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HEALTH SYSTEM REFORM
Dean M. Harris, J.D.
Department of Health Policy and ManagementUNC 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 ofvalues in health system
reform
Reform ofspecific 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 ofa countrys health system.
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Many countries have based health
reforms on their fundamental values
Mexicos 2003 health reform created a publicinsurance system, based on the principle thathealth care is a social right (not a privilege or
commodity). Canada has a tax-supported, single-payer systemof universal coverage, based on five fundamentalvalues of universality, public administration,comprehensiveness, portability, and accessibility.
The values of the UKs national health systeminclude financing by taxation and free care at thepoint 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 overhealth reform in the US is fundamentally aconflict among values and ethical principles.
The value ofsolidarity is crucial in many healthsystems (including social insurance, nationalhealth insurance, and local community-basedinsurance systems in developing countries).
In contrast, social solidarity is not yet an integralpart of the value system in the US, which insteadprioritizes values ofindividualism andautonomy.
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1. Organizational reform
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Organizational reform
in health care systems
Organizational reform within the publicsector (reinventing government):
autonomization
corporatization
decentralization
Organizational reform by means of
privatization (transferring ownership orcontrol to the private sector)
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Autonomization: Giving the
management more independence
Hospital managers are given authority tomake particular decisions.
Hospital managers will be accountable formeeting measurable performance targets.
If the hospital generates a surplus byincreasing its revenue or by cutting its
costs, the hospital may be allowed to keepthose 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 sectoris called decentralization or devolution.
In decentralization, authority for health facilities
is transferred from the national government tothe provincial or local levels of government.
This could have the positive effects of increasinglocal accountability and responsiveness.
But, decentralization will not succeed if theprovincial or local government cannot providefinancial 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 governmentexpenditures 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
for-profit 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 theassets of a public hospital); or
Contracting out a function orservice that had
been performed directly by the government(such as contracting out the management of apublic hospital, which would still be owned bythe government);
Leasing a public hospital or some of itsservices to a private entity (such as the lease oflaboratory and radiology services at a publichospital in Romania).
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What are the issues of public policy
in hospital privatization?
Will the new owner provide care to peoplewho cannot afford to pay for their care?
Will the new owner meet the needs of thelocal community?
Will the people receive fair market value forthe sale of their hospital?
Will the selling agency use the proceeds ofthe sale to meet health care and public healthneeds 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 agencywould 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 definefairness in the context of healthfinancing.
The World Health Organization (WHO)has developed a useful concept offairness in financial contribution to
the health system.Source: World Health Organization, The World Health Report
2000: Health Systems; Improving Performance. (Geneva,Switzerland, 2000), athttp://www.who.int/whr/2000/en/whr00_en.pdf.
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UnderWHOs framework, fairness
requires four essential elements
Universal protection from risk;
Prepayment, rather than payment out-of-pocket;
Progressive payment, on the basis ofability to pay; and
Widespread pooling of risks, with cross-
subsidization for the sick and the poor.NOTE: These 4 elements can be used toevaluate each countrys 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 rateshould not decrease as income increases).
Contributions should be based on ability to pay.
Contributions should not be based on use ofservices 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 discourageproviders 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 improvetheir efficiency (e.g. money for those who adoptcost-saving technology)
Give financial incentives to providers to increaseaccess to care (e.g. higher payment for treatingunderserved 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 amongvarious 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 financialincentives 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 andaccountability 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 societys resources will be
devoted to health, as opposed to other needs?
What is the appropriate balance between public
health interventions for the population as awhole 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)29
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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 (whereashospital 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.32
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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 hospitalmanagers 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.33
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