Challenges in hospital reform

1. Challenges in hospital reform Barbara McPake London School of Hygiene and Tropical Medicine

2. Why reform hospitals? • Over-funded or under-funded? • Failure to play designated role in the health system? • Political importance, especially of national referral hospitals • Dominance of medical professional interests in hospital policy, combined with inappropriate incentives

3. Why reform hospitals? • Over-crowding, staff attrition, waiting and waiting lists? • Long neglect in public health debate • Necessary adaptation to greater emphasis on PHC • Adaptation to new technical opportunities • HIV/AIDS

4. Markets/Private sector Broader public sector Core public sector B A C P What are the options for hospital arrangements? • Budgetary unit • Autonomy • Corporatization • Privatization Source: Harding and Preker: 1998

5. Budgetary unit B Autonomised unit A Corporatized unit C Privatized unit P Unspecified, unfunded mandate Public purse Decision rights Vertical hierarchy Management autonomy Nonbudgetary revenues Market exposure Direct budget allocation Private owner Residual claimant Direct hierarchical control Rules, regulations and contracts Accountability Specified, funded and regulated Social functions Important dimensions of these options Source: Harding and Preker, 1998

6. Alternative interpretations • Contract incompleteness and opportunism • Are strengthened incentives compatible with public objectives for hospitals? • Access for patients who do not offer surplus generating possibilities? • Quality • Hospital objective function • Alternative possibilities to surplus – what implications for hospital behaviour? • Are market forces allowed to work?

7. Hospital reform in the UK (1991) • Hospitals could apply for trust status • Board of directors • Determine management structure and profile of services (with some provisos) • Directly accountable to centre • Employ own staff and set employment terms and conditions • Income determined by contracts with health authorities, GP fundholders and private sector (also introduced for non-trust hospitals) • Retain surplus for following year • Constraints on prices, and borrowing on capital markets

8. Trend in cost per episode by hospital group Source: Soderlund et al., (1997)

9. Hospitals’ competitive strategies • Competitive pressures not allowed much rein • Environment implied little scope for competition for main DHA contracts • More energetic competition for ‘extra-contractual referrals’, GP fund-holder contracts, pay beds • 1990-1 81,366 patients treated in pay-beds • 1994-5 99,399 = +22%

10. Median waiting times to elective admission, 1994-5 All beds days 76 15 86 175 46 Pay beds (days) 13 7 13 17 10 Operation Operation on coronary artery Excision of breast Operation on inguinal hernia Prosthesis of lens All patients with surgical operation Source Williams (1997) in Keene et al., (2001)

11. Health sector reform in Zambia • Separate policy making and purchasing from service delivery • Creation of ‘Central Board of Health’, implementing agency of MoH • Commission services from public and private (PNFP) tertiary hospital, and district boards. • Contracts negotiated each year: set out services which district and hospital boards commit to provide for catchment population

12. Ministry of Health Central Board of Health ‘Implementing agency’ of the MoH Contract Autonomous Hospital Boards Direct management Tertiary hospital Position of tertiary hospitals in reformed system

13. Features of implementation • 3 changes of leadership of MoH between 1994 and 2000, stop-go cycle • Structures put in place but not used • ‘Block contracts’ did not evolve • Difficulties in de-linking staff from PSC (but some direct recruitment) • Direct interference by MoH continued • Background to reform implementation was economic decline and shrinking resource availability for health sector

14. Financing • Cost sharing fees for essential package, cost recovery fees for additional services • Package for tertiary hospitals only defined 2001 • Interpretation: cost recovery fees for ‘high-cost’, ‘fast-track’, ‘private’ wards and clinics • Zambian hospitals could not gain by competing for ordinary patients – this became their main strategy

15. Implications of financing strategies • Major use of increased managerial discretion at hospital level • ‘High-cost’ fees quite considerable when ‘bundled’ for an episode of care • eg. Cerebral malaria, adult – price bundle = Kw 11,000, low cost; 294,980, high cost at one government hospital • What are the implications of these fees for hospital behaviour and the services received by low cost users?

16. Cost and revenue by ward (1998, Kwacha) Unit cost % cost = staff Unit revenue Revenue: cost ratio 0.4 0.38 0.41 0.13 0.00 0.00 0.00 0.24 31,469 32,432 24,346 113,885 16,681 11,579 9,921 85,162 56 55 49 69 71 65 62 71 12,461 12,462 9,861 15,181 35 8 9 21,101 High cost wards Med, Surg, M Med, Surg, F Paediatrics Maternity Low cost wards Medical Surgical Paediatrics Maternity NB DATA PROVISIONAL

17. Quality differences between the two services extend to clinical QoC components For example: % Items purchased from the list of drugs prescribed Public hospital X

18. Clinical staff presence per patient on ward, hospital X.

19. Clinical staff presence per patient on ward, Hospital Y

20. Indonesia • Major objective of hospital autonomy programme (‘Swadana’) was to encourage hospitals to recover costs • Hospitals granted Swadana status in waves • Autonomy circumscribed, but less so than in Zambia • Hospital directors have greater control over own-generated resources • Hospitals set fees except for ‘class III’ beds (for the poor) • Hospital can determine service pattern subject to class III beds constituting a minimum of 50% • Favourable financial environment – subsidies increasing throughout period

21. Own revenue as % total income Source: Bossert et al. Hospital autonomy in Indonesia, 1996

22. Trends in fee levels: RSUP dr. Kariadi Source: Bossert et al. Hospital autonomy in Indonesia, 1996

23. District management Provincial management Vertical management Numbers of Class III beds Source: Bossert et al. Hospital autonomy in Indonesia, 1996

24. Class VIP 1.11 0.66 3.58 I 0.49 0.90 2.21 II 0.31 0.94 1.86 IIIa 0.20 1.57 0.52 IIIb 0.10 0.63 - Hospital RSUP Persahabatan RSU Tegalyoso Small private hospital Room charges per unit cost per class Source: Bossert et al., 1996

25. Efficiency effects? • Bossert et al.: • no marked change in LOS and BOR or differences Swadana, non-Swadana • Management systems deemed to have improved • Physician absenteeism reduced due to incentive payments • Lieberman and Alkatiri: • Similar conclusions • Also, increases in BOR in both types of hospital

26. Colombia • Law 100, 1993 – framework for national health insurance system • Contributory regime: contribution = 12% income • Subsidised regime: reduced rate on sliding scale for those judged unable to pay • Cross-subsidy from contributory to subsidised regime • All insured entitled to package of care defined separately for contributory and subsidised members

27. Insurance market in Colombia • Insurance regulation liberalised – market opened to ‘EPS’ organisations to sell insurance packages and contract with networks of provider institutions • ‘Equalisation fund’: Each EPS collects according to the national schedule, remits to equalisation fund and receives back standard sum per patient • =1X for each member of compulsory regime • =0.5X for each member of subsidised regime

28. Changed role of hospitals • Previously directly managed by state Secretariats of Health or mandatory insurance agencies (eg. CISS), or private • Now providing services on the basis of contracts with EPSs, and while non-insurance persists, state Secretariats of Health

29. Key differences from Zambia and Indonesia • Avoids user fees at the point of use • No ‘two-tier’ or multi-tier charging systems • Redistributes entitlements to hospital services by enforcing cross-subsidies within insurance system • Remaining inequities in the differences between contributory and subsidised packages of care • Background to reform has been considerably increased health funding (cf. Zambia)

30. Colombian reforms – evidence of impact • Study of Bogota hospitals: Admission rates Source: McPake et al. Is the Colombian health system reform improving the performance of public hospitals in Bogota? 2002

31. Bogota hospitals: bed occupancy rates Source: McPake et al. Is the Colombian health system reform improving the performance of public hospitals in Bogota? 2002

32. Some evidence of growing activity and productivity • No evidence of falling patient satisfaction or quality • No evidence or expressed concerns about equity impacts • Comparison of World Bank and ECLAC data 1992 and 1997 indicates slightly increased progressivity of government subsidy over period

33. Equity? • Incidence of public expenditure 1992 and 1997 • Jaramillo (2002) Hospitals increased coverage from 35% of population in 1990 to 63% (MoH data, no basis given) Source: 1992: Molina et al. in (1993) World Bank (1993) and ECLAC (1997)

34. Conclusions for market forces model • Limited scope for optimism with respect to equity gains • Clearer evidence that incomplete contracts carry risks of disadvantage for particular patients • Gap for political rather than market forces to dominate – in UK and Zambia, constraints to competition may have exacerbated equity effects – ordinary patients’ business can be taken for granted • Colombian model may protect equity but may not be feasible in low income countries

35. Indications for policy • Recognise that impact depends on context and policy detail • Role to be played by competition needs to be clear and enabled in context of realistic political analysis • Incomplete contracts: increase completeness; apply regulation external to contracts; allow perverse incentives to prevail?