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Building Public/Private Partnership for Health System Strengthening Contracting: Overview Peter Berman The World Bank Bali Hyatt Hotel, Sanur , Bali 21-25 June 2010. Outline. Separating the financing and delivery functions in government programs

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Building Public/Private Partnership for Health System Strengthening Contracting: Overview

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Building public private partnership for health system strengthening contracting overview

Building Public/Private Partnership

for Health System Strengthening

Contracting: Overview

Peter Berman

The World Bank

Bali Hyatt Hotel, Sanur, Bali

21-25 June 2010



  • Separating the financing and delivery functions in government programs

  • Contracting is the use of contracts to achieve objectives. So…what is a “contract”?

  • Advantages and disadvantages of contracting

  • Some examples

  • Some “conditional guidance” on how to do contracting

Building public private partnership for health system strengthening contracting overview

The key innovation in contracting is for government to separate the financing and delivery functions

Contracting defined old versus new system

Contracting definedOld versus new system

I pay myself for the services I produce

I control the budget

  • In contrast to the traditional, integrated purchaser/provider function of government,contracting implies a split between purchaser and provider functions.

    • The purchaser tries to maximize the quantity & quality of services for its money.

    • The provider tries to maximize revenue, profit or some other objective.

I produce services

Purchaser and provider

The traditional setting

I contract & pay someone to produce services

I control the budget

I produce services under a contract in exchange for a payment


I must show results



The new setting

The rationale for contracting

The rationale for contracting

  • Examples:

  • Excess of beds in public hospitals leading to under-utilization of capital

  • Public sector doctors can successfully lobby their managers to avoid rural placements

  • Traditional organization of the public sector

  • Virtues of:

  • Direct production

  • Coordination and monopoly

  • Strong ministerial control

  • Organizational features:

  • Departmentalization and hierarchy

  • Career public service

  • Strong central agencies

  • Consequences

  • Decision makers face few incentives to allocate resources efficiently property rights theory.

  • Those controlling public bureaucracies may not act in the public’s best interestpublic choice theory.

Rationale for contracting: Introduce market mechanisms

Replace direct, hierarchical management structures by contractual relationships between purchasers and providers, where incentives play a key role in promoting better performance.


Low public sector efficiency

  • Overriding rationale: Move away from the traditional, organization of public supply which limits accountability and thus may lead to poor performance in terms of equity and efficiency.

Example: Government officials may be empowered to seek their own economic benefits (rents) from postings and transfers, licensing, and other government functions

Building public private partnership for health system strengthening contracting overview

What is a “contract”? Contracting is the use of contracts to achieve objectives

Contracting defined

Contracting defined

  • Contracting is a purchasing mechanism used to acquire:

    • from a specific provider

    • a specified service

    • for an explicit quantity

    • of a knownquality

    • at an agreed-on price

    • for a given period oftime

  • In contrast to a one-off exchange, the term contracting implies an on-going relationship, supported by a contractual agreement.

How contracting works the basic elements of a contract

How contracting worksThe basic elements of a contract




Monitoring and Evaluation (M&E)




Different contracting arrangements

Different contracting arrangements

  • Contracting in

    • Bring outside private management to operate an internal government service (e.g., hire a private firm to run cleaning or catering services inside a public hospital).

  • Contracting out

    • Purchase services from a private source that provides the service using external workforce and resource.

      Contracting can be done with public or private providers

    • Governments can contract with public autonomous institutions or with private providers.

Building public private partnership for health system strengthening contracting overview

Advantages and disadvantages of contracting

Potential benefits of contracting

Potential benefits of contracting

  • Competitive forces:

    • Contracting can generate pressure on providers to improve performance in both price and quality (but this benefit hinges on the actual competitive forces at work).

  • Planning and policy development:

    • Contracting requires and may promote better planning & policy development by improving the flow of information about volumes of goods, services, costs, quality, responsiveness, population served, health needs, and other issues.

  • Price stability:

    • Contracting provides government with a mechanism for purchasing needed health services at an agreed-on and, therefore, predicable price.

  • Improve equity:

    • Contracting can focus on delivering services to targeted population groups.

Potential drawbacks of contracting

Potential drawbacks of contracting

  • Transaction costs:

    • If significant costs in designing, M&E, and managing CO  government may not capture efficiency gains from CO.

  • Government capacity:

    • Government limitations to design & manage contracts may limit potential gains from CO.

  • Provider capacity:

    • Weak private sector  limited number and capacity of bidders  low quality.

  • Setting the price right is difficult:

    • If government over- or under-estimates price, this may waste resources or threaten providers’ financial equilibrium.

  • Monitoring and evaluation:

    • If few resources allocated to M&E of providers, government may be unable to effectively enforce contracts & achieve strategic outcomes.

  • Quality may be a casualty of CO:

    • Even if contracts specify quality, providers may save on non-verifiable aspects of care, especially if purchasers have limited ability to scrutinize & enforce contracts.

Building public private partnership for health system strengthening contracting overview

One Example

NGO Contracting in Cambodia

Large Scale

Detailed Impact Evaluation

Methodology used to evaluate contracting in cambodia

Methodology Used to Evaluate Contracting in Cambodia

  • 12 districts (100,000-180,000 pop’n each) randomly assigned to CO, CI, or GS

  • 3 districts were not contracted G

  • Baseline household surveys carried out by 3rd party in 1997

  • Follow-on survey carried out in mid-2001, 2.5 years after start of the contracts and in 2003, 4 years into the contracts

Of pregnant women receiving antenatal care

% of Pregnant Women Receiving Antenatal Care

Health center utilization in the last month

Health Center Utilization in the Last Month (%)

Of deliveries taking place in health facility

% of Deliveries Taking Place in Health Facility

Change in key indicators endline baseline points

Change in Key Indicators,Endline – Baseline, % points

Change in concentration index endline baseline

Change in Concentration Index Endline - Baseline

Change in qoc index endline 2003 baseline 1997

Change in QOC Index Endline (2003) – Baseline (1997)

Total per capita health expenditures 2003

Total Per Capita Health Expenditures - 2003

Discussion questions

Discussion Questions

  • What do you think about contracting with NGOs as a way of improving delivery of PHC?

  • What do you think would be the likely impediments or difficulties in introducing contracting in the context in which you work?

  • Besides changes in coverage of services, how else would you evaluate the performance of the NGOs and contracting in general?

Discussion questions1

Discussion Questions

4) What do you think would be the obstacles to sustainability of contracting in your context in which you work?

5)What would be the advantages and disadvantages of increasing the scale of each contract to cover 2 or 3 operational districts?

Some guidance on implementation

Some Guidance on Implementation

Design of agreements contracts

Design of Agreements/Contracts

  • Defining Objectives

  • Maximizing Managerial Autonomy

  • Size of Individual Contracts

  • Other important aspects of contracts

Defining objectives

Defining Objectives

  • Big advantage of contracting is results focus so concentrate on outputs not inputs

  • The clientshould objectively define:

    • Quantity of services (e.g. % DTP3 coverage)

    • Quality of care (national technical guidelines)

    • Equity (ensuring the poor receive services)

    • Catchment area and population

Stating objectives

Stating Objectives

  • They need to address the most important outputs/outcomes

  • There can’t be too many – indicator inflation

  • They need to be measurable and actually intend to be measured

  • Targets need to be realistic and plausible, not aspirational

How to ensuring f ocus on results

How to ensuring focus on results

  • Use performance bonuses

  • Provide baseline data to contractors

  • Regular discussion of indicators

  • Use and improvement of HMIS data

  • Credible threat of being fired for non-performance

  • Use and review the contract

Ensuring managerial autonomy

Ensuring Managerial Autonomy

  • Decentralize management to people who are closest to the ground reality

  • Accountability for results is easier when managers have responsibility and autonomy

  • Encourage innovation

  • Take advantage of private sector’s flexibility

Impediments to managerial autonomy

Impediments to Managerial Autonomy

  • Telling contractors “how” they should deliver services (define objectives, “what”)

  • Too specific line item budgets ( is it possible to use lump-sum contracts with performance benchmarks?)

  • Government procures important inputs (allow contractors to do procurement)

  • Require following Government procedures for staff hiring, firing, transfer, and pay

  • Unclear authority of government officials

Scale size of packages

Scale – Size of “Packages”

  • Economies of scale affects the cost (price) per beneficiary

    • Distributing management and admin costs

  • Large packages facilitate contract management

  • Easier and cheaper to monitor and evaluate contractor performance with fewer packages

    • Hence packages should cover millions or hundreds of thousands

  • Need to balance against concerns regarding contractor capacity

Other important aspects

Other Important Aspects

  • Duration: 3-5 years is minimum, takes time to build relationships, no advantage to yearly “renewal”, but can use performance reviews

  • Termination/Sanctions: Clearly spelled out procedures. Embarrassment works!!

  • Payments: Mobilization payment often needed, 6 monthly payment thereafter (less frequent payment may increase timeliness of payment)

  • Reporting Requirements: Clear, not onerous.

Other important aspects1

Other Important Aspects

  • Procurement:contractor should be responsible for procurement, generally. Standards needed for drug quality

  • User Charges: should contractor be able to implement user charges (if they want to) within guidelines and conditions to assure protection of poor?

  • Training/Capacity Building:may include contractor obligations in terms of training and capacity building, access to training courses should be specified if coming from government.

Relationships responsibilities

Relationships & Responsibilities

  • Contract type: For services already being delivered by government, “contracting-in” is often easier

    • need to define relations with existing staff

  • All contracts need to define authority of government officials

  • Infrastructure: – who owns it? contractor pays for maintenance & repair

Building public private partnership for health system strengthening contracting overview

Concluding Thoughts

Challenges and potentials

Challenges and potentials

  • Many of the posited difficulties of contracting can be managed or are exaggerated – need to compare with the alternative of government provision:

    • Not only small scale

    • Not necessarily more expensive

    • Government can manage (if capacity developed)

    • Trust can be developed

    • Equity may be improved

    • As sustainable as government will to finance

  • There is ample evidence of potential – one of a set of possible strategies to improve outcomes

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