Overview of the Health Sector Control Knobs

Marc J. RobertsProfessor of Political Economy and Health Policy

Harvard School of Public HealthAfrica Flagship June 22 ,2010

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Not All Causes of Health Sector OutcomesAre Part of a “Control Knob”

• Some causes are outside the health sector (e.g., war, culture, economic growth)

• Some causes cannot be changed by public policy (e.g., the emergence of the SARS virus)

• Often you will need to adjust more than one control knob—but not necessarily all of them

You may not achieve your goals no matter how you adjust the “control knobs”

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The “Control Knobs”• Financing

• Payment

• Organization

• Regulation

• Persuasion

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The Financing Control Knob

• Each financing option can be seen as an “ideal type”– General revenue – Social insurance – Private insurance– Out-of-pocket payment– Community financing – International aid

• Many real systems depart from any one “ideal type”

• Most nations use a mix of financing options

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The Importance of Financing

• Financing determines the amount of funds available and who bears the financing burden

• Different systems change who controls spending decisions

• Change financing and you can change what services will be available and to whom

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Observations On Financing

• The money a nation can raise depends on its economy.

• Not all good things are affordable in poor countries

• Not all options will be within a nation’s technical and administrative capacity. For example, low income countries can not implement universal income taxes

• Not all options will fit with a nation’s social attitudes or economic structure

The “Payment” Control Knob

• Every Payment System involves three components– A UNIT of Payment– A RATE of Payment– A METHOD for setting/revising rate

• Payment systems always have unintended consequences “Picking a payment system is like picking someone

to marry. All the options are imperfect. The question is what problems are you prepared to live with in the long run.”

Prof. W. Hsiao

Ways to Pay Hospitals

• Patient day• Admission• Global budget• Line item budget• Fee for service

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Ways to Pay Doctors

• Fee for service• Salary• Salary plus bonus• Capitation• Capitation plus bonus• Per Case

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The Importance of Payment

• Payment systems create strong incentives

• The more sophisticated health care managers are, the more they respond to these incentives

• The less generous the payment system, the more managers respond to its incentive effects

• Smart managers look for activities that have large margins between costs and prices

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Observations On Payment

• The payment system you can use often depends on how the delivery system is organized

• Payment rates are always controversial -providers always want more

• Contracting can be a useful alternative to a payment system based on a uniform fee schedule

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The Organization Control Knob

• Macro organization : Who does what; the set of delivery organizations and

their functions The incentives those organizations confront• Micro organization: How delivery organizations are structured internally Policymakers have limited capacity to make

micro changes outside the public sector

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The Importance of Organization• Cost, quality and access depend critically on macro and

micro organization

• Economists who focus on incentives often miss this point

• If an organization is to do better, it has to have both a reason to change its behaviour and the capacity to change

• Changing managerial skills, attitudes, incentives and authority is often critical

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Observations On Organization

• Changing who does what is likely to be very politically controversial

• The effect of any organizational change depends on its impact on the front line workers (and their managers) who actually deliver services

• Micro level changes create anxiety and impose costs on some employees and are often strongly resisted

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The Regulation Control Knob

• The use of the coercive power of the State to get actors to change their behaviour

• Regulation involves “sticks” not “carrots”

• This power may be delegated to non-state entities

Purposes of Regulation

Establish markets: property rights, fraud control

Protect consumers from their inability to judge products

Correct market failures like monopoly

Achieve non-market goals: equity or obedience to social norms

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The Importance of Regulation

• Regulation is critical to the functioning of markets—public sector action is a complement to effective private markets

• Health care is full of the kinds of problems that typically lead to regulatory activity: e.g. ignorant consumers

• Ineffective regulation may be worse than no regulation so governments need to choose areas for regulation strategically

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Observations On Regulation

• Since actors prefer not to change, they will often try to resist, undermine, or derail the regulatory process

• Easiest to regulate where there is widespread consensus on both goals and rules – voluntary compliance makes enforcement more effective

• Having an effective regulatory agency: technical competence, sufficient resources, effective leadership, and political support, is critical to success

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The Persuasion Control Knob

• Patient and provider behavior are both relevant—political persuasion is a different issue

• Many possible communication channels: free media, paid media, individual contact, groups, big events, etc.

• Information alone does not change behavior. Messages need to be sophisticated –use “social marketing”

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The Importance of Persuasion to Influence Individual Behavior

• Individual behavior is central to many prevention efforts

• Care seeking behavior is very important to health sector performance

• Patients are the first “front line workers” in treating chronic disease. “Non-compliance” is widespread

• Many important behaviors are difficult to influence with incentives or regulation.

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Changing Individual Behaviour• Convincing patients to change their behaviour is

difficult

• Information alone is often ineffective

• A “pull,” not “push,” message is essential. New behaviour has to fit target population’s needs and values

• Not all patients are the same - market research into various “market segments” is essential

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Suggestions on Developing Policy

• Look to international experience - but adopt it to your situation

• Be sceptical of ideological or self-interested advocates

• Always consider local political realities

• Always consider likely implementation problems (resources, skills etc.)

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The Importance of Process in Policy Development - I

• The acceptance of a policy will depend on how key interest groups feel about the process as well as the substance

• Participation can give interest groups a sense of ownership

• Participation also increases the legitimacy of the process to outsiders

• Interest groups may also have helpful information and expertise– make policy better

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The Importance of Process in Policy Development - II

• The process of policy consultation needs to be organized and managed

• Interest group participation can go too far - don’t give them a veto

• Some groups are much better organized than others - reach out to the unempowered

• Political leadership will be critical to resolving conflicts, bound the range of discussion

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Evaluate and Revise Your Policy• Health sector reform is a cycle

• The complexity of the system means policies can produce unintended consequences

• Providers, patients can respond in unanticipated ways

• “Today’s solutions are the source of tomorrow’s problems”

• Don’t expect to “fix” the system the first time- it won’t happen