1. Overview of the Health Sector Control Knobs
Marc J. Roberts
Professor of Political Economy and Health Policy
Harvard School of Public Health
Africa Flagship June 22 ,2010

2. Not All Causes of Health Sector Outcomes Are 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”
Flagship Course: Washington DC, October 18, 2006, Session 4

3. The “Control Knobs” Financing Payment Organization Regulation
Persuasion
Flagship Course: Washington DC, October 18, 2006, Session 4

4. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

5. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

6. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

7. 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

8. Ways to Pay Hospitals Patient day Admission Global budget
Line item budget
Fee for service
Flagship Course: Washington DC, October 18, 2006, Session 4

9. Ways to Pay Doctors Fee for service Salary Salary plus bonus
Capitation
Capitation plus bonus
Per Case
Flagship Course: Washington DC, October 18, 2006, Session 4

10. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

11. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

12. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

13. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

14. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

15. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

16. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

17. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

18. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

19. 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”
Flagship Course: Washington DC, October 18, 2006, Session 4

20. 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.
Flagship Course: Washington DC, October 18, 2006, Session 4

21. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

22. 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.)
Flagship Course: Washington DC, October 18, 2006, Session 4

23. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

24. 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
Flagship Course: Washington DC, October 18, 2006, Session 4

25. 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
Flagship Course: Washington DC, October 18, 2006, Session 4