Contracting with Private Sector

1. Contracting with Private Sector Hospitals

2. Definition • Contracting is a purchasing mechanism used to • Acquire a specified service • Of a defined quantity and quality • For a specified period. • Not a “1-off” exchange…rather… • Ongoing exchange relationship, supported by a contractual agreement Taylor, 2005

3. “What” …Definitions • Written formalization of the process of agreements between purchaser and provider • Define clearly • Purchaser and provider • Scope definition and volume of services • Price to be paid • Minimum quality of services • Administrative arrangements…..mgmt/m&e KEY! • Our Perspective:Insurer or Gov’t (not manager)

4. Why? • Ensuring Services for Beneficiaries • Contracting a sufficient number of qualified providers • Acting as a broker between patient and provider to assure timeliness and suitability of the needed services • Performance Review of Providers as Agent of the Beneficiary • Financial Monitoring (Submitted claims for payment) • Clinical Appropriateness & Quality of Care • Paying the services • Optimizing Resource Use and Quality • Selecting providers • Selecting Interventions • Selecting volume of interventions • Selecting payment system • Creating a win-win situation for purchaser and providers • Sticks & carrots

5. Contracting with the Private SectorIs it a New Idea?Does it Exist Widely?

6. Common in Non-OECD Countries (Mills and Broomberg, 1998)

7. And in OECD Countries… • Germany • Netherlands • Switzerland • Austria • United Kingdom • Estonia • Czech Republic • Canada • USA • Japan • South Korea • China Taiwan

8. Range of Contracting Public Health and Primary Care Clinical Support Services Specialized Clinical Services Hospitals Family Planning Labs, Imaging Dialysis/ Private Management Transplants Increasing Impact ??

9. Does it Work? • South Africa • 2 build-own-operate district hospitals under 10 year service contracts • 3rd hospital publicly built and privately managed • Studied by Broomberg, Masobe and Mills (1997) • Matched against similar public facilities • Higher productivity • Lower staff costs • Improved staff mix

10. Is Contracting the Same as PPP?

11. common terms Options Private sector responsibility Public sector responsibility Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Contracting non-clinical support services Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Outsourcing Contracting Provides clinical support services such as radiology or laboratory services. Contracting clinical support services Outsourcing;PPP Manages hospital and provides clinical services; manages contract and pays for services. Contracting specific clinical services Outsourcing; PPP Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Manages hospital and provides most clinical services; manages contract and pays for services. Buying hospital services Contracted private hospitals provide services in accordance with contractual provisions Contracting; Purchasing Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Private management of public hospital Operating contract Private financing, construction, and leaseback of new public hospital Manages hospital and makes phased lease payments to private developer. Finances, constructs, and owns new public hospital and leases it back to government PFI Reimburses operator for capital costs and recurrent costs for services provided. BOO Private financing, construction, and operation of new public hospital Services & capital contract Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. BOOT Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Co-location Sale of public hospital for alternative use Monitors conversion to ensure adherence to contractual obligations. Purchases facility and converts it for alternative use depending on sales agreement Privatization

12. common terms Options Private sector responsibility Public sector responsibility Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Contracting non-clinical support services Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Outsourcing Contracting Provides clinical support services such as radiology or laboratory services. Contracting clinical support services Outsourcing;PPP Manages hospital and provides clinical services; manages contract and pays for services. Contracting specific clinical services Outsourcing; PPP Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Manages hospital and provides most clinical services Buying hospital services Contracted private hospitals provide services in accordance with contractual provisions Contracting; Purchasing Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. Contracting Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Private management of public hospital Operating contract Private financing, construction, and leaseback of new public hospital Manages hospital and makes phased lease payments to private developer. Finances, constructs, and owns new public hospital and leases it back to government PFI Reimburses operator for capital costs and recurrent costs for services provided. BOO Private financing, construction, and operation of new public hospital Services & capital contract Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. BOOT Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Co-location Sale of public hospital for alternative use Monitors conversion to ensure adherence to contractual obligations. Purchases facility and converts it for alternative use depending on sales agreement Privatization

13. common terms Options Private sector responsibility Public sector responsibility Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Contracting non-clinical support services Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Outsourcing Contracting Provides clinical support services such as radiology or laboratory services. Contracting clinical support services Outsourcing;PPP Manages hospital and provides clinical services; manages contract and pays for services. Contracting specific clinical services Outsourcing; PPP Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Manages hospital and provides most clinical services Buying hospital services Contracted private hospitals provide services in accordance with contractual provisions Contracting; Purchasing Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. “PPPs” Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Private management of public hospital Operating contract Private financing, construction, and leaseback of new public hospital Manages hospital and makes phased lease payments to private developer. Finances, constructs, and owns new public hospital and leases it back to government PFI Reimburses operator for capital costs and recurrent costs for services provided. BOO Private financing, construction, and operation of new public hospital Services & capital contract Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. BOOT Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Co-location Sale of public hospital for alternative use Monitors conversion to ensure adherence to contractual obligations. Purchases facility and converts it for alternative use depending on sales agreement Privatization

14. India…PPP or Contracting? • Rajiv Ghandi Super Specialty Hospital, Karnataka • Poor District of 1.7 million people 90 KM from Bangalore • Govt constructed and equipped (350 beds) + direct subsidy • Idle for 2 years 10 Year concession Private management Apollo Hospital Corporation Governing Council Government Audits High Levels of Patient Satisfaction

15. 3 Basic Types of Contracts(Specific or General Services?) • Block Contracts • Fixed sum for access to services, regardless of volume • Providers guaranteed income • High Volume and Low Cost Setting when access critical (e.g., maternity services) • More than 1 Service or Specialty • 1-2 activities monitored

16. And… • Cost and Volume • Agreed baseline volume and price for each • Above baseline, marginal payments • Multi-specialty, specialty or even procedure specific • “Tolerance bands” around baseline to protect both purchaser and provider • 2-5% and depends on volume and potential for change in case mix • Cost Per Case Contract • Can Specify Volume Cap or Not

17. Summary..when and what

18. Russia (Kemerovo): Cost and Volume Contracts (1998-2000) • Retrospective Cost Per Case to Prospective Negotiated Volumes • Risk Corridors (sharing) for deviations from targets • Day Care Cases Also Doubled

19. Following the Money: Government/SHI – Private Provider • Supply-Side Budget Funding • “Demand-Side” Financing • Purchaser • Consumer • Out-of-Pocket Payments • “Patient Follows the Money” • “Money Follows the Patient”

20. East Asia Countries Rely Heavily on OOP for Health System Revenues Source: : Langenbrunner et al., Health Financing Note East Asia and Pacific Region, World Bank, 2011

21. Third-Party (Pre-Payment) Purchasing Also Important…. In recent years…move to Supply-Side to Demand-Side “Strategic Purchasing”

22. Taxes Government Agency Public Charges/ Resource Sales Public Providers Social Insurance or Sickness Funds Mandates Private Insurance or Community-based Organizations Grants Private Providers Loans Employers Private Insurance Individuals And Households Communities Out-of-Pocket Strategic Purchasing can include elements of Risk Pooling, Contracting, and Payment Revenue Pooling Resource Allocation Collection or Purchasing (RAP) Service Provision Public Private Source: World Bank

23. “The Whole Point of Strategic Purchasing is toChange Behavior”

24. “The Whole Point of Strategic Purchasing is toChange Behavior” by Providers….to improve Quality and Resource Use…for improved performance and outcomes

25. Contracts are One Mechanism for implementing Payment Systems Paying for inputs Paying for outputs Paying for performance • DRGs • Capitation • Full capitation with performance incentives • Episode-based payment with performance incentives • Line item budgets • Fee-for-service with no fee schedule • Fee-for-service Paying for outcomes/ results • P4P

26. Case-Based/DRGs Global Budgets Capitation Pay Level Unit Fee for Service

27. FEE-FOR-SERVICE (US, Canada, parts of Europe, Philippines, Vietnam) + QUALITY ACCESS/ DEMAND - COST-CONTAINMENT Missing Providers in Remote Regions?

28. CASE-BASED (Europe, US, Thailand, Indonesia? Philippines?) + - COST-CONTAINMENT ACCESS QUALITY

29. CAPITATION (e.g., Parts of US, Canada, Europe, Thailand) + - COST-CONTAINMENT ACCESS QUALITY

30. Incentives Always Matter

31. Contracting with Hospitals: the Process

32. Performance-Based Contracting for Health Services in Developing Countries-A Toolkit

33. Start Simple • Identity of parties • Their obligations • Terms for renewal • Conditions of termination • Recourse for non-performance • Arbitration or mediation

34. 1. Dialogue with Stakeholders 2. Define the Services 7. Carry out Bidding Process and Manage the Contracts 3. Design the Monitoring and Evaluation 6. Draft Contract & Bidding Documents 4. Decide how to Select Contractors and Establish Price 5. Arrange for Contract Management Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20)

35. 1. Dialogue with Stakeholders/ Feasibility? 2. Define the Objectives/Services 7. Carry out Bidding Process and Manage the Contracts 3. Design the Monitoring and Evaluation 6. Draft Contract & Bidding Documents 4. Decide how to Select Contractors and Establish Price 5. Arrange for Contract Management Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20)

36. Defining Objectives • A big advantage in contracting is results focus so concentrate on outputs/outcomes, not inputs. • The purchaser should objectively define: • Quantity of services (e.g., case-mix and volumes? Or specific services to relieve queue? Special such as high tech surgeries? ) • Technical Quality (e.g., national technical guidelines) • Equity (ensuring the poor receive services)

37. Hospital Services – “Buyability” How Easy to Buy? Harding and Preker, 2000

38. Paying Providers based on Performance • What is it? Measure performance of participating providers and set financial incentives for improving performance, leading to better outcomes Payment  Incentive  Performance  Outcomes/Goals

39. Global budgets allocated in monthly installments • A 10% retention bonus fund for compliance with performance indicators including • Good quality (e.g., hygiene and sterilization practices) • Patient satisfaction (no overcharging and perceptions of quality) • No fraud (ghost patients) • Hire and fire staffing policies • Staff mix flexibility/Salary adjustments/bonuses and staff/ promotions flexibility • Outcomes • Improvement in quality • general and surgical mortality • lower infection rates • Higher efficiency • improved bed turnover rates, occupancy rates, lower length of stay • physician hours • lower expenditure per admission Brazil

40. Brazil (2) • Main Contractual Terms Related to Global Budget • Inpatient discharges by service • Day hospital discharges • Emergency consultations • Outpatient consultations • Diagnostic tests • Retention Fund (compliance with benchmarks)

41. 1. Dialogue with Stakeholders 2. Define the Services 7. Carry out Bidding Process and Manage the Contracts 3. Design the Monitoring and Evaluation 6. Draft Contract & Bidding Documents 4. Decide how to Select Contractors and Establish Price 5. Arrange for Contract Management Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20)

42. Selecting the Provider • Relational Contracts with any Provider • Basic Quality Standards -- Accredited or Licensed? • Long-term relational contracts ..tends to be rule with Govt-non-State providers • Selective Contracting? • Which types of Services • Well-defined: Cataract, surgical procedures • “Spot” contracts?

43. Selecting the Provider • Relational Contracts with any Provider • Basic Quality Standards -- Accredited or Licensed? • Selective Contracting? • Which types of Services • Well-defined: Cataract, surgical procedures • Hybrid Approach • Any provider, but Levels of Payment/Co-Pays according to quality and performance

44. Selecting the Provider • Relational Contracts with any Provider • Basic Quality Standards -- Accredited or Licensed? • Selective Contracting? • Which types of Services • Well-defined: Cataract, surgical procedures • Hybrid Approach • Levels of Payment according to quality and performance • Public and Private? How about Non-Profit?

45. Why Contract with Private Sector? • Growing • Draw Investment Flows • New Services not in Public Sector • Haiti, Guatemala, Cambodia, Romania • Harnessing • Gov’t buyer can harness sector to achieve priority goals • South Africa – slide 13, reaching the poor • Guatemala, Argentina – geographic regions of poor • Philippines (2011) – Mandate beds for poor/scale up to UHC • Convert Public to Private Management • India, PPPsetc (April covers….

46. Save Money and Improve QualityEncourage Competition Private Sector allows Selectivity

47. Purchaser Contract Provider

48. Romania – “Growing” • Major Public Hospital in Bucharest • 21 Private Operators of CT Scans invited to bid for services • Indicative volume • Set service and quality parameters • Public patients a priority but private pay patients allowed and fee schedule developed • Public services offered at 35% discount, renovated space and new equipment…all without government expenditures

49. Establishing Price… = Costs? • “Top-Down” • Cost Accounting • Philippines – 18 hospitals • Germany – 52 hospitals • Brazil – improved over time…benchmarked • “Bottom-Up” • Time and Motion • Activity-Based Costing (“ABC”) • Negotiation • Sometimes…no cost data… • Services may need to be well-defined

50. Private Provider Rate Level Playing Field? Public Provider Rate Capital Re-current