paris: OECD. (

47 services (excluding physician services) delivered during the patient s stay in the hospital. The PPS, which was phased in over 4 years, represented a major change from the prior cost-based reimbursement in which hospitals lacked incentives to control costs and which was characterized by wide variation in payments across hospitals. Because it has prospectively determined rates, hospitals know in advance how much they will be paid for a patient admission and they make the decisions about what services and technologies to provide. Additional payments are made for a 3-year period for a small number of qualifying new technologies. Findings from a number of studies confirm that changing the incentives from a cost-based system to an episode payment resulted in measurable and ongoing savings to Medicare. Medicare inpatient hospital admissions and average length of hospital stay fell significantly following introduction of the prospective payment system in 1983 resulting in an immediate reduction in the total day of care provided and the reductions continued as the site of care shifted to the outpatient setting. 120, ,000 80,000 60,000 40,000 20,000 0 Total Days in Medicare Inpatient Acute Care Hospital Stays (in thousands) Though Medicare spending for hospital care increased at lower rates under the PPS compared to the previous cost-based system, evidence shows that some costs were shifted to post-hospital care and outpatient services, thereby somewhat reducing the cost-containing effect for Medicare overall. Hospitals also improved their coding of patient diagnoses; this up-coding led to higher program payments and required adjustments to the payment rates. In future years, slower growth in Medicare hospital outlays is tied to the annual update and the degree of cost-shifting. The 2010 ACA reduces the annual update each year to account for economy-wide productivity gains based on the assumption that funding pressure will spur hospitals to achieve gains equal to those in the general economy. Some experts argue, however, that these reductions are not likely to be sustainable over the long term. 92 Medicare prospective payment systems (PPS) advanced in succeeding years. Capital costs were added to the inpatient PPS in 1992 and in the 2000s PPS was implemented for hospital outpatient and emergency room services; rehabilitation, long-term care, and psychiatric hospitals and units of hospitals; home health agencies; and skilled nursing facilities. These systems generally achieved savings initially but face continuing challenges to sustain savings. Medicare physician payment reform: In 1992, Medicare established a new fee schedule the Resource- Based Relative Value Scale (RBRVS) for paying for physician services. The new system, designed to control costs and provide equity across types of services, replaced the inherently inflationary charge-based system on which Medicare had based payments since its beginning in The RBRVS assigns each physician procedure a relative value, which is adjusted by geographic region and multiplied by a dollar conversion factor. The relative value is based on three separate factors: physician work, practice expense, and malpractice expense. With variations, the RBRVS system is currently used not only by Medicare but also by many private payers and Medicaid plans. In April 2015, the US Congress passed legislation to reform the physician payment system used by Medicare. The new law provides incentives to encourage 92 John D. Shatto and M. Kent Clemens, Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers. (Office of the Actuary, Center for Medicare and Medicaid Services, Baltimore, MD, May 2013)

48 the use of merit-based incentive payment systems starting in The table below shows Medicare spending on physician services in different periods, Over the 37-year period, reimbursements increased at an average annual rate of 8.9 percent, but experienced their lowest growth after introduction of RBRVS in 1992 (see table below). Average Annual Increase in Total Reimbursement per Enrollee Average Annual Increase in Prices Average Annual Increase in Service Volume and Intensity % 16% 6.6% 11.4% 8.5% 2.0% 7.4% 4.4% 8.6% 0.5% 4.2% 0.3% 2.7% 2.4% 4.3% 6.8% 6.0% 6.8% 8.2% -0.7% 5.0% Medicare has been by far the leading U.S. innovator in developing these new complex payment systems, including both the inpatient hospital PPS and the physician fee schedule, which subsequently have been adopted to varying degrees by private payers and state Medicaid programs. (More than one-half of Medicaid financing derives from the federal government with the remainder from state funds. Within federal constraints, states determine specific payment and coverage policies.) Private payers, on the other hand, have tended to lead in the implementation of utilization controls such as gatekeeping, prior authorization, and coverage limitations. A 2008 publication by the AARP Public Policy Institute surveys the literature and draws conclusions regarding the interventions that seem to have been most effective. 94 The report concludes that prospective payment for hospitals using DRGs and the physician fee schedule under RBRVS, among others, are examples of payment policies that have slowed health care cost growth. Payment reforms included in the Affordable Care Act of 2010: The 2010 health care law directed implementation of several Medicare and Medicaid delivery reforms including pilot projects for bundling, accountable care organizations (ACOs), and medical homes for primary care and better coordinated healthcare. Recently Medicare began testing pilot programs for significantly greater bundling of services (e.g., a system that makes a single PPS payment for an episode of care, which may be defined as the period 30 days prior and 90 days post a hospital stay). Payment for physician services also may be bundled into the PPS provider payment. An ACO is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program and who are assigned to it. ACOs that meet performance standards and produce sufficient savings share in the savings (with Medicare). Currently Medicare has more than 250 ACOs serving nearly 4 million beneficiaries. These pilot programs began in 2012 and several of them are now beginning their third year. Early results show that quality standards generally are being achieved but that savings are modest at best. The ACA also expanded Medicare quality measurement and public reporting programs to several additional Medicare service categories and established value based purchasing (VBP) programs for 93 Commonwealth Fund, With SGR Repeal, Now We Can Proceed with Medicare Payment Reform, (April 15, 2015). 94 The Urban Institute and Health Policy Alternatives, Inc., Cost Containment in Medicare: A Review of What Works and What Doesn t. (AARP Public Policy Institute, Washington, DC, 2008)

49 hospital and physician services, with a requirement to design VBP for other service types. By 2017, hospitals will have about 8 percent of their Medicare payments adjusted for quality performance. One of these adjustments, a program to reduce Medicare payments to hospitals with excess avoidable readmissions, began in FY 2013 and already has led to improvement. The U.S. Department of Health and Human Services estimates that the 30-day Medicare readmission rate declined from percent between 2007 to 2011 to 17.5 percent in 2013, which translates into 150,000 readmissions between January 2012 and December The U.S. Veteran s Administration as an example of global budgeting in the U.S.: An instructive example of a more controlled cost containment environment in the U.S. is the Department of Veterans Affairs (VA), which manages a national system to provide healthcare services to eligible U.S. veterans. The VA received appropriations of about $56 billion for healthcare services for FY VA provides beneficiaries a package of healthcare services including hospital and outpatient care. In 2015,the VA will provide support 6.7 million patients and 9.3 million enrolled Veterans through 140 medical centers and 120 community-based outpatient clinics. 96 VA is expected to provide medical services within its appropriation, which functions as a global budget; VA would have to request supplemental appropriations from the U.S. Congress if it anticipated a budget shortfall. Each year VA prospectively allocates an appropriation for healthcare services to its 21 healthcare networks through a national, formula-driven system, called the Veterans Equitable Resource Allocation (VERA). In 95 CMS, New HHS data Shows Major Strides Made in patient Safety, Leading to Improved Care and Savings (May 2014); AHRQ, Interim Update on 2013 Annual Hospital-Acquired Condition Rate and Estimates of Cost Savings and Deaths Averted from 2010 to 2013 ( 96 Department of Veterans Affairs, Medical Programs and Information Technology Programs, FY2015 Funding and FY2016 Advance Appropriations, 2015 Congressional Submission ( Accessed July 8,