Transcript Slide 1

BHF Southern African Conference, 2009
The economics of health
system change
A public finance perspective
Andrew Donaldson, National Treasury
31 August 2009
Then and now… A Tale of Two Depressions
Barry Eichengreen and Kevin H O’Rourke, www.voxeu.org, 4 June 2009
National Treasury
Then and now… A Tale of Two Depressions
Barry Eichengreen and Kevin H O’Rourke, www.voxeu.org, 4 June 2009
National Treasury
Coordination failure and system decline
•
1930s: Trade protectionism
– Smoot-Hawley Act, 1930: record high tariffs on 20,000 US
imports
– Cycle of retaliatory tariff increases contributed to 60% decline in
world trade
– Non-cooperative outcome of strategic self-interest in a manycountry game
•
1970-2009: South Africa’s health system development
– Widening divergence between public and private financing of
health care
– Retreat of fee-paying patients from public facilities: congestion in
public facilities; rapid investment in private hospitals and
technology
– Breakdown of cost-containment measures in third-party payer
arrangements – public & private sector
– Non-cooperative outcome of institutional competition for
resources in an asymmetric many-player game
National Treasury
Network industry non-cooperative game:
Illustrative pay-off matrix
Pay-off: (Player A, Player B)
Consumer benefit (A,B)
Player A:
Non-sharing
Player B:
Sharing
Non-sharing
(5,5)
(5,5)
(5,5)
(3,8)
(3,8)
(4,6)
Sharing
(8,3)
(8,3)
(6,4)
(6,6)
(6,6)
(8,8)
National Treasury
Health system change: non-cooperative
development path
1960s
Shared Hospital &
consultant network
Congested
public hospitals
& deteriorating
care
Rising pricing
power of private
hospitals &
specialists
1970s & 80s
Growth of medical
schemes & household
affordability
Segmentation
betw public &
private sectors
reinforced
Specialists move into
private practice
Emergence of private
hospitals
1990s
Cost-raising pte hospital
model shaped by prohibition
on employing doctors
National Treasury
Public hospitals lose fee-paying
patients & consultant networks
weaken
Towards cooperative system change
Non-cooperative health system change is costly, contested and
divisive
Finding cooperative solutions means confronting economic and
institutional coordination failures
•Fiscal illusion – resource constraints are real
•Tunnel vision – health services are not only determinant of health outcomes
•Income inequality: health system is not an island
•Complexity of planning & decentralised decision-making
•Cost-raising technological progress
•Comprehensive care is expensive
•Upward demand for health services
•Difficult principal-agent problems
•Personnel planning and pricing must be managed sector-wide
•Cooperative solutions need to be carefully planned and sequenced
National Treasury
Fiscal illusion…
health services are not free
Budget balance & PSBR
•
•
•
General government
5
4
3
2
1
0
-1
3,400
Fiscal capacity is under strain
worldwide – behind financial crisis
long-term fiscal over-commitment
Health systems face both financial and
real resource constraints
Single and multiple payer systems
face the same fiscal limits
26
24
22
20
18
16
14
12
10
National Treasury
*
20
11
/12
*
20
10
/11
*
20
09
/10
*
/09
08
20
8
07
/0
20
06
/0
20
5,800
7
-2
6
46,000
43,000
19,700
8,300
Non-financial public enterprises
6
05
/0
USA
UK
S Korea
Mexico
South Africa
Thailand
7
20
–
–
–
–
–
–
8
Per cent of GDP
•
An expanded, improved health
system has to be part of a
growing, more productive
economy
Income per capita (US$ 2007):
per cent of GDP
•
Savings and investment ratios
Gross fixed capital formation Gross saving
Tunnel vision…
Health services are not the only determinant of health outcomes
Government expenditure - health & related
programmes
•
Public expenditure –
–
•
Health services complement
household income support,
nutrition, housing and sanitation,
education, welfare services…
120
100
2009/10
2010/11
2011/12
80
Household spending & lifestyle –
60
Health outcomes depend on food
security, shelter, personal care
and protection, behaviour
choices…
40
–
R billion
20
0
Housing
National Treasury
Water
supply
School
nutrition
Welfare
services
Health
services
Health system is not an island economy
Spending on personal services cannot be de-linked from income
Redistribution
Pooling of funds
Government
tax and spending
Saving
Retirement funds
Medical schemes
Out-of-pocket
Household
spending
Income pc
Risks mitigation: pooling & saving
(logscale)
Contingent Risks
Income (before tax)
Lifetime vulnerability
Pooling of funds
Income (after redistribution)
Households
National Treasury
“Planning” and “market” processes are
increasingly interconnected
•
•
World economy does not divide into planned and market
economies any more
Public and private sector split cuts across industry lines
–
–
–
Market structure is in part a policy construct
Governments produce “mixed” goods in addition to “pure” public goods
Public goods and services are produced in market contexts
•
Regulation extends over both public and private provision
•
Health sector characterised by pervasive regulatory intervention
–
–
–
–
–
–
–
–
Accreditation and regulation of service providers
Norms and standards & reporting requirements
Tariff determination – process and/or price controls
Professional training and qualifications
Technology and medicine registration and control
Funding of research and development
Prescribed and minimum benefits
Ethical standards, protection of patients’ rights
National Treasury
Technological change
•
•
Technological change is rapid and brings substantial benefits
But frequently raises costs…
–
–
–
•
Purchasers pay for health care inputs, not outcomes
–
–
•
But product evaluation and assessment will often be controversial
Technology investment and R&D spending have large fixed costs
–
•
And so “final goods” market is missing
Information is incomplete and asymmetric
Budget constraints can assist in disciplining technology choice
–
•
Diagnostic capabilities, together with risk-averse case management
Patented medicine and devices, priced to finance R&D expenditure
Demand driven by spending power of aging first world population
Cost-sharing and price discrimination can improve allocative efficiency
Treatment protocols have to combine science, value for money
and affordability considerations
–
Management of product competition likely to involve both centralised
and decentralised decision-making
National Treasury
Comprehensive care is expensive
in both prepayment and fee-for-service arrangements
•
Managed care and pre-funding models simplify budgeting and
lower transaction costs
– But upward referral and administrative systems tend to raise costs
•
Fee-for-service allows for competition and choice, but requires
control of over-servicing (pre-approval) and tariff negotiations
– Savings accounts shift burden of choice, but limited contribution to
containing costs
•
•
Health insurance unavoidably contributes to rising demand for
health services and expansion/broadening of supply
Patient or client choice subject to affordability constraints is
always required at the health service delivery margin
– Either part of the structure of health services and pricing, or in the
shadow system that arises alongside rationing of services
National Treasury
South Africa faces substantial upward demand
for health care
•
•
•
•
•
•
Increased access to clinics & GP
services
Rising awareness of modern
health service opportunities
HIV and TB trends
Motor vehicle accidents: injury &
trauma care
Ageing population
Diabetes, cardiovascular disease,
lifestyle risks
Projected growth in ART patients – 80% target
3 500 000
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
500 000
R Dorrington, Centre for Actuarial Research, UCT
Towards R20 billion a year on HIV/Aids by 2020
National Treasury
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Health service demand is income
elastic, and strongly associated
with urbanisation and education
2009
•
2008
0
Health systems confront formidable agency
problems
•
Public sector:
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–
–
–
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Bureaucratic failures in centralised control of hospitals & clinics
Information and costing systems inadequate
Procurement systems inflexible & unresponsive to need
High transaction costs of information-intensive decision systems
Private sector:
– Independent medical schemes governance hard to achieve
– Administrators have significant information advantage
– Cost negotiations with service providers are difficult to manage
•
Complexity and diversity of needs, services, technology, quality
of care
– Value for money considerations are difficult to quantify and especially
difficult to communicate
National Treasury
Personnel issues
•
Public and private sectors have
shared interests:
–
–
–
•
in professional training and
development
in remuneration determination
in professional registration and
regulation
Public sector medical practitioners by province
Long-term personnel planning
needs to be undertaken sectorwide and transparently managed
–
–
–
Limited private practice and
sessional employment
arrangements need to be better
priced and managed
Prohibition of private hospital
employment of doctors creates
perverse cost-raising incentives
Specialist consultant capacity
needs to be recognised as a
shared network
National Treasury
Health Systems Trust: SA Health Review, 2008
Cooperative solutions to health coordination
problems
•
Established models:
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–
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Medical scheme reform:
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–
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Prescribed minimum benefits
Risk-pool reinsurance funding
Independent governance & competitive contracting: GEMS
Trauma and emergency care
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SA Blood Transfusion Service
Hospital co-location projects
Hospital revitalisation: long-term construction & equipment concession
agreements
Co-financing: RAF, Compensation Funds, Medical Schemes, Public sector
Laboratory and radiography services: shared cost-recovery
Professional training of nurses and hospital staff
GP and specialist clinicians: sessional work in public facilities
Information systems and DRG funding framework
Standardisation of basic health insurance: default LIMS
Reform options are complex and transaction costs are high:
progress needs to be carefully planned and sequenced
National Treasury