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1. Overview ofHealth Systems Maya B. Herrera, FASP
Health Sector Reform
and Sustainable Financing
28 July to 8 August 2008
2. Before we begin
3. Concerns of Health Systems Social Concerns
Availability
Access
Quality
Equity
Choice
Management Concerns
Efficiency, Productivity
Administrative Ease
Note: These affect ability to address social concerns.
4. Understanding Health Systems Not just about the numbers
Understanding Trends
Analyzing Inter-actions
Understanding Agendas, Objectives and Behavior
Understanding the Dynamic Inter-actions
5. UnderstandingHealth Systems
6. Simple Health System
7. Generic Health System
8. Notice Many Players with varying influences
Each decision affects the system some way
So, Health Sector Policy, Structures and Processes must include helping each player make the right choice.
This includes providing enough information to help each player make the right choice
This also means ensuring that the system encourages appropriate behavior and discourages inappropriate behavior
9. Example: The Power of Information Helping Patients and Medical Professionals make the right decisions
Clinical Data
Provider Information
Health Care Management Guidelines
From Statistics to Cost Estimates
Turning Data into Information
Using Information for Decision-making
Health Care Cost Guidelines
10. Information is Tricky and can be expensive Cardiovascular Disease as a cause of Mortality
Hospital Performance
In-hospital Infection
Death Rates vs. Case Mix
Defining Quality
Pain?
Mobility?
Dependence?
11. The Consumer The consumer is the player at the heart of the equation
He very often does not have enough information to make the right choices.
And even when there is information (sometimes because of the information), he still makes the wrong choice
This is a special danger when there is no connection between the “purchase decision” and the consumer’s wallet
And, sometimes, we provide perverse incentives!
When coverage is not mandatory (e.g., the informal sector), there is the danger of adverse selection.
12. The Health Care Provider In the health care decision, there is often information asymmetry in favor of the supplier. Moreover, the supplier generally benefits financially from increased demand.
Hence, there is always the possibility of supplier-induced demand
Demand, cost and price alone do not determine physician behavior. The variable of the ‘physician’s goal’ is necessary to model behavior (Jacobs, 1991)
Physician Goal Spectrum: Pure Altruistic to Pure Profit Maximization
Generation of unnecessary demand can be moderated by patient behavior .
There is a difference between inducement and initiation
13. Development of Health Claim Costs
14. Health Sector Control Knobs
15. Consumer Choice
The goal of financial risk protection insulates the consumer from the economic trade-offs that would normally help regulate the “purchase decision”
No consumer accountability!!!
16. Also To achieve outcomes, it is important to have a systemic point of view.
Must understand that the health system is an open system
And the health system is multiply connected
17. Example Health System is an open system
External conditions affect health outcomes:
Maintaining Health status through prevention (e.g. immunizations, safety belt law)
Infrastructures to support basic hygiene (e.g. clean water)
Reduce Environmental Hazards
Encourage Healthy Lifestyles
18. Health Sector Reform
19. Focus on Financing What needs to be paid for
Who should pay
How to pay
20. Leading Causes of MorbidityNo. & Rate/100,000 Population2002
21. Leading Causes of MortalityNo. & Rate/100,000 Population5-Year Average (1996-2000) & 2001
22. Demand Side Who pays for what?
23. Practical Questions What items are so important, we must make sure they are paid for?
What should be out-of-pocket?
What if it is self-induced? Or someone’s fault?
Is pregnancy an illness?
24. Now for the Supply Side On the supply side of the equation, there are “grainy” requirements
This is especially challenging in a country with 7,000 islands with many mountains
There may not be enough of an economic incentive for private suppliers to address specific population clusters (e.g. isolated areas)
So the financing question becomes complex
26. Some Generic Possibilities National Health System
Economies of Scale
Easier to Target Availability
Balanced by Temptation to divert Funds
National Health Insurance
More difficult to address ‘graininess’
Susceptible to collapse from inter-generational or inter-sector inefficiencies
Liquid funds tempting
Why not savings?
27. Assessment of the First Semester 2005 CPSFP Performance
28. Improving Financing Efficiency Manage Funding Mix
e.g. Insurance vs. Savings
Prepare for the Future
Mortality Improvement, Technology, Lifestyles
Active management
Build in Robustness
Use reimbursement method to align providers:
Eliminate/Minimize perverse incentives for providers
Fee for service vs. DRG vs. capitation vs. per diem
Incentives for Cost/Quality Management
Accreditation, Clinical Protocol, Outcome publication
29. Health Care Financing Multiple Stakeholders
Dynamics of Consumer Behavior
Dynamics of Provider Behavior
Large-scale Social Effects
30. Other Factors Advances in Medicine and Medical Technology
Pharmaceutical Advertising
Malpractice Awards
Patient Expectations
Patient Demographics
Inter-action of Payers, Providers and Government
31. Payment Mechanisms
32. Impact of Payment on Outcomes Demand Side
Whether, how and how much patients must pay influences quantity and quality of demand
Care-seeking behavior including service demanded and locus of care
Supply Side
Physician behavior: number of hours worked, number of patients treated per hour, where physicians work (e.g. public or private sector or both) and how patients are treated (e.g. whether surgery is performed)
Hospital behavior: length of stay, admission rates, service quantity
33. Designing Payment Mechanisms
Payment Method and Unit of Service
Payment Rates
Distribution of Financial Rewards
Levels of Risk Bearing
34. Payment Method Individual and Institution
Fee for Service Units of Service
Capitation Persons Registered
Case or Episode Episode, e.g. admission
(e.g. DRG) can be case-mix adjusted
Individual Only
Salary Time
Salary plus Bonus Time & Performance
Institution Only
Per Diem Days stayed
Line Item Budget Budget Line
Global Budget Hospital Expenditure
35. Basis of Payment Rates More Mechanical
Posted Charges
Cost of Service
Past Practice
Inter-active and Process-Oriented
Negotiated Rates
Competitive Bidding
** Who sets Rates? **
36. Posted Charges Relies on Market Effectiveness
Can be specific individual or institution rates or some uniform figure per geographic area (e.g. usual and customary)
New Zealand uses lowest available price for each group of drugs (Woodfield, 2001)
37. Cost of Service Technically difficult: requires uniform accounting, uniform rules of classification
Perverse incentive: rewards inefficiency
Can use “Reasonable Costs”, can use a base year with a managed inflation adjustment (Canada & Australia)
Can establish cost on a prospective basis: greater predictability and decreases rewarding of inefficiency
38. Past Practice Base year plus an inflation adjustment
Again, historic costs can reward inefficiency
Poorly equipped to handle changes in cost, technology, utilization, consumer demand
Most often used in budget-based systems
39. Negotiated Rates Especially applicable in a contract approach to paying for service
Can be with individual providers
Can be with medical society and key stakeholders (Germany, Japan)
Sellers can act as cartel; (Buyer can start with a low-cost provider)
40. Competitive Bidding Providers do not like this because it shuts out less efficient providers
Process must be well-designed and good information must be available
Politics can intrude
41. Rate Setting Difficulties lead nations to adopt systems that minimize the number of rates that need to be set. Hence, the move away from fee for service
US insurance programs recognize 9000 service items (AMA 1994)
Objective Basis
Balancing supply and demand not easy as health markets are imperfect
Rates can be set by an autonomous agency, insulated as much as possible from political influence …
42. Important Notice
The material presented here does not represent official positions or opinions either of the Asian Institute of Management nor of Solutions Incorporated or its International Principal, Abelica Global.
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