Paying for Health Care: A General Overview Peter Berman The World Bank Association of Health Economics and Health Policy - Turkey February 17, 2011

Health Financing Functions and Objectives Revenue Collection raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with both a basic package of essential services and financial protection against unpredictable catastrophic financial losses caused by illness and injury Pooling manage these revenues to equitably and efficiently pool health risks Purchasing assure the purchase of health services in an allocatively and technically efficient manner

Broad Definition of Financing Collect Fund Pool the Risk $ $ Allocate Resource $ Payment $ $

Payment and Purchasing All systems need mechanisms of payment Traditional public sector: budgets and salaries Traditional private sector: fee-for-service Many approaches to solve well-known problems with these mechanisms Purchasing Payment simply transfers funds according to agreement between payer and provider Purchasing develops more elaborate relationship between purchaser and provider

Key elements of provider payment Who pays? What is paid for or purchased? What price? What mechanisms of oversight?

Different Payment Mechanisms

Some important criteria to consider Paying for inputs, outputs, or outcomes? Value? Retrospective or prospective? Risk-bearing – payer or provider? Administrative complexity and transactions costs Will providers face several different payment methods?

Payment Performance Assessment Provider Payments Shifts Risk to Provider Administrative Complexity Motivates cost-effective services Increases Outputs Fosters Good Quality equity FFS (no fixed fee schedule) No High Maybe Yes Line-item Budget Low Not necessarily Salary Depends Salary + Bonus Bonus part Medium (bonus part) Capitation Depends, could crème skim FFS (fixed fee schedule + bundled services) For episode of care

Hospital Global Budget Fixed annual payment to hospital for agreed-upon scope of work (may include both services and eligible patients) Can be “hard” or “soft”. Can be supplemented by other payments for specific inputs or outputs Less rigid and bureaucratically controlled than Line Item Budget -- Hospital can have more flexibility to adjust spending to needs – IF that authority is given Perhaps the most effective method to control hospital costs – but incentivizes hospital to skimp on service and refer patients out Some issues: How to set initial levels? What are fair and appropriate differences across similar and different facilities, populations, areas, etc? How to adjust budgets over time? How to reward positive innovation? How to manage other sources of hospital revenue not in global budget?

Case-based Payment: DRGs A prospective output-based payment method Hospitals have incentive to achieve average or better-than-average efficiency Requires identifying an appropriate and feasible definition of cases, setting the rate per case-type, and developing an accounting, billing, and payment system – can be administratively difficult and costly, especially: If there are many types of cases used If there is large variations in costs (input prices) and severity across hospitals Some experiences from middle income countries May not need as detailed and elaborate a system as in USA to obtain benefits Need to develop significant new capabilities in information and record keeping, billing, and payment Developing DRG-type payment system can stimulate useful data collection and analysis May need gradual introduction as can have significant implications for resource flows. Adverse effects? Stinting, Cream-skimming, Upcoding…

Performance-based/Results-based Payment Mimics fee-for-service in tying payment and incentive to activity – usually output Can be for services to individuals or to populations/groups Can be directly to providers or to “organizations” (to influence management) Usually a supplement to another payment method – creates “mixed payment method” (preferred in theory) Evidence is mixed and depends a great deal on level and context In USA and OECD, mainly used to incentivize specific high priority services such as certain preventive services (prophylactic therapies, testing, counselling). Financial incentive may be small as share of total revenue. In some recent developing country cases (Rwanda, Haiti) used as supplement to salary or budget payment, can have larger effect on productivity and quality (balancing other less desirable incentives)

Turkey in OECD – high expenditure growth

Payment – Key Instrument for expenditure control and better outcomes Recent OECD report “Value for Money in Health Care” (OECD 2010) highlighted payment as key “supply side” instrument, through: Enhancing the role of health care purchasers Improving hospital contracting, purchasing, payment systems Improving payment methods and incentives for hospitals And Accelerating shifts from hospitals to outpatient care [which can be achieved through payment] BUT: effect on spending and outcomes depends a lot on design and implementation

How is Turkey doing relative to others?

Some lessons from international experience Payment reform is a means to better results: efficiency, quality, productivity – need to fit the method to the problem All payment methods have potential benefits and potential drawbacks – challenge is to find the right balance and to control the negatives Payment needs to be aligned with health care delivery organization, heatlh care providers and managers, and patients. Sound implementation may be as, or more, important than design Policy makers need to monitor effects and be prepared for corrections– especially in rapidly changing environment like Turkey!

Putting the pieces together Payment Design + Rate Quality Assurance Information Systems Provider Autonomy Source: J. Langenbrunner

Concluding Thoughts Payment to purchasing – its an essential and almost universal part of a modern health care system Countries like Turkey face many challenges at the same time – rapid economic growth, aging population, rising education and expectations, pressures to introduce new technology. Prediction is difficult, monitoring and response crucial. Reports on your progress are very encouraging – yours will be a story to watch and study!

Download at: http://siteresources.worldbank.org/HEALTHNUTRITIONANDPOPULATION/Resources/Peer-Reviewed-Publications/ProviderPaymentHowTo.pdf