Financing Health & Health Care: Call for More Creativity & Hard Choices

1. Financing Health & Health Care:Call for More Creativity & Hard Choices Cambridge IHLP 2006 Jim Rice jrice@larsonallen.com

2. Money into sector Money within sector Money within institution Not this: Accounting Actuarial Cash flow Operational budgeting Capital budgeting Service line cost accounting Contracting What we look at

3. Flow of Discussions in Finance Track • Overview of issues and options: Jim Rice • Sources of Capital • Sources of Finance, Types of Insurance • Provider payments • Multi-donor Challenges & Trends: Ken Grant • Lunch • Trends in balancing Private Health Insurance • Satellite video link to World Bank in Washington DC • Alex Preker and Nicole Tapay

4. Often Confusion Among Policy Makers and Implementers

5. Sector Performance Goals:Macro Targets toward which we invest funds: • Efficiency... • Macro-efficiency, health as percent of GDP • Micro-efficiency, maximizes units of service per expenditures • Equity... • Adequacy and equity in use of care • Income protection/transfer • Effectiveness... • Optimal outcomes...status/well being/functionality • Optimal consumer/taxpayer satisfaction • Choice-Freedom... • Freedom of choice by consumer/citizen • Degree of provider autonomy (Refer to papers on CD for New Compact)

6. Effective Health sector leaders must master money flows...Not just epidemiology, medicine, public heath, communications • Sources and Uses of Funds • Key Policy Questions Shaping Funds Flow • Strategies to Harness Power & to Shape Policy Development • Strategies to Develop Leadership KSAs • Knowledge • Skills • Attitudes

7. Insurance Premiums Sickness Tax Fees Bonds & Mortgages Dedicated V.A.T. or Excise Taxes General Treasury Donations Philanthropy Sources and Uses of Funds: Show me the money... Health Sector Professional Education & Training 3% 5% Capital Investments: -- facilities -- technology Health Restoration: -- hospitals -- doctors -- pharmacies -- alternate modes Public Health Protection & Promotion Research & Development 85% 2% 5%

8. Capital Sources for Technology and Facilities • Government line item • Private Financing Initiative (PFI) • New “Bond” Mechanisms (enabling legislation or tax code refinement required) • Mortgage Mechanism (ala a home or business) What are they? How Developed? Pros and Cons of each, in certain settings?

9. Themes of Reforms:Cross-National Lessons? • Move toward Universal Coverage • Strengthen government control over percent health consumes of GDP • Decentralize the public system • More cost sharing by users • New risk-coverage/pooling programs • More reliance on market forces to induce responsiveness and accountability by all • Government role evolving to goal setter/payer and performance monitor/assurer • Move to rely on “contracts” to clarify accountabilities • Renewed Focus on behavioral determinants of health status...Healthy Communities/Lifestyles

10. Complex Policy Choices:The Purchaser Side • Forms of Insurance • National Health Insurance • Mandated Private • Voluntary Private: • Top-up Supplemental • Opt-out Full • Medical Savings Accounts: • Alone • With NHS • With re-insurance • Catastrophic Re-Insurance Covered Groups Civil Servants Employed Local Employed Expats Children Pensioners All groups Covered Benefits Basic Public Health Primary care Hospital Care Dental Vision Care Transplants Pharmaceuticals Catastrophic Cases Level of Coverage First dollar Cost above limit Shared Risk Corridors Deductible Amount Co-payments Percent of fee schedule • Degree of Private • Insurance companies • Brokers sell public • Outsource full admin • Outsource functions: • Enrollment • Contribution collection • Subscriber relations • M.I.S. • Quality assurance • Provider contracting • Claims adjudication • Accounting • Investment portfolio • Form of “Premium” • Per capita from treasury • Per capita by Employer or Association • Premium risk based • Premium community based • Percent of wage • Who Pays for Whom? Combinations are possible

11. Overlooked, underdeveloped lever for change in health sector? Health sector resource needs Tax Code More Than Public Health Policy?

12. Contracting choices … • Salary: • No incentive comp • Creative incentive comp • Fee-for service • Per day • Per stay/case no adjustments • Per stay adjusted • Per capita • Global budget Pluses? Minuses?

13. Provider Payments Must Respond to Local Realities and Desired Outcomes Issue 1. People are increasingly becoming aware (because of the spread of democratization) that quality health services need to be provided more efficiently and equitably to larger constituencies of people. Issue 2. Health services are being threatened by economic recession, which is leading to cutbacks in recurrent budgets and a decline in capital development. Issue 3. Demographic patterns and diseases are changing urbanization, the emergence of HIV/AIDS, the resurgence of diseases like malaria and tuberculosis, and the rising incidence of non-communicable diseases and diseases attributable to lifestyle‑thereby placing different demands on health services than in the past.

14. Constraint 1.The inefficient distribution of scarce resources. Hospital care still consumes most expenditures, salaries absorb the bulk of recurrent costs, and urban areas get more resources than rural areas. Constraint 2.Poor systems for budgeting, for disbursing, for purchasing, and for monitoring expenditures that have failed to achieve an equitable distribution of health care resources. Constraint 3.Lack of access to health care for populations that are disadvantaged because of such factors as location, age, sex, poverty, unavailability of services, unemployment, and bad planning or management of services. Constraint 4.Services that do not respond adequately to local needs. For example, the poor quality of many services leads to under-utilization, unmotivated and poorly trained staff, long waiting periods, inconvenient clinic hours, inadequate drug supplies, lack of confidentiality, financial exploitation by the private sector, and no safeguards against dangerous treatments.

15. The goals of cost saving and cost predictability determine the following primary requirements to the selection of payment methods: • In primary outpatient care: • incentives should exist for providers to be interested in maintenance of enrollees’ health and decrease in frequency and severity of acute conditions in chronically ill populations; • incentives should exist for providers to render more services and reduce inappropriate referrals to specialty physicians and hospitals; • reasonable utilization of available resources (first of all, ancillary services) should be encouraged. • In hospital: • incentives should exist to optimize inpatient care utilization through reduction of inappropriate admissions; • incentives should exist to reduce length of stay (LOS); • efficient utilization of available resources should be encouraged.

16. Provider Payments: Four Basic Methods, Many Variations • budgetary transfers, • capitated payments (capitation), • fee-for-service and • case-based payments. Vary in Outpatient Primary Care or Inpatient Acute Hospital

17. Retrospective payment for the services provided. Health care provider determines what types and volumes of care to provide, and the financing party pays the claims when submitted; Prospective payment for the planned volume of services. The financing party and the health institution plan services by volume and structure, and then negotiate the order for health services dependent on the expected demand for services, available financial resources, and economic interests of the parties. This principle implies a more proactive role of the financing party as health care purchaser, on the one hand, and a higher level of business management demonstrated by the provider organization, on the other hand. The volume of care and the structure of costs should be planned in such a manner as to ensure that costs suffered by the provider were, at least, recovered.

18. Payment for Outpatient services: • For technological operations and procedures performed (per detailed service). • Per visit. • Per finished outpatient case. • Per capita funding of primary care provided to enrollees. • Per capita funding of the entire scope of outpatient services provided to enrollees (complex outpatient service). • Per capita funding of the entire scope of outpatient services and part of inpatient services provided (partial fundholding). • Per capita funding of the entire scope of outpatient and inpatient services provided (full fundholding).

19. Payment for Inpatient services: • : • for reported number of bed-days; • for reported number of finished cases; • global budget in exchange for negotiated and planned utilization and structure of inpatient care. • Per capita payment for defined population group

20. New Provider Payment Systems: Mix and Match Methods • Depending on Goals at Given Point in Time: politics and Economy • “Per Finished Case or Fee-for-Service for Outpatient Care and Per Finished Case for Inpatient Care” • “Per Finished Case or Fee-for-Service for Outpatient Care and Per Diem for Inpatient Care” • “Per Capita for Outpatient Care Per Finished Case for Inpatient Care” • “Polyclinic Expenditure Budget Funding and Per Finished Case for Inpatient Care” • “Per Capita for Outpatient Care and Per Diem for Inpatient Care”

21. Contracting choices … • Salary: • No incentive comp • Creative incentive comp • Fee-for service • Per day • Per stay/case no adjustments • Per stay adjusted • Per capita • Global budget Pluses? Minuses?

23. Changing Patterns of Provide Payments Implications for your country? Will similar patterns occur? When might such patterns occur? How will the patterns vary in your setting? How will the implications to providers behavior vary in your country?

43. Countries must ... redeploy repair-shop resources to revitalize and rationalize regional responsibilities for reformed reliance on: Risk-research Risk-pooling Risk-management Results reporting Rewarding results Strategy requires us all to consider... Redefine hospital Redefine risk Redefine responsibilities Redefine results Redefine rewards Ultimate Strategy?Pay attention to macro economics Where does leadership come in?

44. http://www.who.int/whr/2000/en/whr00_en.pdf

48. If our health financing policy was rational …