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

2. 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

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

4. 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

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

6. Different Payment Mechanisms

7. 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?

8. 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

9. 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?

10. 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…

11. 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)

12. Turkey in OECD – high expenditure growth

13. 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

14. How is Turkey doing relative to others?

15. 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!

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

17. 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!

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