HEALTH SYSTEM REFORM

Dean M. Harris, J.D.

Department of Health Policy and Management
UNC Gillings School of Global Public Health
University of North Carolina at Chapel Hill
March 3, 2011

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 Outline of this presentation

• The importance of values in health system

reform
• Reform of specific functions:
1. Organizational reform
2. Financing reform
3. Payment reform
4. Leadership and governance reform

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 Health reform and the fundamental
values of health systems
• Every country that accomplished the goals of
universal access to care and financial security
had to give up something.
• Most people in those countries believe the trade-
off was worth it.
• The best way to make these difficult trade-offs is
to begin by identifying the fundamental values of
a country’s health system.

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 Many countries have based health
reforms on their fundamental values
• Mexico’s 2003 health reform created a public
insurance system, based on the principle that
health care is a social right (not a privilege or
commodity).
• Canada has a tax-supported, single-payer system
of universal coverage, based on five fundamental
values of universality, public administration,
comprehensiveness, portability, and accessibility.
• The values of the UK’s national health system
include financing by taxation and free care at the
point of service.
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 In the US, the struggle for reform is
a debate about values and ethics
• As in other countries, the ongoing debate over
health reform in the US is fundamentally a
conflict among values and ethical principles.
• The value of solidarity is crucial in many health
systems (including social insurance, national
health insurance, and local community-based
insurance systems in developing countries).
• In contrast, social solidarity is not yet an integral
part of the value system in the US, which instead
prioritizes values of individualism and
autonomy.
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1. Organizational reform

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 Organizational reform
in health care systems
• Organizational reform within the public
sector (“reinventing government”):
– autonomization
– corporatization
– decentralization
• Organizational reform by means of
privatization (transferring ownership or
control to the private sector)

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 Autonomization: Giving the
management more independence
• Hospital managers are given authority to
make particular decisions.
• Hospital managers will be accountable for
meeting measurable performance targets.
• If the hospital generates a surplus by
increasing its revenue or by cutting its
costs, the hospital may be allowed to keep
those surplus funds.

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 Corporatization: An independent
corporation owned by the government
• The advantage of corporatization is giving
more flexibility to hospitals by removing
them from the existing bureaucracy.
• Some examples:
– Corporatization in Hong Kong (reform of public
hospitals by establishing a government-owned
Hospital Authority)
– Corporatization in Singapore (the government
reformed the system but kept control of the hospitals).

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 Distinguish decentralization within
the public sector (“devolution”)
• Another possible reform within the public sector
is called “decentralization” or “devolution.”
• In decentralization, authority for health facilities
is transferred from the national government to
the provincial or local levels of government.
• This could have the positive effects of increasing
local accountability and responsiveness.
• But, decentralization will not succeed if the
provincial or local government cannot provide
financial support for their health facilities.

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 “Privatization” is another type of
organizational reform
• “Privatization” is the transfer of ownership or
control of a facility or a function from the public
sector to a private organization.
• Privatization can reduce government
expenditures for ongoing operations, raise
money for government by selling public assets,
and use private capital for hospital expansion.
• The new private owner of the facility could be a
for­profit corporation, or it could be a private,
non‑profit organization (an NGO).
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 How does government “privatize” a
public service such as a hospital?
• Selling government assets (such as selling the
assets of a public hospital); or
• “Contracting out” a function or service that had
been performed directly by the government
(such as “contracting out” the management of a
public hospital, which would still be owned by
the government);
• “Leasing” a public hospital or some of its
services to a private entity (such as the lease of
laboratory and radiology services at a public
hospital in Romania).
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What are the issues of public policy
in hospital privatization?
• Will the new owner provide care to people
who cannot afford to pay for their care?
• Will the new owner meet the needs of the
local community?
• Will the people receive fair market value for
the sale of their hospital?
• Will the selling agency use the proceeds of
the sale to meet health care and public health
needs of the local community?

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 Organizational reform for the
delivery of public health functions
• The agency that handles public health functions
should not be part of the same agency that pays
for medical care for poor people. (In a time of
budgetary crisis, it is inevitable that the agency
would take funds away from public health.)
• The agency that delivers clinical services to
patients should not also be responsible for
public health functions, unless health care
professionals would also be compensated for
performing public health functions.
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2. Financing reform

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 “Financing” refers to methods of
raising money for health services
• Methods of financing health services:
– Social insurance systems
– Community-based health insurance (CBHI)
– General taxation
– Employee health plans
– Private health insurance
– Payment out-of-pocket at the point of service
• Designing a fair health insurance system
requires making trade-offs.
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 Which method of health financing
is the most fair?
• The answer depends on how we define
“fairness” in the context of health financing.
• The World Health Organization (WHO) has
developed a useful concept of “fairness in
financial contribution” to the health
system.
Source: World Health Organization, “The World Health Report
2000: Health Systems; Improving Performance.” (Geneva,
Switzerland, 2000), at
http://www.who.int/whr/2000/en/whr00_en.pdf .

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 Under WHO’s framework, fairness
requires four essential elements
• Universal protection from risk;
• Prepayment, rather than payment out-of-
pocket;
• Progressive payment, on the basis of ability
to pay; and
• Widespread pooling of risks, with cross-
subsidization for the sick and the poor.
NOTE: These 4 elements can be used to
evaluate each country’s financial fairness.
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 Universal protection from risk

• Every individual and family in the society

should be protected from the financial
risks of illness.
• No one should be forced into poverty
because of illness.
• No one should be prevented from
obtaining access to care for financial
reasons.
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 Progressive payment
on the basis of ability to pay
• Contributions by individuals and families should
be progressive (the rate of payment should
increase as income increases).
• Contributions should not be regressive (the rate
should not decrease as income increases).
• Contributions should be based on ability to pay.
• Contributions should not be based on use of
services or risk of illness.

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3. Payment reform

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 Bad payment mechanisms reduce
health system performance
• Paying providers too much would waste
scarce resources for the health system
• Paying providers too little may discourage
providers from participating in the program
• Paying some types of providers more than
others can distort the supply of services
• Paying inefficiently wastes resources on
administration and enables fraud or abuse
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 Good payment mechanisms can
improve health system performance
• Give financial incentives to providers to improve
their efficiency (e.g. money for those who adopt
cost-saving technology)
• Give financial incentives to providers to increase
access to care (e.g. higher payment for treating
underserved patients)
• Give financial incentives to providers to improve
their quality of care (e.g. pay for performance)
• The US will try to use “bundled payment” for the
combined services of hospitals and physicians,
rather than paying each provider separately
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 Issues in designing and
implementing a payment system
• How much money will really be needed,
considering “pent-up demand” for services and
possible underestimation of the costs?
• How will you divide the available funds among
various services and providers?
• Who will administer the payment system, and
should administration be “contracted out”?
• How can you prevent undesirable behavior
(“gaming the system”)?

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 How can you prevent undesirable
behavior (“gaming the system”)?
• Each type of payment system (such as salary,
fee-for-service, capitation, etc.) has good
incentives and bad incentives for providers, and
will encourage specific types of behavior.
• Each payment system has some incentives for
undesirable behavior (“gaming”), such as over-
treatment, under-treatment, or patient selection.
• Undesirable behavior can be controlled to some
extent by regulation, but cannot be eliminated.

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 Pay for Performance (P4P):
Is there a “business case” for quality?
• Most payment systems, including the US
system, now provide little incentive for quality.
• The US and some other countries have begun to
experiment with ways to provide financial
incentives for quality, but only on a small scale.
• The UK uses P4P in its Quality and Outcomes
Framework (QOF) for primary care services.
• The US will experiment with financial incentives
for organizations that combine hospitals and
physicians into Accountable Care Organizations.
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4. Leadership and
governance reform

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 How to improve the performance of
leadership and governance
• Build capacity for governance by providing
training in public health and leadership skills (at
the local level as well as at the national level).
• Improve the systems of management and
accountability in the public sector.
• Change the incentives for leaders by:
– providing more autonomy for leaders (including the
authority to fire any employee who breaks the rules);
– requiring more accountability from leaders; and
– increasing the transparency of decision-making.
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 Leaders need to make the difficult
decisions about allocating resources
• How much of a society’s resources will be
devoted to health, as opposed to other needs?
• What is the appropriate balance between public
health interventions for the population as a
whole and clinical treatment for individuals?
• For those resources devoted to the treatment of
individuals, how much of each type of care will
be made available? (“macrolevel decisions”)
• Which patients will receive each particular
service, and how much? (“microlevel decisions”)
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 Leaders can improve public health by
devoting more resources to primary care
• Primary care has more impact on health and is
less expensive than other types of care.
• Primary care provides more benefit for poor
people and residents of rural areas (whereas
hospital services are used disproportionately by
people who are rich or relatively rich).
• Leaders can also use cost effectiveness
analysis (CEA) to make the best use of limited
resources.

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 Advantages of using cost
effectiveness analysis (CEA)
• CEA can be used to identify the way to
obtain the greatest benefit to health from
the use of limited funds.
• If the same amount of money were
devoted to each alternative, which would
produce more improvement in overall
health status?

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 Problems in using
cost effectiveness analysis (CEA)
• The results of CEA are affected by
assumptions, decisions about
methodology, and value judgments which
have ethical and cultural implications.
• Therefore, policymakers should not simply
make allocation decisions by the numerical
calculations of CEA.
• Leaders should use CEA as one important
part of their decision-making process.
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 Conclusions about
health system reform
• The best way for a country to reform its health
system is to identify its basic values.
• Even without privatizing their hospitals,
governments can give hospitals and hospital
managers more independence within the public
sector, by “reinventing government.”
• Financing and payment systems can be
reformed, in order to be more fair and effective.
• Leaders can improve public health by devoting
more resources to primary care.
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