Overview of Health Systems

1. Overview ofHealth Systems  Maya B. Herrera, FASP Health Sector Reform and Sustainable Financing 28 July to 8 August 2008

2. Before we begin

3. Concerns of Health Systems Social Concerns Availability Access Quality Equity Choice Management Concerns Efficiency, Productivity Administrative Ease Note: These affect ability to address social concerns.

4. Understanding Health Systems Not just about the numbers Understanding Trends Analyzing Inter-actions Understanding Agendas, Objectives and Behavior Understanding the Dynamic Inter-actions

5. UnderstandingHealth Systems

6. Simple Health System

7. Generic Health System

8. Notice Many Players with varying influences Each decision affects the system some way So, Health Sector Policy, Structures and Processes must include helping each player make the right choice. This includes providing enough information to help each player make the right choice This also means ensuring that the system encourages appropriate behavior and discourages inappropriate behavior

9. Example: The Power of Information Helping Patients and Medical Professionals make the right decisions Clinical Data Provider Information Health Care Management Guidelines From Statistics to Cost Estimates Turning Data into Information Using Information for Decision-making Health Care Cost Guidelines

10. Information is Tricky and can be expensive Cardiovascular Disease as a cause of Mortality Hospital Performance In-hospital Infection Death Rates vs. Case Mix Defining Quality Pain? Mobility? Dependence?

11. The Consumer The consumer is the player at the heart of the equation He very often does not have enough information to make the right choices. And even when there is information (sometimes because of the information), he still makes the wrong choice This is a special danger when there is no connection between the “purchase decision” and the consumer’s wallet And, sometimes, we provide perverse incentives! When coverage is not mandatory (e.g., the informal sector), there is the danger of adverse selection.

12. The Health Care Provider In the health care decision, there is often information asymmetry in favor of the supplier. Moreover, the supplier generally benefits financially from increased demand. Hence, there is always the possibility of supplier-induced demand Demand, cost and price alone do not determine physician behavior. The variable of the ‘physician’s goal’ is necessary to model behavior (Jacobs, 1991) Physician Goal Spectrum: Pure Altruistic to Pure Profit Maximization Generation of unnecessary demand can be moderated by patient behavior . There is a difference between inducement and initiation

13. Development of Health Claim Costs

14. Health Sector Control Knobs

15. Consumer Choice The goal of financial risk protection insulates the consumer from the economic trade-offs that would normally help regulate the “purchase decision” No consumer accountability!!!

16. Also To achieve outcomes, it is important to have a systemic point of view. Must understand that the health system is an open system And the health system is multiply connected

17. Example Health System is an open system External conditions affect health outcomes: Maintaining Health status through prevention (e.g. immunizations, safety belt law) Infrastructures to support basic hygiene (e.g. clean water) Reduce Environmental Hazards Encourage Healthy Lifestyles

18. Health Sector Reform

19. Focus on Financing What needs to be paid for Who should pay How to pay

20. Leading Causes of MorbidityNo. & Rate/100,000 Population2002

21. Leading Causes of MortalityNo. & Rate/100,000 Population5-Year Average (1996-2000) & 2001

22. Demand Side Who pays for what?

23. Practical Questions What items are so important, we must make sure they are paid for? What should be out-of-pocket? What if it is self-induced? Or someone’s fault? Is pregnancy an illness?

24. Now for the Supply Side On the supply side of the equation, there are “grainy” requirements This is especially challenging in a country with 7,000 islands with many mountains There may not be enough of an economic incentive for private suppliers to address specific population clusters (e.g. isolated areas) So the financing question becomes complex

26. Some Generic Possibilities National Health System Economies of Scale Easier to Target Availability Balanced by Temptation to divert Funds National Health Insurance More difficult to address ‘graininess’ Susceptible to collapse from inter-generational or inter-sector inefficiencies Liquid funds tempting Why not savings?

27. Assessment of the First Semester 2005 CPSFP Performance

28. Improving Financing Efficiency Manage Funding Mix e.g. Insurance vs. Savings Prepare for the Future Mortality Improvement, Technology, Lifestyles Active management Build in Robustness Use reimbursement method to align providers: Eliminate/Minimize perverse incentives for providers Fee for service vs. DRG vs. capitation vs. per diem Incentives for Cost/Quality Management Accreditation, Clinical Protocol, Outcome publication

29. Health Care Financing Multiple Stakeholders Dynamics of Consumer Behavior Dynamics of Provider Behavior Large-scale Social Effects

30. Other Factors Advances in Medicine and Medical Technology Pharmaceutical Advertising Malpractice Awards Patient Expectations Patient Demographics Inter-action of Payers, Providers and Government

31. Payment Mechanisms

32. Impact of Payment on Outcomes Demand Side Whether, how and how much patients must pay influences quantity and quality of demand Care-seeking behavior including service demanded and locus of care Supply Side Physician behavior: number of hours worked, number of patients treated per hour, where physicians work (e.g. public or private sector or both) and how patients are treated (e.g. whether surgery is performed) Hospital behavior: length of stay, admission rates, service quantity

33. Designing Payment Mechanisms Payment Method and Unit of Service Payment Rates Distribution of Financial Rewards Levels of Risk Bearing

34. Payment Method Individual and Institution Fee for Service Units of Service Capitation Persons Registered Case or Episode Episode, e.g. admission (e.g. DRG) can be case-mix adjusted Individual Only Salary Time Salary plus Bonus Time & Performance Institution Only Per Diem Days stayed Line Item Budget Budget Line Global Budget Hospital Expenditure

35. Basis of Payment Rates More Mechanical Posted Charges Cost of Service Past Practice Inter-active and Process-Oriented Negotiated Rates Competitive Bidding ** Who sets Rates? **

36. Posted Charges Relies on Market Effectiveness Can be specific individual or institution rates or some uniform figure per geographic area (e.g. usual and customary) New Zealand uses lowest available price for each group of drugs (Woodfield, 2001)

37. Cost of Service Technically difficult: requires uniform accounting, uniform rules of classification Perverse incentive: rewards inefficiency Can use “Reasonable Costs”, can use a base year with a managed inflation adjustment (Canada & Australia) Can establish cost on a prospective basis: greater predictability and decreases rewarding of inefficiency

38. Past Practice Base year plus an inflation adjustment Again, historic costs can reward inefficiency Poorly equipped to handle changes in cost, technology, utilization, consumer demand Most often used in budget-based systems

39. Negotiated Rates Especially applicable in a contract approach to paying for service Can be with individual providers Can be with medical society and key stakeholders (Germany, Japan) Sellers can act as cartel; (Buyer can start with a low-cost provider)

40. Competitive Bidding Providers do not like this because it shuts out less efficient providers Process must be well-designed and good information must be available Politics can intrude

41. Rate Setting Difficulties lead nations to adopt systems that minimize the number of rates that need to be set. Hence, the move away from fee for service US insurance programs recognize 9000 service items (AMA 1994) Objective Basis Balancing supply and demand not easy as health markets are imperfect Rates can be set by an autonomous agency, insulated as much as possible from political influence …

42. Important Notice The material presented here does not represent official positions or opinions either of the Asian Institute of Management nor of Solutions Incorporated or its International Principal, Abelica Global.

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