The growth of non-state hospitals in Indonesia: Implications for policy and regulatory options...

7/29/2019 The growth of non-state hospitals in Indonesia: Implications for policy and regulatory options (WP12)

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KNOWLEDGE HUBS FOR HEALTHStrengthening health systems through evidence in Asia and the Pacic

The Nossal Institute

for Global Health

www.ni.unimelb.edu.au

HEALTH POLICY AND HEALTH FINANCEKNOWLEDGE HUB

WORKING PAPER SERIES NUMBER 12 | SEPTEMBER 2011

The Growth o Non-State Hospitals inIndonesia: Implications or policy and

regulatory options

Krishna HortNossal Institute or Global Health, University o Melbourne

Ahmer AkhtarNossal Institute or Global Health, University o Melbourne

Laksono TrisnantoroCentre or Health Service Management, University o Gadjah Mada, Indonesia

Shita DewiCentre or Health Service Management, University o Gadjah Mada, Indonesia

Andreasta MelialaCentre or Health Service Management, University o Gadjah Mada, Indonesia


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WORKING PAPER SERIES HEALTH POLICY AND HEALTH FINANCE KNOWLEDGE HUB

The Growth o Non-State Hospitals in Indonesia: Implications or policy and regulatory options NUMBER 12 | SEPTEMBER 2011

ABOUT THIS SERIESThis Working Paper is produced by the Nossal Institute or Global Health at the University o Melbourne,Australia.

The Australian Agency or International Development (AusAID) has established our Knowledge Hubs or

Health, each addressing dierent dimensions o the health system: Health Policy and Health Finance; HealthInormation Systems; Human Resources or Health; and Womens and Childrens Health.

Based at the Nossal Institute or Global Health, the Health Policy and Health Finance Knowledge Hub aims

to support regional, national and international partners to develop eective evidence-inormed policy making,particularly in the eld o health nance and health systems.

The Working Paper series is not a peer-reviewed journal; papers in this series are works-in-progress. The aim

is to stimulate discussion and comment among policy makers and researchers.

The Nossal Institute invites and encourages eedback. We would like to hear both where corrections

are needed to published papers and where additional work would be useul. We also would like to hear

suggestions or new papers or the investigation o any topics that health planners or policy makers would ndhelpul. To provide comment or obtain urther inormation about the Working Paper series please contact;[email protected] with Working Papers as the subject.

For updated Working Papers, the title page includes the date o the latest revision.

The growth o non-state hospitals in Indonesia: Implications or policy and regulatory options.

First Published September 2011

Corresponding author: Krishna Hort

Address: The Nossal Institute or Global Health, University o [email protected]

This Working Paper represents the views o its author/s and does not represent any ocial position o the

University o Melbourne, AusAID or the Australian Government.


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HEALTH POLICY AND HEALTH FINANCE KNOWLEDGE HUB WORKING PAPER SERIES

NUMBER 12 | SEPTEMBER 2011 The Growth o Non-State Hospitals in Indonesia: Implications or policy and regulatory option 1

SUMMARYThis paper is one o three published in the Working Paper series that summarise and explore the policyimplications o studies undertaken in collaboration with partners in Indonesia and Vietnam by the Health Policy

and Health Finance (HPHF) Knowledge Hub on the role o non-state hospitals in health systems. This paperocuses on studies in Indonesia undertaken by the Centre or Health Services and Management (CHSM),Universitas Gadjah Mada (UGM), which include an analysis o growth in the non-state hospital sector over the

last 10 years. The studies were based on data reported to the Ministry o Health (MoH), an examination o the

regulatory ramework, in-depth case studies o governance and management in individual non-state hospitalsand the practices and roles o doctors working in dual practice across state and non-state hospitals. The

complete ndings o these studies will be published subsequently in book ormat. The two companion Working

Papers report on a similar study in Vietnam and present a compilation and comparison o the country studies to

identiy the lessons or policy makers more broadly.

The key ndings o the CHSM Indonesian studies are:

(1) Non-state hospitals comprise 50% o the number o hospitals in Indonesia, and provide 37% o hospital

beds. The majority o these hospitals (82%) are not-or-prot (NFP), run by oundations. While the number oor-prot (FP) hospitals has doubled in the last 10 years, growth in the NFP group has been stagnant, and

NFP hospitals have taken on some FP practices in an attempt to maintain revenue.

(2) Factors behind these changes include:

growingdemandforhospitalservicesfromasegmentofthepopulationwithcapacitytopay,inthecontext

o a relatively low hospital bed/population ratio;

ataxationandlegalregimethatfavourscompanyownershipandFPmanagementofhospitals;

thedominantroleofthemedicalprofessioninamarketwheremedicalspecialistsarescarceandseekto

maximise their income through work in the private sector, and in urban communities with capacity to pay.

(3) The implications or regional policy makers and development partners include:

theneedforthegovernmenttoconsiderthesocialbenetsofprovidingtaxationconcessionstoNFPhospitals, to enable them to contribute to the provision o hospital services;

theneedforappropriatepolicyoptionstobetterregulateandmanagedualpracticeinthehealthsector,and

the potential negative eects on state hospital service quality, as well as the conficts o interests that arise

when physicians also become owners o health acilities;

theneedforimprovedmonitoringandregulationofthebehaviourandpracticesoflocalnon-statehospitals

by provincial and district governments, as local markets vary and can lead to dierent behaviours amongproviders.


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2 The Growth o Non-State Hospitals in Indonesia: Implications or policy and regulatory options NUMBER 12 | SEPTEMBER 2011

INTRODUCTIONThis paper summarises the key ndings rom in-depth studies undertaken by the HPHF Knowledge Hub incollaboration with CHSM, Universitas Gadjah Mada, Indonesia, in regard to non-state hospitals in Indonesia.

These studies orm part o a broader examination o the role o non-state hospitals in middle income countries(MICs) o Asia being undertaken under the auspices o the HPHF Knowledge Hub, with urther in-depthcountry studies also being undertaken in Vietnam. The aim o these studies was to examine the recent growth

o hospital services in selected countries o the Asia-Pacic region, to identiy actors contributing to and

impacting on this growth and to explore the potential regulatory and policy responses.

The non-state sector is a signicant provider o health services in many Asian countries. However, it is a

complex area or analysis, and a contested policy area. Part o the complexity is due to the large variety o

providers. In these studies, the non-state sector is regarded as all providers who exist outside o the public

sector, whether their aim is philanthropic or commercial, and whose aim is to treat illness or prevent disease(Mills, Brugha et al 2002). State providers are owned and controlled by national, provincial, state or local

governments. Non-state providers (NSPs) are those that work outside the direct ownership or control o the

state.

Non-state providers dier by types o service, legal status, extent and type o training and institutional

organisation, and may include employees or contractors who engage in both public and private practice (dual

practice). NSPs include individual providers (doctors, nurses, midwives, traditional healers and unqualiedpurveyors o medicines) as well as groups o providers or acilities (or example, clinics, nursing and maternity

homes, hospitals, pharmacies, diagnostic acilities and non-government-organisation-run medical clinics)

(Hanson and Berman 1998). Some NSPs do not have ormal training and practise illegally (Bennett 1992).

While many studies have been undertaken on the role o NSPs in ambulatory or outpatient care (Lagomarsino,Nachuk et al 2009), there is less known about non-state hospitals. As Hanson, Archard et al (2001)

commented, the hospital sector has been relatively neglected, despite its key role in the overall health system

and its high resource consumption within the system. New nancing mechanisms such as social healthinsurance increase the states exposure to nancing treatment in non-state hospitals, while the epidemiological

transition and rise in non-communicable diseases, together with increasing community demand or higher

technology services, indicate the increasing importance o hospitals to the health system.

The Indonesia and Vietnam studies aimed to ll a gap in the knowledge about the role o non-state hospitals

in low and middle income countries (LMICs) and to supply evidence and policy recommendations to policy

makers within each country. These countries were selected because o reports o recent growth in newnon-state hospitals and the interest shown by policy makers in addressing this growth through appropriate

regulation and policy.

The studies aim to answer the ollowing questions:

Whatservicesarenon-statehospitalsproviding,andwhatpatientsaretheytreating?

Whatarethemainfactorsdeterminingthecurrentroleandfuturepotentialofnon-statehospitals?

Whatopportunitiesandrisksrequireattentionfrompolicymakers,andwhatarethepolicyoptions?


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METHODOLOGYThis paper is based on the studies carried out by CHSM, including:

historicalreviewoftheroleanddevelopmentofNSPsinIndonesia,notingtheimportanceofhistorical

pathways in the development o health systems, institutions and policy;

compilationofroutinelycollecteddataandmappingofnumbers,locations,typesofnon-stateandstate

hospitals over the last 10 years;

casestudiesofdevelopmentsinNSPsinthecapitalandmaincities(YogyakartaandJakarta)andin

provincialcities(Bima,Jambi);

in-depthstudiesofmanagementandgovernance,motivationandrelationswithdoctorsinsomeNSPs;

reviewofregulatoryenvironmentsandregulatorycapacityincludinganin-depthcasestudyofone

location.

The studies also incorporate other work being undertaken by CHSM, particularly a study o medical proession

work practices, incomes and motivation. This paper begins with an overview o hospital services in Indonesia

based on published literature. A selective literature search was undertaken, with a ocus on the two keypolicy issues identied by the studies: not-or-prot providers and dual practice. The literature was searched

electronically using common search engines (Pubmed), as well as a search o websites o organisations withan interest in this area (World Health Organisation, World Bank). The search ocused on reviews, commentaries

and conceptual and policy discussions, rather than on primary research. As well, the paper uses routine

data on state and non-state hospitals with specic case studies o particular issues and locations or more

in-depth exploration. The paper applies an analytical ramework and policy approaches recommended bycommentators and analysts internationally (see below).

The design, implementation, analysis and initial report preparation were undertaken by CHSM at the Universitas

Gadjah Mada. The Nossal Institute or Global Health at the University o Melbourne provided comment andreview, assisted in providing electronic access to international literature and participated in the discussion and

analysis o the ndings with the study team, stakeholders and policy makers in Indonesia.

REVIEW OF THE LITERATUREThe review o the international literature ocussed on the role o not-or-prot hospitals and the behaviour o

physicians.

Not-or Proft HospitalsIsthereaspecialroleorcontributionfromNFPsinthehospitalsector? Muchoftheinternationalevidence

comes rom the United States, where NFPs comprise approximately 60% o the hospitals, the remaining

40% being divided evenly between state hospitals and FP hospitals. Current taxation policy still provides

concessions to NFPs, but this has been increasingly questioned and has led to a number o studies comparing

NFPs, FPs and state hospitals (Schlesinger and Gray 2006; Deber 2002; Marsteller, Bovbjerg et al 1998;Horwitz and Nichols 2009).

A review o this literature demonstrates a great deal o variability in ndings, but two conclusions emerge:

(1) The services provided and patients treated by NFP hospitals are determined not just by ownership, but areinfuenced by incentives, local markets and competition rom state and FP providers. Variability in the market

in dierent locations and or dierent services contributes to the variability between NFPs and FPs. NFPs

and FPs have similar perormance in the same locality; or example, they oer similar low levels o care orpoor. This may be because FPs tend to operate in wealthy areas, where there is less demand or care or the

poor. The more FP hospitals in a locality, the more non-prot hospitals:

respondaggressivelytorevenue-increasingopportunities;

adoptprotableservices;

discourageadmissionsofunprotablepatients;

reduceresourcesdevotedtotreatingthepatientstheydoadmit.


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Conversely, the presence o non-prots in a community is associated with increased quality o care in FP

nursing homes, reduced mortality rates in FP dialysis acilities, and increased trustworthiness o FP health

plans (Schlesinger and Gray 2006).

(2) Despite these variations, some consistent dierences based on NFP ownership have been identied(Schlesinger and Gray 2006). These include:

FPhospitalsmarkuppricesovercostsandseektomaximiserevenue;

NFPorganisationsappearmoretrustworthyindeliveringservices,beinglesslikelytomakemisleading

claims, to have complaints lodged against them by patients and to treat vulnerable patients dierently

rom other clientele;

NFPsmayfunctionasincubatorsofinnovationusingphilanthropytopioneernewserviceswherethereis

no market;

NFPsareslowertoreacttochange,expandingcapacitylessquicklyandstoppingserviceslessquickly

in response to changes in the market.

Such characteristics have encouraged two principle claims about the benets o NFPs (Horwitz and Nichols

2009). First, that the presence o NFPs and their standards o trustworthiness have spillover eects by

providing a standard against which FPs have to compete and constraining them rom practices that are belowthat standard. Secondly, that NFPs are more likely to invest in aspects o quality o care that are not visible

and not necessarily market enhancing, and thus provide a benchmark or competition with FPs, below which

FPs cannot compete. However, as Deber (2002) points out, the impact o these eects depends on the extento competitiveness in health markets. Such competition requires low barriers to market entry and exit, or the

presence o excess capacity, and may accordingly increase costs through waste and duplication. In addition,

the importance o actors such as expertise and a good reputation can be seen as inhibitors o competition,since they impede market entry and exit.

While there have been ewer studies comparing FP, NFP and state hospital services in LMICs in the Asia

Pacic, those studies which have been reported provide ndings consistent with studies in the USA. NFPs

provide more responsive care and have better use o pharmaceuticals than state and FP hospitals in Bangkok(Tangcharoensathien, Bennet et al 1999; Pitaknetinan, Tangcharoensathien et al 1999); no signicant

dierences in quality o care between FP, NFP and state hospitals were ound in China despite lower sta

to patient ratios and assets (Eggleston, Lu et al 2010). In both these contexts, the proportions o non-statehospitals, and o NFP within the non-state sector were much lower than in the USA, on the order o 10-20%.

Physician BehaviourDual practice and the ownership o acilities by physicians are both characteristic o physician behaviour.

Dual practice

Dual practice is widespread, in both low-income and high-income countries. There is a considerable literature

and commentary on the practice, with the some recent reviews, but ew good studies providing evidence

or policy decisions (Socha and Bech 2010; Eggleston and Bir 2006; Gruen, Anwar et al 2002). The literatureidenties both potential benets and potential risks rom dual practice. Benets include:

attractingandretainingskilledpractitionersinpublicservicedespitelowpublicsalaries,astheycantopup

their income through private practice;

reduceddemandonpublicservices,becausepatientswhocanpayaretreatedprivately.

Signicant risks include:

reducedqualityofserviceandavailabilityofservicesinthepublicsector,asphysiciansprovidemore

attention and divert time to the private sector;

self-referralofpatientsfromthepublictotheprivatesector,encouragingover-servicingandphysician-

induced demand;

usingpublicfacilitiesandstafftosubsidisecostsofservicestothosewhocouldpay.


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However, as the literature points out, studies have rarely used an appropriate comparator. I dual practice is

banned, but investment in the public sector remains low, the quality o services could urther deteriorate, rather

than improve; and greater regulation and limitation o dual practice needs to be balanced with the costs oimplementing and monitoring such regulation. It is possible that many o the negative eects o dual practice

are the result o underunded and poorly perorming public services, and would continue in the absence o dual

practice (Socha and Bech, 2010).

Thus the conclusion rom the literature is that it is necessary to balance the benets o dual practice (retaining

sta in the public sector) and the costs (reduced quality and sel-reerral) in the specic circumstances o each

context and the capacity to contract and regulate providers.

An interesting aspect that studies in some LMIC have also explored is the motivation or dual practice. As the

literature points out, i prot maximisation were the sole motive, then dual practice would not be the selected

strategy, because greater prot would be obtained by ocusing on the best remunerated activity (private

practice). It seems that dual practice is a compromise developed by practitioners to obtain the benets opensions and regular income rom state service, and possibly to provide some public services, while being

able to supplement income rom private practice.

The key issue is how providers decide on this balance, and whether they have a target income or seek to balancethe income obtained rom increasing hours o work with loss o leisure time. This balance may also shit with age

and seniority, more senior doctors apparently being less willing to give up private practice, yet still retaining public

positions. Understanding this decision making could assist in appropriate incentives, including non-nancialincentives that may be important in the public sector (Eggleston and Bir 2006; Gruen, Anwar et al 2002).

Recent studies have conrmed the importance o supplier-induced demand but questioned the motivation or

causation, at least in the context o developed economies. A recent study in Australia concluded that it wasimplausible that doctors were engaging in unethical behaviour on such a large scale as the studies indicate,

and that alternative explanations, such as the uncertainty in medical decision making and the tendency to

reduce the risk o poor outcomes by additional investigations or treatment, may be more plausible (Richardson

and Peacock 2006).

Physician ownership o acilities

This clearly raises a confict o interest and can lead to over-servicing, something which has been identied in

the literature. However, it is probably air to say that the concern over the possibility o lack o proessionalism

and excessive commercialism has been stronger than the evidence, particularly in the USA (Dowd 2008; Fins2007; Kassirer 2007).

Conictsofinterestsarisewhenonepartyactsonbehalfofanotherthispersonistermedtheduciary.

Situations that compromise the duciarys independent judgment or ability to act on behal o the principal areconficts o interest. Physicians have an obligation to act in the interest o their patients (Rodwin and Okamoto

2000). Sel-employed physicians are entrepreneurs in that they earn prots and bear the risk o loss rom

their practice. They have conficts o interest arising rom incentives to manage their practice and to advise,

prescribe, reer and make clinical choices that promote their income, even at the patients expense (Rodwin2007).RodwinandOkamoto(2007)describesexperiencesinJapan,wherephysicianownershipoffacilitiesis

common, and where provision o services closely responds to changes in payment incentives, demonstrating

that acilities attempt to maximise their income.

Most developed countries have limited physician ownership o acilities where they practise or reer patients,

through legal regulations and/or through standards o ethics established by proessional organisations.

As Rodwin and Okamoto (2007) observes, conficts o interest can be controlled by appropriate paymentmechanisms or by competing interests. Where the ownership o the hospital is separate rom the doctor,

then the hospital management has an interest in reducing costs rom over-treatment, which competes with

the physicians interest in the patients welare. This balance tends to control confict o interest. In the UnitedStates, or example, proessional associations created quite strong standards o behaviour over the rst 50

years o the 20th century, limiting competition among doctors. When these standards were eroded by ending

the exemption o medical practice rom anti-trust requirements, more ormal regulatory rameworks, through

licensing and payment incentives, replaced them (Rodwin 2007).


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HOSPITAL SERVICES IN INDONESIAThis review o hospital services in Indonesia is situated within the broader context o the health system and the health

policy context. Recent reviews o the Indonesian health system have demonstrated an increasingly pluralistic and

complex system that has had some success in addressing high child mortality and improving lie expectancy, butaces new challenges o regional inequalities, growing non-communicable diseases and ragmentation.

Key health indicators, such as inant and child mortality, have improved steadily over the past several decades.

Indonesia is largely on track to meet the Millennium Development Goals (MDG) targets or national child mortality

(but note geographic variation in achievement, below). However, three indicators remain a cause or concern:

maternalmortalityrates,whichremainhighat228deathsper100,000livebirths,althoughtheWorldHealth

Organization (WHO) estimates put the gure at 420 (Mize, Pambudi et al 2009). Despite the decrease, these

estimates indicate Indonesia is unlikely to meet the MDG target o 102 per 100,000 by 2015.

persistenthighinfantandchildmortalityinsomeprovinces;and

childmalnutritionrates,whichremainhighat25%forchildrenunderveandhavelargelystagnatedsince2000

(Yavuz,Rokxetal2008).

Table 1. Selected Socio-Economic and Health Indicators, Indonesia

Indicator (year)

GDP per capita in US$ PPP (2007) 3570

Poor as % o total population (2005) 16.0

Lie expectancy at birth in years (2007) 71

Under-ve mortality rate/1000 live births (2007) 31

Total health expenditure as % o GDP 2.5

Total health expenditure per capita in US$ 39

Public expenditure as % o total health expenditure 50.5

Out o pocket payment as % o private expenditure 70.4

Population covered by social health insurance as % o total pop. 38

Source: NHA database, WHO.

Despite impressive national progress, there are signicant inequalities between regions and provinces, andbetween rich and poor. Inant and child mortality rates are more than our times higher among the poorest quintile.Due to longer lie expectancy and ewer childhood deaths rom communicable diseases, the demographic andepidemiological prole is in transition. In the decades to come, Indonesia will ace a double burden o disease romboth communicable and non-communicable diseases (Rokx, Schieber et al 2009).

The health system is largely decentralised ollowing decentralisation o government in 1999. It has three levels.The Ministry o Health (MoH) has responsibility or central hospitals and teaching acilities, as well as overall policydirection and technical oversight. The Provincial Health Oce has responsibility or supervision and support odistricts and cross-district unctions (surveillance, epidemic response, labour power distribution). The District HealthOce administers the network o primary health care acilities (Puskesmas).

Indonesia invested signicantly in community primary health care service networks during the 1970s-80s, developing an extensive

system o centres (Puskesmas) and district hospitals. This has been the basis o the progressive national improvements in

population health outcomes, resulting in increases in lie expectancy and reductions in inant and child mortality.

However, government unding or health services remains low, at 1.3% o GDP, and the state-unded network ohospitals and health centres is underunded. While the central national government has recently increased budgetallocations to health through the unding o a nationwide social health insurance scheme, unding o health acilitiesby provincial and district governments remains below the benchmark o 15% o budget.

Public nancing is provided largely rom the central national government, either through specic sectoral streams

administered by relevant ministries, or through block grants direct to provincial and district governments, which are then

allocated to sectors by local parliaments. This has resulted in a complex budgeting and nancial fow mechanism, with

a variety o earmarked and non-earmarked budgets with separate requirements or use and reporting.

Following the economic crisis o 1997, the national government established a social health saety und, which has

subsequently developed into a social health insurance und (Jamkesmas). This is directly administered by the MoH;it reimburses ees directly to hospitals and provides a per capita annual tranche to Puskesmas or the treatment


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o those identied as poor (in 2009, 76.4 million). In the ace o this under-unded government system, a parallelsystem o private services has continued to fourish. An important aspect is that providers in government services,notably doctors, are permitted also to provide services in the private sector. The private sector has now become thepredominant source o income or medical providers working in the public sector.

This has led to a mixed system using signicant private health acilities and providers, with approximately 50% ohealth expenditure rom private unding and the majority o that (70%) as out-o-pocket expenditure. Even so, totalhealth expenditure is estimated at about 2.5% o Gross Domestic Product (GDP), still a very low level. It is estimatedthat the private or non-state sector accounted or 40-50% o service utilisation rom 1999 to 2004. More recent datademonstrate an increase in use o the public sector in 2005 to 2007, possibly associated with social protection andsocial health insurance (Jamkesmas) schemes introduced by the government. However, the private sector continuesto provide about 30% o services (Wang, McEuen et al 2009).

ParticularlyinthewealthierandmorepopulousislandsofJavaandBali,privateprovidersdominateinprovisionof

antenatal care (60 to 90% across 10 districts) and delivery care (60-95%) (Heywood and Choi 2010). In a surveyof15districtsinJava,90%ofthehealthfacilitiesidentiedwereprivate(HeywoodandHarahap2009).Inthese

islands, use o the public Puskesmas or outpatient services ell over 1997 to 2007 rom 40% to 30%, while use oprivate providers, particularly nurses and midwives, increased rom 45% to 50%. Similar changes are noted even inthe poorest quintile (Rokx, Schieber et al 2009).

In an eort to improve their nancial position and management perormance, Indonesia has progressivelyintroduced nancial and management autonomy or state hospitals. This began in 1993 with a Presidential Decreeon nancial autonomy in public hospitals. This has resulted in a variety o ocial and non-ocial user ees and theestablishment o higher ee-paying VIP wards to attract more afuent patients.

More recently, state hospital autonomy has been urther developed through the Decree o the Ministry o HomeAairs 61/2007, under which public hospitals became public service agencies (badan layanan umum). This statusenables state hospitals to use government unds and also to raise unds rom the community through ees orservices. However, the administrative requirements or this status are challenging, and many hospitals continue tooperate under direct local government budgets, without the administrative controls that the status requires.

The system is urther complicated by dierent lines o reporting and authority. State hospitals report directly to the

relevant provincial and district government, and are not under the control o the provincial or district health oces.There continues to be some uncertainty about the way in which authority is divided among the three levels ogovernment, despite the issuance o a revised regulation to clariy responsibilities. In particular, the central nationalgovernment has been slow to delegate authority or regulation and stewardship to provinces and districts, yet hasbeen unable to exercise this authority eectively itsel. As a result, many o the regulations around licensing o healthcare providers and acilities, and limitations on private practice, are not applied.

The Indonesian health system exhibits many o the signs o commercialised health systems described in theliterature. The WHO dened commercialised systems as commercialisation without regulation: unregulated ee orservice sale o health care regardless o whether ... by public, private and NGO providers (WHO 2008). Mackintoshand Koivusalo (2005) provide a more complete denition: the provision o health care services through marketrelationships to those able to pay; investment in and production o those services and o inputs to them, or cashincome or prot, including private contracting and supply o publicly nanced health care; and health care nance

derived rom individual payments and private insurance.Other commentators (Mackintosh 2007; Bloom, Standing et al 2008) have described characteristics such as theollowing in commercialised health sector markets: marketisation:moneytransactions(paymentoffees)asthedominanttransactionforhealthservices,inboth

government and non-government providers; poorregulation:manytransactionstakeplaceoutsidetheformalregulatedframework,orinaregulatoryregime

that is poorly implemented or lacks clarity, and some are unocial or under the table; porousbordersbetweenstateandnon-state,withstaffmovingacrossborders,undertakingrecogniseddual

practice, or moonlighting; highoutofpocketexpenditure;

apoorlyfundedanddysfunctionalstatesector,withdistributionandaccesstoserviceslargelydeterminedbythe

market and ability to pay.These systems provide opportunities and challenges or policy makers. The next section reports on the ndingso the studies, which examined in more depth how the hospital sector operates, and the regulatory and policyissues and options.


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FINDINGS

The Hospital Sector

Overall, Indonesia has a relatively low total hospital bed to population ratio (one o the lowest in South EastAsia, below that o Vietnam or Laos), but a relatively high proportion (37%) in non-state acilities (Table 2).The bed occupancy rate is also relatively low, around 60% in 2006, but case fow rates are average or the

region (40 cases/bed/year). In comparison, Vietnam has around three times the beds per population, a bed

occupancy rate o 95% and case fow o 50 per year (Rokx, Schieber et al 2009).

Not surprisingly, expenditure on hospitals in Indonesia is also relatively low, at about 38% o public expenditure,compared to Vietnam 79%, Malaysia 71% and Thailand 88% (Rokx, Schieber et al 2009). Utilization o hospitals

has increased since the introduction oJamkesmas, especially by the poor, although utilisation by the poor

is still lower than that o the rich, only 5% o poor households reporting use o hospitals in the previous year,compared to 10% o households in the richest quintile. However, use o public hospitals by the poorest quintile

doubled between 2001 and 2007, while use by the richest quintile increased by 50%. In contrast, a higher

proportion o poor households use public acilities or ambulatory care than the rich (10% compared to 5%),

and similar proportions use private acilities (around 13%) (Rokx, Schieber et al 2009).

Distribution

Alargeproportionofbothstateandnon-statehospitalsarelocatedonJava:45%ofstatehospitalsand61%

ofnon-statehospitals.However,becauseJavaalsohasthehighestpopulationdensity,theratiosofbedsto

populationinprovincesofJava(2.8to5.7bedsper10,000population)arelowerthaninprovincesoutside

Java(5.7to11.2bedsper10,000population).Arecentreviewofmaternityservicesnotedthattheavailability

o comprehensive emergency obstetric and neonatal care at provincial and district hospitals was below

requirementsinallbutfourof27provincessurveyed,althoughmajorcitiessuchasJakartahadanexcessof

capacity. As a result, caesarean section rates are below expected levels in rural areas (3.9% compared to an

estimated minimum o 5%), while 11% in urban areas. This suggests an uneven distribution o hospital services

and that lack o hospital capacity to provide such care was a signicant contributor to persistent high maternal

mortality (Mize, Pambudi et al 2009).

Regulation

Hospitals (both state and non-state) are classied by the number o beds and number o specialists into our

categories:

A:centralteachingandreferralhospitals,mainlyinthecapital(Jakarta)andlargecitiesofJavaandBali.

These are state hospitals, directly administered by the MoH, and are required to have at least 21 specialistdoctors (our basic specialists, ve medical support specialists, 12 other) and 13 subspecialists, usually with

more than 400 beds.

B:provincialteachingandreferralhospitals,inthecapitalcityofeachprovince.Statehospitalsare

administered by the provincial government, but may also be non-state; required to have 16 specialist

doctors (our basic specialists, our medical support specialists, eight other) and two subspecialists, usuallywith more than 200 beds.

Table 2. Hospital and Population Indicators, Indonesia (2008)

Total population (million) 226

Total number o hospitals 1320

Number o non-state hospitals 653

Non-state hospitals as % all hospitals 50%

Beds per 10,000 population 6.3

Total hospital beds 142,884

Number o non-state beds 53,288

Non-state beds as a % o all hospital beds 37%

Source: Data compiled rom MoH reports.


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CandD:districthospitals,inthecapitalcitiesofeachdistrict,andadministereddirectlybyeachdistrict.

This is the main category or private/non-state hospitals. Level C hospitals have at least our basic specialist

doctors and our medical support specialists, with 100-200 beds; level D hospitals have two basicspecialists and 50-100 beds.

According to MoH regulation 922/2008, hospitals require two types o licence, an establishment licence (issued

by the local government and giving permission to construct the acility) and an operational licence (issued bythe MoH, and based on the determination o the hospital class). Since the level o licence is closely tied to the

number o specialist doctors, attracting and retaining specialist doctors is a major requirement or hospital

managers. The MoH reported that many non-state hospitals ail to obtain the second orm o licence becausethey are unable to maintain the required number o specialists (MoH personal communication April 2010).

As a result, the distribution o specialist doctors closely matches that o hospitals, with a much higher

proportionintheislandsofJavaandBalithaninmoreremoteareas.Inthecaseofpaediatricians,69%practise

onJavaandBali,hometo56%ofthepopulation.Thedistributionofobstetric-gynaecologyspecialistsis

similar, and in nine o the 33 provinces, there are ewer than seven obstetrics and gynaecologist specialists

(Mize, Pambudi et al 2009).

Non-State HospitalsNon-state acilities are nearly 50% o the total number o hospitals in Indonesia (653 out o 1320). This

proportion increased over 10 years, rom 45% in 1998. This is the result o the growth o non-state hospitals(increased 33% between 1998 and 2008) being aster than that o state hospitals (increased 13% over the same

period) (Figure 1). However, the number o hospital beds in the non-state sector is smaller. The proportion o

non-state hospital beds was 34.1% in 1998, increasing to 37.3% by 2008. This is mainly because the average

size o non-state hospitals is smaller, and most o the growth in non-state hospitals was among those withewer than 150 beds.

Figure 1. State and Non-State Hospitals Registered with the MoH, 1998-2008

There are two types o non-state hospital, based on the legal status o the organisation that owns the hospital:

NFP hospitals, and FP hospitals. NFP hospitals are registered to oundations (yayasan) or communityassociations (perkumpulan). FP hospitals are registered to companies, either limited or open companies.

Most hospitals are oundations (81.8%), with the remainder as limited companies (13.8%) and communityassociations (4.4%).

NumberofHospitals


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Religious charitable groups such as Muslim (many groups, the largest being Muhammadyah), Protestant (the

successor o thezending movement, the missionary Christian movement originating rom Holland during the

colonial period) and Catholic (many congregations) are the major owners o the oundation hospitals. However,there are also a large number o smaller oundations, established as charitable organisations by amilies

or individuals, which operate many o the smaller hospitals. Many o these hospitals have long histories,

being ounded in the colonial period, with a mission to provide care to the native population, rather than the

colonisers.Whilemost(62%)arestillinthelargeurbancentresofJavaandBali,asignicantnumberserve

rural and remote areas. For example, there are still 24 non-state hospitals (compared to 64 state hospitals) in

the poorer eastern provinces o Nusa Tenggara Barat, Nusa Tenggara Timur, Maluku, Maluku Utara, Papua andPapua Barat.

For-prot non-state health care organisations can be classied into hospital chains (Bunda, Hermina, Siloam

and others), ambulatory and out-patient clinic care networks, emergency providers such as SOS, and single

providerssuchasYogyakartaInternationalHospital.Thesehospitalstendtobelocatedinlargeurbancentres

inJavaandBaliandtocatertotheafuentandthemiddleclass.

Recent developments in non-state hospitalsMost growth has been occurring in the FP company-owned hospitals, especially over the last ve years. In

2003 there were 49 FP non-state hospitals. In 2008, this number almost doubled, to 85. Most new FP hospitals

havebeenestablishedinJakartaandotherbigcitiesofJava,despiteMoHDecree1563/2003,whichrestricts

the number o hospitals to a maximum o one state hospital and up to three private providers or each 100,000

population. In addition a number o oundation hospitals have converted to FP companies. Between 2002 and2008, 25 oundation hospitals were converted to FP limited companies. On the other hand, only ve limited

company hospitals became oundations (Figure 2).

Figure 2. Growth of Non-State Hospitals Owned by Companies, by Hospital Size

NumberofHospitals


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Figure 3. Growth of Foundation Hospitals, by Hospital Size

In contrast , there has been little growth in the number o oundation hospitals over the last ve years. While

some growth occurred in the smaller hospitals during1998 to 2002, there has been little increase since then,and virtually no increase in the larger hospitals during the last 10 years (Figure 3).

Not-or-Proft HospitalsConsultation with NFP hospital providers identied issues related to nancial sustainability and management

and governance that were hampering growth and development o the NFP sector. Further in-depth study

provided the ollowing additional inormation.

Financial constraints

The main issue or the NFP hospitals was the lack o subsidies or additional revenue to enable provision o

charitable services. In the colonial period, the charitable religious hospitals received subsidies rom their parentorganisations and rom the government, to provide services to the poor and those who could not pay.But since independence, government subsidies have ceased. The parent organisations lost their capacity to

provide subsidies, and rather were expecting the hospitals to contribute revenue back to them. Unlike charitable

service providers in other countries, and education providers in Indonesia, health care providers are not entitled

to any taxation concessions. Hospitals are treated in the same way as prot-making businesses.

Overall, hospitals are subject to 43 dierent taxes, levies and repayments, and receive no concession on

charges or utilities and water. The only government support available is a 50% reduction on land and building

tax or new private hospitals, and some government support or building construction and medical equipment,i at least 25% o the hospital beds are low-cost public wards. At the same time, oundation status restricts the

ability o a hospital to use assets to raise investment capital, because under the oundation law, the hospital

does not legally own the assets and cant use them as collateral or loans or sell them to raise capital. Thisis particularly a problem or the smaller physician-owned hospitals, which have not been able to invest in

reurbishment or improvements in acilities and equipment.

The result has been not only stagnation in growth, but a change in the services and unctions o many NFP

hospitals. To raise revenue, they have introduced services aimed at ee-paying patients and have taken onmany o the characteristics o FP providers as they compete or a share o the market.

Management and governance issues

In-depth case studies also identied a number o problems in relation to management and governance. A key

underlying issue was the lack o eective governance mechanisms in the NFP hospitals, in particular the lacko separation between the owner and the manager roles. Although supervisory boards (badan pengawas) have

been established as required under the oundation laws, the boards unctioned more as management boards

and did not ull their governance unction. This has hindered the owners rom recognising and responding tothe shit away rom their original missions.

NumberofHospitals


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The situation or smaller physician-owned hospitals is complicated by the same person unctioning as both

owner and manager, and ailure to separate these roles. The case studies identied situations where this dual

role had hampered decision making in relation to critical issues or problems, as well as problems dealing withsuccession when the ounding owner-manager retired or died.

A urther issue was the lack o expertise and application o modern management structures and processes in

the hospitals. Management tended to be centralised in the control o the hospital director, with weak delegationand lack o collective leadership through an executive group. Investment in appropriate inormation technology

and systems is also low, limiting the data available to management on which to make decisions.

Role o the Medical ProessionThe medical proession, particularly specialist doctors, play a key role in the unctioning o hospitals and in

ullling the requirements or a licence. Medical proessionals in Indonesia have long been allowed to undertake

dual practice, to have their own private clinics or to work in private hospitals, while retaining their civil servantstatus and position in a state hospital. Recent estimates suggest that 80% o doctors in general practice and

90% o specialists work in both public and private sectors (Rokx, Giles et al 2009).

The main reason is that doctors can earn signicantly more income in private practice or private acilities thanrom their state salary. The CHSM carried out a study in 2006 o 279 doctors (126 general doctors and the

remainder specialists); it ound that on average, only 15% o the doctors incomes arose rom government

salary and allowances, while 58% was contributed by salary and allowances or work in private hospitals and14% was rom private practice. The proportion contributed by government salary was even less or specialists:

only 12.5% or surgeons, and 9.3% or obstetricians/gynaecologists. Private hospitals provide around 60% o

specialist income, and private practice rom 7 to 15% depending on the type o specialist (7% or surgeons,

15% or paediatricians).

In addition, the case studies in areas where non-state hospitals are continuing to grow demonstrated that

medical specialists rom state hospitals oten had roles in the development o new non-state hospitals.

Specialist doctors were oten responsible or establishing new non-state hospitals and provided services in

theirareaofspeciality.InYogyakartaandDenpasar,mostofthesenewhospitalswereNFP(foundations),whileinJakartasomeweresupportedbyinvestorsandestablishedasFPcompanies.

Even in provincial cities where the economic stimulus was less strong, local medical doctors play a prominentrole in the non-state hospitals. In some cases specialist doctors have established non-state hospitals that ocus

on their area, particularly obstetrics / gynaecologist specialists who establish maternity hospitals. There are

also general hospitals established by general doctors, some o which have subsequently become part o the

larger religious association hospital networks (or example Muhammadiyah). Some have been established bydoctors in retirement as a retirement occupation, while others have been established to improve the welare o

doctors, their amilies and their communities.

In these hospitals, medical doctors may have a triple role as providers, managers and owners. However, thegovernance and management issues noted above were o particular problem in the hospitals where physicians

were involved in the ownership and in the management and provision o services, and where there was no cleargovernance ramework. Management was oten controlled solely by the physician-owner, with all decisions intheir hands. This created diculties in resolving some o the sta management issues, and sometimes led to

ongoing internal conficts. This was particularly the case when amily members became involved in ownership

or management as the ounder owner retired.

With these multiple roles, there is a risk that the doctors, particularly specialists, may neglect their roles in

state acilities and spend more time in their more protable private practice or private acilities. A case study at

Jambi,aprovinceinSumatera,exploredthewayinwhich15specialistdoctorsdividedtheirtimebetweenthe

state hospital, six private hospitals and their private clinics. In addition to their work at the state hospital, thespecialist doctors reported working in between two and ve other locations, including private rooms and non-

state hospitals. The total average number o practice locations (including the state hospital) was 4.7, ranging


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rom three to seven. However, under Law 29/2004, a doctor is required to hold a licence to practise or each

practice location, and the maximum number o locations is three.

Medical specialists working at the state hospital are required by local government regulation to be on duty

between the hours o 8 a.m. and 2 p.m. on work days, and be on call or on rostered call ater that. However,the actual time that the specialist doctors reported spending at the state hospital was usually one to one and a

hal hours on the days they attended the hospital. The number o days they attended varied with the number ospecialists with whom they were rostered, rom one day per week to an average o three days per week.

ThisstudydemonstratedthatthespecialistdoctorsinJambiwereneglectingtheirdutiesinthepublic

hospital and ocusing more on providing services in the private sector, particularly in private hospitals. It alsodemonstrated that the local regulatory authority, the municipal health oce, and the state hospital management

had taken no action to enorce the national law limiting the number o practice locations or the local government

regulations on minimum hours to be spent at the public hospital. The main reason was that the salary and

allowances provided by the hospital are set by the local government and are below the expectations andmarket potential o specialist doctors. Consequently, they supplement their income through private practice,

and this is tolerated by the authorities in order to retain the doctors in the locality.


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DISCUSSION AND POLICY ISSUESA number o policy issues arise rom this review o the non-state hospital sector in Indonesia, includingespecially the role o not-or-prot hospitals and the behaviour o physicians.

Not-or-Proft HospitalsThe current policy context appears to avour FP hospitals against NFPs in the non-state sector. Should the

governmentintroducesubsidiesortaxationconcessionsforNFPs?

IsthereasocialbenetfromretainingNFPsinthehospitalsector?Theliteraturesuggeststhatbenetsare

derived rom retaining NFP providers in a competitive hospital market. In Indonesia, where there is already a

high proportion o NFP providers, incentives (such as taxation concessions) to NFPs could lead to increased

services or the poor, as well as the spillover eects o constraining excessive prot maximisation by FPs(Horwitz and Nichols 2009).

Partly as a result o these studies, the Indonesian national parliament included provisions in the new hospitallaw (No 44/2009) that distinguished FP and NFP hospitals, and allowed the possibility o taxation concessions

to NFPs. However, translating these provisions in the law into the necessary regulations will be challenging, as itwill involve two ministries, the Ministry o Health and the Ministry o Finance.

An important policy implication o the provision o subsidies to NFP hospitals, is the need to monitor the quality

and the behaviour o NFP providers, particularly their adherence to social welare missions and to providing

trustworthy services, in order to ensure that the incentives lead to the desired behavioural changes. This mightwell vary with the degree o competition in local markets, the capacity and willingness to pay o the local

population and the revenue impacts o the taxation concessions.

Physician BehaviourThe studies in Indonesia demonstrate some o the negative impacts o dual practice reported in the literature,

and prot maximising behaviour on the part o doctors in dual practice. Regulations to limit private practice

to three locations do not appear to be eective, and regulations on hours o work in the public sector appearto be fouted. The additional role o owner o health acilities, being taken up by some providers, creates

urther complications and raises confict o interest issues. In addition, Indonesia lacks strong standards rom

proessional associations and a regulatory ramework or control on payments to doctors. As noted in thesection on NSP hospital management, governance and management structures in NSP hospitals are weak,

and the physician owner does not ace a countervailing governance board. This is likely to undermine the

control o conficts o interest.

Potential policy options to address these issues include:

Improving and clariying the regulatory ramework

The new hospital law and the law on licensing o medical proessionals has provided a stronger ramework or thelicensing o individual physicians and the management o hospitals. These laws have led to the establishment o

the Indonesian Medical Council, to manage licensing o doctors and respond to complaints o malpractice. Thenew hospital law requires the establishment o hospital governing boards and sets out their unctions. However,

regulatory capacity and the implementation o sanctions on non-compliers remain weak. Physician ownership oacilities and management o conficts o interest have yet to be specically addressed in legislation or regulation.

Improving proessional standards and voluntary regulation

Indonesia already has a number o medical proessional associations, both or doctors in general (the

Indonesian Doctors Association) and or specic specialist groups. While the associations have generally

acted to promote the interests o their members, there is a potential or greater involvement o proessionalassociations in setting ethical and practice standards, and educating and encouraging members to comply.

State hospital management

A third policy option is the provision o better incentives or quality work in state and NFP hospitals, with clarity

in contracts on expectations rom state work, as well as private practice, and monitoring and management ocompliance.


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CONCLUSIONSThese studies have explored in depth the impacts o growing commercialisation o the health sector onhospital services in Indonesia. They have shown the strengths o the sector in the widespread network o

state hospitals, the long established networks o NFP hospitals and the growing FP sector. But they havealso demonstrated some o the challenges o managing this mixed sector, particularly the dual practice ophysicians across state and non-state sectors, the underunded and poorly perorming state sector and the

inequality in distribution across the wide geography o Indonesia.

Increased state unding to health through the social health insurance scheme provides opportunities orincreased unding to both state and non-state acilities, and new laws and regulations are opportunities

to strengthen the legal ramework or management. But these opportunities risk being undermined by the

ragmentation o the state system and the weakness in regulatory capacity, particularly o provinces and

districts.

Management o providers and acilities in this environment entails a series o balances, rather than relying on

traditional command and control directives and regulations. Maintaining and exploiting the range o providers

and acilities within the system can provide the checks and balances needed to encourage competition andconstrain practices that undermine social benet. Key strategies proposed or the Indonesian authorities in this

situation are:

(1) Strengthen and increase unding to public acilities and provide incentives to encourage providers to remainwithin the public system and to provide quality services, particularly or those who cannot access alternative

non-state providers.

(2 Provide appropriate incentives to retain and enable ongoing growth o the NFP segment o the non-statesector, to provide a benchmark or trustworthiness and quality service to the poor.

(3) Develop standards and expectations or private FP providers and or practitioners working in the private

sector, to be applied through a combination o legal regulation, voluntary or sel-regulation through

proessional associations and market competition.

(4) Improve the capacity o provincial and district health oces to monitor the behaviour and services provided

by state, FP and NFP hospitals, and to take urther regulatory action as required, depending on markets in

dierent localities.


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KNOWLEDGE HUBS FOR HEALTHStrengthening health systems through evidence in Asia and the Pacic

A strateg ic partnerships ini tiative funded by the Aust ralian Agency for Inte rnational Development

The Nossal Institutefor Global Health

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