HEALTH ECONOMICS TECHNICAL BRIEFING NOTE PRIVATIZATION IN HEALTH
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- Title
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HEALTH
ECONOMICS
TECHNICAL BRIEFING NOTE
PRIVATIZATION IN HEALTH - extracted text
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PRIVATIZATION
IN HEALTH
HEALTH
ECONOMICS
TECHNICAL BRIEFING NOTE
PRIVATIZATION IN HEALTH
Jeff MUSCHELL
Division of Strengthening of Health Services
WHO TASK FORCE ON
HEALTH ECONOMICS
June 1995
Other documents in the «Task Force on Health Economics» series are:
-
A bibliography of WHO literature.
WHO/TFHE/93.1. e-mail access: hecon I @who.ch
-
A guide to selected WHO literature.
WHO/TFHE/94.1. e-mail access: hecon2@who.ch
-
Une demarche participative de reduction des coflts hospitaliers. Hospices cantonaux
vaudois (Suisse).
WHO/TFHE/95.1. e-mail access: hecon3@who.ch
-
Environment, health and sustainable development: the role of economic instruments and
policies.
WHO/TFHE/95.2. e-mail access: hecon4@who.ch
-
Identification of needs in health economics in developing countries.
WHO/TFHE/95.3. e-mail access: hecon5@who.ch
Health economics: a WHO perspective.
WHO/TFHE/95.4. e-mail access: hecon6@who.ch
'.ot>
©
World
Health Organization,
1995
This document is not a formal publication of the World Health Organization (WHO), and
all rights are reserved by the Organization. The document may, however, be freely reviewed,
abstracted, reproduced and translated, in part or in whole, but not for sale or for use in
conjunction with commercial purposes.
The views expressed in documents by named authors are solely the responsibility of those
authors.
For users of electronic mail: this document may be accessed at the following address:
hecon7@who.ch
CONTENTS
FOREWORD
v
INTRODUCTION
1
1. DEFINING PRIVATIZATION AND THE PRIVATE SECTOR
3
3
3
1.1
1.2
1.3
Privatization and public market mechanisms
Components of the public sector
Combinations of public and private sector financing
and provision
3
2. FACTORS INFLUENCING PRIVATIZATION STRATEGIES
2.1
2.2
Economic assumptions and political motivations
Active vs. passive privatization
5
5
5
3. APPROACHES TO ACTIVE PRIVATIZATION
3.1
3.2
3.3
Divestiture of public assets
Public contracting for private sector service provision
Incentives and regulatory stimulation to private sector
growth
7
7
8
10
4. PASSIVE PRIVATIZATION
13
5. PUBLIC (OR INTERNAL) MARKET MECHANISMS
15
6. PRIVATIZATION: ARE SOCIAL OBJECTIVES AT RISK?
17
17
18
6.1
6.2
Why governments are necessary in health
Public management of privatization
REFERENCES
19
FURTHER READING
20
FOREWORD
Building upon activities already undertaken in the area of health economics,
the Director-General created the Task Force on Health Economics (TFHE) in November
1993 in order to enhance WHO's support to Member States.' Its goal is to further
the use of health economics in the formulation and implementation of health policies,
giving priority to countries in greatest need.
The Task Force aims not only to strengthen the technical content of WHO
programmes so that they can better adapt the tools of health economics to country
needs, but also to foster cooperation among development agencies in applying health
economics at country level.
A series of documents in English and French is now available (a list of which
can be found at the end of this paper) to help meet the information needs of both
those involved in the organization, planning and financing of the health sector and
health professionals whose expertise may lie in other areas.
This paper is the first in a new series of Technical briefing notes. These notes
tackle subjects of concern to health policy decision-makers, particularly in developing
countries. They are intended to provide readers who are not necessarily familiar with
the health economics aspects of a subject, with information designed for non-specialists.
Nonetheless, the notes are comprehensive and reflect the entire scope of a given topic.
The series start with this note on privatization in health, an issue which is clearly
at the forefront of many discussions in ministries of health in developing countries
and elsewhere, and among policy-makers worldwide.
1 Members of the Task Force are: J.-P. Jardel (Chairman), M. jancloes (Vice-Chairman), C. Carrin (Secretary), S. Bertozzi,
A.L. Creese, D.B. Evans, K. Janovsky, J.M. Kasonde, C.M. Kinnon, E. Lambo, P. Lowry,
J.H. Perot, B. Sabri, C. Sakellarides, Than Sein, L Tillfors, C. Velasquez, C Vieira, A.E. Wasunna.
ACKNOWLEDGEMENT
The author wishes to thank the members of the Task Force for their comments
and suggestions, as well as Ing. F.F. Papa-Blanco for kindly volunteering to lay out
the document.
- vi -
HEALTH ECONOMICS
INTRODUCTION
This technical briefing note provides an introduction to some of the key concepts
associated with privatization in the health sector. Although commonly used, the term
«privatization» can be a source of confusion because it is applied to several distinct
types of change taking place in the health sector. This note aims to clarify
the differences among these types of change and presents some of the potential
consequences of a greater role for the private sector in health.
Structure of the briefing note
Section 1 Defines privatization, identifies the components of the private sector, and
provides a table depicting various combinations of public and private financing and
provision of health services.
Section 2 Reviews the recent increase in emphasis on private financing and
provision of health care services and identifies two broad categories of privatization
(active and passive privatization).
Section 3 Provides descriptions and selected examples of three major forms of
government-driven, active privatization policies, and discusses the potential impacts
of each in terms of equity, efficiency and quality of care. The particular strategies
reviewed are:
•
•
•
Divestiture of public assets
Public contracting with private sector providers
Incentives and regulatory stimulation of private sector growth
Section 4 Discusses passive privatization, or changes in the relative balance
between public and private sectors which occur because of factors that are not
necessarily linked to public policy.
Section 5 Provides a brief discussion of internal market mechanisms.
Section 6 Points to the potential conflict between private financing and provision
mechanisms and public health objectives, and presents strategies for public manage
ment of the privatization process.
PRIVATIZATION IN HEALTH
1
HEALTH ECONOMICS
1.
DEFINING PRIVATIZATION AND THE PRIVATE SECTOR
1.1 Privatization and public market mechanisms
Privatization can be defined as a process in which non-government actors become
increasingly involved in the financing and/or provision of health care services. A
distinction should be made between the process of privatization and the public/private
mix in the health sector. In most countries, both public and private sectors play a
role in the financing and provision of health care, although the relative size and
importance of each sector vary significantly from system to system. Privatization
involves changes in public and private roles and responsibilities in the health sector,
and generally includes changes in actual ownership of the means of financing and/
or producing health care.
The term privatization is often applied less accurately to policies that are designed
to establish a «public marketw or an internal market (1). Such policies encourage
competition or market-like behaviour within the public sector. Examples of internal
market policies include performance-related payment mechanisms (e.g. capitation),
or policies designed to encourage patient choice of provider. These strategies
do not fit the precise definition of privatization cited above, since they do not
necessarily involve changes in public or private responsibility for health services
financing and provision.
1.2 Components of the private sector
The private sector encompasses both for-profit and not-for-profit (NFP) subsectors
and therefore includes not only health workers in private practice but also local and
international NGOs, mission organizations, voluntary associations and other groups.
It is often assumed that the objectives and motivations of the NFP subsector are
similar to those of the public sector (2). One important similarity between the NFP
subsector and for-profit providers, however, is that both subsectors are more likely
to be concerned with issues of efficiency and resource management than public sector
providers, mainly because the «financial survival» of both NFP and for-profit providers
is not certain.
1.3 Combinations of public and private sector financing and provision
Different combinations of public and private responsibility for the financing and
provision of health care services can be depicted as in the table below. The process
of privatization can be represented as a shift from one cell to another (e.g. from
cell A to cell C).
PRIVATIZATION IN HEALTH
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HEALTH ECONOMICS
The table below provides a convenient means of depicting alternative financing and
provision relationships between the public and private sectors. In most countries,
several different financing and provision arrangements (i.e. «cells») will co-exist. A
fairly serious limitation of the table is its inability to illustrate changes taking place
within cells. For example, internal market policies cannot be depicted as a shift from
one cell to another, but rather as a change taking place within cell A.
Possible combinations of public and private sector financing and provision
RESPONSIBILITY FOR PROVISION
FINANCING
SOURCE
PUBLIC
PRIVATE
PRIVATE
NOT-FOR-PROFIT
PRIVATE
FOR-PROFIT
n Public insurance
contributions used to
purchase the services
of NFP providers.
a General revenues
used to purchase the
services of private
for-profit providers.
CELL A
CELLB
CELL C
n User fees paid for
private use of public
facilities.
User fees paid of NFP
facilities.
CELLD
CELLE
PUBLIC
n General tax revenues
used for direct public
provision.
n Private insurance
payments paid to
providers in private
practice.
CELL F
Note: Each cell provides one example of a financing/provision combination. Other combinations are
possible. Specific combinations that are discussed in the text below are marked with the symbol n.
4
tfhe technical briefing note
HEALTH ECONOMICS
2.
FACTORS INFLUENCING PRIVATIZATION STRATEGIES
Health sectors may become more «privatized» in response to a variety of pressures,
both with and without the active collaboration of governments.
2.1 Economic assumptions and political motivations
Policy-makers are often driven to privatize the health sector because of a number
of preconceived notions about the benefits of privatization. Some commonly held
assumptions about privatization and the private sector in health are listed below. The
extent to which these assumptions are valid is discussed in more detail in the remainder
of the note.
•
Assumption: The private sector is free from the administrative and political
constraints commonly associated with public bureaucracies (3). From this perspective,
privatization is seen as a way to improve resource management and thus lead to more
efficient and effective health services delivery.
•
Assumption: Scarce government resources will be «freed up» to provide services
for the poor to the extent that those individuals who are willing and able to pay for
health services seek care outside the public sector.
•
Assumption: The infusion of «market forces» (e.g. in public market policies),
such as competition and incentives, will lead to improvements in service quality.
Privatization has also been driven by changes in social organization and political
structures. Countries in all regions have sought to move from centrally planned
economic decision-making toward an acceptance of market economics. One
consequence of this trend has been a shrinking government presence in sectors
previously dominated by government.
While privatization has been a policy focus in many countries, some governments including several of the countries in the Eastern Mediterranean Region - have not
developed explicit policies toward privatization.2 In these cases, the relative role of
the private sector in health has not yet become a major concern.
2.2 Active vs. passive privatization
Although privatization often occurs as a direct result of government policy changes,
it can occur even without specific policies targeted at the health sector. For this
reason, it is useful to distinguish two broad categories of privatization processes.
2 Countries such as Bahrain. Kuwait. Oman, Saudi Arabia and the United Arab Emirates have been able to continue
providing free services of good quality to their populations, although resource constraints have emerged as an
important policy concern. Source: EMRO communication.
t
PRIVATIZATION IN HEALTH
5
HEALTH ECONOMICS
•
Active privatization: the government actively encourages changes in the public/
private mix.
•
Passive privatization: the private sector grows on its own accord, without any
related changes in government policy.
Within the broad category of active privatization, there are a variety of strategies that
serve to increase the involvement of private sector actors in health services financing
and provision, several of which are discussed in section 3 below.
6
TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
3. APPROACHES TO ACTIVE PRIVATIZATION
Policies designed to actively increase private sector involvement in health care financing
and provision can result in complex, often blurred relationships between public and
private sectors. Sometimes the same people are engaged in both sectors, and health
facilities may be used for both public and private service provision. Because of the
inherent complexity of privatization strategies, the implications for the role of government
are difficult to predict, and will vary from strategy to strategy and from setting to
setting.
From a practical viewpoint, it is extremely difficult to assess the ultimate impact of
privatization strategies on health status. An alternative is to evaluate the impact of
privatization on a set of interim policy objectives such as equitable access to health
services, efficient use of resources, and quality of care.
3.1
Divestiture of public assets
Description and selected examples
In the strictest sense, privatization involves a transfer of ownership, in which the
State divests itself of public assets to private owners. The primary objective of
divestiture is to reduce the scale of government commitments.
In the Czech Republic, for example, the government plans to transfer 70% of existing
hospital beds to both NFP and for-profit subsectors by 1996. Private sector financing
of health care is also being encouraged through the development of private for-profit
health insurance schemes (4). In China, health reforms begun in the 1980s fueled
a rapid rise in the role of the private sector in both health financing and provision.
Many village health centres were sold and converted into private clinics (5).
Potential impacts of divestiture
•
Equitable access to care: Too much reliance on private sector financing
mechanisms may result in inequities in access to care. In the Czech Republic,
private insurance companies are beginning to compete on the basis of patient
selection, which may serve to diminish equity (4). Some observers suggest that
adverse equity effects may result from a failure to recognize the importance of
maintaining financial «safety nets» for health systems, particularly in poor rural
areas (6).
•
Efficient use of resources: While divestiture of public assets will
undoubtedly reduce the burden of public sector financing, there is a risk that
higher health care costs may be associated with uncontrolled privatization, as
private providers seek to maximize revenue. Efficiency may be diminished
further if providers have incentives to provide unnecessary and expensive care
(e.g. unneeded tests, excessive reliance on costly equipment). Such incentives
PRIVATIZATION IN HEALTH
7
HEALTH ECONOMICS
are common in private for-profit insurance schemes, in which a third party (the
insurance company) reimburses providers on a fee-for-service basis.
•
Quality of care: There is sufficient evidence, particularly from non
health sectors, that competition and private initiative can lead to better quality
goods and services. In the private provision of health services, however, quality
of care is often in delicate balance with competing objectives of efficiency, equity
and resource generation. In China, the rural health care system eroded during
the recent period of rapid privatization, and there is considerable debate about
the extent to which privatization policies may have led to a deterioration in the
health status of the rural poor.’ It is conceivable, therefore, that cost containment
strategies and/or profitability objectives could compromise efforts to improve
service quality/
Public contracting for private sector service provision
3.2
Contracting involves shifting partial or complete responsibility for the provision of
clinical or non-clinical services to the private sector, while the responsibility for
financing remains with the public sector. Contracting arrangements are diverse and
are evolving rapidly. A selection of some of the most recent developments in
contracting is discussed below.
3.2.1
Contracting with the private for-profit subsector
Description and selected examples
Past contracting arrangements are fairly common for intermediate health care inputs
(e.g. non-clinical services such as laundry and catering, hospital billing, etc.).’ Recently,
contracts with for-profit providers for the provision of preventive and curative health
care services have become more prevalent.
Contracting can take a variety of forms, and can be adapted to meet the needs of
individual countries. In Namibia, surgical care in rural areas is often carried out by
teams of GPs in private practice, under contract with the Ministry of Health. Contracts
can also be developed with specific institutions; Zimbabwe has had some experience
developing contracts with mine hospitals for the provision of services to eligible
populations (2). And in the UK, as many as 30 different clinical services have been
contracted to the for-profit subsector; many contractors are foreign companies (7).
’ The Government of China has in recent years taken steps to improve the health status of the rural poor.
4 In the Western Pacific Region, a private for-profit hospital in Papua New Guinea has had difficulties in
maintaining quality of care, and is experiencing related problems with utilization and. thus, profitability. Source:
WPRO communication.
5 At the Mulago hospital in Uganda, for example, meals for staff, elevator services and the management and
maintenance of steam facilities arc contracted out. In Zimbabwe, the maintenance of instruments and electronics,
provision of laundry services, and the supplies of certain drugs arc based on contractual agreements. Source: AFRO
communication.
8
TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
Some countries use social security funding to pay for-profit providers, which represents
a variant on the contracting strategy. In Chile, health care is provided through three
separate institutions, two of which allow the use of public funds to pay for private
sector treatment (8). Sometimes social security institutions contract with private
providers to deliver health care services on a fee-for-service basis. This is done in
Brazil - through the National Social Security Institute of Medical Care - and in the
Islamic Republic of Iran, where the Ministry of Health and the Social Security Health
Services negotiate with private providers to design fee schedules for the provision
of curative services (9, 10).
Potential impacts of contracting with the for-profit subsector
•
Equity: Developing contracts with the private for-profit subsector has
the potential to increase access to health services for disadvantaged groups,
to the extent that contracts encourage an increase in the availability of
services. Unfortunately, there is little evidence that contracting with the forprofit subsector has led to improvements in access to care.
•
Efficiency: Contracting is a strategy aimed at improving the productivity
of public resources by taking advantage of efficiency gains that are perceived
to exist in the private sector (11). In the case of Namibia, for example, the
contracting arrangement for surgical care has been reasonably successful in
containing costs, but there is evidence that GPs often give priority to their
own private patients over patients covered under the contracts.
The requirements of public sector monitoring and management may also
reduce the efficiency gains that might be realized through a greater private
sector role. As an example, a country might wish to develop contracts with
private sector providers in order to encourage more efficient use of public
resources. But capacity-building for effective management of the contracts
(to ensure compliance and protect against fraud or abuse) may require the
investment of yet more public resources. In such a case, use of public funds
by private providers creates a new need for public supervision.
•
Quality: It has also been suggested that contracting may lead to quality
improvements (12). The potential for quality improvement (and cost
containment) through contracting is maximized in an environment of competition
for contracts. Countries with poorly developed private provider markets are
therefore unlikely to realize the full potential of service contracting (11).
3.2.2
Contracting with the private not-for-profit subsector
Description and selected examples
The private NFP subsector provides both curative and preventive services in a large
number of countries, particularly in sub-Saharan Africa. Government support for the
NFP subsector may include payment of lump sum subsidies, secondment of health
personnel or subventions for staff salaries. Incentives are also frequently provided
PRIVATIZATION IN HEALTH
9
HEALTH ECONOMICS
in the form of tax-free imports of equipment and drugs, purchase rights from government
stores, or the payment of retirement benefits for employees of NFP provider
organizations (2).
The use of more formal contract arrangements between governments and NFP providers
has been suggested as a way of ensuring that the activities of these providers correspond
more closely with government policy objectives. To date, there is very little experience
with this form of contracting, although some examples do exist.
Limited contracts with NFP providers for the provision of specific technical services
have been negotiated as part of donor project agreements in both Uganda and Zambia
(2). In Poland, the Government is developing contracts with NGOs to conduct public
health campaigns (13).
Potential impacts of contracting with the NFP subsector
•
Equity: There is a distinct potential to realize equity gains with this
strategy. Not-for-profit providers, usually NGOs, frequently establish health
facilities in areas where government facilities do not exist (11), providing
access to health services for populations with otherwise limited alternatives
for care. Contracts with NFP providers can ensure that disadvantaged groups
have access to a minimum set of essential services.
•
Efficiency: Efficiency gains are feasible with this strategy, to the extent
that the financial survival of NFP providers is dependent on their ability to
manage resource use. Better policy coordination between the public sector
and NFP providers on such issues as the location, size and staffing patterns
of health facilities should lead to improvements in the overall efficiency of
the health sector.
•
Quality: Services provided by the NFP subsector are often perceived
to be of higher quality than those available in public sector facilities. Quality
differences have been linked to more consistent availability of drugs in NGO
facilities and in some cases to better technical skills of NGO staff (14).
3.3 Incentives and regulatory stimulation to private sector growth
Description and selected examples
Contracting with the private sector - and the development of internal markets - are
ways in which public financing can be used to draw upon the most potentially useful
aspects of market behaviour. Some countries have encouraged a greater role for
the private sector in both financing and provision of health services. Examples
include the repeal of legislation and regulation banning or restricting private practice
(as has happened in Tanzania and Mozambique), and a rethinking of incentives to
encourage private initiatives complementary to public policy objectives.
10 TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
Some of these strategies involve allowing «private sector activity» to take place
within public sector facilities. Innovations such as these enable private funding
sources to pay for some health services that might otherwise be covered by public
funds.6 In Mozambique, for example, medical staff are allowed to run special private
clinics in government facilities outside normal working hours. The countries of
Indonesia, Mexico, Tanzania and Zimbabwe have private pay beds in government
hospitals (15).
Other methods used to encourage the growth of the private sector have included tax
breaks, such as allowing the importation of specific medical supplies duty-free, or
bonus incentives to encourage physicians to locate in underserved areas. In Ethiopia,
private providers can purchase drugs and some medical supplies from government
sources, allowing providers to take advantage of lower prices available through
government bulk purchasing power (2). Indonesia, Nigeria and Zimbabwe all offer
tax relief to not-for-profit providers, while Mexico provides tax relief for some private
health expenditures (16).
Measures such as these stimulate the growth of private provision capacity and
encourage increases in private expenditures for health care. Relatedly, user charges
for public sector health services tend to stimulate private sector growth by a) shifting
financing responsibility (at least partially) to private sources, and b) establishing price
competition between public and private sectors. Policies designed to encourage the
development of private health insurance mechanisms can also shift financing toward
the private sector and may encourage people to use private providers.
Potential impacts of incentive strategies
•
Equity: When health workers are allowed to supplement their income
by offering private services in public facilities, there is a risk that equity (and
the quality of care provided to public patients) may diminish, as clinicians give
preference to the more lucrative private services. (A related problem - and
an interesting form of subsidy to the private sector - arises when health
workers trained at the public’s expense move into private practice.) In
addition, such incentives rarely expand access to care for the very poor
because of limited mobility.
Tax relief policies often constitute direct public subsidies to the beneficiaries.
In the case of tax relief for private insurance contributions or for private health
expenditures, inequities may result if the tax policies represent subsidies to
those most able to pay (16).
•
Efficiency: Inappropriate incentives may encourage private providers to
overservice patients. Providers may order unnecessary procedures or they may
resort to polypharmacy if their incomes are tied to the volume of services
6 In Sri Lanka, the Government plans to implement several policies designed to stimulate private sector growth.
In government hospitals with improved hotel facilities. 10% of hospital beds will be allocated to private patients.
Private nursing services have been allowed. The Government has also taken steps to reduce public training subsidies
to the private sector tty sanctioning the creation of private nursing schools. Source: SEARO communication.
'
'
PRIVATIZATION IN HEALTH 11
HEALTH ECONOMICS
provided or to drug sales. In situations where providers work in both sectors,
providers may use their «public time» to identify clients for their private
practices, patients who might be served just as effectively in less expensive
public facilities.
•
Quality. Rapid increases in the numbers of health workers in private
practice requires monitoring to ensure that the standards of care remain
acceptable.
These and other potential problems indicate that privatization policies designed to spur
the growth of the private sector may not result in a diminished role for government.
Its role may instead need to shift toward one of greater regulatory and monitoring
responsibility.
12 TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
4.
PASSIVE PRIVATIZATION
In addition to the forms of active privatization described above, some countries have
experienced recent rapid growth in private practice with no detectable shift in
government policy. Passive privatization may occur in countries where rapid economic
growth is causing the demand for health services to outstrip the quantity and/or quality
of the services provided in the public sector. Passive privatization is also common
in situations where a tolerant regulatory environment co-exists with tight budget
constraints in the public sector. In such settings, countries may experience migration
of skilled health workers to the private sector. Another possible consequence of
passive privatization is rapid growth in the informal health sector, making it increasingly
difficult to monitor the costs and quality of health care provision.
Passive privatization has occurred in many major urban areas in India and China,
where there has been a rapid growth in private pharmacies, maternity clinics, specialized
clinics and (typically small) private hospitals. The relative shares of public and private
financing and service provision are shifting towards a larger private share in these
contexts. Clearly, quality of care is a major concern is such cases, particularly if
the growth in public monitoring and regulatory capacity does not keep pace with
changes in the relative size of the private sector.
PRIVATIZATION IN HEALTH 13
HEALTH ECONOMICS
5.
PUBLIC (OR INTERNAL) MARKET MECHANISMS
Description and selected examples
The creation of internal markets within the public sector is often misleadingly
referred to as privatization. With public market strategies, public financing and
provision responsibilities remain largely unchanged. Public providers are encouraged
to compete for patients through policies which link contract-based provider payment
with the patient’s choice of provider. The objectives of these strategies are twofold:
1) to stimulate efficient use of resources, and 2) to encourage providers to offer better
quality of care.
In Sweden, most municipalities and county councils are operating contract payment
systems for public hospitals and specialist physicians. Hospitals and primary health
centres are essentially «public firms» under this approach, and support themselves
partially or entirely on the revenues they are able to generate (I). In other words,
public resources are tied to the consumer, not to the health care facility.
In the UK, large GP practices are allowed to «hold» or manage funds for the provision
of certain hospital services for their patients. The GP «fundholders» are expected to
arrange and pay for the provision of hospital services on behalf of their patients (17).
Most public hospitals have also been transformed into self-governing trusts. Although
trust hospitals are financed primarily through public funds, they have control over
employment decisions, the raising and deployment of capital, and the range of services
offered.
Potential impacts of internal market mechanisms
°
Equity: As implemented in the UK, trust hospitals are expected to
compete with other hospitals for contracts. There have been suggestions that
competitive pressures may force self-governing trusts to behave more like
their for-profit competitors.7 The result may be a shifting of resources toward
more profitable services and away from the provision of services based on
community needs.
•
Efficiency: As with contracting arrangements, there are potential
efficiency gains to be realized with internal market mechanisms. Indeed,
internal market strategies may become indistinguishable from contracting with
the private sector, since part of the idea behind contracting is to encourage
existing providers such as hospitals or primary care practitioners to think of
themselves as independent contractors and not necessarily public sector
employees.
7
Source:
EURO communication
PRIVATIZATION IN HEALTH 15
HEALTH ECONOMICS
•
Quality: Quality improvements resulting from competition for patients
could be realized with internal markets, although an implicit assumption behind
provider choice provisions is that enough providers exist for patients to make
an informed choice. While this may be true for urban areas, it is unlikely
to be the case in sparsely populated rural areas.
16 TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
6.
PRIVATIZATION: ARE SOCIAL OBJECTIVES AT RISK?
During periods of change in public and private roles in health, it is important for
governments to ensure that social objectives are not compromised, regardless of the
modalities of health financing and provision. This requires developing innovative and
practical relationships with the private sector.
As mentioned in section 2.1, there are a number of ways in which the private sector
may contribute to the achievement of social goals. This does not mean, however,
that governments should necessarily have a reduced role in the health sector. Indeed,
as privatization proceeds, governments will need to evolve toward a position of greater
strength, skill and sophistication to manage and monitor privatization initiatives.
6.1
Why governments are necessary in health
A government role in health is needed to ensure that market-oriented solutions do
not jeopardize the attainment of social goals like equity. The production and distri
bution of goods and services in a pure private market is based on the prevailing
distribution of income; those who are not willing or able to engage in market
transactions will not do so. For this reason, the market, left to itself, will not allocate
health resources equitably. If there is no monitoring of health services pricing, and
if competition between providers fails to keep prices down (or quality high), poor and
vulnerable populations will be denied affordable and equitable access to appropriate
care.
A private market for health care is also subject to special forms of market failure
that are not found in other markets. Providers of health care exercise unusual power:
they prescribe treatment and medication for their patients and simultaneously provide
the services they have recommended. In some instances, the disproportionate power
of providers can work against the interests of the patient, in part because most patients
are not able to assess the validity or usefulness of the provider’s recommendations.
There is also an element of externality, or third party benefit, in the production and
consumption of certain health services. Immunizations, for example, are beneficial
even to those who are not immunized. Private (for-profit) providers of immunization
services would not include «extemal benefits» in their production decisions, and would
therefore produce less than the socially optimal level of immunization services.
Thus, while privatization efforts may lead to better efficiency in the use of health care
resources, there is also a risk that an increased reliance on the private sector may
lead to diminished equity. It should be noted that some health systems with significant
private sector elements - such as Canada and some of the European systems - are
regarded as highly equitable. But those systems operate within a framework of public
responsibility and oversight. Problems with equity are likely to be greatest when the
PRIVATIZATION IN HEALTH
17
HEALTH ECONOMICS
relative importance of the private for-profit sector increases in the absence of a
government regulatory and monitoring role.
Strategies to accelerate privatization, therefore, require a government role in order
to ensure that health services remain accessible to all population groups. This is
particularly important in situations where private sector providers choose to concentrate
on the most lucrative services, leaving the government to provide emergency care,
training and services for the poor/
6.2 Public management of privatization
What should governments do to improve their capacities to plan and manage the
evolution of new public/private relationships? The formation of well-planned policies
toward the private sector requires the development of an enabling environment for
effective public management of privatization, including:
•
investments in information, and in information systems capable of
generating relevant data about resource flows and performance in both public
and private sectors (11)',
•
strengthening of public sector capacity to set performance standards, and
to monitor and enforce those standards;
•
strengthening of management skills, particularly skills in establishing and
supervising contracts. The development of contractual arrangements may be
impeded in many countries where funding or managerial expertise is limited;
•
flexible and responsive organizational structures - and the institutional
capacity - to adequately monitor and motivate the private sector to achieve
social goals.
Recent experience in managing the reform process in industrialized countries has
shown that the ultimate success of government efforts to manage changes in the
relative roles of public and private sectors in health will depend on the existence of
political and legislative frameworks that clearly spell out the goals and objectives of
privatization policies. This represents a broader public requirement that is to a large
extent outside the direct control of the health sector (18). The management of the
public and private sector balance is likely to be untenable without such a framework,
and without clear policy objectives and sensitive and specific regulatory mechanisms.
Source: AMRO communication
18 TFHE TECHNICAL BRIEFING NOTE
HEALTH ECONOMICS
REFERENCES
1
Saltman, R (1992) Recent health policy initiatives in Nordic countries. Health Care
Financing Review, 13: 157-166.
2
Bennett S, Ngalande-Banda E (1994) Public and private roles in health. A review and
analysis of experiences in sub-Saharan Africa. Geneva, World Health Organization
(unpublished document WHO/SHS/CC/94.1).
Fried B, Deber R, Leatt P (1987) Corporatization and deprivatization of health services
in Canada. International Journal of Health Services, 17: 567-583.
3
4
Anonymous (1994) Czech health care. A private matter. The Economist, 28 May, 30.
5
Dezhi Y (1992) Changes in health care financing and health status: the case of China
in the 1980s. Florence, International Child Development Centre (Innocenti Occasional Papers,
Economic Policy Series, No. 34).
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Bloom G (1994) Financing rural health services: lessons from China. Brighton, Institute
of Development Studies (paper prepared for the Workshop on the Social and Economic
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Countries).
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Anonymous (1995) The making of NHS Ltd. The Economist, 21 January, 37-38.
Berman P, Rannan-Eliya, R (1993) Factors affecting the growth of private health care
provision in developing countries. Boston, Harvard School of Public Health (unpublished
document).
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9
Mddici A (1989) The financing of health policies in Brazil. In: Health economics. Latin
American perspectives. Washington, Pan American Health Organization (Scientific Publica
tion No. 5 17).
10
Anonymous (1991) A short report on the existing public/private mix in the Iranian
national health system. Ministry of Health, Islamic Republic of Iran (unpublished document).
11
Kutzin J (1993) Experience with organizational and financing reform of the health
sector. Geneva, World Health Organization (unpublished document WHO/SHS/CC/94.3).
12
World Bank (1993) World Development Report 1993. Investing in health. Washing
ton, The World Bank.
13
Preker A, Feachem RGA (1994) Health and health care. In: Barr N, ed. Labor markets
and social policy in central and eastern Europe. The transition and beyond. Washington,
The World Bank.
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Gilson L et al. (1994) The potential of health sector non-governmental organizations:
policy options. Health Policy and Planning, 9:14-24.
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WHO (1993) Evaluation of recent changes in the financing of health services. Geneva,
World Health Organization (WHO Technical Report Series, No. 829).
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HEALTH ECONOMICS
16
WHO (1991) The public/privaie mix in national health systems and the role of ministries
of health. Geneva, World Health Organization (unpublished document WHO/SHS/NHP/91.2).
17
Ham C, Robinson R, Benzeval M (1990) Health care reforms in an international
context. London, King’s Fund Institute.
18
Ham C, Maynard A (1994) Managing the NHS market. British Medical Journal, 308:
845-847.
FURTHER READING
WHO (1994) Public/private collaboration for health. Report of an intercountry meeting. Geneva,
World Health Organization (unpublished document WHO/SHS/NHP/94.2).
WHO (1991) Organization and financing of health care reform in countries of central and
eastern Europe. Geneva, World Health Organization (unpublished document WHO/DGO/91.1)
20 TFHE TECHNICAL BRIEFING NOTE
- Media
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