Contracting out publicly financed health services

1. Regional Consultative Meeting on he Role of Contracting in Improving Health System Performance Contracting out publicly financed health services Sameen Siddiqi Regional Adviser, Health Policy and Planning Eastern Mediterranean Regional Office, WHO April 18-20, 2005 - Cairo

2. What is Contracting? • Contracting is a purchasing mechanism used to acquire a specified service, of a defined quality and quantity, at an agreed-on price, from a specific provider, for a specified period1 • Should contracting in health be used as a tool to achieve public sector objectives through private provision? And how? 1 Harding A.; Preker A.S. (2003)

3. What is public and private? • Public – national governments and international development agencies • Private – for-profit corporations, agencies, institutions, individuals • Civil Society Organizations • Organized non-governmentally • Promote public interest

4. Instruments for achieving public policy goals • Policy development • Policy formulation and strategic planning • Resource mobilization and allocation • Resource creation – human, physical • Policy implementation • Direct provision, monitoring and evaluation • Persuasion (Demand creation) • Regulation • Partnership (loose affiliation or legally binding)

5. Contracting out Contracting in Procurement Lease or rental arrangements Subsidy or subvention Franchise Contracting Options for Purchasing Health Services Purchase services from an outside source to a govt. entity using primarily external workforce Purchase services from an outside source for managing an internal service or workforce Purchase supplies and materials from one or more outside source Securing the use, but not ownership, of facilities or equipment from outside source (capital intensive items) Direct or indirect financial support intended to alter the provision or production of a selected service Franchisee is granted the right to provide services to a defined clientele or geographic region, a proportion of the revenue goes to the government Adapted from: Lagenbrunner (2000)

6. Monitor Purchase Private provider Monitor Evaluate Evaluate Direct Provision vs. Government Purchasing Structure/Inputs Government direct provider Government purchaser Process Outputs / Outcomes Contractual arrangement

7. Splitting Financing from Provision Provision Public Private Financing Public Direct Contracting (-in or -out) Private --- ---

8. Why some governments are reluctant to contract out? • Ideologically – Health care is every citizen's right and governments as guarantors • Economic theory – health related public goods with large externalities would not be available without government intervention • Practice – DCs have large network of health facilities, bureaucracies that guard budgetary allocations & administrative authority • Information – MOHs have limited understanding of the private sector Harding A.; Preker A.S. (2003)

9. Analysis of public sector capacity to purchase services • Is there political/bureaucratic support and is there an adequate legal framework? • Is there an accreditation system in place for providers? • Is there a system in place to regulate health care providers? • Is there a contracting unit in public sector agency to administer, monitor and evaluate contracts? • Are information systems in place to allow public sector to use data generated by the contractor?

10. Types of services that could be contracted out • Health related services (Non-clinical) • Catering, security, laundry, maintenance of physical infrastructure • Health services • Primary health care (includes promotive and preventive) • Hospital • Diagnostic (Laboratory)

11. Framework for Evaluating PHC “Contracting Out” Initiatives • Impact: Performance • Access • Efficiency • Equity • Quality Intervention: contracting out to the private sector Response: Provider purchaser behavior Purchaser attributes Type of purchaser Capacity (managerial and financial) • Within scheme: • Provider: input, output & outcome management • Purchaser: performance monitoring • Contractual relationship • Type of services • Contract formality • Contract duration • Provider selection • Specification of performance requirements • Provider payment mechanisms Outside of scheme: Provider market Public service provision • External environment • Legal and regulatory system • Organization of health services • Level of efficiency of public providers Provider attributes Type of provider Capacity Liu X; Hotchkiss DR; et al. (2004)

12. Effect of contracting out of PHC services on Access • 10 out of the 12 projects studied reported improvement in access by increasing provision, utilization and coverage • Indicators of access • Quantity of services provided • Population coverage • Availability of interventions Liu X; Hotchkiss DR; et al. (2004)

13. OP visits to PHCC after contracting out to NGO – district in Pakistan Contracting out begins Loevinsohn and Harding (2004)

14. Effect of contracting out of PHC services on Equity • Strategies: • Contractual arrangements especially encourage providers to serve the poor and underserved • Contracting with providers in areas that are predominantly poor (geographic targeting) • Contracting out services that are of most benefit to the poor Liu X; Hotchkiss DR; et al. (2004)

15. Effect of contracting out of PHC services on Equity • Equity in Provision • Improvement in equity due to improved access, especially if poor are targeted • Equity in Financing • Study from Cambodia has shown reduction in OOP payment • Inconclusive evidence - whether contracted private providers are more successful in improving equity than public providers Liu X; Hotchkiss DR; et al. (2004)

16. Effect of contracting out of PHC services on Quality • 15 out of 18 studies had some quality parameters • Quality of services more likely to be improved if: • It is operationally defined with clear indicators • Quality indicators capture the process of service delivery required in the contract • Quality indicators have association with utilization of services • Uncertain evidence whether contracted out health services improve quality compared with direct provision Liu X; Hotchkiss DR; et al. (2004)

17. Effect of contracting out of PHC services on Efficiency • Contracted providers deliver services at lower cost than public sector counterparts while maintaining quality (S Africa, Zimbabwe) Miils, Hongoro and Bloomberg, 1997 • NGOs performed better than government counterparts with similar amounts of resources (Pakistan, India, Bangladesh, Cambodia) Loevinsohn and Harding, 2004 • Most studies look at operational costs and not capital investments • Cost of managing the contract 13-17% • Equivocal evidence that contracting out improves efficiency

18. Potential Pitfalls of Contracting • High transaction costs - government may not capture the efficiency gains • Contracts poorly designed or managed due to low government capacity • Small or a weak private sector, with limited number and capacity of bidders • Problems of price setting – Govt. overestimates resources needed and overpays contractor • Government allocates inadequate resources for M&E of performance of contractor

19. Contracting out health services in countries in complex emergencies • Years of crisis have led the ministries of health to be weakened or become ineffective • Public sector health services are disrupted • Donor financed national and international NGOs proliferate as the major provider of health services • What should revitalized ministries of health do: • Direct provision • Contract out • Appropriate mix

20. Points to ponder for EMR Countries! • Should governments opt for contracting out publicly financed health services • Under what circumstances • For what services • With what capacities • When should governments NOT opt for contracting out and retain its role as the principal guardian of the essential health system functions?