Purchasing healthcare

and provider-payment

mechanisms

Rumana Huque, Ph.D.

Department of Economics

University of Dhaka

At the end of the session, participants will understand the basic concepts of purchaser-provider split, and different modalities of provider payment and their relative strengths and weaknesses.

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Presentation overview

Purchaser-provider split: concept, rationale and evolution

Defining a benefit package for achieving UHC

Provider payment mechanisms including fee-for-service, per episode, DRG, capitation: concept, strengths and weaknesses

Country experiences

Policy options: challenges for Bangladesh

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Purchaser-provider split: concept, rationale and evolution

Decreased productivity between 1960 and 1980 in terms of increased costs per physician visit, treatment and bed-day was supported by poor responsiveness to public expectations, long waiting-lists and ineffective use of available resources.

As a response, the thrust of the reforms consisted in separating the roles of financing and provision, introducing contracts and per-case payments instead of traditional global budgets

At the same time, possibilities for patients to choose their health-care provider increased, and funding followed patient choice.

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Defining a benefit package for achieving UHC Packages are defined as ‘groups of priorities that

can be standardized to ensure that equivalent interventions are delivered wherever the package is made operational. Within the package all interventions have equal status, and the package as a whole has been costed’ (Sikosana et al, 1997 p 51)

The purpose of providing a benefit package

To strengthen the financial risk protection, and extend health services and population coverage with the aim to achieve universal coverage.

Sometimes a cluster of diseases shares diagnostic procedures or treatment protocols, or the same drugs, and therefore can be treated together (such as maternal and childcare).

It minimises the total cost of the package, and reduces the cost to patients of obtaining services.

The cost effective interventions can be delivered together as a package with the same level of technological sophistications and by extension through the same mode of delivery or facility

Focusing the attention on a package makes it easier to estimate the need for external assistance, and to use donor resources well.

If the package is established considering the burden of diseases and spending prioritised by burden, it will also promote equity

the World Development Report (1993) identifies five groups of clinical interventions that should be included in every country’s essential package. These are:

Pre-natal and delivery care

Family planning services

Management of sick child

Treatment of tuberculosis

Case management of STDs

After covering that minimum package to every one, a country may include a much broader range of interventions into their essential package.

Essential service package

The ESP included five broad components:

Reproductive health (family planning, maternal health and other),

Child health,

Limited curative care (LCC),

Behavioural change communication (BCC) and

Control of communicable diseases (CCD).

Shasthyo Shurokhsha Karmasuchi (SSK) will include the following services (HEU, 2012):

In-patient care which is manageable at Upazila and District level

Free Physician’s consultation

Free drugs and diagnostic facilities

Structured referral to the secondary and tertiary level hospitals

Transportation cost for referral cases

Provider payment mechanisms Provider payment mechanisms are defined as the way money is

distributed from the government, insurance company, or other fund-holder to a health care provider.

It is a type of contract among two or more players—patients, providers, and payers—that creates specific incentives for the provision of health care and minimizes the risk of opportunistic behaviour.

Different types of provider payment mechanism include:

Fee for service

Per episode,

DRG

Capitation

Four main actors are affected by provider payment reforms:

health care facilities (e.g., hospitals),

health professionals (e.g., physicians and nurses),

patients, and

insurers/payers.

Payment

Method

Unit of Service

Main Incentives Created

Line Item Budget

Functional budget

categories

Little flexibility in resource use, cost control of total costs, poor incentives to improve productivity, sometimes results in rationing

Capitation Per person to a health care

provider who acts

as fundholder

Incentives to undersupply, strong

incentives to improve efficiency that may cause providers to sacrifice quality, rationing may occur

Case-based

Payment

Per case or

episode

Incentives to reduce services per case but increase number of cases (if per case rate is above marginal costs), incentives to improve efficiency per case

Diagnosis related group (DRG)

Treatment cases to clinically defined groups (i.e., DRGs) that are distinguished by

comparable treatment costs

Omission of some therapeutic services causes no change in remuneration, creating an economic disincentive for

their delivery.

Fee-for-Service

Per unit of service Incentives to increase units of service

Policy options: challenges for Bangladesh

The coverage of mandatory health insurance schemes in the formal sector for both the public and private service holders is negligible compared to the total population employed in the formal sector.

Contribution through private health insurance schemes is less than one percent of the total health care expenditure in Bangladesh.

Heterogeneous and unregulated private sector