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Preconditions for health reform: experiences from the OECD countries
Health Policy 32 (1995) 279-293
Preconditions for health reform: experiences from the OECD countries* George J. Schieber’ 10601 Mac Arthur
Blvd,
Potomac,
MD
20854,
USA
Revision received 20 January 1995; accepted 24 January 1995
Abstract
This paper discussesthe basic conditions necessary for the successful implementation of health sector reforms. Lessons from health sector reforms in the 24 western industrialized member countries of the Organization for Economic Cooperation and Development (OECD) are discussed and applied in the context of reform efforts in developing countries. Reform areas addressed include: public and private institutional infrastructure development, financing arrangements, benefit design, eligibility determination, reimbursement and cost control methods, and service delivery system configurations. Key words:
Health sector reform; Lessons; OECD; Developing countries
1. Introduction This paper discusses the basic informational, institutional, and technical conditions necessary for successful health system reform based on the experiences of the 24 member countries of the Organization for Economic Cooperation and Develop-
*The author was Director, Office Administration, U.S. Department of Finance Specialist at the World Bank. not necessarily represent those of the
of Research and Demonstrations, Health Care Financing Health and Human Services and is currently Senior Health The views expressed in this paper are those of the author and do U.S. Government or the World Bank.
016%8510/95/$09.50 0 1995 Elsevier Science Ireland Ltd. All rights reserved. 0168-8510(95)00740-J
SSDZ
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ment (OECD). Since the OECD countries have extensive public health infrastructures and given the extensive literature on basic public health activities in developing countries [1,2], this paper focuses more on the economics of health care financing and delivery than on public health delivery issues’. The areas addressed include: revenue raising (e.g. financing from a public finance economics perspective); benefits and eligibility; cost-containment and reimbursement of medical care providers; and the service delivery system including manpower, facilities, health planning, quality assurance, public health activities, and the integration of health with other social service systems. The paper is organized into six sections. It provides a conceptual framework for analyzing health system performance, discusses necessary infrastructures, describes the experiences of the OECD countries, and relates these experiences to developing countries. First, the issues surrounding health system goal specification and evaluation of health sector performance are discussed. Second, the basic governance, institutional, and informational structures needed for successful reform efforts are enumerated. Third, issues concerning reforming the way health care is financed are examined. Fourth, reforms to control costs and reimburse medical care providers are analyzed. Fifth, issues concerning reform of the service delivery system are discussed. Sixth, lessons from the reform ‘successes’ of the OECD countries of relevance to developing countries are summarized. 2. Goals and evaluation of health sector performance
In assessing the reform efforts by OECD countries, it is first necessary to understand the basic goals of these health systems, how the current systems have performed in achieving these goals, the goals of the reforms, and the institutional, political and technical capabilities needed to achieve ‘successful’ reforms. It is often difficult to find precise specifications of the goals of different countries’ health systems. Such goals are generally found in arcane legislative language and/or in the speeches of politicians and high level government health officials. Such pronouncements generally refer to improving the health status of the population, health being a right, and government guaranteeing access to all needed services for all individuals. Concepts such as universality, portability, choice, quality, and security abound. With the growth in health care costs and the increasing shares of economic activity being devoted to the health sectors, most OECD countries are attempting to assure access to medically necessary care as efficiently as possible. In fact, one could postulate that the goal of these countries’ health systems is to provide access to medically necessary and medically effective services in a cost-effective manner to their populations. The fundamental problem in evaluating the performance of health systems in meeting this goal, or for that matter in evaluating the effects of particular reform policies, is the difficulty in
‘Given the overriding importance of public health activities in the low income developing countries, lessons from the OECD countries may have more immediate applicability in middle and upper income countries.
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assessing how well health systems perform in terms of assuring access to medically necessary and medically effective services in a cost-effective manner2. The basic problems and normative judgements in defining and measuring access, medical necessity and medical-effectiveness, and cost-effectiveness are well known [3]. In summary, access has many dimensions and defining and measuring access requires normative judgements. To measure medical-effectiveness and cost-effectiveness requires measurement of health outcomes, an area of limited understanding at best. For the same reasons, it is also difficult to evaluate the effects of even narrowly targeted health sector reforms. For example, to assess whether a particular hospital payment reform has led to reductions in hospital costs and greater hospital efficiency, one must be able to define and measure hospital costs and ‘efficiency’, an area far less straightforward than mere rhetoric or economic theory would suggest [4-61. Furthermore, one would also have to evaluate the effect of any such hospital payment policy on non-hospital costs, access and quality. To complicate matters further, as in the case of all social science research, it is extremely difficult to measure behavioral response and attribute causality: witness the 20-year debate about whether physicians induce demand [7]. All of these problems are compounded further by a lack of detailed descriptive information on the health systems of different countries and the lack of comparable micro level information both within and across countries [g-11]. Thus, it is exceedingly difficult to evaluate the performance of different health systems and reform efforts. In the public policy arena, decision-making is a complex process in which political and socioeconomic concerns interact. Reliable socioeconomic information on policy impacts is a necessary condition for effective policy-making. Given the costs and methodological difficulties of obtaining such information, discussed below, one rarely has enough information on which to base policy decisions. Nevertheless, informed policy choice and evaluation should be based on the best affordable data and techniques. Methodological issues aside, OECD countries in the past 10 years have come a long way in basing reforms on analysis and evaluating their impacts. As the economic situation in the post-oil crisis era evolved from one of economic growth to recession, and as cost escalation replaced achievement of access as the major problem, governments in OECD countries have increasingly abandoned the position that health sectors are part of the social safety net and, therefore, outside the realm of budgetary policy and economic analysis. Indeed, the political will to act is being driven by the large and increasing amount of resources being devoted to health sectors. While the level of analysis and evaluation of reform policies is far from ideal, increasing numbers of OECD countries are using multidisciplinary approaches and technically sophisticated public health, economic, sociological,
*Unfortunately, disease prevention, health promotion, and certain other public health activitites do not readily fit into this goal. While other goals such as improving the health status of the population can be specified, definitional problems, measurement problems, and normative judgements are pervasive. Moreover, such goals must be viewed in the context of the opportunity costs of the resources needed for their achievement.
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statistical and medical professionals to analyze and evaluate policy choices. A growing number of countries are also following the U.S. lead of conducting small scale demonstration projects of proposed reforms prior to full scale implementation. In addition, increasing attention is being paid to the relaxation of privacy laws hindering release of data, and to the development of the relevant micro level data to aid in both problem identification and resolution. These are important lessons for developing countries, especially given the low priority accorded to Health Ministries and data collection in most countries. 3. Governance, institutional
and information
infrastructures
Most OECD countries have well developed public governance structures and well established legal and regulatory systems concerning taxation, intergovernmental fiscal relations, property rights, antitrust, financial sectors, medical care providers and manufacturers, consumer protections, etc. Private sector institutions and organizations in finance, insurance and the medical care sector are well developed. Compliance with laws and regulations is generally quite high. Information systems are in place which allow stakeholders to perform their functions relatively effectively. 3.1. Public and private institutional
inffastructures
The situation in many developing countries is rather different with public governance structures, private institutions, and information availability in a far less developed state. A precondition for reform is a public governance structure as well as public and private institutional structures to develop, implement and evaluate health sector reform policies. Governments have important allocational and distributional roles in all countries. In developing countries, governments have even a greater role given the incidence of poverty and the lack of a health system infrastructure for the poor. For reforms to succeed, governments must have coherent organizational structures, technically competent multidisciplinary staff, and an effective intergovernmental structure which allows efficient information flow and implementation at national, regional, and local levels. Organization charts displaying the functions of different offices and their interconnections are important first steps. If these functions and responsibilities cannot be enumerated, then there is no responsibility and accountability, and reforms will not succeed. A recent evaluation of the Turkish health sector highlighted this problem [12]. Policy planning, implementation and evaluation must also be given a high priority, and there must be a high level of cooperation with the Ministry of Finance and other government agencies. Government must also assure that there are functioning financial markets, viable tax management and expenditure accounting systems, and legal and regulatory structures to provide the basic framework for the organization and operation of public and private insurers, providers, and suppliers. Insurers and providers must have adequate accounting and management information systems. The lack of such structures has been an impediment to reform in eastern Europe and the former
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Soviet Union [13,14]. Government must also be responsible for financing and providing basic public health services including immunizations and other preventive services, health promotion, family planning, safe and effective food, drugs, biologics, radiological devices, and medical devices, epidemiological surveillance, environmental controls, manpower training and health planning. The government must set standards for and monitor the quality of care provided. It should also finance and/or directly provide services to at least the poor and disadvantaged. All OECD countries perform these functions, some more effectively than others. Interestingly, lack of universal entitlement to health coverage may in part be responsible for the poor rankings in terms of infant mortality of the richest and poorest OECD countries, the U.S. and Turkey [15,16]. 3.2. Information for decision-making A sine quo non for policy design, implementation
and evaluation is appropriate epidemiological, socioeconomic, medical and financial information. National health accounts which provide information on all health expenditures by type of service and source of payment are critically important for rational decision-making [17]. Such accounts must include public subsidies and private expenditures including black market activities and side payments to medical care providers in order to provide a complete picture of the total amount of resources going into the health sector. Most OECD countries have such accounts, although their completeness and accuracy vary. The OECD continuously monitors and publishes information in a national health accounts format for the OECD countries [181. The World Health Organization, since the late 60’s, has provided developing countries with information to establish such accounts, although the level of success is questionable [19]. Recently, the World Bank has attempted to develop such information on total health spending and public health spending for developing countries [1,20]. While one would ideally want to obtain expenditures by type of service and source of payment, obtaining all relevant detail may be difficult, especially for developing countries. Perhaps the most difficult area is private expenditures. While payments emanating from private insurance may be obtainable, direct out-of-pocket payments for medical services are generally much harder to obtain. These expenditures would have to be tracked either as revenues to medical care providers (who may have tax motives not to report them), or through consumer expenditure surveys. Such sources of information are unlikely to be readily available in many developing countries. Given the significance of such expenditures, it is important to estimate them as well as possible. In addition, authorities should attempt to obtain complete public spending, both across different governmental levels and across different ministries. Other types of information are also needed. Basic socioeconomic and epidemiological data provide information on the underlying needs of the population, and provide the basis for designing public health activities, establishing health benefit structures, and configuring the delivery system. Economic data provide information on the ability to pay individuals, enterprises and industries, and can be used in the design of financing and cost-sharing structures. Data on manpower and facilities
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provide information for delivery system design, manpower training policies, facility and equipment acquisition and health planning. Such information is needed at local, regional and national levels. If micro-level information is available (e.g. data on individuals, individual medical care providers, suppliers and insurers), more focused problem analyses, and better policy development and evaluations can be performed. As discussed above, most OECD countries have national health accounts. Most countries have reasonably good epidemiological and socioeconomic information. The biggest shortcoming is in the area of detailed micro data, the types of information increasingly needed to design, implement, and evaluate health care reforms. Both privacy concerns and the fact that most countries collect data consonant with their health systems’ structures, often precludes collection of individual encounter information. For example, if hospital-based physicians are salaried hospital employees, there is no need to collect detailed physician information beyond what goes into the patient’s medical record. Even in the United States, the bastion of prolific data resulting from a fragmented fee-for-service payment system, such information is not readily available for privately insured patients, and the information that private insurers do have is not in a standardized format. Most health maintenance organizations (HMOs) and many other managed care organizations do not collect encounter data at all. Nevertheless, this type of information is clearly needed for designing, implementing and evaluating many aspects of health care reform that are currently being pursued by the U.S. and many other OECD countries. For example, detailed patient level information is needed to develop risk adjustment measures for the managed competition approaches under consideration in the U.S. and Netherlands, as well as for the efforts to equalize financial risks across sickness funds in Germany and Japan. Yet, given the level of clinical information needed to develop such risk adjustment measures, little representative data for both development and evaluation is available anywhere. Beyond these types of data, information on the cost-effectiveness of particular interventions, information on the storage, transportation and effectiveness of different vaccines and pharmaceuticals, and efficient ways to purchase drugs, vaccines and supplies, are of critical importance for developing countries. Various international organizations have been at the forefront in providing assistance in these areas. While these issues are not at the forefront of the debate in most OECD countries, reforms requiring generic substitution and removal from coverage of certain types of pharmaceuticals have been important elements of the health care reform debate in several OECD countries. Developing countries will have to make judgements on both the costs of obtaining information and its utility in decision-making. Basic demographic and epidemiological information is important so that limited funds can be targeted to those high risk populations with the greatest payoffs. Similarly, basic information on health system infrastructure and costs are needed to assist in planning for rational health system development. Information on private spending is important for authorities to understand the total level of resources devoted to the health sector and the potential for its redistribution.
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4. Reform of financing Developing countries looking to the OECD countries for models of health care financing are faced with what appears to be four basic models: a national health service approach, a social insurance approach, a provincial government health insurance approach, and a private insurance approach [2113. Yet, the health care financing system of each OECD country is exceedingly complex, highly countryspecific, and every country is really a combination of these models. Indeed, arguably, the models themselves are unimportant. What is important is how countries raise revenues to fund their systems (e.g. how they spread the financial risks of paying for health care); what services are covered; who is eligible for coverage; how medical care providers are paid and costs contained; how the delivery system (including public health activities) is structured and quality assured; and whether consumers are satisfied with their systems. In terms of financing health care systems the OECD countries span a wide spectrum of models from heavy reliance on general revenue financing at the national level (e.g. United Kingdom), heavy reliance on general revenue financing at regional levels (e.g. Canada and various Scandinavian countries), reliance on social insurance taxes (France, Germany), to reliance on individual and employerprovided private health insurance (e.g. United States). Two critical features of any financing approach are: defining who is eligible for coverage; and what package of benefits is covered. The experiences in the OECD countries vary widely. For example, in the United States, public coverage is limited to the poor, disadvantaged, and the elderly with tax subsidies for the purchase of private health insurance. In the Netherlands, catastrophic coverage funded through general revenues is provided to everyone; those with incomes below a certain level are covered for basic health benefits through a social insurance system, while individuals with incomes above the threshold purchase private insurance. In Germany, everyone is covered by employment-based sickness funds with a voluntary opt out for those with incomes above a certain level. In the United Kingdom and Scandinavian countries there is entitlement to public coverage for all irrespective of income. There may be tax subsidies for the purchase of private insurance and or supplementary insurance to fill in the gaps in the public benefit package. Obviously, exactly how eligibility is structured has important implications for the public-private mix in financing, the distribution of the financing burden, and the potential for two-tiered systems of care, especially if the public system is underfunded relative to the private system. How the benefit package is structured also has important implications for financing and costs. Most countries define their benefits either in terms of specific services covered by the system or more generally as all care needed to treat the person’s illness. This latter concept with its connotations of egalitarian treatment
3For a rather different taxonomy of health systems see [9].
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and state responsibility for all care needed, was the basis of the health systems in most socialist countries. Unfortunately, it is rather misleading in that the ‘all necessary care’ has been limited by severe constraints in the supply of goods and services. Indeed, as these countries have moved to social and private insurance based models, the concept of needing to define a specific benefit package in order to establish tax and premium contribution rates is of critical importance from an actuarial perspective, but has in some cases been difficult to grasp. It is difficult to make generalizations about how these features affect the revenue generating potential and fairness of financing systems4. The basic purpose of the financing mechanism is to raise sufficient revenues to pay for services and to spread the financial risks of providing health care in an equitable manner. Leaving to the substantial literature on taxation theory, the issues concerning the revenue raising potentials of different taxes, the focus here is on the critical issue in health care financing of equitably spreading risk. From a strict public finance perspective, general revenue based approaches tend to be a more progressive way to share burdens than payroll taxes or individual premiums. Social insurance based approaches tend to spread risks more equitably than individual private insurance based approaches. However, even social insurance based approaches can lead to inequities as evidenced by the German system which displays a 2 to 1 variation in sickness fund premium tax rates, in large measure reflecting the differential health risks of the individuals enrolled in the various sickness funds as well as differences in benefits. In the United States, the system with the least public sharing of financial risks, the costs for those without public or private coverage is indirectly paid for by the privately insured, as medical care providers ‘cost shift’ to private insurers the costs they cannot recoup from the uninsured. In all these systems it is ultimately all individuals who finance the system. The fairness with which this is accomplished depends on the mixes of taxes, user charges, other out-of-pocket costs, and the incidence of the tax system and health benefits. Much is made of the public versus private mix in financing. The United States and Turkey are the only two OECD countries where private financing accounts for more than half of total health spending. On average for the 24 countries, the public sector accounts for some three-quarters of health spending [l&22]. The public share has been relatively stable since the 70’s, reflecting the full implementation of the public health care financing programs in most countries. Unfortunately, this public-private dichotomy is not that clear cut. While the law requires individuals to belong to sickness funds, are the independent sickness funds of Germany and the autonomous employer-based funds in Japan really public as opposed to private entities? Reporting convention results in classifying them as public, but in fact
4The revenue generating potential of various taxes and user charges is a very complicated area. Factors such as the revenue elasticities of different tax bases as well as the effects of different taxes on labor and capital markets need to be considered. Similarly the amounts needed to fund the system will also depend on eligibility, benefits covered, out-of-pocket payments, how medical care providers are paid, and how the delivery system is structured.
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might they have more in common with employer-provided insurance in the U.S. than the systems run by provincial governments in Canada or Scandinavia? Developing countries face somewhat different sets of basic circumstances. Except for the former socialist economies of Europe, substantial proportions of total health expenditures are private, but cover the small upper income strata, while the underfunded public sector strains to cover the bulk of the population [l, pp. 52-71, 210-2111. Putting aside the area of basic public health, what is more germane than the public versus private distinction is the requirement that assures everyone coverage, and how that coverage is financed. The key issue for developing countries is to develop a financing system composed of general and specific taxes, private premium payments, user charges, and other private out-of-pocket payments that spread risks as equitably as possible over the entire population, given the existing institutional and political realities. There are many considerations that must be taken into account including: tax administration, income distribution, the current distribution of revenues and benefits, the ability and costs of collecting user charges, intergovernmental fiscal arrangements, the effects of taxes on labor and capital markets, the role of private insurance and the capacities of the private insurance industry, and the availability of foreign assistance. Well functioning tax systems with high levels of compliance; intergovernmental fiscal structures that promote equity and local public expenditures based on fiscal capacity and need; and financial regulatory structures that promote efficiency and solvency are necessary conditions for the efficient operation of health systems in developing countries. While most OECD countries have well-developed govemmental and private institutional infrastructures, one lesson on financing can be gleaned: general revenue based systems appear to be simpler and more equitable ways to spread the financing of health risks and appear to have lower administrative costs [23]. 5. Provider reimbursement
and cost containment
The methods used to pay medical care providers have important implications for access, costs, and the quality of care. Irrespective of whether providers are public or private, payment methods have important effects on both the macro and micro cost efficiency of health systems. In terms of provision of services, the OECD systems span the spectrum of heavy reliance on public provision (United Kingdom, Scandinavian countries), mixed systems (France), to mostly private provision (United States, Canada). In terms of payment of medical care providers, OECD countries run the spectrum of global budgets for hospitals and salaried and capitated physicians (United Kingdom, Scandinavian countries) to basic fee-for-service models (United States, Japan). In recent years, reform efforts in many OECD countries have focused on containment of costs. Canada and the United States, two countries that rely very heavily on fee-for-service payment for both inpatient and outpatient physician services, display the highest expenditure levels and rates of increase [ 16,221. Nevertheless, without understanding how these expenditure figures trans-
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late into health outcomes, it is difficult to make assessments of the relative efficiency of one system versus another. OECD countries have adopted numerous policies to contain costs. Some have relied on global expenditure budgets, while others have relied on more micro medical care provider payment policies [24]. Countries with seemingly effective overall budgets like the United Kingdom and Sweden, have learned that capping expenditures does not necessarily assure efficiency at the micro level, since such caps may reduce productivity, increase queues, reduce quality, reduce consumer choice, and diminish consumer satisfaction. Similarly, effective provider payment strategies, such as the resource-based relative value physician fee schedule and the diagnosis-related group (DRG) hospital payment system used in the United States Medicare program, may not control overall costs as costs are shifted to other payers, and as the volume and intensity of services are increased. There are few generalizable results concerning public verses private practice and ownership of facilities. What appears to be most important are the incentive-based payment systems faced by providers, not their ownership. Reforms in OECD countries are moving in the directions of global expenditure limits and micro level incentive-based payment methodologies. Countries with macro budgets are moving to empower consumers, to have money follow patients, and to implement incentive-based provider payment methodologies. For example, numerous OECD countries are experimenting with DRGs to pay hospitals [25] and Resource Utilization Groups (RUGS) to pay nursing homes [26]. Other countries such as France and the United States are exploring more macro global budgeting strategies including caps on insurance premiums. Germany and other countries are actively encouraging purchase of lower-priced generic equivalent pharmaceuticals. Unfortunately, there have been few rigorous evaluations of these reforms [9,27-301. Indeed, it is exceedingly difficult to empirically separate the effects of cost-containment policies from the other factors underlying the expenditure trends in individual countries. Nevertheless, some general lessons for developing countries are clear: . . .
. l
Capping overall expenditures does not assure expenditure efficiency at the micro level. Access and quality need to be monitored in addition to expenditures. Specific medical care provider payment mechanisms such as certain types of managed care arrangements, DRG hospital payment, full and partial capitation and other risk-sharing approaches appear to control costs without reducing quality or access [31,32]. When payment reforms are imposed on one sector, expenditures and access in other complementary and substitute sectors must be monitored. The payment and cost containment mechanisms used in OECD countries require sophisticated information and administration structures. These systems require individual hospital financial statements and claims processing systems capable of handling millions of records. Thus, their adoption in developing countries necessitates both upgrading of their information bases and adminis-
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trative structures, as well as the modification of the basic methodologies to conform to the informational bases in these countries. Effective and equitable cost-containment and quality assurance systems require mechanisms to monitor and control fraud and abuse, and an appeals process for both providers and beneficiaries.
6. Structure of the delivery system The service delivery system including public health activities, manpower, facilities, equipment, health planning, quality assurance activities, and the interaction of health with other social systems are critical features of any reform activity. Public health activities in the form of immunization and other disease prevention activities, health promotion, maternal and child health programs, family planning, disease monitoring and control, emergency medicine, clinical laboratory and other medical facility standards, food, drug, biologic, and radiologic safety programs, environmental health, and biomedical and health services research all have profound effects on the health status of the population and the health care financing and delivery system. The organization of the delivery system in terms of numbers and types of manpower, facilities and equipment, their geographic location, as well as their interaction across different levels of care interact with financing and reimbursement policies in affecting access, quality and cost. Manpower training and health planning policies have important consequences for both the present and future supply of practitioners, facilities, and equipment. OECD countries employ a variety of financing arrangements, multiple entry points into the system, and various targeting programs to provide preventive and curative services to pregnant women, children and other high risk individuals. While the models vary, the key ingredient for success is accessibility to comprehensive preventive services without financial barriers (i.e. cost-sharing or demonstrations of insurance status) [33,34]. Given the epidemiological transition with its changing disease burden, much of the recent disease prevention and health promotion emphasis has focussed on preventing heart disease, cancer and cerebrovascular diseases. Policies have also focused on reducing societally-induced illnesses such as AIDS, substance abuse, and illnesses resulting in low-weight births. Educating populations to lead healthy lifestyles could have enormous consequences, especially given the high levels of alcohol, tobacco, and fat consumption in many countries, destructive social behavior, and the sedentary lifestyles of significant proportions of the population. On the delivery system side, most OECD countries have been attempting to assure appropriate types and distributions of health manpower through medical education and regulatory policies affecting geographic location of practice. Restricting medical school enrollments and limiting provider participation in public financing programs to underserved areas have been policies pursued by a number of OECD countries. There are also major concerns about the numbers of hospital
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and nursing home beds, and amounts of high technology equipment. Many of the OECD countries control health spending through supply side constraints on facilities and equipment. Health planning is critical for having rational policies in this regard. Monitoring and assuring quality of care is another important feature of health delivery systems, all the more important in an era of increasingly tight budget constraints. OECD countries have increased their efforts in the area of quality of care [35,36]. Establishing structure, process, and outcome standards is essential for monitoring health sector performance as well as the impact of specific reform policies. Most OECD countries rely on structural standards such as educational requirements for practitioners and specific conditions of participation for hospitals (e.g. fire safety standards, nurse to patient ratios, infection control barriers). Recently, consumer satisfaction has been appended to the generic taxonomy of quality assurance, and instruments to monitor satisfaction have been developed and tested. Similarly, relying on the precepts of total quality management, continuous quality improvement models based on feedback to medical care providers appear now to be at the cutting edge of the quality of care spectrum. Profiling of physicians and hospitals, effectiveness research, and biomedical research are getting increasing amounts of emphasis. Given the high levels of inappropriate treatment for certain high-cost surgical procedures found in some countries, there is a great deal of interest in not paying for treatments that are ineffective. This is a far more painless way to control spending than is rationing care. Unfortunately, the development of practice guidelines is extremely difficult and efforts in this area are in their infancy. Nevertheless, for certain conditions, such as prostate and breast cancer, information has been developed than can assist providers and consumers to choose non-surgical or less radical surgical alternatives. Although existent for only a limited number of treatments, such information has widespread applicability. For developing countries, quality assurance measures such as conditions of participation for hospitals, licensing policies, and manpower training standards will likely be the most relevant given their current infrastructures, as they attempt to upgrade and monitor the quality of care rendered in their health systems. In addition to the activities previously mentioned, having access to lists of essential drugs, proper training of physicians, nurse midwives, and other health care workers, proper location of clinics and other facilities, outreach programs, clean drinking water and proper nutrition, are essential first steps in reform. Targeting efforts on underserved areas and underserved populations could provide high returns. Both in OECD and in developing countries, health sectors cannot be viewed in isolation from other social sectors. Income support, nutrition, housing, and social services for the elderly and disadvantaged all have important consequences for the health status of individuals as well as health sector costs and performance. These interactions must be analyzed and clearly understood in the design of health sector reform policies.
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7. Lessons from the OECD countries
OECD countries in 1992 spent over 8% of their gross domestic products and over $1,300 per person on health care. They had on average 2.5 physicians and 8.4 hospital beds per thousand population. Individuals spent on average 2.5 days in inpatient medical care facilities and had six outpatient physician contacts. The OECD infant mortality rate was 9.4 deaths per thousand live births, life expectancy at birth was 73 years for males and 79 years for females, and life expectancy at age 80 was 6 years for males and seven for females. Health sectors employed some 5% of the population [16]. The varied experiences of the 24 OECD countries do yield some fairly consistent lessons: It has been easier to expand access and develop system infrastructure than to reduce capacity and control costs. Despite major expansions in access for all groups, significant differentials still remain across socioeconomic groups, suggesting the need for specific policies targeted to underserved populations. Increases in expenditures have not necessarily been related to increases in health outcomes. Macro cost-containment strategies have often not resulted in micro efficiency, and vice versa. Empowering consumers and having money follow patients within the context of an overall budget appear to be the preferred strategies for controlling costs and encouraging efficiency. Most countries are faced with surplus of physicians, especially specialists, and hospital beds, and have had limited success in controlling either. Consumer expectations, new technologies, and aging populations continue to place pressure on health care expenditures in all countries. Administrative costs appear to be higher in private and social insurance based systems than in national health service based systems, as well as in managed competition and managed care approaches. However, the tradeoff of administrative costs against service costs and quality must always be considered. Social factors such as poverty, drug abuse, teen pregnancy, AIDS, and other societally induced illnesses have major effects on costs and outcomes. Fragmented fee-for-service systems like that in the United States without a single payer or single set of rules applying to the whole system have been the least successful in controlling expenditures and guaranteeing access, although ‘quality’ may conceivably be high. Effective policy development, implementation, and evaluation requires both micro and macro level data, interdisciplinary foci, highly technical staff, and focussed research and evaluation efforts. Unfortunately, it is difficult to make definitive judgements about other important aspects of OECD health systems. While publically financed systems perform better
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in terms of assuring universal access, there is no systematic quality or efficiency evidence about public versus private provision. Similarly, there is little comparative evidence concerning the performance of alternative quality assurance systems. Organized medical groups play different roles in different systems ranging from provider organizations setting standards for care to organizations negotiating over fees and hospital budgets. Physicians in some countries have traded-off control over fees for clinical autonomy. Expenditures on research and evaluation tend to be a tiny percentage of overall health spending. Nevertheless, policy relevant research studies and demonstration projects can lay the foundations for smooth implementation of basic reforms. As developing countries take up the challenge of health sector reform, success will depend on stability in leadership, technically competent staff, and support from top government leadership and the Ministry of Finance as well as sensible application of relevant lessons from other countries. Without this basic political committment and support, the lessons from the OECD countries cannot be modified in an effective manner to meet the very specific needs of individual developing countries. Perhaps the real lesson is that health care financing and delivery systems are exceedingly complex, highly individualistic social organisms, which affect all aspects of a country’s socioeconomic development and touch important political constituencies. Reformers must also deal with these elements. References 111 World Bank, World Development Report 1993, Investing in Health, World Bank, Washington, DC, 1993.
El World Health Organization, Evaluation of Recent Changes in the Financing of Health Services, WHO, Geneva, 1993. Organization for Economic Cooperation and Development, Financing and Delivering Health Care, Organization for Economic Cooperation and Development, Paris, 1987. [41 Jencks, S.F. and Schieber, G.J., Containing U.S. Health Care Costs: What Bullet to Bite?, Health Care Financing Review, Annual Supplement, (1991) l-12. [Sl Zuckerman, S., Hadley, J. and Iezzoni, L., Measuring Hospital Efficiency With Frontier Cost Functions. The Urban Institute, Washington, DC (Discussion Paper 6172-011, March, 1993. b51 Newhouse, J., Reimbursement Under Uncertainty: What to Do if One Cannot Identify an Efficient Hospital. Report prepared for the US Health Care Financing Administration, Baltimore, 1993. [71 Pauly, M.V. et al., Issues Related to Volume and Intensity of Physician Services. Report prepared for the US Health Care Financing Administration, Baltimore, 1988. t81 Schneider, M. et al., Health Care in the EC Member States. Health Policy, 20 (1992) 1-251. r91 Organization for Economic Cooperation and Development, The Reform of Health Care: A Comparative Analysis of Seven OECD Countries, Organization for Economic Cooperation and Development, Paris, 1992. [lOI Organization for Economic Cooperation and Development, The Reform of Health Care Systems: A review of seventeen OECD countries, Organization for Economic Cooperation and Development, Paris, 1994. 1111 Glaser, W.A., Health Insurance in Practice, Jossey-Bass, San Francisco, 1991. u21 Price Waterhouse, Government of the Republic of Turkey, State Planning Organization, Health Sector Masterplan Study, Report on the Current Situation, Price Waterhouse, London, January, 1990. [31
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I131 Chernichovsky, D., A Right to Health Insurance Versus a Right to Health Care: A Critique and Amendment Proposals - The Health Insurance Law of the Russian Federation, Paper prepared for the World Bank, Moscow, September 22, 1992. [141 Schieber, G.J., Health Care Financing Reform in Russia and Ukraine, Health Affairs, Supplement (1993) 294-299. 1151 Jonsson, B., What Can Americans Learn From Europeans? Health Care Financing Review, Annual Supplement (1989) 79-93. Ml Schieber, G.J., Poullier, J.P. and Greenwald, L.M., Health System Performance in OECD Countries, 1980-92, Health Affairs, 13 (1994) 100-112. [171 Lazenby, H.C. et al., National Health Accounts: Lessons From the U.S. Experience, Health Care Financing Review, 13 (1992) 89-103. 1181 Organization for Economic Cooperation and Development, OECD Health Systems: Facts and Trends 1960-1991, Organization for Economic Cooperation and Development, Paris, 1993. [191 Smith, B.A., An International Study of Health Expenditure and Its Relevance for Health Planning, World Health Organization, Geneva, 1967. [201 Murray, C.J.L. et al., National Health Expenditures: A global analysis. In C.J.L. Murray and A.D. Lopez (Eds.), Global comparative assessments in the health sector, world health organization, Geneva, 1994, pp. 141-155. et al., Global Expenditures on Health, Lx1 Schieber, G.J., Health Sector Performance in Canada, France, Germany, Japan, the United Kingdom, and the United States: An Appraisal, In Joint Hearing Before the Committee on Governmental Affairs, United States Senate and the Special Committee on Aging, United States Senate, One Hundred Second Congress, U.S. Government Printing Office, Washington, DC, 1992. pp. 150-176. La Schieber, G.J., Poullier, J.P. and Greenwald, L.M., U.S. Health Expenditure Performance: An International Comparison and Data Update, Health Care Financing Review, 13 (1992) l-87. WI Poullier, J.P., Administrative Costs in Selected Industrialized Countries, Health Care Financing Review, 13 (1992) 167-172. [241 Wolfe, P.R. and Moran, D.W., Global Budgeting in the OECD Countries, Health Care Financing Review, 14 (1993) 55-76. I251 Wiley, M.W., Hospital Financing Reform and Case-Mix Measurement: An International Review, Health Care Financing Review, 13 (1992) 119-133. WI Clauser, S.B. and Fries, B.E., Nursing Home Resident Assessment and Case-Mix Classification: Cross-National Perspectives, Health Care Financing Review, 13 (1992) 135-155. 1271 Schneider, M., Health Care Cost Containment in the Federal Republic of Germany, Health Care Financing Review, 12 (1991) 87-101. I281 Coulam, R.F. and Gaumer, G.L., Medicare’s Prospective Payment System: A Critical Appraisal, Health Care Financing Review, Annual Supplement (1991) 45-77. L’91 Hurst, J.W., Reforming Health Care in Seven European Nations, Health Affairs, 10 (1991) 7-21. 1301 Gold, M. et al., Effects of Selected Cost-Containment Efforts: 1971-1993, Health Care Financing Review, 14 (1993) 183-225. t311 Hadley, J.P. and Langwell, K., Managed Care in the United States: Promises, Evidence to Date, and Future Directions, Health Policy, 19 (1991) 91-118. [=I Cost Containment Issues, Methods, and Experience, Health Care Financing Review, Annual Supplement (1991) l-106. [331 Chaulk, C.P. and Bialek, R., A Seven Country Perspective of Clinical Preventive Medicine. In R.N. Matzin and R.S. Lang, (Eds.), Clinical Preventive Medicine, Mosby, St. Louis, 1993, pp. 47-95. I341 Chaulk, C.P., Preventive Health Care in Six Countries: Models for Reform?, Health Care Financing Review, 15 (1994) 7-19. [351 Roper, W.L. et al., Effectiveness in Health Care, An Initiative to Evaluate and Improve Medical Practice, The New England Journal of Medicine, 319 (1988) 1197-1202. [%I Gornick, M., Lubitz, J. and Riley, G., U.S. Initiatives and Approaches for Outcomes and Effectiveness Research, Health Policy, 17 (1991) 209-225.
Preconditions for health reform: experiences from the OECD countries* George J. Schieber’ 10601 Mac Arthur
Blvd,
Potomac,
MD
20854,
USA
Revision received 20 January 1995; accepted 24 January 1995
Abstract
This paper discussesthe basic conditions necessary for the successful implementation of health sector reforms. Lessons from health sector reforms in the 24 western industrialized member countries of the Organization for Economic Cooperation and Development (OECD) are discussed and applied in the context of reform efforts in developing countries. Reform areas addressed include: public and private institutional infrastructure development, financing arrangements, benefit design, eligibility determination, reimbursement and cost control methods, and service delivery system configurations. Key words:
Health sector reform; Lessons; OECD; Developing countries
1. Introduction This paper discusses the basic informational, institutional, and technical conditions necessary for successful health system reform based on the experiences of the 24 member countries of the Organization for Economic Cooperation and Develop-
*The author was Director, Office Administration, U.S. Department of Finance Specialist at the World Bank. not necessarily represent those of the
of Research and Demonstrations, Health Care Financing Health and Human Services and is currently Senior Health The views expressed in this paper are those of the author and do U.S. Government or the World Bank.
016%8510/95/$09.50 0 1995 Elsevier Science Ireland Ltd. All rights reserved. 0168-8510(95)00740-J
SSDZ
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ment (OECD). Since the OECD countries have extensive public health infrastructures and given the extensive literature on basic public health activities in developing countries [1,2], this paper focuses more on the economics of health care financing and delivery than on public health delivery issues’. The areas addressed include: revenue raising (e.g. financing from a public finance economics perspective); benefits and eligibility; cost-containment and reimbursement of medical care providers; and the service delivery system including manpower, facilities, health planning, quality assurance, public health activities, and the integration of health with other social service systems. The paper is organized into six sections. It provides a conceptual framework for analyzing health system performance, discusses necessary infrastructures, describes the experiences of the OECD countries, and relates these experiences to developing countries. First, the issues surrounding health system goal specification and evaluation of health sector performance are discussed. Second, the basic governance, institutional, and informational structures needed for successful reform efforts are enumerated. Third, issues concerning reforming the way health care is financed are examined. Fourth, reforms to control costs and reimburse medical care providers are analyzed. Fifth, issues concerning reform of the service delivery system are discussed. Sixth, lessons from the reform ‘successes’ of the OECD countries of relevance to developing countries are summarized. 2. Goals and evaluation of health sector performance
In assessing the reform efforts by OECD countries, it is first necessary to understand the basic goals of these health systems, how the current systems have performed in achieving these goals, the goals of the reforms, and the institutional, political and technical capabilities needed to achieve ‘successful’ reforms. It is often difficult to find precise specifications of the goals of different countries’ health systems. Such goals are generally found in arcane legislative language and/or in the speeches of politicians and high level government health officials. Such pronouncements generally refer to improving the health status of the population, health being a right, and government guaranteeing access to all needed services for all individuals. Concepts such as universality, portability, choice, quality, and security abound. With the growth in health care costs and the increasing shares of economic activity being devoted to the health sectors, most OECD countries are attempting to assure access to medically necessary care as efficiently as possible. In fact, one could postulate that the goal of these countries’ health systems is to provide access to medically necessary and medically effective services in a cost-effective manner to their populations. The fundamental problem in evaluating the performance of health systems in meeting this goal, or for that matter in evaluating the effects of particular reform policies, is the difficulty in
‘Given the overriding importance of public health activities in the low income developing countries, lessons from the OECD countries may have more immediate applicability in middle and upper income countries.
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assessing how well health systems perform in terms of assuring access to medically necessary and medically effective services in a cost-effective manner2. The basic problems and normative judgements in defining and measuring access, medical necessity and medical-effectiveness, and cost-effectiveness are well known [3]. In summary, access has many dimensions and defining and measuring access requires normative judgements. To measure medical-effectiveness and cost-effectiveness requires measurement of health outcomes, an area of limited understanding at best. For the same reasons, it is also difficult to evaluate the effects of even narrowly targeted health sector reforms. For example, to assess whether a particular hospital payment reform has led to reductions in hospital costs and greater hospital efficiency, one must be able to define and measure hospital costs and ‘efficiency’, an area far less straightforward than mere rhetoric or economic theory would suggest [4-61. Furthermore, one would also have to evaluate the effect of any such hospital payment policy on non-hospital costs, access and quality. To complicate matters further, as in the case of all social science research, it is extremely difficult to measure behavioral response and attribute causality: witness the 20-year debate about whether physicians induce demand [7]. All of these problems are compounded further by a lack of detailed descriptive information on the health systems of different countries and the lack of comparable micro level information both within and across countries [g-11]. Thus, it is exceedingly difficult to evaluate the performance of different health systems and reform efforts. In the public policy arena, decision-making is a complex process in which political and socioeconomic concerns interact. Reliable socioeconomic information on policy impacts is a necessary condition for effective policy-making. Given the costs and methodological difficulties of obtaining such information, discussed below, one rarely has enough information on which to base policy decisions. Nevertheless, informed policy choice and evaluation should be based on the best affordable data and techniques. Methodological issues aside, OECD countries in the past 10 years have come a long way in basing reforms on analysis and evaluating their impacts. As the economic situation in the post-oil crisis era evolved from one of economic growth to recession, and as cost escalation replaced achievement of access as the major problem, governments in OECD countries have increasingly abandoned the position that health sectors are part of the social safety net and, therefore, outside the realm of budgetary policy and economic analysis. Indeed, the political will to act is being driven by the large and increasing amount of resources being devoted to health sectors. While the level of analysis and evaluation of reform policies is far from ideal, increasing numbers of OECD countries are using multidisciplinary approaches and technically sophisticated public health, economic, sociological,
*Unfortunately, disease prevention, health promotion, and certain other public health activitites do not readily fit into this goal. While other goals such as improving the health status of the population can be specified, definitional problems, measurement problems, and normative judgements are pervasive. Moreover, such goals must be viewed in the context of the opportunity costs of the resources needed for their achievement.
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statistical and medical professionals to analyze and evaluate policy choices. A growing number of countries are also following the U.S. lead of conducting small scale demonstration projects of proposed reforms prior to full scale implementation. In addition, increasing attention is being paid to the relaxation of privacy laws hindering release of data, and to the development of the relevant micro level data to aid in both problem identification and resolution. These are important lessons for developing countries, especially given the low priority accorded to Health Ministries and data collection in most countries. 3. Governance, institutional
and information
infrastructures
Most OECD countries have well developed public governance structures and well established legal and regulatory systems concerning taxation, intergovernmental fiscal relations, property rights, antitrust, financial sectors, medical care providers and manufacturers, consumer protections, etc. Private sector institutions and organizations in finance, insurance and the medical care sector are well developed. Compliance with laws and regulations is generally quite high. Information systems are in place which allow stakeholders to perform their functions relatively effectively. 3.1. Public and private institutional
inffastructures
The situation in many developing countries is rather different with public governance structures, private institutions, and information availability in a far less developed state. A precondition for reform is a public governance structure as well as public and private institutional structures to develop, implement and evaluate health sector reform policies. Governments have important allocational and distributional roles in all countries. In developing countries, governments have even a greater role given the incidence of poverty and the lack of a health system infrastructure for the poor. For reforms to succeed, governments must have coherent organizational structures, technically competent multidisciplinary staff, and an effective intergovernmental structure which allows efficient information flow and implementation at national, regional, and local levels. Organization charts displaying the functions of different offices and their interconnections are important first steps. If these functions and responsibilities cannot be enumerated, then there is no responsibility and accountability, and reforms will not succeed. A recent evaluation of the Turkish health sector highlighted this problem [12]. Policy planning, implementation and evaluation must also be given a high priority, and there must be a high level of cooperation with the Ministry of Finance and other government agencies. Government must also assure that there are functioning financial markets, viable tax management and expenditure accounting systems, and legal and regulatory structures to provide the basic framework for the organization and operation of public and private insurers, providers, and suppliers. Insurers and providers must have adequate accounting and management information systems. The lack of such structures has been an impediment to reform in eastern Europe and the former
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Soviet Union [13,14]. Government must also be responsible for financing and providing basic public health services including immunizations and other preventive services, health promotion, family planning, safe and effective food, drugs, biologics, radiological devices, and medical devices, epidemiological surveillance, environmental controls, manpower training and health planning. The government must set standards for and monitor the quality of care provided. It should also finance and/or directly provide services to at least the poor and disadvantaged. All OECD countries perform these functions, some more effectively than others. Interestingly, lack of universal entitlement to health coverage may in part be responsible for the poor rankings in terms of infant mortality of the richest and poorest OECD countries, the U.S. and Turkey [15,16]. 3.2. Information for decision-making A sine quo non for policy design, implementation
and evaluation is appropriate epidemiological, socioeconomic, medical and financial information. National health accounts which provide information on all health expenditures by type of service and source of payment are critically important for rational decision-making [17]. Such accounts must include public subsidies and private expenditures including black market activities and side payments to medical care providers in order to provide a complete picture of the total amount of resources going into the health sector. Most OECD countries have such accounts, although their completeness and accuracy vary. The OECD continuously monitors and publishes information in a national health accounts format for the OECD countries [181. The World Health Organization, since the late 60’s, has provided developing countries with information to establish such accounts, although the level of success is questionable [19]. Recently, the World Bank has attempted to develop such information on total health spending and public health spending for developing countries [1,20]. While one would ideally want to obtain expenditures by type of service and source of payment, obtaining all relevant detail may be difficult, especially for developing countries. Perhaps the most difficult area is private expenditures. While payments emanating from private insurance may be obtainable, direct out-of-pocket payments for medical services are generally much harder to obtain. These expenditures would have to be tracked either as revenues to medical care providers (who may have tax motives not to report them), or through consumer expenditure surveys. Such sources of information are unlikely to be readily available in many developing countries. Given the significance of such expenditures, it is important to estimate them as well as possible. In addition, authorities should attempt to obtain complete public spending, both across different governmental levels and across different ministries. Other types of information are also needed. Basic socioeconomic and epidemiological data provide information on the underlying needs of the population, and provide the basis for designing public health activities, establishing health benefit structures, and configuring the delivery system. Economic data provide information on the ability to pay individuals, enterprises and industries, and can be used in the design of financing and cost-sharing structures. Data on manpower and facilities
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provide information for delivery system design, manpower training policies, facility and equipment acquisition and health planning. Such information is needed at local, regional and national levels. If micro-level information is available (e.g. data on individuals, individual medical care providers, suppliers and insurers), more focused problem analyses, and better policy development and evaluations can be performed. As discussed above, most OECD countries have national health accounts. Most countries have reasonably good epidemiological and socioeconomic information. The biggest shortcoming is in the area of detailed micro data, the types of information increasingly needed to design, implement, and evaluate health care reforms. Both privacy concerns and the fact that most countries collect data consonant with their health systems’ structures, often precludes collection of individual encounter information. For example, if hospital-based physicians are salaried hospital employees, there is no need to collect detailed physician information beyond what goes into the patient’s medical record. Even in the United States, the bastion of prolific data resulting from a fragmented fee-for-service payment system, such information is not readily available for privately insured patients, and the information that private insurers do have is not in a standardized format. Most health maintenance organizations (HMOs) and many other managed care organizations do not collect encounter data at all. Nevertheless, this type of information is clearly needed for designing, implementing and evaluating many aspects of health care reform that are currently being pursued by the U.S. and many other OECD countries. For example, detailed patient level information is needed to develop risk adjustment measures for the managed competition approaches under consideration in the U.S. and Netherlands, as well as for the efforts to equalize financial risks across sickness funds in Germany and Japan. Yet, given the level of clinical information needed to develop such risk adjustment measures, little representative data for both development and evaluation is available anywhere. Beyond these types of data, information on the cost-effectiveness of particular interventions, information on the storage, transportation and effectiveness of different vaccines and pharmaceuticals, and efficient ways to purchase drugs, vaccines and supplies, are of critical importance for developing countries. Various international organizations have been at the forefront in providing assistance in these areas. While these issues are not at the forefront of the debate in most OECD countries, reforms requiring generic substitution and removal from coverage of certain types of pharmaceuticals have been important elements of the health care reform debate in several OECD countries. Developing countries will have to make judgements on both the costs of obtaining information and its utility in decision-making. Basic demographic and epidemiological information is important so that limited funds can be targeted to those high risk populations with the greatest payoffs. Similarly, basic information on health system infrastructure and costs are needed to assist in planning for rational health system development. Information on private spending is important for authorities to understand the total level of resources devoted to the health sector and the potential for its redistribution.
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4. Reform of financing Developing countries looking to the OECD countries for models of health care financing are faced with what appears to be four basic models: a national health service approach, a social insurance approach, a provincial government health insurance approach, and a private insurance approach [2113. Yet, the health care financing system of each OECD country is exceedingly complex, highly countryspecific, and every country is really a combination of these models. Indeed, arguably, the models themselves are unimportant. What is important is how countries raise revenues to fund their systems (e.g. how they spread the financial risks of paying for health care); what services are covered; who is eligible for coverage; how medical care providers are paid and costs contained; how the delivery system (including public health activities) is structured and quality assured; and whether consumers are satisfied with their systems. In terms of financing health care systems the OECD countries span a wide spectrum of models from heavy reliance on general revenue financing at the national level (e.g. United Kingdom), heavy reliance on general revenue financing at regional levels (e.g. Canada and various Scandinavian countries), reliance on social insurance taxes (France, Germany), to reliance on individual and employerprovided private health insurance (e.g. United States). Two critical features of any financing approach are: defining who is eligible for coverage; and what package of benefits is covered. The experiences in the OECD countries vary widely. For example, in the United States, public coverage is limited to the poor, disadvantaged, and the elderly with tax subsidies for the purchase of private health insurance. In the Netherlands, catastrophic coverage funded through general revenues is provided to everyone; those with incomes below a certain level are covered for basic health benefits through a social insurance system, while individuals with incomes above the threshold purchase private insurance. In Germany, everyone is covered by employment-based sickness funds with a voluntary opt out for those with incomes above a certain level. In the United Kingdom and Scandinavian countries there is entitlement to public coverage for all irrespective of income. There may be tax subsidies for the purchase of private insurance and or supplementary insurance to fill in the gaps in the public benefit package. Obviously, exactly how eligibility is structured has important implications for the public-private mix in financing, the distribution of the financing burden, and the potential for two-tiered systems of care, especially if the public system is underfunded relative to the private system. How the benefit package is structured also has important implications for financing and costs. Most countries define their benefits either in terms of specific services covered by the system or more generally as all care needed to treat the person’s illness. This latter concept with its connotations of egalitarian treatment
3For a rather different taxonomy of health systems see [9].
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and state responsibility for all care needed, was the basis of the health systems in most socialist countries. Unfortunately, it is rather misleading in that the ‘all necessary care’ has been limited by severe constraints in the supply of goods and services. Indeed, as these countries have moved to social and private insurance based models, the concept of needing to define a specific benefit package in order to establish tax and premium contribution rates is of critical importance from an actuarial perspective, but has in some cases been difficult to grasp. It is difficult to make generalizations about how these features affect the revenue generating potential and fairness of financing systems4. The basic purpose of the financing mechanism is to raise sufficient revenues to pay for services and to spread the financial risks of providing health care in an equitable manner. Leaving to the substantial literature on taxation theory, the issues concerning the revenue raising potentials of different taxes, the focus here is on the critical issue in health care financing of equitably spreading risk. From a strict public finance perspective, general revenue based approaches tend to be a more progressive way to share burdens than payroll taxes or individual premiums. Social insurance based approaches tend to spread risks more equitably than individual private insurance based approaches. However, even social insurance based approaches can lead to inequities as evidenced by the German system which displays a 2 to 1 variation in sickness fund premium tax rates, in large measure reflecting the differential health risks of the individuals enrolled in the various sickness funds as well as differences in benefits. In the United States, the system with the least public sharing of financial risks, the costs for those without public or private coverage is indirectly paid for by the privately insured, as medical care providers ‘cost shift’ to private insurers the costs they cannot recoup from the uninsured. In all these systems it is ultimately all individuals who finance the system. The fairness with which this is accomplished depends on the mixes of taxes, user charges, other out-of-pocket costs, and the incidence of the tax system and health benefits. Much is made of the public versus private mix in financing. The United States and Turkey are the only two OECD countries where private financing accounts for more than half of total health spending. On average for the 24 countries, the public sector accounts for some three-quarters of health spending [l&22]. The public share has been relatively stable since the 70’s, reflecting the full implementation of the public health care financing programs in most countries. Unfortunately, this public-private dichotomy is not that clear cut. While the law requires individuals to belong to sickness funds, are the independent sickness funds of Germany and the autonomous employer-based funds in Japan really public as opposed to private entities? Reporting convention results in classifying them as public, but in fact
4The revenue generating potential of various taxes and user charges is a very complicated area. Factors such as the revenue elasticities of different tax bases as well as the effects of different taxes on labor and capital markets need to be considered. Similarly the amounts needed to fund the system will also depend on eligibility, benefits covered, out-of-pocket payments, how medical care providers are paid, and how the delivery system is structured.
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might they have more in common with employer-provided insurance in the U.S. than the systems run by provincial governments in Canada or Scandinavia? Developing countries face somewhat different sets of basic circumstances. Except for the former socialist economies of Europe, substantial proportions of total health expenditures are private, but cover the small upper income strata, while the underfunded public sector strains to cover the bulk of the population [l, pp. 52-71, 210-2111. Putting aside the area of basic public health, what is more germane than the public versus private distinction is the requirement that assures everyone coverage, and how that coverage is financed. The key issue for developing countries is to develop a financing system composed of general and specific taxes, private premium payments, user charges, and other private out-of-pocket payments that spread risks as equitably as possible over the entire population, given the existing institutional and political realities. There are many considerations that must be taken into account including: tax administration, income distribution, the current distribution of revenues and benefits, the ability and costs of collecting user charges, intergovernmental fiscal arrangements, the effects of taxes on labor and capital markets, the role of private insurance and the capacities of the private insurance industry, and the availability of foreign assistance. Well functioning tax systems with high levels of compliance; intergovernmental fiscal structures that promote equity and local public expenditures based on fiscal capacity and need; and financial regulatory structures that promote efficiency and solvency are necessary conditions for the efficient operation of health systems in developing countries. While most OECD countries have well-developed govemmental and private institutional infrastructures, one lesson on financing can be gleaned: general revenue based systems appear to be simpler and more equitable ways to spread the financing of health risks and appear to have lower administrative costs [23]. 5. Provider reimbursement
and cost containment
The methods used to pay medical care providers have important implications for access, costs, and the quality of care. Irrespective of whether providers are public or private, payment methods have important effects on both the macro and micro cost efficiency of health systems. In terms of provision of services, the OECD systems span the spectrum of heavy reliance on public provision (United Kingdom, Scandinavian countries), mixed systems (France), to mostly private provision (United States, Canada). In terms of payment of medical care providers, OECD countries run the spectrum of global budgets for hospitals and salaried and capitated physicians (United Kingdom, Scandinavian countries) to basic fee-for-service models (United States, Japan). In recent years, reform efforts in many OECD countries have focused on containment of costs. Canada and the United States, two countries that rely very heavily on fee-for-service payment for both inpatient and outpatient physician services, display the highest expenditure levels and rates of increase [ 16,221. Nevertheless, without understanding how these expenditure figures trans-
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late into health outcomes, it is difficult to make assessments of the relative efficiency of one system versus another. OECD countries have adopted numerous policies to contain costs. Some have relied on global expenditure budgets, while others have relied on more micro medical care provider payment policies [24]. Countries with seemingly effective overall budgets like the United Kingdom and Sweden, have learned that capping expenditures does not necessarily assure efficiency at the micro level, since such caps may reduce productivity, increase queues, reduce quality, reduce consumer choice, and diminish consumer satisfaction. Similarly, effective provider payment strategies, such as the resource-based relative value physician fee schedule and the diagnosis-related group (DRG) hospital payment system used in the United States Medicare program, may not control overall costs as costs are shifted to other payers, and as the volume and intensity of services are increased. There are few generalizable results concerning public verses private practice and ownership of facilities. What appears to be most important are the incentive-based payment systems faced by providers, not their ownership. Reforms in OECD countries are moving in the directions of global expenditure limits and micro level incentive-based payment methodologies. Countries with macro budgets are moving to empower consumers, to have money follow patients, and to implement incentive-based provider payment methodologies. For example, numerous OECD countries are experimenting with DRGs to pay hospitals [25] and Resource Utilization Groups (RUGS) to pay nursing homes [26]. Other countries such as France and the United States are exploring more macro global budgeting strategies including caps on insurance premiums. Germany and other countries are actively encouraging purchase of lower-priced generic equivalent pharmaceuticals. Unfortunately, there have been few rigorous evaluations of these reforms [9,27-301. Indeed, it is exceedingly difficult to empirically separate the effects of cost-containment policies from the other factors underlying the expenditure trends in individual countries. Nevertheless, some general lessons for developing countries are clear: . . .
. l
Capping overall expenditures does not assure expenditure efficiency at the micro level. Access and quality need to be monitored in addition to expenditures. Specific medical care provider payment mechanisms such as certain types of managed care arrangements, DRG hospital payment, full and partial capitation and other risk-sharing approaches appear to control costs without reducing quality or access [31,32]. When payment reforms are imposed on one sector, expenditures and access in other complementary and substitute sectors must be monitored. The payment and cost containment mechanisms used in OECD countries require sophisticated information and administration structures. These systems require individual hospital financial statements and claims processing systems capable of handling millions of records. Thus, their adoption in developing countries necessitates both upgrading of their information bases and adminis-
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trative structures, as well as the modification of the basic methodologies to conform to the informational bases in these countries. Effective and equitable cost-containment and quality assurance systems require mechanisms to monitor and control fraud and abuse, and an appeals process for both providers and beneficiaries.
6. Structure of the delivery system The service delivery system including public health activities, manpower, facilities, equipment, health planning, quality assurance activities, and the interaction of health with other social systems are critical features of any reform activity. Public health activities in the form of immunization and other disease prevention activities, health promotion, maternal and child health programs, family planning, disease monitoring and control, emergency medicine, clinical laboratory and other medical facility standards, food, drug, biologic, and radiologic safety programs, environmental health, and biomedical and health services research all have profound effects on the health status of the population and the health care financing and delivery system. The organization of the delivery system in terms of numbers and types of manpower, facilities and equipment, their geographic location, as well as their interaction across different levels of care interact with financing and reimbursement policies in affecting access, quality and cost. Manpower training and health planning policies have important consequences for both the present and future supply of practitioners, facilities, and equipment. OECD countries employ a variety of financing arrangements, multiple entry points into the system, and various targeting programs to provide preventive and curative services to pregnant women, children and other high risk individuals. While the models vary, the key ingredient for success is accessibility to comprehensive preventive services without financial barriers (i.e. cost-sharing or demonstrations of insurance status) [33,34]. Given the epidemiological transition with its changing disease burden, much of the recent disease prevention and health promotion emphasis has focussed on preventing heart disease, cancer and cerebrovascular diseases. Policies have also focused on reducing societally-induced illnesses such as AIDS, substance abuse, and illnesses resulting in low-weight births. Educating populations to lead healthy lifestyles could have enormous consequences, especially given the high levels of alcohol, tobacco, and fat consumption in many countries, destructive social behavior, and the sedentary lifestyles of significant proportions of the population. On the delivery system side, most OECD countries have been attempting to assure appropriate types and distributions of health manpower through medical education and regulatory policies affecting geographic location of practice. Restricting medical school enrollments and limiting provider participation in public financing programs to underserved areas have been policies pursued by a number of OECD countries. There are also major concerns about the numbers of hospital
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and nursing home beds, and amounts of high technology equipment. Many of the OECD countries control health spending through supply side constraints on facilities and equipment. Health planning is critical for having rational policies in this regard. Monitoring and assuring quality of care is another important feature of health delivery systems, all the more important in an era of increasingly tight budget constraints. OECD countries have increased their efforts in the area of quality of care [35,36]. Establishing structure, process, and outcome standards is essential for monitoring health sector performance as well as the impact of specific reform policies. Most OECD countries rely on structural standards such as educational requirements for practitioners and specific conditions of participation for hospitals (e.g. fire safety standards, nurse to patient ratios, infection control barriers). Recently, consumer satisfaction has been appended to the generic taxonomy of quality assurance, and instruments to monitor satisfaction have been developed and tested. Similarly, relying on the precepts of total quality management, continuous quality improvement models based on feedback to medical care providers appear now to be at the cutting edge of the quality of care spectrum. Profiling of physicians and hospitals, effectiveness research, and biomedical research are getting increasing amounts of emphasis. Given the high levels of inappropriate treatment for certain high-cost surgical procedures found in some countries, there is a great deal of interest in not paying for treatments that are ineffective. This is a far more painless way to control spending than is rationing care. Unfortunately, the development of practice guidelines is extremely difficult and efforts in this area are in their infancy. Nevertheless, for certain conditions, such as prostate and breast cancer, information has been developed than can assist providers and consumers to choose non-surgical or less radical surgical alternatives. Although existent for only a limited number of treatments, such information has widespread applicability. For developing countries, quality assurance measures such as conditions of participation for hospitals, licensing policies, and manpower training standards will likely be the most relevant given their current infrastructures, as they attempt to upgrade and monitor the quality of care rendered in their health systems. In addition to the activities previously mentioned, having access to lists of essential drugs, proper training of physicians, nurse midwives, and other health care workers, proper location of clinics and other facilities, outreach programs, clean drinking water and proper nutrition, are essential first steps in reform. Targeting efforts on underserved areas and underserved populations could provide high returns. Both in OECD and in developing countries, health sectors cannot be viewed in isolation from other social sectors. Income support, nutrition, housing, and social services for the elderly and disadvantaged all have important consequences for the health status of individuals as well as health sector costs and performance. These interactions must be analyzed and clearly understood in the design of health sector reform policies.
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7. Lessons from the OECD countries
OECD countries in 1992 spent over 8% of their gross domestic products and over $1,300 per person on health care. They had on average 2.5 physicians and 8.4 hospital beds per thousand population. Individuals spent on average 2.5 days in inpatient medical care facilities and had six outpatient physician contacts. The OECD infant mortality rate was 9.4 deaths per thousand live births, life expectancy at birth was 73 years for males and 79 years for females, and life expectancy at age 80 was 6 years for males and seven for females. Health sectors employed some 5% of the population [16]. The varied experiences of the 24 OECD countries do yield some fairly consistent lessons: It has been easier to expand access and develop system infrastructure than to reduce capacity and control costs. Despite major expansions in access for all groups, significant differentials still remain across socioeconomic groups, suggesting the need for specific policies targeted to underserved populations. Increases in expenditures have not necessarily been related to increases in health outcomes. Macro cost-containment strategies have often not resulted in micro efficiency, and vice versa. Empowering consumers and having money follow patients within the context of an overall budget appear to be the preferred strategies for controlling costs and encouraging efficiency. Most countries are faced with surplus of physicians, especially specialists, and hospital beds, and have had limited success in controlling either. Consumer expectations, new technologies, and aging populations continue to place pressure on health care expenditures in all countries. Administrative costs appear to be higher in private and social insurance based systems than in national health service based systems, as well as in managed competition and managed care approaches. However, the tradeoff of administrative costs against service costs and quality must always be considered. Social factors such as poverty, drug abuse, teen pregnancy, AIDS, and other societally induced illnesses have major effects on costs and outcomes. Fragmented fee-for-service systems like that in the United States without a single payer or single set of rules applying to the whole system have been the least successful in controlling expenditures and guaranteeing access, although ‘quality’ may conceivably be high. Effective policy development, implementation, and evaluation requires both micro and macro level data, interdisciplinary foci, highly technical staff, and focussed research and evaluation efforts. Unfortunately, it is difficult to make definitive judgements about other important aspects of OECD health systems. While publically financed systems perform better
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in terms of assuring universal access, there is no systematic quality or efficiency evidence about public versus private provision. Similarly, there is little comparative evidence concerning the performance of alternative quality assurance systems. Organized medical groups play different roles in different systems ranging from provider organizations setting standards for care to organizations negotiating over fees and hospital budgets. Physicians in some countries have traded-off control over fees for clinical autonomy. Expenditures on research and evaluation tend to be a tiny percentage of overall health spending. Nevertheless, policy relevant research studies and demonstration projects can lay the foundations for smooth implementation of basic reforms. As developing countries take up the challenge of health sector reform, success will depend on stability in leadership, technically competent staff, and support from top government leadership and the Ministry of Finance as well as sensible application of relevant lessons from other countries. Without this basic political committment and support, the lessons from the OECD countries cannot be modified in an effective manner to meet the very specific needs of individual developing countries. Perhaps the real lesson is that health care financing and delivery systems are exceedingly complex, highly individualistic social organisms, which affect all aspects of a country’s socioeconomic development and touch important political constituencies. Reformers must also deal with these elements. References 111 World Bank, World Development Report 1993, Investing in Health, World Bank, Washington, DC, 1993.
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