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Financing Health & Health Care:Call for More Creativity & Hard Choices

Cambridge IHLP 2006

Jim Ricejrice@larsonallen.com

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What we look at

• Money into sector• Money within sector• Money within

institution

• Not this:– Accounting– Actuarial– Cash flow– Operational budgeting– Capital budgeting– Service line cost

accounting– Contracting

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Flow of Discussions in Finance Track

• Overview of issues and options: Jim Rice– Sources of Capital– Sources of Finance, Types of Insurance– Provider payments

• Multi-donor Challenges & Trends: Ken Grant• Lunch• Trends in balancing Private Health Insurance

– Satellite video link to World Bank in Washington DC– Alex Preker and Nicole Tapay

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Often Confusion Among Policy Makers and Implementers

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Sector Performance Goals:Macro Targets toward which we invest funds:

• Efficiency...• Macro-efficiency, health as percent of GDP• Micro-efficiency, maximizes units of service per

expenditures

• Equity...• Adequacy and equity in use of care• Income protection/transfer

• Effectiveness...• Optimal outcomes...status/well being/functionality• Optimal consumer/taxpayer satisfaction

• Choice-Freedom...• Freedom of choice by consumer/citizen• Degree of provider autonomy

(Refer to papers on CD for New Compact)

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Effective Health sector leaders must master money flows...

Not just epidemiology, medicine, public heath, communications

• Sources and Uses of Funds• Key Policy Questions Shaping Funds Flow• Strategies to Harness Power & to Shape

Policy Development• Strategies to Develop Leadership KSAs

– Knowledge– Skills– Attitudes

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Sources and Uses of Funds: Show me the money...

DonationsPhilanthropy

Bonds &Mortgages

Fees Sickness TaxInsurancePremiums

Dedicated V.A.T. or Excise Taxes

General Treasury

Capital Investments: -- facilities -- technology

Public HealthProtection &Promotion

Research &Development

HealthRestoration: -- hospitals -- doctors -- pharmacies -- alternate modes

ProfessionalEducation & Training

5%

5% 2%85%

3%

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Capital Sources for Technology and Facilities

• Government line item • Private Financing Initiative (PFI)• New “Bond” Mechanisms (enabling legislation or

tax code refinement required)• Mortgage Mechanism (ala a home or business)

What are they?

How Developed?

Pros and Cons of each, in certain settings?

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Themes of Reforms:Cross-National Lessons?

• Move toward Universal Coverage• Strengthen government control over percent health

consumes of GDP• Decentralize the public system• More cost sharing by users• New risk-coverage/pooling programs• More reliance on market forces to induce responsiveness

and accountability by all• Government role evolving to goal setter/payer and

performance monitor/assurer• Move to rely on “contracts” to clarify accountabilities• Renewed Focus on behavioral determinants of health

status...Healthy Communities/Lifestyles

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Complex Policy Choices:The Purchaser Side

Covered Groups

Civil ServantsEmployed LocalEmployed ExpatsChildrenPensionersAll groups

Covered Benefits

Basic Public HealthPrimary careHospital CareDentalVision CareTransplantsPharmaceuticalsCatastrophic Cases

Level of Coverage

First dollarCost above limitShared Risk CorridorsDeductible AmountCo-paymentsPercent of fee schedule

Degree of Private

Insurance companiesBrokers sell publicOutsource full adminOutsource functions:•Enrollment•Contribution collection•Subscriber relations•M.I.S.•Quality assurance•Provider contracting•Claims adjudication•Accounting•Investment portfolio

Forms of Insurance National Health Insurance• Mandated Private• Voluntary Private:

• Top-up Supplemental• Opt-out Full

• Medical Savings Accounts:• Alone• With NHS• With re-insurance

• Catastrophic Re-Insurance

Combinations are possible

Form of “Premium”

• Per capita from treasury• Per capita by Employer or Association• Premium risk based• Premium community based• Percent of wage

Who Pays for Whom?

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Overlooked, underdeveloped lever for change in health sector?

Health sector

resource needs

Tax Code More Than Public Health Policy?

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Contracting choices …

• Salary:– No incentive comp– Creative incentive comp

• Fee-for service• Per day• Per stay/case no

adjustments• Per stay adjusted• Per capita• Global budget

Pluses? Minuses?

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Issue 1. People are increasingly becoming aware (because of the spread of democratization) that quality health services need to be provided more efficiently and equitably to larger constituencies of people.

Issue 2. Health services are being threatened by economic recession, which is leading to cutbacks in recurrent budgets and a decline in capital development.

Issue 3. Demographic patterns and diseases are changing urbanization, the emergence of HIV/AIDS, the resurgence of diseases like malaria and tuberculosis, and the rising incidence of non-communicable diseases and diseases attributable to lifestyle‑thereby placing different demands on health services than in the past.

Provider Payments Must Respond to Local Realities and Desired Outcomes

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Constraint 1.The inefficient distribution of scarce resources. Hospital care still consumes most expenditures, salaries absorb the bulk of recurrent costs, and urban areas get more resources than rural areas.

Constraint 2.Poor systems for budgeting, for disbursing, for purchasing, and for monitoring expenditures that have failed to achieve an equitable distribution of health care resources.

Constraint 3.Lack of access to health care for populations that are disadvantaged because of such factors as location, age, sex, poverty, unavailability of services, unemployment, and bad planning or management of services.

Constraint 4.Services that do not respond adequately to local needs. For example, the poor quality of many services leads to under-utilization, unmotivated and poorly trained staff, long waiting periods, inconvenient clinic hours, inadequate drug supplies, lack of confidentiality, financial exploitation by the private sector, and no safeguards against dangerous treatments.

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The goals of cost saving and cost predictability determine the following primary requirements to the selection of payment methods:

In primary outpatient care:

•incentives should exist for providers to be interested in maintenance of enrollees’ health and decrease in frequency and severity of acute conditions in chronically ill populations;•incentives should exist for providers to render more services and reduce inappropriate referrals to specialty physicians and hospitals;•reasonable utilization of available resources (first of all, ancillary services) should be encouraged.

In hospital:

•incentives should exist to optimize inpatient care utilization through reduction of inappropriate admissions;•incentives should exist to reduce length of stay (LOS);•efficient utilization of available resources should be encouraged.

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•budgetary transfers,

•capitated payments (capitation),

•fee-for-service and

•case-based payments.

Provider Payments: Four Basic Methods, Many Variations

Vary in Outpatient Primary Care or Inpatient Acute Hospital

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Retrospective payment for the services provided.

Health care provider determines what types and volumes of care to provide, and the financing party pays the claims when submitted;

Prospective payment for the planned volume of services. The financing party and the health institution plan services by volume and structure, and then negotiate the order for health services dependent on the expected demand for services, available financial resources, and economic interests of the parties.

This principle implies a more proactive role of the financing party as health care purchaser, on the one hand, and a higher level of business management demonstrated by the provider organization, on the other hand. The volume of care and the structure of costs should be planned in such a manner as to ensure that costs suffered by the provider were, at least, recovered.

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Payment for Outpatient services:

1. For technological operations and procedures performed (per detailed service).

2. Per visit.3. Per finished outpatient case.4. Per capita funding of primary care provided to enrollees.5. Per capita funding of the entire scope of outpatient services

provided to enrollees (complex outpatient service). 6. Per capita funding of the entire scope of outpatient services

and part of inpatient services provided (partial fundholding).7. Per capita funding of the entire scope of outpatient and

inpatient services provided (full fundholding).

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Payment for Inpatient services::1. for reported number of bed-days;2. for reported number of finished cases;3. global budget in exchange for

negotiated and planned utilization and structure of inpatient care.

4. Per capita payment for defined population group

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New Provider Payment Systems: Mix and Match MethodsDepending on Goals at Given Point in Time: politics and Economy

•“Per Finished Case or Fee-for-Service for Outpatient Care and Per Finished Case for Inpatient Care”•“Per Finished Case or Fee-for-Service for Outpatient Care and Per Diem for Inpatient Care”•“Per Capita for Outpatient Care Per Finished Case for Inpatient Care”•“Polyclinic Expenditure Budget Funding and Per Finished Case for Inpatient Care”•“Per Capita for Outpatient Care and Per Diem for Inpatient Care”

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Contracting choices …

• Salary:– No incentive comp– Creative incentive comp

• Fee-for service• Per day• Per stay/case no

adjustments• Per stay adjusted• Per capita• Global budget

Pluses? Minuses?

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Changing Patterns of Provide Payments

Implications for your country?Will similar patterns occur?

When might such patterns occur?How will the patterns vary in your setting?

How will the implications to providers behavior vary in your country?

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Ultimate Strategy?Pay attention to macro economics

• Countries must ...• redeploy repair-shop

resources to revitalize and rationalize regional responsibilities for reformed reliance on:

• Risk-research• Risk-pooling• Risk-management• Results reporting• Rewarding results

• Strategy requires us all to consider...

• Redefine hospital

• Redefine risk

• Redefine responsibilities

• Redefine results

• Redefine rewards

Where does leadership come in?

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http://www.who.int/whr/2000/en/whr00_en.pdf

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If our health financing policy was rational …

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