EFFECTIVE RESOURCE MANAGEMENT: THE OPTIMAL PROVIDER PAYMENT MIX

Cheryl CashinSenior Felllow, Results for Development InstituteNovember 4, 2013

Overview of the Presentation

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• Defining the problem –balance between revenue and expenditure for universal health coverage

• Emerging messages from the Japan-World Bank Partnership Program for Universal Health Coverage

• Learning from experience—the role of the Joint Learning Network for Universal Health Coverage

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Revenue and Expenditure: 2 sides of the Universal Coverage Coin

RevenueResources available to expand and sustain effective coverage

Expenditure• Benefits package (service

and medicines guaranteed)• Subsidies• Payment to providers

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Revenue and Expenditure: 2 sides of the Universal Coverage Coin

RevenueResources available to expand and sustain effective coverage

Expenditure• Benefits package (service

and medicines guaranteed)• Subsidies• Payment to providers

Does revenue generation get more attention than expenditure management?

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2005 2006 2007 2008 2009 2010 2011VAT SSNIT Investment Income Premiums OtherGrants

Ghana’s NHIA has achieved a growing and diversified revenue base

Raising revenue for UHC is not enough

2010 2011 -

10

20

30

40

50

60

70

80

49

67

56

72

Claims/member Revenue/member

But the gap between revenue/member and claims/member is closing

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What role does provider payment play?

Health care provider payment systems--the way providers are paid to deliver the covered package of

services—are an important strategic lever in universal health coverage

Help balance system revenues and costs and create incentives for providers to improve

quality and deliver services more efficiently

This ultimately makes it possible to expand coverage within limited funds

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What are the options?Payment Method Definition

Line-item budget Providers receive a fixed amount to cover specific input expenses (e.g., personnel, drugs, utilities,).

Global budget Providers receive a fixed amount of funds for a certain period to cover aggregate expenditures. Budget is flexible and not tied to line items.

Per diem Hospitals are paid a fixed amount per day that an admitted patient is treated in the hospital.

Case-based (“DRG”) Hospitals are paid a fixed amount per admission depending on patient and clinical characteristics.

Fee-for-service Providers are paid for each individual service provided. Fees are fixed in advance for each service or group of services.

Per capita (“capitation”)

Providers are paid a fixed amount in advance to provide a defined set of services for each individual enrolled for a fixed period of time.

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What are the options?Payment Method Definition

Line-item budget Providers receive a fixed amount to cover specific input expenses (e.g., personnel, drugs, utilities,).

Global budget Providers receive a fixed amount of funds for a certain period to cover aggregate expenditures. Budget is flexible and not tied to line items.

Per diem Hospitals are paid a fixed amount per day that an admitted patient is treated in the hospital.

Case-based (“DRG”) Hospitals are paid a fixed amount per admission depending on patient and clinical characteristics.

Fee-for-service (fixed fee schedule)

Providers are paid for each individual service provided. Fees are fixed in advance for each service or group of services.

Per capita (“capitation”)

Providers are paid a fixed amount in advance to provide a defined set of services for each individual enrolled for a fixed period of time.

There is no perfect payment method.

They all have strengths and weaknesses.

They all can create undesirable incentives and adverse consequences.

They all can be useful at different times depending on the objectives.

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What is the optimal mix?

Messages emerging from the Japan-World Bank Partnership Program for Universal

Health Coverage

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Overview of the Study

• The Japan-World Bank Program on Universal Health Coverage is a joint effort by the Government of Japan and the World Bank to support the Low and Middle Income Countries in their aspirations for UHC, following the 50th anniversary of Japan’s own achievement of UHC in 1961.

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Countries Participating in the Study

• The countries have been selected to represent:• different stages of UHC• different geographic regions• diversity in the type of health systems

in place• willingness to explore key policy

questions in the analytical framework

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The countries included in the study

Group 1: Early Adoption

BangladeshEthiopia

Group 2: Coverage Expansion

GhanaIndonesia

PeruVietnam

Group 3: UHC—Deepening Coverage

BrazilTurkey

Thailand

Group 4: Sustaining Coverage/Adaptive

Systems

FranceJapan

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Coverage-enhancing vs. Coverage-eroding Expenditure Management• Expenditure management that frees up

resources to expand coverage is “coverage-enhancing.” – E.g. better negotiated medicines prices and well-

targeted subsidies “Countries that have achieved universal

population coverage and financial protection have

balanced revenue generation efforts with

coverage-enhancing expenditure management.”

• Controlling expenditure by limiting benefits, increasing cost-sharing, or under-paying providers can reduce access to necessary services and financial protection and is therefore “coverage-eroding.”

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Countries relying on fee-for-service payment are facing coverage-eroding cost escalation and inefficiencies (except Japan)

Country Main Provider Payment System Consequences

EthiopiaFranceGhana

IndonesiaPeru

Open-ended Fee-for-Service

Sustainability concernsImplicit access and service

restrictionsImbalance between primary

and tertiary care

VietnamFee-for-Service with soft caps

based on historical expenditure

Over-use of high-cost services

Cost escalationHigh out-of-pocket payment

JapanFee-for-Service with annual

negotiation to maintain budget neutrality (“closed-ended”)

Well-functioning expenditure management

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What is different about fee-for-service in Japan?

• Strong governance– Biennial revision of the fee schedule– Prices adjusted downward for services and medicines with large

volume increases

• Set tighter conditions for billing/payment– Example: Fee for diagnosing MRI image can only be billed once

every calendar month

• Strict enforcement of cost containment measures– On site audits to check claims with medical records

• Unified payment system across providers and insurers makes the mechanisms more effective and efficient– Only option: Play by the rules, or exit

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Some countries are using coverage-eroding expenditure management approaches

Under-paying for services Brazil; Peru; VietnamSupply-side constraints and implicit access restrictions

Bangladesh; Brazil; Indonesia; Peru

Shifting of financial risk to providers (more than they can manage)

Vietnam

Increasing cost-sharing (higher deductibles)

France

Leakage to private insurance coverage

Brazil, France

Excessive shifting of financial risk to patients (creating access barriers)

Bangladesh, Ethiopia, Indonesia, Peru, Vietnam

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What does coverage-enhancing expenditure management look like?

Japan • Fee schedule revision as a cost containment tool• Global targets for expenditure increases

France

A set of "soft" expenditure controls• System-level spending targets• Sub-level targets (ambulatory care; hospitals; rehabilitation)• Monitoring and “early warning”

Thailand

• Closed-ended capitation contracting with DRG hospital payment

• Strong primary care gate-keeping• Tough negotiation with pharmaceutical companies• Priority-setting for expansion of benefits

Turkey

• Closed-ended payment systems with performance-based component (global budget for hospitals and capitation for primary care)

• Expenditure caps at the hospital level and on pharmaceuticals

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What does coverage-enhancing expenditure management look like?

Japan • Fee schedule revision as a cost containment tool• Global targets for expenditure increases

France

A set of "soft" expenditure controls• System-level spending targets• Sub-level targets (ambulatory care; hospitals; rehabilitation)• Monitoring and “early warning”

Thailand

• Closed-ended capitation contracting with DRG hospital payment

• Strong primary care gate-keeping• Tough negotiation with pharmaceutical companies• Priority-setting for expansion of benefits

Turkey

• Closed-ended payment systems with performance-based component (global budget for hospitals and capitation for primary care)

• Expenditure caps at the hospital level and on pharmaceuticals

Spending targets

Closed-ended provider payment

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Key Features of “Optimal Provider Payment Mix”?

Closed-ended

Incentives to limit high-cost services

Emphasis on Primary

Care

Negotiation of drug prices

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Key Features of “Optimal Provider Payment Mix”?

Closed-ended

Closed-ended payment systems impose a cap at some level (usually the provider)

For example,

• Capitation• DRG with global budget—pay

for admissions until volume targets are exceeded

[e.g. Thailand] Challenge: what happens when

volume target is exceeded and cap is reached?

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Key Features of “Optimal Provider Payment Mix”?

Incentives to limit high-cost services

For example,

• Pay providers below cost for some high-cost/low priority services (e.g. MRI)

• Limit volume

[e.g. Japan]

• Higher cost-sharing for self-referral

[e.g. France, Thailand, Turkey] Challenge: requires a high degree

of monitoring and information

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Key Features of “Optimal Provider Payment Mix”?

Emphasis on Primary

Care

For example,

• Primary care gate-keeping

• “Ring-fencing” or setting targets for share of expenditure for primary care

• Paying relatively higher rates for primary care

[e.g. France, Thailand, Turkey] Challenge: primary care system is

still weak in some countries

Resistance to gate-keeping

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Key Features of “Optimal Provider Payment Mix”?

Negotiation of drug prices

For example,

• Reference pricing• Budget caps [e.g. Turkey]• Mandatory rebates and discounts [e.g.

Turkey]• Health technology assessment to

expand medicines covered [e.g. Thailand] Challenge: the pharmaceutical industry is

a powerful interest group

Challenge: pushing drug prices too hard could limit market participation and innovation

Examples of Provider Payment Mix

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Payment for primary care

Payment for inpatient services

DRG with Global Budget

Capitation

(FFS for some preventive services)

Payment for outpatient specialty services

Thailand UC Scheme

Global Budget(pay-for-

performance/FFS)

Capitation

(pay-for-performance/

salary deduction)

Turkey SSI

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Ongoing process of analysis, revision, and response

• Ongoing process-there is no endpoint

• Good provider payment systems require a high degree of institutional capacity and information takes time to build

• Involvement and negotiation with providers is key

• Some coverage-enhancing expenditure management strategies can eventually put too much pressure on the system and begin to erode coverage—so it is an ongoing process

• Countries take steps, gain experience, do analysis, and revise

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Role of the Joint Learning Network

• These big picture messages require detailed technical action

• Technocratic solutions have to get implemented in the real world with interest groups and politics

• Sharing experience with countries who are facing the same challenges can provide innovative ideas and help avoid some pitfalls

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How it all fits together

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Identification of the Need for

Reform

Step 1: Diagnostics

Step 2: Payment

System Design

Step 3: Implementatio

n Roadmap

JLN PPM Diagnostic and

Assessment Guide

Topic specific joint-learning activities (e.g. JLN Health Services Costing Collaborative)

General JLN events,

knowledge products and community interaction

PPM Reform

Proposal

Country process

Joint learning input

Stakeholder consultations and data analysis

Share country experience

with JLN members

JLN targeted country support

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Co-production of knowledge

Practical guidance

“Soon after the costing work is commissioned, the costing team should identify and prioritize stakeholders and develop a strategy to engage them throughout the costing exercise. “

“Adopt the least expensive and labor-intensive data collection and management plan that is necessary to get valid results.”

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Joint learning in action

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Final Thoughts

• Revenue generation is important, but using expenditure management and provider payment levers early on or at key junctures of system refinement is critical for coverage expansion.

• Sustaining UHC is a constant balancing act.

• Countries that have been most successful make choices that are coverage-enhancing, learn from past challenges, and continuously adjust and adapt.

• Learning from other countries can help make better technical decisions and navigate real-world implementation challenges.

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THANK YOU