World Health Forum World Health Forum A quarterly record of ideas, arguments, and experiences contributed by health professionals the world over. Individual issues, which may feature as many as 30 communications, are edited to reflect the latest and best thinking about public health policy and practice around the world. Priority is given to practical information that can bring the processes of health thinking and planning closer to real conditions in the field. Published since 1980, the Forum is now firmly established as a leading source of advice and stimulation. Quarterly, with four issues of approximately 1 00 pages each; separate editions in Arabic, Chinese, English, French, Russian, and Spanish 1987 subscription (Vol. 8): Sw.fr. 50.- I US $27.50

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ISBN 92 4 156103 3 © World Health Organization, Geneva, 1987 Health care - lNho pays?

Reprinted from World Health Forum

Foreword H. Mahler . 3

Introduction 4

Part 1 : Economic perspectives and principles 5

Improving cost-effectiveness in health care Brian Abel-Smith ...... 6 An economist looks at health strategy J. Brunet-Jailly ...... 9 Doctors must learn economics Paul Beeson ...... 10 Making the most of scarce resources B. Abel-Smith & A. Leiserson ..... 12

Part 2: Issues in the financing of health services 23 Good intentions are not enough E. Tarimo ...... 24 What are the financial resources for "Health 2000" 7 Lee M. Howard ...... 30 Paying for health services in developing countries: a call for realism David de Ferranti ...... 37 Sharing the costs of health care ...... 44 Funding health for all- is insurance the answer? Brian Abel-Smith ...... 55 Discussion: D. Banerji; Ramsis A. Gomaa; Beatrice Majnoni d'lntignano; James Midgley; Guido Miranda Gutierrez; Gerd Muhr; Milton I. Roemer; W. Cezary Wlodarczyk ...... 64 Part 3: · 'Em~i~ic•l eviden~e on the economics of Health for All 85

Counting the cost of primary health care Rotlert N. Grosse & Demetrius J. Pless~s . 86 PrH:nary health care for less than a dollar a year Kai;ong'o Project Team ...... 91 Pot~tia! and limitations of community financing Wayn~Stinson ...... 96 Rural heaith"~!tvices: towards a new strategy? U.N. Jajoo, 0. P. Gupta, & A. P. Jain ...... 99 Primary health care in a Senegalese town: how the local people took part M. Jancloes, B. Seck, L. Van de Velden, & B. Ndiaye ...... 102 Health care costs out of control : the experience of Switzerland JOrg H. Sommer ...... 106 Discussion: Brian Abel-Smith; Jan E. Blanpain; Pierre Gilliand; Bengt Jonsson; Frans F. H. Rutten; Detlef Schwefel ...... 112

Health care - who pays?

This collection of reprints from World Health Forum is reproduced in support of the Technical Discussions, Fortieth World Health Assembly, May 1987, at the request of the office for Health-for-All Strategy Coordination. The contribution of Mr Andrew Crease, Division of Strengthening of Health Services, is gratefully acknowledged.

The World Health Organization is grateful to the following for permitting World Health Forum to draw on material published by them : International Social Security Association, Geneva, Switzerland; Perspectives in biology and medicine; National Center for Health Services Research, USA; American Public Health Association; Medecine tropicale. Forevvord

Ten years ago the World Health Assembly launched a new initiative for worldwide health development, popularly known as Health for All by the Year 2000. To reach that target a new approach to health and health care is required, in order to ensure a more equitable distribution of health resources and to lessen the gap between the health "haves" and "have-nots". At the outset. the need was recognized to rationalize the use of existing resources and to generate and mobilize additional ones.

Improving people's health is both a sound economic investment and a highly justified ethical goal. It can be achieved even with financial limitations, provided that clearly defined lines of action are pursued with determination by communities and all levels of government. To make progress towards the attainment of health for all, certain critical issues regarding the financing of health plans and the best deployment of resources have to be clarified.

This selection of articles from World Health Forum presents a number of views and experiences concerned with financial support to national health-for-all strategies. The articles illustrate the points to be considered as well as the difficulties in finding solutions and making appropriate decisions. They indicate that the collective commitment of all concerned is required in order to expand economic support for achieving greater equity in health. Individuals, families, communities, the private sector, and nongovernmental organizations in addition to governments must all be fully involved. Economic partnership in health has to be reinforced and applied to meet the challenge of health for all. The task is huge, but the potential rewards for humanity are even greater.

H. Mahler, M.D. Director-General Introduction

This collection of articles from World Health Forum, 1980-86, reflects the growing concern with economic and financial aspects of health care. Rising costs, combined with limited government budgets for health, have compelled policy-makers to focus on resource issues. Progress towards health for all will depend, in most countries, on the generation of new sources of financing, on some reallocation of existing resources, and on an increase in cost-consciousness at all levels.

The perspective common to all these articles is the recognition of scarcity of funds and resources, and the consequent need to make careful choices in order to avoid waste. A number of analytical tools, of which cost-benefit analysis and cost-effectiveness analysis are perhaps the best known in the health field, have been developed so that choices can be made in a consistent and explicit fashion. These methods do not make the choices. Policy-makers, managers, providers and users of health care must make the choices on the basis of several factors including economic considerations. This approach to decision-making promotes realistic housekeeping since health economics is not simply a set of tools, or a collection of jargon, or even a language: it is a way of coping rationally with scarcity-of making the best use of scarce resources.

The articles are grouped into three broad themes. First, articles dealing with the perspective and principles of economics as applied to health and health care; second, those concerned with financing and cost control issues; and last, those presenting empirical analysis based on a variety of country experiences. A brief introductory comment precedes each section. The articles are diverse in subject matter, country focus, and in length, and should not be taken as representative of the balance of concerns in health economics more generally. Health economics is predominantly an empirical activity. There is little treatment in these contributions of budget management, the determinants of demand for health care, resource allocation mechanisms, manpower mix, and health status measurement in relation to economics.

Nevertheless, this selection of articles illustrates that many alternative ways of achieving health for all exist; although documentation and analysis of the economics of health for all are still in infancy, well-conceived primary health care strategies can satisfy both the requirements of economic efficiency and the needs for greater social equity. Part 1 : Economic perspectives and principles

The impact of medical decision-making on health sector costs is a theme common to each of the four articles in this section. Abel-Smith's article on cost-effectiveness offers several examples of cost pressures resulting from health care providers' control over resources, and the author makes a strong argument for greater cost awareness by both consumers and providers. Beeson's "Point of View" is essentially similar, making the argument that economic principles have a place in the medical curriculum.

Brunet-Jailly challenges complacency about the linkages between health spending and health status, arguing that expansion of medical services will, on existing evidence, only benefit physicians and the medical industry-a point echoed in Beeson's note. The importance to economists, as well as to epidemiologists, of establishing firmer measures of the effects of health care on health status is made clear.

The condensed book by Abel-Smith & Leiserson offers a synoptic account of the role of health in the process of economic development and provides an illustrative example of health sector expenditure analysis and its role in planning. It also identifies the major alternative mechanisms for financing health services and introduces cost-benefit and cost-effectiveness analysis as means of identifying economically rational policies.

Perhaps the message that is most apparent from these readings is that economic decisions are most commonly made in the health sector by clinicians, who frequently have little knowledge of their cost consequences and little incentive to avoid expensive diagnostic and therapeutic options. In such circumstances, and with health service users in a weak position to assess their needs for care, waste is inevitable.

Articles in Parts 2 and 3 outline strategies to control and improve the situation. World Health Forum, 5: 88-90 (1984) Health Economics

Brian Abel-Smith Improving cost-effectiveness in health care

The rising cost of health care, without commensurate improvement in the health of those served, is a major concern in many countries. A report from a meeting held in Finland suggests some practical ways of obtaining more effec­ tive care at a more reasonable cost.

Social security institutions, faced with rising good quality at minimum cost. Thus, the im­ costs, an erosion of their financial bases be­ mediate aim is to move towards a more eco­ cause of unemployment, and an apparent lack nomical balance of services and to eliminate of improvement in the health status of popu­ ineffective, excessive, and unnecessary med­ lations commensurate with the increased ex­ ical procedures. penditures, are attempting to find practical solutions to their fiscal crises. In September Both demand and supply play a part in gen­ 1982, the International Social Security Asso­ erating extra costs in health care. ciation organized a meeting of experts ip Tur­ Consumer demands that generate fees are ku, Finland, at the invitation of the Social not likely to be resisted. But patients them­ Insurance Institution of Finland, to consider selves are not always sensitive to the cost of these problems. Present were researchers and their treatment, particularly if they are not pay­ social security administrators from 1 7 coun­ ing at the time of care or if the cost of their tries, together with representatives of WHO, medical insurance can be set against taxes. OECD, and the European Centre for Social These factors contribute to the excessive and Welfare Training and Research. What unbalanced supply of services that is a major emerged from the meeting was an analysis of cause of increased costs and inefficiency. the sources of economic inefficiency in health care and some pragmatic suggestions for Economic inefficiency in the supply of health change. care can take several forms. One is the exces­ sive use of hospital beds intended for the care Sources of Inefficiency of acute illness when quality care could be provided elsewhere at a lower cost. Because Economic efficiency in health care can be patients are needed to justify jobs and budgets, defined as the provision of necessary care of hospitals tend to try to keep their beds filled. Payment per day of care adds to pressure to The author is Professor of Social Administration, London admit patients unnecessarily and to extend School of Economics and Political Science, United King­ length of stay, the latter partly because the cost dom. This article is drawn from his summarizing chapter of providing care normally decreases during in the report Improving cost effectiveness in health care, published in 1983 by the International Social Security the latter part of a hospital stay. Moreover, the Association, Geneva, Switzerland, as No. 19 in its higher the occupancy rate, the greater is the Studies and Research Series. funding for new medical equipment, which

6 Economic perspectives and principles enhances the hospital's prestige. Nursing pital beds for acute care and limitations on the homes, lower-cost hospital units under the supply of doctors. What is acceptable in one control of general practitioners, hostels and country, however, may be unthinkable in other residences, and day hospitals and day another. Thus, for many countries the practical nurseries may prove to be cheaper alternatives problem is not how to produce a blueprint for to hospitalization-though not, of course, for wholesale reform but how to find politically every type of patient. realistic ways of moving towards greater eco­ nomic efficiency. Excessive and unnecessary medical proce­ dures also constitute a form of economic inef­ Recent OECD figures (for Belgium, Canada, ficiency: doctor-initiated repeated visits, the Finland, France, the Federal Republic of Ger­ excessive prescribing of drugs, the prescribing many, India, Israel, the United Kingdom, and of costly drugs when less expensive equivalents the USA) show that studied pragmatism has are available, the excessive use of laboratory produced a marked deceleration in the growth and X-ray services, and unnecessary surgery. of health costs in relation to gross national Here, the incentives and pressures operating product. Many factors could be involved in this on care-providers are important considera­ deceleration: a relative decline in the incomes tions. Doctors are more likely to provide exces­ of doctors and health service employees, re­ sive services when they are paid according to forms in fee structures, a decrease in the ratio the procedures they carry out than when they of hospital beds to population, greater use of are on a salary or paid on a capitation basis. day hospitals and community care of the men­ Also, when they have purchased equipment tally ill and (in some countries) the elderly, they have a clear financial interest in seeing greater use of nurses in primary health care, a that it is used, as the capital cost of such equip­ decrease in capital construction and thus in ment has to be repaid out of fees for services. depreciation costs, restrictions on pharmaceu­ In authorizing expenditure on health care­ tical prices and sales promotion activities, often under the sales pressure of manufac­ pharmacist substitution policies, and deliber­ turers-doctors do not always act simply as ate planning to promote chosen priorities and prudent purchasers on their patient's behalf. greater efficiency. By putting their own interests first, they can cause distortion of demand. Restriction of Rights When local health facilities are provided These factors do not apply to all countries, as with more equipment and specialized facilities situations and obstacles to reform vary. It is than are necessary to meet dfimand, medical possible, however, to generalize about the lat­ equipment can itself be a source of inefficien­ ter and to consider the ways they have been cy. Manpower, too, presents problems-for dealt with in gradual approaches to reform. instance, when highly trained professionals Broadly speaking, these obstacles consist in the such as doctors and dentists are used for tasks rights traditionally exercised by students, prac­ that could be handled by less qualified person­ titioners, and consumers of health care­ nel, such as nurses and dental assistants. rights that have come to be modified, qualified, Finally, the provision of curative services or limited in the face of economic stagnation or when earlier preventive action might have decline. been cheaper is also a form of economic inef­ ficiency. More and more countries have come to appreciate that a growing excess of medical The Planning of Services manpower is a critical cause of economic inef­ ficiency, as it limits interest in delegating tasks The logical way to increase efficiency is to to less-qualified personnel and leads to an plan for a correct balance of types of available excess of medical procedures. Quotas are being service and trained manpower necessary to established for medical school places and post­ meet medical needs, geographically distributed graduate training, and existing quotas are be­ on a rational and equitable basis. In many ing cut, thus curtailing the range of subjects countries this could mean a reduction in hos- available for study.

7 Health care-who pays?

The right of professionals to choose where average suffers from the limitation that the to practise has led to a surplus of doctors in the average itself may be excessive. most attractive places. Some countries have closed off particular areas to new entrants; others have gone no farther than controlling Encouraging Cost Awareness posts in hospitals. Some countries are trying to make doctors Some countries have introduced controls on aware of more economical prescription prac­ the purchase of heavy equipment, and many tices, informing them of the differences in the have regulations that prevent new hospitals cost of equivalent or near-equivalent drugs from being built or older ones from being that can be substituted for more expensive ones enlarged except in accordance with a central or they may be using. In some provinces of regional plan. Canada and most states in the USA, pharma­ cists are empowered to substitute cheaper Professional freedom has been further cur­ "equivalents" unless the doctor has specifically tailed by a general trend to hold down medical forbidden substitution on the prescription. fees. This, of course, incurs the risk that doctors will start charging patients more than the fees Consumer rights also play a role in econo­ laid down, particularly in systems in which the mies in health services. Where patients have patient is reimbursed for payments for health freedom of choice with regard to physicians, care. In Quebec, Canada, "overbilling" by doc­ hospitals, and insurers, rational planning be­ tors is penalized by excluding those guilty of comes difficult. The common practice of mak­ the practice from participation in health in­ ing specialist care accessible only on referral surance arrangements. from another doctor has the potential of reduc­ ing the costs of health care. There is widespread interest in the possibil­ Pricing of Medical Procedures ity of making consumers more aware of the costs of health care. Cost-sharing can induce It is recognized that a scale of payments the consumer to require the provider to be according to relative values of different med­ cost-conscious, but it does not work when ical acts influences the number and type of acts patients have private insurance to cover their performed. In some countries (e.g., Canada), share of the costs. Moreover, in some circum­ scales of values have been left for the profes­ stances cost-sharing can have perverse effects. sion to determine. In others, social security For instance, if out-of-hospital services are agencies have achieved changes in relative subject to cost-sharing and inpatient services values, paying more, for example, for medical are not, an incentive is created to use the more consultations and less for diagnostic tests. In expensive hospital services; or if patients are Belgium successive cuts in payments for pa­ made to pay for taxis to convey them to hos­ thology tests have sharply reduced their rate of pitals for consultations, this may lead to in­ increase. creased use of the much more costly ambulance service, as happened in the Netherlands. Clinical freedom and medical secrecy are further obstacles to reform: they limit access to A number of countries are deliberately plan­ information on resources used in treatment ning to promote chosen priorities and greater and on diagnoses that would enable insurers to efficiency-Finland, India, Israel, and the evaluate doctors' performance. A number of United Kingdom among them. Unlike the computerized monitoring systems attempt to other countries represented at the meeting in judge the provision of care in terms of what was Turku, the USA has had very limited success in "medically required" or of norms related to containing health care costs and promoting diagnosis. Where medical secrecy prevents in­ efficiency; its current approach seems to be surers from knowing the diagnosis, the ratios of through market mechanisms as a possible different procedures can be examined and means of achieving what other countries ap­ major deviations from the average questioned, pear to be able to achieve by regulation and though it is recognized that judging against the negotiation. D

8 World H•alth Fon~m, S: 65--66 (1984)

J. Brunet-Jailly with them and that a rise in the standard of living may produce an effect on health status independent of any medical activity. Indeed, recent experience in the developed countries An economist looks shows that an increase in medical activity pro­ at health strategy duces no corresponding increase in productive activity.

We can no longer accept that the health system It is not the place of an economist to define a operates efficiently. First, there is nothing to public health strategy. But the picture of soci­ ensure that the available resources are put to ety provided by economic analysis suggests the best possible use, and the medical profes­ that an effective strategy can be defined only if sion ought to be concentrating on defining cri­ we question the principles on which physicians teria for the allocation of resources by evaluat­ have tended to base their professional strategy ing the various diagnostic and treatment tech­ and replace them by something more funda­ niques and the various ways of organizing the mental. Studies are now being made on the health services. Second, the idea has frequently efficacy of different systems of health care (e.g., been advanced that an improvement in the health centres compared with village health health status of the population contributes to workers) and on the comparison of the results economic development by encouraging pro­ obtained from purely medical activities and ductive activity, but studies by economists those from nutrition and hygiene projects. have cast considerable doubt on that notion. Such analyses of technical efficacy can then serve as a basis for the analysis of economic No effective health system can be built on a efficiency. Because each activity has a cost that number of separate and uncoordinated spe­ can be estimated at any given moment, it is cialist activities that are bound to compete with possible to ascertain which of them is the least each other for limited national resources. expensive for achieving a given result, or, However well intentioned the people are who alternatively, which activity can produce the want to help solve the health problems in their best result with the resources available. Ana­ own field, any system built up from such ini­ lyses of this kind will reveal a soundly based tiatives can only be a monster unadapted to its range of choices. environment. The evidence has to be faced. Maximum The formulation of indicators of health sta­ expansion of the supply of medical services tus, the development of criteria and techniques will largely benefit only the physicians and the for evaluating health activities, and the mea­ medical industry. surement of the relationships between health So far, the medical profession has been un­ status and economic activity are all strictly nec­ able to provide any reliable measurement of essary before a real strategy for health care can changes in health status as a result of increased be planned. Experience shows that such medical activity. Some may claim the disap­ studies are feasible, and the criticism of the pearance of certain diseases or the increase in basis of medical strategy has proved that they life expectancy at birth or the reduction in are needed. Nevertheless, such research is very mortality rates, and certainly they are indica­ rare. Could this be due, in part at least, to the tive of a trend. But to link this trend to the fact that physicians are so preoccupied with increase in medical activity is quite another protecting their position that they will not co­ matter, for there is evidence to show that cer­ operate in collecting information that may call tain diseases began to decline before medical into question the practices and structures of the knowledge was sufficiently advanced to deal medical profession? 0

The author is Dean of the Faculty of Economics, Univer­ sity of Aix-Marseille, Aix-en-Provence, France. He is also responsible for the health team of the Labour Economics and Sociology Laboratory, National Scientific Research Centre, Aix-en-Provence. 9 World Health Forum, 4: 215-216 (1983)

Paul Beeson pay directly for the treatment he receives, con­ tributes to extravagance, because there is no insistent reason for doctors or patients to worry Doctors must learn about costs. This system of payment pervades . all aspects of the national economy; indeed, econom1cs the "fringe" health insurance benefits in labor contracts add to the cost of most of the things we buy. Thus, the figures given, say, for the The economic aspects of modern medical ser­ health expenditure of an "average family of vice deserve a better-defined place in formal four" may not really convey the true cost, medical education. Our system of providing which is to some extent concealed in such medical care was designed by doctors and is other categories as clothing and transport. characterized by customs that suit the interests of doctors. The time to cause young members A.S. Reiman has directed attention to what of the profession to think objectively about that he terms "the new medical-industrial com­ system is before they move into the ranks of plex" (2). He refers to the trend whereby many high-income earners. Unless we arouse some kinds of medical service are beginning to be concern about it during the early phases of provided as commercial enterprises on a pro­ medical training, we run the risk of turning fit-making basis. This includes such innova­ out doctors who will conduct themselves like tions as corporations that operate private hos­ members of a self-serving guild. pitals and nursing homes, businesses that con­ tract for chronic dialysis, commercial diagnos­ Doctors, by their own professional fees and tic laboratories, and organizations that provide especially by their decisions about hospital emergency services for hospitals. He empha­ admission, diagnosis, and therapy, generate at sizes the responsibility of the physicians who least three-fourths of the total health bill of the deal with this kind of big business, because nation. Essentially, then, we have about physicians act then as advisers and purchasing 400 000 solo operators making the decisions agents for their patients. Obviously, there are that use up a huge amount of money. For per­ troubling ethical problems here that have been sonal convenience and benefit, doctors are little discussed. While there is nothing basical­ prone to lobby for wasteful facilities, requiring ly wrong with the idea that some aspects of extra manpower and equipment- too many health care should be operated on a business­ hospital beds, too many institutions equipped like basis, the medical profession will not merit for open-heart surgery, etc. No one can be trust unless it can be seen to avoid conflicts of precise about it, but we do carry out diagnostic interest. Reiman suggests that doctors should procedures that are not needed, we do make not invest in companies that render medical too much use of intensive-care facilities, and service and certainly should not operate such we do perform some surgery for less-than­ companies themselves. crystal-clear indications. Partly stemming from such practices, health care costs now amount to Aside from things that are part of the doc­ nearly one-tenth of the gross national product tor's daily work, other economic matters could in the USA, exceeding $240 billion at the usefully be explored in medical school. I have beginning of this decade (1). Thus, the Amer­ already mentioned that our third-party reim­ ican health care system is, in itself, a factor in bursement systems conceal cost outlay, to both the world economy. doctors and patients. Another undesirable In a subtle way our system of third-party feature is their tendency to reward perfor­ reimbursement, in which a patient does not mance of procedures and admission of patients to hospitals while failing to compensate ade­ quately for medical service given on an ambu­ Professor Beeson is Emeritus Professor of Medicine at latory basis. Politicians and economists are the University of Washington, Seattle, Washington. This article is taken from his paper "Priorities in medical edu­ going to insist that we give more thought to cation", published in Perspectives in biology and medi­ cost effectiveness and technology assessment. cine, 25: 673 (1982). Therefore, our medical students should gain

10 Economic perspectives and principles working acquaintance with the principles and may be relegated to the elective category rather techniques of such evaluations. than being a compulsory part of medical edu­ cation. D In matters of the kind I have been mention­ ing, some of the best resources for teaching may be in departments of public health and community medicine or in the school of public 1. FREELAND, M. ET AL. Health care finance review, 1 health. Unfortunately, with the competition (3): 9 (1980). for space in the curriculum, experts in these 2. RELMAN, A. S. New England journal of medicine, fields may be under-used, and their teaching 303:963 (1980).

Planning the finances of the health sector: a manual for developing countries By E. P. Mach & B. Abel-Smith. World Health Organization, Geneva, 1983, 124 pp., Sw.fr. 14.00.

'This manual presents guidelines for the financial analysis of the health sector on both the revenue and the expenditure sides. It guides planners and others in the health and health-related fields through the stages of design, execution of data collection and organization, evaluation and integration of the analysis into the formal planning process. It will doubtless become a part of the standard health planner's toolkit in less developed countries, because its conciseness lends itself to easy reference when the need to address specific problems arises ...

"Studies of sector finance too often merely present a mass of tables, with no interpretation of the implications of the research for the country's health plan. With this book at their disposal, it is hoped that health planners will be encouraged to take that extra critical step ....

"Given the need for ever-increasing efficiency in the use of ever-dwindling funds for health care interventions, such a helpful volume as this one is very welcome." - Peter C. Bloch, Social science & medicine, 20 (9): 964 (1985).

'The book is full of useful advice and, if financial planners in developing countries can fill out the suggested financial framework with relevant data, they will provide decision-makers with some valuable information for making some very difficult choices. " - Ken Wright, The economic journal, June 1984, p. 478.

"Anyone seriously interested in health issues in developing countries should read it. " - Finance & development, June 1984, p. 52.

11 World Health Fon~m, 1 (1, 2): 142-152 (1980)

Condensed book

B. Abel-Smith 1 and A. Leiserson 2 Making the most of scarce resources*

"Spending more on health services does not necessarily buy better health." This is the lesson that the authors seek to drive home by an examination of the close interrelation between socioeconomic factors and health and by analysing the choices open to developing countries in allocating scarce resources. They strongly advocate a unified approach to meeting basic needs, suggest how a national health policy should be planned, and discuss different ways of financing the health service.

At the Twenty-ninth World Health Assembly, Apart from the occasional radio, bicycle, and the Director-General of WHO was requested to poorly staffed primary school, life in the rural areas ensure that the Organization take an active part "in of many developing countries continues much as it supporting national flanning of rural development did centuries ago. Unemployment, underemploy­ aimed at the relief o poverty and the improvement ment, malnutrition, bad housing, an unhealthy of the quality of life". environment, and lack of minimum education per­ This book has been written primarily for senior sist on an enormous scale after 30 years in which health administrators and teachers of health per­ planning for development has been increasingly sonnel in developing countries. It has two aims: accepted. The expectation of life in developing first, to show what health administrators can do, countries has lengthened considerably, but there is with others, to reorient national planning in the little other evidence that the basic needs of the poor direction cited by the World Health Assembly; are met to a greater extent now than 30 years ago. second, to point out some of the implications for Past development policies were devised with the planning and administration of health services. good intentions, but emphasis was put on economic growth without careful examination of who would The Inequity of Past Development benefit from it. It was assumed that the beneficial effects of growth would spread throughout the Over the last 25-30/ears, gross world produc­ economy. This has tended not to happen or to tion has roughly treble , while the world's popula­ happen very slowly. Consequently, a new thrust in tion has increased by barely two-thirds.3 But the development planning today aims at meeting basic rich countries of the world have become relatively needs directly. These include minimum require­ richer and the poor countries relatively poorer. The ments for food, shelter, and clothing, for household relative poverty of the developing countries is indi­ equipment and furniture, and for essential services cated by the share of world output available to their populations: *This is a condensation of Poverty, development, and health policy, published by the World Health Organization in the Public In 1972 the industrial market economy coun­ Health Papers senes as No. 69 (1978). All who are attracted by tries, with only 17% of the world population, the authors' ideas are urged to read the full exposition. The book accounted for 67% of total world output (using is available through the usual channels for WHO publications. ordinary exchange rates to calculate national totals I Professor of Social Administration, London School of Eco­ on a common basis). At the other extreme, 26% of nomics and Political Science, London, England. the world's population lived in countries whose 2 Formerly of the Division of Strengthening of Health Ser­ total output accounted for under 3% of the world vices, World Health Organization, Geneva, Switzerland. total. J What now? Uppsala, Dag Hammarskjold Foundation, If ... exchange rates give a distorted picture of 1975· p. 26. the real value of national production, then the cor­ 4 Employment, growth and basic needs. Geneva, International rect figures would probably not be so extreme.4 Labour Office, 1976, p. 29.

12 Economic perspectives and principles such as safe drinking-water, sanitation, public By the 194os, Sweden had achieved much lower transport, health services, and educational and cul­ mortality rates than nearly all its European neigh­ tural facilities. 5 A policy aimed at meeting such bours, although the country had substantially fewer basic needs implies the participation of the people doctors per thousand population than many other v:ho will be affected in making the necessary deci­ European nations. In the Netherlands maternal stons. mortality rates were low even when a vast majority The aim of health policy is to improve health, of births took place at home. not just to provide health services. Priority should However, the United States, which spends more be given to health improvement of those with the on health services per head at current exchange lowest health status as part of a unified plan to rates than any other country of the world, had poor improve the quality of life. mortality rates in 1968-69 compared with those of In the provision of health services, each country other developed countries.6 will want to consider means of achieving more Most of the effort and expenditure of ministries evenness or equity in their provision. But how does of health in developing and developed countries has one define equity? been on providing curative services, mainly to the One possible definition of equity might be urban ropulation. In many countries only IO% to spending the same amount on health services per 20% o the rural population have reasonable access individual in every part of the country. But health to health services. It is not surprising, therefore, services of a given standard cost more for dispersed that health services provided in many developing rural populations, partly because of travel expenses countries have not been very successful in and difficulties. improving health. The most skilled curative services A second possible definition would be to provide may make only a temporary impact on health if the the same standard of services everywhere, even if basic causes of ill health are not remedied at their this cost more/er head in rural than urban areas. source. Moving towar this definition of equity and using Public health measures, especially antimalaria it as a basis for services would lead to a heavy con­ campaigns, have been blamed for population explo­ centration of such services for the poor. sions. Population growth has been seen as harmful If the second definition of equity were accepted because it added to the labour supply before jobs to as the basis for planning health services, the impli­ absorb it were created. It has increased the propor­ cations for manpower training and construction tion of young persons dependent on adults, reduc­ programmes would be drastic, because of the logis­ ing the amount of money families could save, or tics of bringing services to dispersed populations spend to improve their production. It has created whose facilities for travel are limited. Normally, it pressure on governments to spend more on services would mean that basic health services would need such as education. to be available within no more than an hour's walk What actually occurred, and led to a remarkable of anyone's home. increase in life expectancy, was the combined result The health administrator can help create a cli­ of public health measures with economic develop­ mate of opinion favouring a move toward greater ment. In the developed countries the incidence of equity. But the meaning given to equity is inescap­ the main killing infectious diseases declined, and ably a matter for political decision at the highest rapid polulation growth started, before effective level. means o intervention for the diseases were avail­ able. Health and Development The promotion of family-planning programmes with strong government support can assist in hur­ Development planners have in the past attached rying the decline in fertility. However, the key little importance to health services. If they consid­ problem in family planning is not the logistics of ered them at all, they tended to judge them by making facilities and devices available, but the lack whether they led to a per capita increase in produc­ of desire of people to reduce their fertility. Confi­ tion. However, most health services in developing dence that their children will survive can convert countries do not bring about any lasting improve­ them to family planning; but economic security, the ment in health status, and even in developed coun­ spread of modern goods and services, education, tries differences in health standards cannot be and wide social and cultural change, particularly in explained by the amount invested in services such as the roles of and attitudes towards women, are also doctors and hospitals. of great importance. There is also evidence sug­ gesting that countries with low inequality in the dis-

5 Meeting basic needs. Geneva, International Labour Office, 6 Maxwell, R. Health care: the growing dilemma, 2nd ed. 1977· p. 24. London, McKinsey, 1975, pp. 14, 18.

13 Health care-who pays? tribution of income have had greater declines in The total cost of training the auxiliary is thus fertility/ $4ooo a year for two years, or $8ooo, plus ro% The contribution health services can make to interest, to be spread over his working life. Does national development should not be judged by the greater contribution of the doctor justify the short-term effects on output but by long-term higher training cost plus the higher salary? effects on the quality of life. If, for example, the In some developing countries there are unem­ survival rates of fetus and child in the developing ployed graduates, unemployed secondary school countries were raised to those of more developed leavers, and unemployed primary school leavers. countries, the same future adult population could But in other developing countries there is a des­ be produced with a much lower use of resources; or perate shortage of persons who have completed a much healthier labour force could be produced secondary education or are equipped for higher with the same resources, leaving women with the education in any field. If a high proportion of the time and energy to make a wider contribution to few who are equipped for higher education are the economic and social well-being of their fami­ accepted for medical training, they are not available lies. for training as scientists, engineers, or senior civil Social and economic planning should be seen as servants. Higher education needs to be planned to complementary, not competitive. Instead of the meet the manpower needs of the entire develop­ health administrator trying to persuade economic ment plan. planners to release resources to the health services, The examination of options for the use of scarce he should make his own contribution to the plan­ resources is part of planning. In developing coun­ ning of economic development, just as the econo­ tries resources likely to be particularly scarce are mist should make his special contribution to the finance for investment, highly educated personnel, planning of health services. and foreign exchange. Also, taxable capacity is limited. Economic Growth and National Planning Each country's plan must take careful account of those resources that are especially scarce. But the If land, capital, and manpower are used for one choice of particular options is not value free. Some purpose, they are not available for another. This forms of investment save labour and thus generate idea of opportunity lost lies at the heart of economic unemployment, at least in the short term, unless thinking. In socio-economic planning, choices have there are other. jobs for the displaced workers to be made among alternative uses of resources. For Another form of investment, an irrigation project, example, what use of resources would do most for may create work as it becomes profitable to culti­ the poor? More health services? More education? vate land more intensively. An investment such as a More support for agriculture? hospital creates employment, but there are high The concept of investment applies to people-to running costs when the hospital has been com­ human capital. The cost of education is more than pleted, and these may have to be partly or wholly the expense of schools and teachers. During full­ financed out of taxation. time education the economy loses because trainer The growth of industries paying high wages may and trainee are making no currem contribution. result in the growth of cities surrounded by shanty Assume that medical education costs $ro ooo a towns. Some regions may prosper at the expense of year per student. the rural areas. Greater output may be achieved at To calculate the economic cost, the value of the the price of greater unemployment and greater mal­ contribution the student might have made to the distribution of income. economy that year must be added. If this is $2ooo, Decisions on what type of employment is desir­ the yearly education cost becomes $r2 ooo. Thus, a able and on how quickly it can be allowed to pro­ five-year medical-school cost becomes $6o ooo. ceed are political. Political choices are also needed Is the doctor's contribution to the health service in determining the level and type of taxation and worth not only the higher salary he will be paid but the distribution of public expenditure. Thus the $6o ooo spread over his working life plus, for planning secretariat must work under close political example, ro% interest on the investment? direction at a high level. The secretariat produces The same student might have been given two the options and the ministers choose among them. years' training as a medical auxiliary at $2ooo a The secretariat is usually attached either to the min­ year, plus again the $2ooo a year that he might istry of finance or to the prime minister's office. A otherwise have contributed if he were working. separate ministry of planning seldom carries the political weight to select options that will receive

7 Rich, W. Smaller families through social and economic pro­ support from the government as a whole. A plan­ gress. Washington, DC, Overseas Development Council (Mono­ ning unit is also needed in each ministry to work graph No. 7), p. 24. with the central secretariat.

14 Economic perspectives and principles

Planning National Health Policy community, including those of the adult popula­ tion. The main causes of ill health are to be found in Education can support health policy. People, social poverty, in a failure to meet basic human both children and adults, can be taught the causes needs. Thus, health services can deal directly with of the main diseases, why clean water is important, only a limited range of problems impinging on why human refuse must be buried and not allowed health. to contaminate water supplies, and the importance A health plan will be unlikely to help meet basic of personal hygiene. The elements of nutrition can needs unless critical decisions are taken about such be taught to girls at school and women in adult factors as the kind of growth that is built into the education courses: how to maximize the nutritional plan, the sectors of production in which growth value of local food supplies, what foods to grow should take place, and the amount of employment around the house and how to cook them so as to to be generated by economic growth. retain the greatest possible nutritional value. The technology that will be used, in both In addition, instruction can be given on the industry and agriculture, will be important and a importance of breast-feeding, the care of infants, major factor in determining the number of job how to recognize common diseases, the use of opportunities and thus the character of consump­ simple household remedies, and the elements of tion demand. There are hard questions to be asked first aid. Education can press home the advantages and answered: How much production can be done of birth spacing and the use of family-planning sup­ by labour-intensive methods without overall loss of plies where such teaching is culturally acceptable. efficiency? The foods produced in the agricultural A strong political commitment to economic and sector can have a major effect on nutritional stand­ social reform is essential to push development ards. If emphasis is on cash export crops, how can toward meeting the needs of the poor, and strong food be obtained to improve the diet at home? Can community organization may be needed to bring it it be imported and distributed to those who need it about. The discussion of health can be a useful and if so, at what price? How will it be possible to starting point for involving the community in plan­ ensure production and distribution of other goods ning its own development. Parents not only want to meet basic needs of the low-income population? their children to survive: they want them to develop How is it possible to make sure they are in a posi­ to their maximum mental and physical capacity. tion to buy what is produced? Thus, a discussion of why some children die and Answers to these questions will vary from others have stunted development can be an effective country to country, depending on the local situa­ starting point, rooted in the deeply felt needs of the tion and on the political acceptability of the community. changes proposed. What is the role of the health administrator in all In many developing countries special pro­ this? In the past he has been involved in planning grammes are needed for the small farmer-to help mainly as an advocate for spending on health ser­ him use improved technology and strengthen his vices. He has rarely made a substantial contribution competitive position. Land reform and, in some to a nation's total development plan. Yet the kind countries, changes in tenure systems are often indis­ of development a country selects may be more pensable first steps. General programmes of rural important to the health of the population than credit and rural cooperation tend to help the large­ health services themselves. scale farmer disproportionately. The health administrator has a vital role to play Educational programmes need to reinforce the in explaining the possible effects on health of var­ process of development. Radical changes may need ious development plan proposals. to be made in curricula and methods of instruction He can explain that a development plan must to make them more relevant to development and, provide an increased standard of living for the poor especially, to new technologies. Education is a con­ because such a standard is important to their tinuous process, and in adults it is necessary to health. The health administrator will be concerned repair the gaps in the education they received in the about any impact a proposed plan might have on past. the price of essentials bought by the poor. Many of the people who are poor today had par­ Plans for agricultural irrigation will interest the ents who were poor. They cultivate the same land health administrator because of their potential for their parents cultivated; they are subject to the food production, partly because of their potential same tenure system and the same risks of variable for improving water supplies, but also because of rainfall and natural disaster. They have essentially their risks (contamination, malaria, schistoso­ the same poor health and scarcely greater educa­ miasis), which can be overcome by careful design. tional opportunities. There is great potential in edu­ The health administrator will be alert to proposed cation programmes geared to the real needs of the changes in the population of cattle, poultry, and

15 Health care-who pays? other animals, in view of the need to protect man Breakdown by type of resource and method from diseases carried by animals. of financing Planning should move from the bottom up, not from the top down. Local communities should thus Expenditure in millions of rupars Government Private be the first to be involved in the planning process. Type of resource sector sector Total Diagnosis of what is wrong and what is needed is a first step. The health administrator can help Capital expenditure Teaching hospital 4.5 4.5 identify the changes that are of special importance Health centre 0.5 0.5 for health. He will understand that if the country Current expenditure provides primary health services for the entire pop­ Payments to personal ulation, personnel of those services would be in (gross for private sector) Doctors and dentists 9 20 29 contact with the local community. They could help Nurses 8 4 12 survey social conditions, monitor the effect of ear­ Auxiliary health workers 4 4 Indigenous practitioners 8 8 lier plans from a health point of view, identify any Others 4 2 6 deterioration in conditions for various sections of Transport 6 4 10 Pharmaceuticals, herbal the population, and provide early warning of medicines, surgical and impending crises. medical supplies 8 12 20 Other goods 3 3 6 The Analysis of Health Service Expenditure Total 47 53 100 Estimates of total expenditure on health services are essential for health policy planning, and need to Of the total government expenditure of 47 mil­ be broken down by tyfe of resource, source of fin­ lion rupars, nearly three-quarters goes to hospitals. ance, and the kind o service in each geographic Only 7·5 million rupars are spent on health centres, area. Rough calculations to show the general pat­ dispensaries, preventive campaigns, and environ­ tern of distribution of expenditure on health ser­ mental health. vices, to produce unit costs, are sufficient. It is not necessary to have sophisticated budget surveys or elaborate questionnaires to find the gross incomes Breakdown of expenditure on the government service of private practitioners or indigenous practitioners. to show the level of sophistication of services A considerable margin of estimate error would not Rupars change the general picture. (millions) The following example for an imaginary country, Rupania, is not untypical of Africa or Asia. Central and regional administration 3 Teaching, training, and research 2 The population of the country is I o million, and its New teaching hospital construction 4.5 currency is the rupar. Gross national product is Existing teaching hospital and regional hospitals­ running costs 16 2000 million rupars, and the total expenditure on District hospitals-running costs 14 health services is I oo million rupars. Health centres-construction of new centres 0.5 -running costs of existing centres 5 To simplify the example, it is assumed there are Dispensaries-running costs 1 only two methods of financing health services. Environmental health and preventive campaigns 1 First, government provides a service at no charge, Total 47 which is financed by general taxation. Second, there is a private sector in which those who can afford it purchase services from private practi­ Although it is not possible in practice to cost tioners (Western trained and indigenous) and from each preventive activity separately, it is important to private hospitals, and purchase drugs from both do so with every such activity that can be separately pharmacies and traditional herbal markets. There is identified. When the same staff are engaged in both no voluntary or compulsory health insurance and preventive and curative work, estimates are needed no financing by charity or foreign aid. as to how staff actually spend their time-not on More is spent in the private sector than in the how they are expected to spend their time. government sector, mainly on doctors, dentists, In developing countries it is useful to isolate a indigenous practitioners, drugs, and herbal rem­ particular element in the cost of providing services, edies. In the government sector about a tenth of the namely, the cost of support activities (continuing budget is devoted to building a second teaching education for field staff, local administration, and hospital, which will take seven years to complete. supervision). This support cost can be high where About a fifth of the government budget goes for the services are provided to a dispersed population salaries for doctors and dentists, and almost an by auxiliaries or voluntary workers with limited eighth, for transport. training. Continuing education, local administra-

16 Economic perspectives and principles tion, and supervision need to be provided by more Breakdown of running costs of health services 8 highly trained and better-paid staff. These people by urban and rural areas have to travel widely to do their work. In countries with poor roads the cost per vehicle-mile can be Running costs in millions of rupars high. There are costs of maintaining petrol supplies Urban Rural Total in remote areas. Yet, unless there are frequent on­ Government serviCBs the-spot visits for continuing education, supervi­ Teaching, regional, and district hospitals 28.5 1.5 30 sion, and leadership, poor service is likely to be pro­ Health centres 5.0 5 vided. Dispensaries 1.0 1 Environmental health and The table that follows shows government field preventive campaigns 0.5 0.5 service costs as distributed among preventive, cura­ Private sector tive, and support services. Doctors, nurses, and other staff 25.0 1.0 26 Indigenous practitioners 2.0 6.0 8 Transport 3.0 1.0 4 Pharmaceuticals, herbal medicines, Breakdown of running costs of government field and other goods 11.0 4.0 15 services 8 into curative, preventive, and support services Total 70.0 20.0 90

Running costs in millions of rupars a Excluding the cost of administration, teaching, and research. Curative Preventive Supportive Total

Regional and teaching hospitals 16.0 16 Unit costs District hospitals 11.5 0.5 2 14 Health centres 4.0 0.5 0.5 5 Dispensaries 0.9 0.1 1 Rupars Environmental health and preventive Cost per inpatient-week in hospital 120 campaigns Cost per consultation with a doctor 4 Cost per visit with a medical auxiliary 0.5 Total 32.4 2.1 2.5 37 Cost per visit with an indigenous practitioner 0.5 Cost per immunization 0.1 8 Excluding the cost of administration. teaching, and research. Cost per vehicle-mile allowing for amortization, running costs, and repairs 5 Cost of training a doctor for 5 years 100000 Cost of training a nurse for 3 years 5000 In Rupanian health services only a tenth of the Cost of training a medical auxiliary for 2 years 3000 Cost of training a rural medical aid or field worker money spent on dispensaries and health centres for6 months 1000 went to identifiable preventive work. Staffs in these units were intended to divide their time about equally between preventive and curative activities. Unit costs are necessary for considering the In practice, they have been so pressed with financial feasibility of operations in health plan­ demands for curative attention that preventive ning. Unless unit costs can be reduced, certain activities have been neglected. Calculations of this options can be ruled out as impractical. For kind enable the health administrator to see the situ­ example, in Rupania it would cost 200 million ation as it is, not as it was supposed to be. rupars to provide five consultations per annum with Only Io% of the people of Rupania live in urban a doctor for the whole fopulation. That alone is areas. Regional and teaching hospitals are supposed Io% of the gross nationa product; and the cost of to receive referrals, but in practice 95% of their drugs, diagnostic equipment, and other supplies patients come from urban areas, as do 95% of the would probably add another Io%. patients of the district hospitals. Health centres and To provide five consultations per annum with a dispensaries, on the other hand, are used by the medical auxiliary would cost only 2 5 million rupars, rural population. The table below shows running or only 1.25% of the gross national product, to costs in urban and rural areas. which cost of supplies and support would have to It is seen that about three-quarters of the health be added. service expenditure goes to the urban I o% of the To provide I o occupied hospital beds fer I ooo population, leaving only a quarter of the expendi­ of the population would require a total o 1 oo ooo ture for the rural areas where 90% of the people occupied beds at I20 rupars per week. That would live. The expenditure per head, out of taxes, was 3 3 amount to 624 million rupars a year, or 3I% of the times greater in the urban than the rural area. whole country's gross national product. A further and more detailed analysis of govern­ Calculation of unit costs helps the health admin­ ment health expenditure examined hospital use, istrator to analyse different parts of the budget and consultations, vehicle-miles, numbers of students, how they are being spent. It shows him differences duration of courses, and drop-out rate for health and leads him to examine, for example, how far, if personnel, to show unit costs. at all, it is justifiable for the urban population to

17 Health care-who pays? receive a more sophisiticated level of service than charges. Patients referred to doctors by primary the rural population. care auxiliaries can be exempted from charges, whereas those who bypass primary care can be made to pay. The Financing of Health Services The main difficulty with charging is that it is The different methods of financing health ser­ hard to find a way in which those who are very vices can be classified as follows: poor can still obtain services. The administrative costs of sophisticated means-test systems can be Indirect Financing high. 1. Government: central and local. When compulsory health insurance is started, it usually covers only a part of the total population, 2. Compulsory insurance, any government generally those in regular employment in urban subsidies being counted under 1, above. areas. Although this may seem at least a good 3· Voluntary insurance, any government sub­ beginning, whatever the drawbacks, partial insur­ sidies being counted under 1, above. ance coverage can cause serious distortions in the 4· Employment insurance, contributions being satisfaction of health priorities. counted in 2 and J, above. Those regularly employed may not be satisfied 5. Charity raised inside the country, any gov­ with government health services in their urban area. ernment subsidies being counted in 1, But these services are usually already far more above. costly per head than those in rural areas. If partial 6. Foreign aid. coverage by compulsory health insurance leads to still more expensive urban services, it may become Direct Financing impossible to provide service at comparable cost in 1. Payments by rectptents for services, ex­ rural areas for generations. Concentration of health cluding insurance payments to 2 and 3, insurance in the better-off part of the population above, but including payments for services tends to shift resources in the opposite direction to 1, 2, J, or 4, above. from a move toward equity. If insurance concen­ trated in urban areas leads to increased costs of Methods of financing are relevant to health goods produced there (since it indirectly adds to policy. First, it is important to see how much dif­ labour cost}, the rural population may be forced to ferent groups of the population are ultimately pay part of the cost of the more expensive health paying toward the cost of health services and how services in the cities, through the higher prices of this compares with the value of the services they goods. receive. Second, the method of financing care can Voluntary insurance offers a way of developing influence what is provided and to whom. local services under the control of and with the par­ Even the provision of a free and universal health ticipation of the community, provided premiums service financed from taxation does not necessarily are low enough for the majority of the population result in services' being available to the rural poor. to pay and the services are geared to the income Where health services are concentrated in urban collected from the premiums. Rural people have areas, the rural poor may not be able to get to them long been accustomed to paying for traditional even if they are free. practitioners, midwives, and medicines. Voluntary Clearly, greater equality can be achieved by pro­ insurance can also be encouraged by government viding more services in rural than in urban areas. subsidies. But reducing urban services by eliminating regional Whether health services are paid for by volun­ or district hospital beds or reducing staff would tary or compulsory health insurance, the private meet stiff opposition from both users and staff and sector can become so extensive that it frustrates the· would be politically contentious. It would also attempts of government to establish and enforce waste part of the investment made in building hos­ priorities in the use of health resources. Potential pitals and in training their staffs. It may be less dif­ earnings in the private sector, especially when there ficult politically to initiate a steady increase in are shortages of qualified health personnel, may charges for services in urban hospitals. This would determine the level of pay government will have to ultimately reduce demand, which might, in turn, meet. make a reduction in the number of beds accept­ The fundamental problem is inequality of able. income and wealth in the population. Inevitably, Although patients should first apply to primary those who are rich want to buy more health services care services, some will go directly to secondary and more sophisticated health services. The poor services, thinking that they are better. Such self­ usually aspire to what they observe the rich using, referred patients can be discouraged by high even if the rich are using services that are ·overso-

18 Economic perspectives and principles phisticated, unnecessary, and incapable of produc­ which is cheap and is effective if given early9 Many ing fundamental solutions to health problems. beds in hospitals and sanitoria are still occupied by Gross inequality of income and wealth is in itself tuberculosis patients who could receive ambulatory irreconcilable with the equitable distribution of treatment having the same therapeutic effect at health resources. much lower cost. 1o In I 968, nearly a half million hospital inpatients Cost-Benefit-Effectiveness Analysis from 37 developing countries were officially regis­ tered as malnourished. The cost of their care was Cost-benefit analysis is an aid to systematic estimated at 340 million dollars. 11 What would be thought about what to do. An attempt is made to the most cost-effective way of preventing this mal­ assess the benefits of different programmes and to nutrition? compare those benefits with the cost of obtaining Vaccination has proven an effective preventive them. against many diseases. An estimated So million Cost-effectiveness analysis is an aid to deciding children are born each year in the developing coun­ how to achieve a given level of performance at min­ tries, and the majority of them are not immunized. imum cost, or how to obtain the maximum per­ It is important to examine all ways in which such formance from a given budget. immunization could be provided, to consider the If the objective is broadly defined-for example, costs, and to examine the possible contribution of to improve health-cost effectiveness can become research. Some logical possibilities are: almost interchangeable with cost benefit (assuming ( r) producing equally effective vaccines at that health improvements can be measured), except lower cost; that those who do cost-benefit studies emphasize expressing benefits in money terms whenever pos­ (2) developing vaccines that might give greater sible. In the present discussion, cost-effectiveness is or longer protection in relation to their cost; confined to narrower objectives such as reducing (3) using smaller dosages and more effective the incidence of a particular disease by a stated delivery routes; amount, in terms of achieving a stated percentage (4) changing containers to reduce wastage in of acceptors of family planning, or ensuring that a spilling; desired portion of the population is immunized. (5) developing improved storage systems to pre­ Cost-effectiveness analyses are much easier than vent or reduce deterioration from failure to main­ cost-benefit analyses because the aim is clear. tain low temperature; Cost-effectiveness analyses are not just for re­ search, but for practical application by the health (6) using oral rather than parenteral vaccines, administrator in using his health resources at the when available, to save staff time; local level. What is required is creative thinking to (7) giving more than one immunization at a develoR ways of solving problems. What is the most time; cost-effective way of controlling cholera? What (8) developing faster-acting equipment; would it cost to cut incidence by "x" per cent, (I) (9) better planning of schedules to cut transport by regular vaccination, (2) by vaccination when an costs; epidemic is expected to start, and (3) by some pro­ (Io) using volunteers rather than paid staff; gramme of rural sanitation? 8 What is the cheapest way of getting I o ooo (I I) improving publicity to attract more people acceptors of family-planning programmes? By pro­ into centres at lower cost per person. viding a clinic? By subsidizing supplies in retail Nothing on the list is new. The problem is to shops? By providin~ subsidized supplies in slot apply what is known-and this at present is imper­ machines? By recruiting volunteers to call from fectly done-and to develop new and less expensive door to door, perhaps allowing them a small com­ techniques. mission on the supplies they sell? Hospital care, throughout the world, is an Low-Cost Services expensive way of treating patients. It is thus In developing countries the only health services important to find effective ways of treating patients that can be expected to reach the entire population without sending them to hospital. An example of such a way is oral fluid treatment of diarrhoea, 9 Pierce, N. F. & Hirschhorn, N. Oral fluid: a simple weapon against dehydration in diarrhoea. WHO Chronicle 31: 87 (1977). 10 Hitze, K. L. Tuberculosis control: Is modern knowledge 8 Azurin, J. C. & Alvero, M. Field evaluation of environ­ being applied? WHO Chronicle, 26: 386 (1972). mental sanitation measures against cholera. Bulletin of the World II Berg, A. The nutrition factor. Washington, D.C., Brookings Health Organization, 51:19-26 (1974). Institution, 1973, p. 18.

19 Health care-who pays? are those that are of low cost. Low-cost services Traditional medical practitioners are still widely can be effective, and achieving low cost is as consulted in many developing countries. An imp?rtant for secondary as it is for primary care important contribution can be made by training servtces. such practitioners to abandon practices that do not The largest element of cost in health services is promote health and to use scientific medicine. A staff. The least expensive way of providing service limited number of drugs may be provided to such is for the people to provide it for themselves, where practitioners by the organized service, but there are possible. Furthermore, helping people to find solu­ dangers that the area of traditional medicine may tions to their own problems is often more effective be excessively promoted for political reasons. than providing services to solve those problems for It is clear that where there are few physicians in them, if the community has the necessary resources relation to population, many health needs will be at its disposal. unmet unless doctors delegate part of their It is a formidable task to work with a community responsibility to other staff. Delegation does not to change customs, beliefs, and behaviour handed undermine the professional role: it enhances it. down for generations. But this is what much of Delegation is a matter of economics in that auxilia­ development is about. ries can be trained at much lower cost than higher Teachers in health education can be chosen in grades of professional staff. There is a strong case each village. They do not need to be paid, but they for ensuring that every high professional grade do need training and support. should be matched by a corresponding auxiliary The most effective health education works grade. In rural areas, delegated responsibilities will through discussion and setting an example. In dis­ have to be undertaken by multipurpose trained cussion it can be seen that health problems are a workers. If they are recruited from the villages part of the wider problems of the community. Thus where they will work, they will know the local cul­ health education can be part of the job of commu­ ture and communicate better with the local commu­ nity development personnel, of schoolteachers, nity. agricultural extension workers, and many others. The sort of choices that may face a country plan­ Health education can be promoted by politicians ning its supply of manpower for primary care may and religious leaders and can form part of mass be illustrated in the following example from the. literacy campaigns. Involving the community in imaginary country Rupania. It is assumed that _after finding ways of improving health care does not allowing for costs of central administration, the take costly staff or equipment, but it does take poli­ annual amount of money for primary health cart tical commitment and community participation. services for a population of 100 ooo is 300 ooo One or more persons from each village can be rupars. Out of this, 100 ooo rupars are needed for selected for practical training to give simple health supplies, transport, and other expenses, leaving care on a part-time basis, paid or unpaid. Such vil­ 200 ooo rupars for staff costs. Possible staffing lage workers, given necessary supplies, can make options under these circumstances are shown in the sure the local population is immunized, be on the following table. lookout for environmental health hazards, and report outbreaks of serious infectious diseases. They can be trained to realize when assistance Staffing options should be asked of professional staff. Such schemes Annual cost are being tried in a number of countries, but may per staff Possible numbers in post 12 not be acceptable in every culture. • 13 member Option Option Option Women in developing countries have for centu­ Grade (rupars) A B c ries had their babies delivered with the aid of tradi­ I. University training tional midwives, and small payments have usually for 5 years 20000 10 6 been made for this service. In improving health II. Secondary school plus 2 years' care, it is usually better, when resources are limited, training 6000 0 10 10 to give the midwife additional training than to Ill. Primary school plus 6 months' replace her with trained personnel paid out of the training 2000 0 10 50 health services budget. Given additional instruction, the midwife can also serve in the field of family planning. In the first option, Option A, there are ten staff 12 Repond, R. House of health. World health, April 1975, pp. members, all university trained, or one for .every 20-2j. 10 ooo people. But one university-trained staff 13 Gonzalez, C. L. "Simplified medicine" in the Venezuelan health services. In: Newell, K. W., ed. Health by the people. member cannot hope to make much contact with Geneva, World Health Organization, 1975, pp. 169-190. 10 ooo persons.

20 Economic perspectives and principles

In Option B, use is made of grade II and grade Where resources are very limited, the maximum III staff members, but still only one of each for amount of health services must be provided without every 10 ooo population. incurring the costs of inpatient care. In Option C, however, there is one grade III The typical hospital in the more developed coun­ staff member per 2000 population. One grade II tries consists of many floors and is equipped with staff member is available under this option to sup­ elevators, batteries of electrical equipment, piped port every five grade III staff. Only Option C, or oxygen, and sophisticated supply and communica­ some variant of it, provides a reasonable prospect tion systems. Such hospitals are, in part, a response of ready access to primary care services for the to the different relative prices of a richer society, whole population. Whether this prospect can be and were often built without adequate examination realized depends to some extent on the dispersal of of the merits of less expensive alternatives. the population to be served. The economic background in developing coun­ Preparation of staffing options along these lines tries is very different. Labour costs are low, and is the key to the planning of local health services. there is substantial unemployment. The price of Staffing decisions will determine the extent to land-even urban land-may also be low. A which health workers can be specialized, the pre­ building built low to the ground will use more land cise functions they should perform, and thus the than a high building, but this does not matter if the training programmes needed. The content of land is cheap. The need for staff to walk from one training programmes will depend on the priorities end of the hospital to another or to transport sup­ of the health plan and on how much a student with plies does not matter if labour is cheap and bicycles a basic education can be expected to learn and put are available. Ramps may seem to be a laborious into practice. The amount a student can learn may facility for moving supplies and patients, but they determine for practical purposes the boundary do not break down and need almost no mainte­ between primary and secondary health care within nance. A low building can be built by traditional the organization of services. From the staffing pat­ methods using local labour and local materials. terns will also flow decisions on what buildings, Complex mechanical equipment usually has to supplies, and other forms of support are needed. be imported at a considerable cost in foreign In developing countries, where the bulk of the exchange, and skilled personnel for maintenance population is in rural areas, inpatient care must be and repair are !?enerally in short supply and are provided very selectively if it is not to absorb an needed to work m the manufacturing sector. Often excessive share of the budget. It must be confined there is not enough mechanical equ!J'ment of a par­ to those with a high probability of deriving a clear ticular kind in the country to justity the establish­ and lasting benefit from it. ment of special maintenance firms. Thus, mechan­ Many developing countries have followed the ical equipment in hospitals in developing countries example of more developed countries and have is often out of order, awaiting repair and often the concentrated a high proportion of their health ser­ import of spare parts. vice expenditure on large urban hospitals, many of Equipment may be subject to frequent and dan­ them teaching hospitals, equipped to provide ter­ gerous stoppages if it is electrical and the local tiary care with advanced technology. Often these power supply is unreliable. A hospital built to hospitals have been established before smaller dis­ operate with many lifts can be virtually paralysed if trict hospitals. As transport is not normally devel­ most of the lifts will not work, and emergency stair­ oped, these large institutions, intended to be cases are not usually designed for transporting sup­ regional hospitals, are mainly used to provide sec­ plies, let alone patients on trolleys. ondary care to the urban population. They are Village dispensaries and other simple buildings often used for patients who do not need them: the can often be built by the local community as part of chronically disabled, children with malnutrition, an action programme. The use of voluntary labour and those with minor illnesses who could be treated recruited locally encourages community interest in in a much simpler hospital or at home. In some planned health services and paves the way for parti­ countries, outpatient departments of regional hospi­ cipation later in activities promoted from within the tals are even used for primary care. completed building. Such hospital services as can be afforded for the Purchasing supplies on the basis of the lowest rural population need to be small units, each tender can often turn out to be expensive in the serving several villages. In addition, mobile secon­ long run. What is bought may not be suitable for dary health care service units can be established to the conditions of use. Keys to effective purchasing visit villages, weekly or less often. Some simple sur­ are careful specification of product for appropriate­ gical procedures that cannot be done by primary ness, effectiveness, and acceptability, the evaluation health workers can be performed on a day basis, if of goods in actual use, and ultimately bulk purchas­ adequate postoperative nursing can be provided. ing or contracting.

21 Health care-who pays?

Because of difficulties in repamng equipment, Considerable skill is needed to buy wisely in a items purchased should be reliable, durable, and world market where there are enormous commer­ simple to operate. Consideration must be given to cial pressures. Similar products can be found at local climate, especially to excessive heat and widely varying prices, and the market abounds with humidity. Staff should be trained to do their own products that are ineffective or unsafe. simple repairs. This is especially important if they A list of locally necessary pharmaceuticals work in remote areas. Spare parts need to be should be compiled. 14 Tenders for items on the lot readily available, and it is consequently a great should be examined to make sure the items are suit­ advantage if equipment is standardized throughout able for conditions in which they will be used. the country. Otherwise, equipment is likely to be Developing countries can save imports by devel­ out of service for long periods while replacement oping local processing, which in turn can lead to parts or supplies are awaited. local manufacture. An intermediate step may be to Kerosene refrigerators, for example, need reg­ arrange for local licensing or contract manufacture ular supplies of wicks and fuel. The use of micro­ with a foreign firm that will supply raw materials scopes creates needs for slides, cedar oil, and stains. and supervise local fabrication. Supplies and equipment should be appropriate to All over the world, health service staffs, even at the conditions in which they will be used. For the highest professional grades, are taught little example, vehicles for use in rural areas must be about health services economics and often know equipped to stand rough handling and bad road little about the costs of the equipment and supplies conditions, but it is wasteful to devote such vehicles they use. Doctors tend to seek what is new without to essentially urban work. In some circumstances, regard to cost. They are also under considerable hired commercial vehicles may cost less than gov­ sales pressure from manufacturing firms. Cost-con­ ernment transport. sciousness is not just for central administrators and The general principle is to buy locally wherever planners, but should be taught to all working in possible to save on imports. Like other sectors of health care. If no service costs more than is abso­ the economy, the health services sector can encou­ lutely necessary, then more people can have health rage the growth of local industry. The first local services. The price that is paid for high-cost tech­ purchases may be more expensive than imports, and nology for a few is no technology at all for the the finish on equipment may be poor. But price can many. be reduced and quality improved in time. Imported pharmaceuticals are a major expense for health services. Their cost is often so great that 14 WHO Technical Repon Series, No. 6q, 1977 (The selec­ not enough can be bought and supplies run out. tion of essential drugs).

Economic aspects of communicable diseases Report on a WHO Working Group. World Health Organization Regional Office for Europe, Copenhagen, 1982, 30 pp., Sw.fr. 4.00 (EURO Reports and Studies, No. 68).

11/ness is expensive, and health administrators are increasingly having to compete for scarce financial resources with other sectors of the economy. Despite the difficulty of assessing the benefits of good health in financial terms, this report shows that there are a number of relevant criteria that can be measured. For example, looking at the components of the infection cycle, the Working Group demonstrates how it is possible to choose the optimal method or group of methods for prevention, care and cure.

This publication is of fundamental importance to health policy-makers, health administrators, politicians and everyone concerned not only in finding the most efficient way of fighting communicable diseases in Europe but also in understanding how to make the most efficient use of scarce financial resources in the health sector as a whole.

22 Part 2: Issues in the financing of health services

The five articles in this section are concerned with the mobilization of financial resources for health. They contain substantial differences of emphasis and opinion.

Financing issues can be reduced to one central question: who pays? This gives rise to a multiplicity of secondary but important considerations of the effects of particular financing arrangements on the accessibility, availability, utilization, quality, and content of public and private health systems.

Tarimo reviews the priority of health as reflected in its command of national resources-as a percentage of gross national product. He also illustrates how, within a given budget, radically different health care delivery technologies a~e possible; the level and mix of health spending may therefore be distinguished as objects of policy analysis. Howard's article, which deals extensively with external assistance for health, nevertheless makes the point clearly that "the resources of the developing countries themselves constitute by far the major global resource for progress in health". Given this, the lack of long-run cost projections to allow modelling of possible scenarios for Health-for-All implementation is conspicuous.

De Ferranti, endorsing Howard's view, examines the prospects for mobilizing additional domestic resources through carefully selective fees, and through risk-sharing or insurance mechanisms. Clarity of purpose in the design of such measures is seen as crucial.

The Wolfsburg seminar report reviews a range of cost control, as distinct from financial mobilization, measures, taking as the starting point concern over the level of expenditure on health. Where Tarimo used the level of expenditure as a litmus test of commitment, this report takes public concern about the level of the health bill as indicative of the need to identify control mechanisms. Price competition, decentralized budget control, firmer regulation and insurance co-payment approaches are considered. Finally, health insurance arrangements as a basis for relieving financial pressure on overcommitted central governments are discussed from several viewpoints in the Round Table presented by Abel-Smith.

Can it be generally argued that cost containment is an imperative, any more than that more resources are needed? And how do potential improvements in the management of existing resources compare with financing changes as a means of improving the health system? A concern with cost-effectiveness, examining how well health systems deploy whatever they currently spend, rather than with levels of expenditure per se is surely more appropriate. Both issues deserve fuller consideration. World Health Fon~m, 5: 319-324 (1984)

E. Tarimo

Good intentions are not enough

The percentage of the gross national product devoted to health in Africa is still low. Health has nevertheless improved, and the primary health care movement has caught on, but more attention must be paid to resources and management if good intentions are not to remain on paper.

What is happening in Africa now, six years ment budgets is allocated to the health sector. after the Alma-Ata Conference? Most of the In fact, the percentage of GNP devoted to countries are signatories to charters for pri­ health in Africa is low, less than 2% in half the mary health care development, but is this countries, and the smaller the GNP the lower apparent commitment actually reflected in na­ the percentage spent on health. Only Mozam­ tional plans and programmes? bique seems to spend more than 10% of the total government budget on health. While One question of fundamental importance there has been an increase in the health budget has recurred constantly since Alma-Ata. of many countries by about 5% per year, infla­ Should the aim be to achieve overall socio­ tion has been about 25 %, and so the situation economic development as the foundation for has actually deteriorated. health or is primary health care possible inde­ pendently of such development? One answer While community resources have been mo­ is that to combat disease and its associated suf­ bilized through contributions and donated la­ fering can have a powerful moral effect and bour, there is no evidence of any comparable that health can be an entry point to develop­ allocation of government resources to support ment, even though there are few examples such community effort. What can be done? where this has happened. Another question is Countries that are spending only a tiny propor­ whether politicians can be persuaded to give tion of their resources on health need to take preference to health as opposed to other sec­ steps to rectify the situation, while those that to~s, though some would regard the question as already spend a reasonable proportion on na1ve. health need to find ways of using those funds more efficiently and equitably. Mobilizing Resources The greater part of health care expenditure for Primary Health Care currently goes to the higher levels of the sys­ tem, i.e., to the urban and specialized hospitals. Are countries providing adequate resources If the primary health care principle of equity in for health? The Alma-Ata Conference and the health care is accepted, health planners must global strategy for health for all called on them begin by taking stock of available resources, to ensure that a reasonable proportion of the and then ask how they can be used to provide gross national product and of national govern- essential care to everyone. Because the reallocation of resources is so Dr Tarimo is Director of the Division of Strengthening of difficult to achieve, it has been called the lit­ Health Services, World Health Organization, Geneva, mus test of political commitment to primary Switzerland. This article is based on his paper presented at the First Congress of the Confederation of African health care. It may be reflected in budgetary Medical Associations and Societies, 5-10 September increases, in changes in staffing patterns or in 1983, Nairobi, Kenya. special provisions for primary health care, e.g.,

24 Financing of health services supplies. But it is usually difficult to measure, in health development and research. Such a as few countries have an accounting system group, referred to in the health for all strategies that shows how money is actually spent within as a national health development network, the health care sector. In fact, the setting up of besides providing technical support to the na­ such an accounting system is an indication of tional health council, should also plan pro­ political commitment to reallocating resources grammes for the reorientation of health work­ to primary health care and the first step ers and carry out appropriate health systems towards doing so. Although many countries research. Some decision-makers see the na­ are emphasizing the provision of small health tional health development network as threat­ units, such as dispensaries, clinics and health ening their authority while others regard it as centres staffed by auxiliaries, and are giving their own supporting mechanism. How effective are such networks? It seems that, as in the case of national health councils, much remains to be done. Plans and proposals ;~:-~fant and child mortality raid; for primary health care continue to pour into ~· ~eady .hip at nationalleve:l, it countries in the absence of any evidence that ; fie ,imagined how frigbteninaly .. any national group really directs the process. A .,~,~ymust be among the~ great deal of international guidance is offered ·:;.ions of the community. that has nothing to do with the realities in individual countries. Responses to such guid­ ance remain diplomatic and polite, \)ut the guidance itself is often ignored. The establish­ ment of national health councils and national priority to underserved areas, few have man­ health development networks can strengthen aged to move far along this road. ministries of health, but it is important to review the existing structures within the min­ The Decision-Making Mechanism istry itself to ensure that they do not stand in the way of implementing primary health care. The important political decisions that have How relevant, for example, is the traditional to be made require a high-level mechanism in division between preventive and curative ac­ government through which the issues of great­ tivities in the ministries of health? Is the call er equity in health care, community participa­ for primary health care heard at a sufficiently tion, and intersectoral action can be debated, high level in such ministries? appropriate advice given, and decisions taken. This mechanism might take the form of a Cabi­ What Kind net committee or a more broadly based nation­ of Health Infrastructure? al health council, in which representatives from a range of political, social, and economic Some sceptics maintain that, in view of the organizations participate with government scattered nature of the population in rural Afri­ ministers or senior civil servants. National ca, the large distances between health units, health councils now exist in 22 countries in the scarcity and high cost of transport, and the Africa, but there is little information on how short time available for the achievement of the they function or on how effective they are. goal of health for all, we should forget about Such information would be invaluable tooth­ health systems where facilities exist for referral ers in their attempts to find better ways of from the primary health care level to higher coordinating intersectoral action. levels. We should instead concentrate on help­ ing communities to select, train, and maintain One problem that national health councils their community health workers and that is are known to have experienced is a lack of all. adequate technical support. Issues must be well researched and policy options presented; so it Others claim that it is too costly and difficult is important for the Ministry of Health to bring to develop an overall infrastructure capable of together the individuals and institutes working delivering the primary health care package

25 Health care-who pays?

Table 1. Health manpower "mixes" organized extensive orientation programmes at similar annual costs in primary health care for their health workers

Manpower "'mixes'' and professional groups. Type of manpower Community health workers are extensively A B c D used. A study (1) of the criteria for selecting Doctors 1000 700 400 250 them, the available training and learning ma­ Nurses (midwives), terials, the training of teachers, continuing medical assistants 1000 1 500 2000 2000 education, supervision, remuneration, referral, Community health and logistic support was carried out in 1 7 coun­ workers 1 500 3000 4500 tries, including 5 in Africa: Benin, Botswana, Ethiopia, Liberia, and the Sudan. The term "community health worker" covers a wide outlined at Alma-Ata. We should therefore se­ variety of personnel, e.g., aid-post orderlies, lect three or four key programmes from which "barefoot doctors", and auxiliary health work­ the maximum return can be obtained in terms ers, with training ranging from a few weeks to of reduction in mortality and morbidity, and several years. This made comparison difficult, then attack the corresponding diseases. But if it but the need for such workers to be selected by is already too costly to establish a single overall the community, and preferably to come from infrastructure, how shall we be able to afford the community itself and to reside in it, was separate infrastructures for each of these three clearly demonstrated. There is considerable or four programmes? Or, if a single infra­ variation in the training programmes for com­ structure is proposed for three or four pro­ munity health workers owing to the differ­ grammes, does it really differ significantly ences in the tasks to be performed by such from the overall infrastructure capable of de­ workers and the size of the population to be livering the eight components of primary served. To be really effective, the population health care? for which a community health worker is re­ sponsible should be small-no more than What Kind of Health Manpower? 10-20 families. A health worker dealing with many more people is really a health service Few countries have decided on the numbers official. and types of health manpower required. Such a Many countries that have trained large num­ decision should be based on the need to use bers of community health workers have learnt available resources to provide coverage to all. the hard way the importance of establishing For example, the annual costs of the four "mixes" of health manpower shown in Table 1 are about the same. Some countries in Africa may have (or be producing) more doctors than they can afford, and their needs might be better •• To be really effective, the population served by changing.the "mix" of their health 1 .·for which a community healtli woiket: staff to include a larger proportion of less high­ is responsible should be small-no ly trained personnel. more than 10-20 families. Lack of motivation, currently a serious prob­ • lem, shows itself in several ways, ranging from indifference to deliberate slowness in working. It is often wrongly attributed to lack of man­ health centres and first-level hospitals to sup­ agerial ability, and when management experts port primary health care. Where such support are called in to organize courses there is little has not been available, community health lasting effect. Lack of motivation is more often workers' programmes have just withered due to lack of incentives, hence the importance away. of involving all professional groups in the planning and implementation of primary Remuneration remains a thorny issue. In 11 health care. Few countries, however, have of the 17 countries involved in the study, com-

26 Financing of health services munity health workers received a government part of African culture and most of the popu­ salary, but in one of them the fee-for-service lation in Africa, both rural and urban, use and system was used. Various mechanisms for the will continue to use the services of traditional payment of primary health workers were in practitioners. This is a reality that must be operation in different countries-payment by reckoned with and increasingly reflected in the production brigade of which they are mem­ national policies. Whether traditional medi­ bers (China), assistance through farmers' asso­ cine and Western medicine can be integrated is ciations (Ethiopia), an honorarium from the another question. government (India), and free medical care from other health services (Thailand). The The Role of External Agencies experience of these and other countries indi­ cates that, where community health workers At Alma-Ata a call was made to the more have to spend several hours a day on health prosperous countries to increase their support work, it is important to ensure that they are for primary health care in the developing adequately remunerated. How else can they countries. Unfortunately, some donors have live? interpreted this to mean that they should be involved only in peripheral activities and not Essential Drugs at the referral levels. This goes against a fun­ and Traditional Medicine damental principle of primary health care, namely that local initiatives and self-reliance In addition to the difficulties resulting from must be promoted and external support chan­ the enormous distances between health units nelled to areas where local initiatives are not and the cost of transport and petrol, shortages enough, e.g., the construction of appropriate of drugs seriously affect the overall health referral hospitals and the provision of essential effort in Africa. Typically, a country may be supplies. The term "appropriate" is empha­ able to afford only a 3-6 months' supply of sized because some countries donate large, lux­ drugs under present conditions. urious hospitals that are totally inappropriate The first step in dealing with this problem is to local needs and the maintenance costs of to establish a national list of essential drugs, so which absorb a major part of the national as to ensure that the really indispensable drugs health budget, effectively blocking any im­ are available to the majority of the population, provement in general health services. The aim in primary health care must be an appropriate mix of health units and a proper balance between the various types. A number of external agencies seem to be more interested in providing funds for planning, research, monitoring, and evaluation than for imple­ mentation. There are, in fact, several projects in Africa with ample resources for monitoring and nothing to monitor!

Achievements and Problems

rather than a wider selection for the small pro­ Apart from Mauritius and the north African countries, the global malaria eradication cam­ portion of people covered by hospital services. paign introduced in the 19 50s has had very Many countries in Africa have yet to take even little effect in Africa, where malaria remains this step. the single most important disease, and the sit­ With the rapid expansion and acceptance of uation has not improved in the last 30 years. Western medicine, many health professionals Recently, many countries have introduced feel that traditional medicine is on the decline large-scale programmes for chloroquine pro­ and is not worthy of serious attention, but it is phylaxis and treatment through primary health

27 Health care-who pays? care. Unfortunately, the emergence of chloro­ Innovative approaches in maternal and quine-resistant strains of Plasmodium folciparum child health include using the attractions of in East Africa threatens to become a major curative medicine to bring mothers and chil­ problem in the near future, for which no prac­ dren to clinics and then to ensure that no-one tical solution is yet apparent. leaves without coming into contact with the appropriate immunization, family planning, Nutrition remains a cause for great concern, and antenatal care services. especially in countries in the semi-desert zones still severely affected by drought. For various In about 50% of countries, immunization is reasons, the production of most foodstuffs has being provided together with maternal and declined in the last five years. The reported figures for protein energy malnutrition among children 0-5 years old range from 30% to 70%. The main constraints on food supply seem to be the chronic under-use of land and serious failures in distribution, compounded by the instability of world grain markets. All three are likely to be with us for a long time, and to deal with them requires courageous political action, child health or general health services, and this completely new food and nutrition policies, percentage is increasing. Although still far and determination in applying them. There from complete, coverage has been steadily are, however, some small but important steps improving in recent years. Recent estimates that could easily be taken now. For example, (1981-83) by the Expanded Programme on nutritional anaemia, endemic goitre, and Immunization for the countries in the African xerophthalmia could be largely avoided by Region of WHO give the following figures for relatively simple low-cost measures. the coverage of children in the first year of life : BCG 24%, DPT 14%, polio 12%, and measles Nearly all countries have set up national 16%. multisectoral action committees for the Inter­ national Drinking Water Supply and Sanita­ In addition, 6% of pregnant women were tion Decade. Goals are fairly specific in some immunized against tetanus. Maintaining the countries, e.g., safe water for all villages by "cold chain" remains the biggest problem, and 1985, with a maximum distance from a stand­ a number of countries report continuing mea­ pipe of 400 metres. Achievements, however, sles outbreaks despite vaccination. are modest. Reports indicate an increase in If we are to reach all children by the year water-supply coverage to 40%; sanitation cov­ 1990, the integration of immunization with erage, however, shows no improvement. maternal and child health care would seem the most practical approach. All countries stress the importance of health Table 2. Improvement in health indices in education but this is more in the nature of 39 African countries 1960-81 lip-service because health education pro­ grammes receive little support and have to 1960 1981 operate with inadequate techniques and small Index ------Change mean range mean range budgets, seldom amounting to more than 0.5% of the entire health budget. Infant mortality rate 8 169 109-252 127 69-208 -25% Child mortality Is Health Improving in Africa? rateb 41 21-63 25 9-50 -39% Expectation of Over the period 1960-81, all countries in life (years) 40 33-48 49 39-61 +22% Africa have experienced significant reductions in infant and child mortality and consequent From World development report, Washington, DC, World Bank, increases in life expectancy at birth (see Table 1983. a Number of deaths in the first year of life per 1000 live births. 2), but the infant mortality rate is still very high b Number of deaths per 1000 children aged 1-4 years. and exceeds 200 in some countries.

28 Financing of health services

Data for use in monitoring and evaluation understanding of the concept and a general are usually inadequate. Those that are available commitment to its implementation. Mecha­ (often abundantly) are only marginally rele­ nisms to plan the needed changes in health vant while more useful data are lacking. systems and to monitor their implementation have been set up in many countries. Neverthe­ The improvement of health information sys­ less, considerable difficulties are being experi­ tems was the subject of the technical discus­ enced in establishing the primary health care sions at the WHO Regional Committee for infrastructure, due mainly to management and Africa in 1980. Few countries, however, have logistical problems, and particularly to short­ developed an effective system, and even where ages of drugs, transport, and essential equip­ information is being regularly collected its pro­ ment. cessing, analysis, interpretation, and dissemi­ nation often involve long delays so that timely There is, moreover, little evidence of the action is prevented. reallocation of health resources in favour of Overall, health is improving in Africa, at underserved populations, of an increase in the share of the national budget allocated to least as measured by the health indices men­ tioned above, but this is part of a long-tcerm health, or of large-scale efforts to overcome trend and is very far from uniform, either management problems. between one country and another or within a Without attention to these key ele­ particular country. If infant and child mortality ments-budgetary reallocations, an increase rates are already high at national level, it can be in resources, and better management-the imagined how frighteningly high they must be good intentions so often expressed of provid­ among the poorer sections of the community. ing primary health care to all will come to It is among these groups-the slum dwellers nothing. D and those living in the rural areas-that pri­ mary health care should have its greatest im­ pact, and it is important that a proper baseline be established and documented so that the REFERENCE effect of the measures introduced may be assessed. 1. The community health worker: report on a UNI­ CEF/WHO Interregional Study and Workshop, * * * Kingston, Jamaica, 1980. Geneva, World Health The primary health care movement has Organization, 1980 (unpublished document caught on in Africa. There is widespread PHC/80.2).

29 World Health Forr~m, 2 (1): 23-29 (1981)

Lee M. Howard 1 What are the financial resources for ''Health 2000''?

The "overriding priority" given by the World Health Assembly in May 1979 to the target of attaining health for all by the year 2000 placed before WHO the greatest challenge in its history. Never before had Member States concurred in an organizational initiative of such magnitude, the success of which would depend on technical strategies not yet fully determined, on the mobilization of financial and professional resources not yet firmly committed, and on sys­ tems of bilateral and multilateral coordination not yet operational. The esti­ mation of available financial resources is one of the first issues to be consid­ ered if the expectations generated are to be realized in as short a period as two decades.

Since the improvement of health in a popu­ with per capita incomes below$ 700.3 If China lation requires developments in more than one is excluded, the remaining 67 countries repre­ socioeconomic sector, the aim must be to sent over three-quarters of the population of assess the total domestic and external developing countries with per capita incomes resources for all sectors and to identify, where below $ Iooo, and are those with the largest feasible, the resources allocated for purposes number of "absolute poor" (OECD/DAC that support health improvement. Within the definition). Although these countries have health sphere it is important to estimate the reported per capita public sector health size of resources in both the public and the expenditures varying between $ o. 58 and private sectors. Unfortunately, other than the $ 27.00 for the low-income group and aggregated economic data provided by the between $ o.67 and $ I2.oo for the lower­ United Nations system and by the Organiza­ middle-income group, data from both groups tion for Economic Cooperation and Develop­ and from China suggest that allocations of ment (OECD), current data on national national funds for the public sector of health health budgets and the flow of donor health do not exceed I% of the gross national pro­ funds are difficult to obtain. Without a better duct (GNP). Total estimated allocations in understanding of the total resource base, esti­ these countries, excluding China, are $ I ·7 bil­ mations of the available support for efforts lion for a population of I 3 30 million (low­ towards Health for All must remain conjec­ income group) and $ 1. I billion for a popula­ tural. tion of 244 million (lower-middle-income While reliable data are seldom obtainable, it group). What we do not know is the magni­ is possible to discern initial trends and prob­ tude of health expenditures in the private lems from the data in the table, which is sector. Studies by WHO and others have sug­ adapted from the I 978 review of the work of gested a ratio of about I :4 for public/private the OECD Development Assistance Com­ mittee (DAC).2 1 Director, Office of Health, United States Agency for Inter­ national Development, Washington, DC. 2 Development cooperation, 1978 review. Paris, Organization Resources in the Developing Countries for Economic Cooperation and Development, 1978. The 1979 OECDJDAC annual review has also been published, but for the From the OECD grouping of I07 low- and p_urpose of illustrating key issues it is not essential to use the later f1gures. lower-middle-income countries, the table l Financial figures quoted in this article are in US dollars includes only the poorest 68, i.e., countries throughout.

30 Financing of health services

Estimated public- and private-sector health expenditures for selected groups of developing countries a in relation to GNP and per capita income classification (1976 figures, except for China)

China Lower- Upper- Low Higher middle middle income (1978 incomeb estimates) income incomeb

Number of countries 39 28 28 17 Average annual per capita income (US$) 300- 1000- <300 400 700 2500 3450 Population in 1976 (millions) 1330 930 244 378 79 GNP in 1976 ($billion) 220 372 170.6 480 270 Average per capita health expenditure ($) 1.2 3.1 4.5 %GNP allocated for health: public sector 0.77 0.78 0.64 Total health expenditure: public sector($ billion)c 1.7 2.9 1.1 4.8 2.7 Total estimated private health expenditure ($billion) 6.8 4.4 19.2 10.8 Total estimated public + private health expenditure ($billion) 8.5 5.5 24.0 13.5 Estimated "absolute poor" (%} b 45 15 8 5

a DAC/OECD classification adapted to include 68 low- and lower-middle-income countries for which health expenditure data were available. b Development cooperation, 1978 review. Paris, Organization for Economic Cooperation and Development, 1978. CSIVARD, L. R. World Council and military expenditures. New York, Institute for World Order, 1978.

national health expenditures.4 This ratio, while tries would add up to$ 37·5 billion, as shown subject to variation, is not entirely inconsistent in the table. How far is it beyond the capacity with the common observation that public of these 67 poorest countries (excluding sector services in the poorest countries rarely China), with a combined GNP of the order meet the basic health requirements of more $ 390 billion, to increase the total current than a quarter of their populations. public health sector investments above $ 2.8 billion? Would an increase from I% of GNP to 2% of GNP in the allocations for health It is all too easy to agree on objectives expenditure be considered politically and when there is no agreement on how the economically feasible for these poorest coun­ bill is to be paid! tries? The resource base of the poorest countries may be small ~n relation to need. However, Assuming this to be a reasonable approxi­ the combined private- and public-sector mation, what is the actual total availability of expenditure of the order of $ I 4 billion, if health resources in the poorest developing confirmed, cannot be matched readily by countries? Based on the I :4 ratio, would the present or foreseeable levels of external health total availability of resources in these coun­ resources, which are currently estimated to be tries (excluding China) reach an order of$ 8.5 of the order of $ 3 billion. The resources of billion for the low-income group and $ 5. 5 bil­ the developing countries themselves constitute lion for the lower-middle-income group, a by far the major global resource for progress combined total of $ 14 billion? Assuming the in health. The necessity for planning essen­ higher- and upper-middle-income countries tially within the bounds of national limita­ spend no more than I% of their GNP on the tions, using the available external resources public sector of health, i.e., $ 7·5 billion, only as a supplementary and for filling in which on the I :4 ratio would mean an esti­ 4 Year book of national accounts statistics, 1978. New York, mated $ 30 billion spent in the private sector, United Nations, '979· WHO Official Records, No. 225, 1975 the total health expenditures by these coun- (Fifth report on the world health situation, 1969-1972), p. 27.

31 Health care-who pays? unavoidable resource gaps, may require that (2) Multilateral organizations, including Member States re-examine whether their the United Nations system. national financial allocations for health are The World Health Organization, World appropriate to their commitment to the target Bank, United Nations Development Programme, of health for all by the year 2000. United Nations Children's Fund, Food and Agri­ culture Organization, United Nations Educa­ External Resources tional, Scientific and Cultural Organization, Economic and Social Council, International With reference to the developing countries, Labour Organisation, United Nations Environ­ the term "external resources" implies all ment Programme, Asian Development Bank, external public- and private-sector resources African Development Bank, and Inter-American -such as from developed and developing Development Bank. countries, multilateral banks and organiza­ The European Development Fund of the tions, and externally sponsored voluntary and European Economic Community: Belgium, Den­ nongovernmental organizations. The number mark, Federal Republic of Germany, France, Ire­ and diversity of actual and potential external land, Italy, Luxembourg, Netherlands and sources for health assistance may be charac­ United Kingdom. terized in the following way. The OPEC Special Fund (OSF); Arab Fund for Economic and Social Development ( 1) Donor countries with official bilateral (AFESD); Arab Fund for Technical Assistance (country-to-country) programmes which may to African and Arab countries; and the Islamic include occasional contributions to multila­ Development Bank. teral institutions for joint multibilateral pro­ grammes. (3) Nongovernmental and voluntary organizations, including foundations. The I 8 donor members of the Development Estimates of contributions to health are of the Assistance Committee of OECD are: Australia, order of $ 400-500 million annually out of a Austria, Belgium, Canada, Denmark, Finland, total reported private voluntary agency disburse­ France, Federal Republic of Germany, Italy, ment of $ I488 million (in I977).5 Global Japan, Netherlands, New Zealand, Norway, coverage in developing countries, extensive inter­ Sweden, Switzerland, United Kingdom, United national sponsorship and long experience char­ States of America and the Commission of Euro­ acterize this valuable collective resource. Some pean Economic Communities. countries, e.g., the Federal Republic of Germany The eight donor nations in Eastern Europe and the Netherlands, channel a significant pro­ are: Bulgaria, Czechoslovakia, German Demo­ portion of their official concessional assistance cratic Republic, Hungary, Poland, Romania, through voluntary agencies. USSR and Yugoslavia. (4) Private-sector trade. Other European countries with donor activi­ ties include Ireland and Luxembourg. International trade in pharmaceutical and medical supplies is not normally viewed as a The I 3 countries of the Organization of Pet­ "donor" source. In the context of identifying roleum Exporting Countries (OPEC) are: external concessional resources, official develop­ Algeria, Iran, Iraq, Kuwait, the Libyan Arab ment aid is provided in the form of grants as well Jamahiriya, Nigeria, Qatar, Saudi Arabia, as low-cost long-term loans and other conces­ United Arab Emirates, Venezuela, Ecuador, sional assistance. To the extent that the private Gabon and Indonesia. An additional four oil­ sector is prepared to offer concessional terms, exporting countries offer a potential donor such as the recent proposal by the pharmaceut­ source: Bahrain, Brunei, Oman, and Trinidad ical industry to supply essential drugs at low cost and Tobago. and to offer technical training facilities, the resources of this sector in drug research, manu­ Developing countries providing direct assist­ facture and distribution should be identified. ance through technical cooperation among developing countries (TCDC) or other means; Aggregate data on official and nonconces- e.g., China, Cuba, India and the Democratic sional flows from major donors are available People's Republic of Korea. 5 Development cooperation, 1979 annual review. Paris, Contributors to the WHO Voluntary Fund Organization for Economic Cooperation and Development, for Health Promotion. 1979·

32 Financing of health services through the OECD and, for multilateral the following organizations to the amounts organizations, through the United Nations indicated: Pan American Health Organiza­ system. Systematic information on nongovern­ tion, $ 45 million; the International Agency mental programmes is more difficult to obtain. for Research on Cancer, $ 6.5 million; WHO There is not at present a global system or Voluntary Fund for Health Promotion, $ 32 source which provides public, private, and million, the United Nations Development voluntary health statistics from all donor Programme, $ I4.2 million; United Nations countries and international organizations on Environment Programme, $ 1.2 million; and such basic points as the number and distribu­ the United Nations Children's Fund, $ 86.3 tion of countries being assisted, types of health million. WHO's regular budget is currently assistance provided to each country, approxi­ $ I 70 million a year. Private and voluntary mate funding, and official policies and atti­ contributions are estimated to be of the order tudes towards the provision of assistance. of $ 500 million. To these estimates, which total around $ 2. 5 billion, one must add the Total concessional and nonconcessional specific health sectoral contributions of receipts by developing countries from all OPEC, Eastern European countries, and the donor sources for all sectors reached $ 6 3·9 bil­ donor contributions of developing countries lion in I977 and$ 78.39 billion in I978. Large themselves, as well as components such as as these totals appear, they represent less than water supply and sanitation which often 6% of the estimated annual GNP of I 52 appear in sectors other than health. Unfortu­ DAC-classified developing countries. Two­ nately, data on these contributions are not thirds of these receipts ($ 44· 39 billion) repre­ readily available. sent nonconcessional flows such as loans at conventional interest rates. Concessional assistance (official development aid), from which support for health, agriculture and edu­ cation is usually derived, totalled $ I 9. 54 bil­ lion in I977 and $ 22.47 billion in I978-i.e., about 5% of the total GNP of the I07 poorest countries. Although three-quarters of this assistance is actually received by the 50 poorest countries, the flows are quantitatively marginal to the needs, though qualitatively With present reporting systems, an accurate they may be of critical importance. In view of total of external resources cannot be obtained the above facts, it is highly desirable to since reporting is incomplete and certain mul­ identify more positively all the available tilateral contributions may be counted twice. external assistance to help achieve the objec­ Assuming that the total annual concessional tive of health for all by the year 2000. assistance for health may be as high as $ 3 bil­ The I 8 OECD/DAC donors, contributing lion, it is of interest to note that this is approx­ about half of all concessional assistance for all imately equal to the estimated public sector sectors ($ IO billion), allocate approximately allocations for health ($ 2.8 billion) by the 67 Io% of their assistance to the health sector poorest countries (excluding China) and less and about four times that amount to defined than a quarter of the total estimated (public­ development sectors such as agriculture, edu­ plus-private) expenditures on health by those cation, trade, industry, and public administra­ countries ($ I4 billion). Unless the proportion tion. The DAC contribution for health in I 978 of resources from developed to developing reached $ I oo8 million, a figure that excludes countries undergoes a major change within significant additional amounts for technical the next decade, those who are planning advisory assistance. To this bilateral total for health for all by the year 2000 will be con­ international health activities and support, the fronted with the following important issues. World Bank and the regional international - How far can this goal be achieved with the banks add approximately $ 6oo million. In resources now produced and allocated by the addition, health activities are carried out by developing countries themselves?

33 Health care-who pays?

- Given the marginal contribution of Assembly has encouraged Member States to external resources to the total needs, what is submit, by May I 98 I, national _plans which the most effective way to apply these may. indicate the magnitude of the global resources? requirements. - How best can WHO, with only a very Considering first of all the idea that small fraction of the total global health resource requirements should at least be suffi­ resources (about 2%), help to rationalize and cient to provide a socially equitable and mobilize external resources over the next two affordable system of essential services, we may decades? · note the preliminary cost estimates of experi­ - By what international mechanism is it pos­ mental primary health care models, which sible rapidly to engage the cooperation and suggest that an additional $ I-2 per person support of sectors other than health, which are per year above the current $ I-3 now allo­ prerequisites to health improvement? cated in the public sector for health might permit a minimal system for the poorest coun­ tries. The additional cost for the I .6 billion Resources: What are the Requirements? population in the poorest 67 countries (excluding China) would therefore be In the absence of quantitatively defined tar­ $ 1.6-3.2 billion per year. Current public gets, the resource requirements will vary with expenditure for health in these same 67 coun­ the goals and current state of development of tries is now estimated to be at least $ 2.8 bil­ each government. Many countries project lion. Public-plus-private expenditure is esti­ plans for several years ahead, but few have mated to be of the order of $ I 4 billion. In estimated the health sector's requirements for relation to current availability, to what degree the remaining two decades of this century. are external resources essential? At the min­ If the "health for all" target means the imum level, is the issue one of intragovern­ establishment in each country of a nationally mental sectoral priorities and political com­ affordable system to meet the most essential mitments rather than one of the availability of health needs in an equitable way, the resource financial resources? Even if this were the case, requirements would, by definition, approxi­ of course, there would still be a need for sup­ mate the national resource availability. The port in the technical design, training, manage­ need for external resources within the next ment, and evaluation of such a system. 20 years would not be as critical as the size of Let us now consider the second possible currently available national resources and the meaning of "health for all" -namely that a efficiency with which they were distributed. country should progressively accelerate its The size of the sector would reflect national level of health improvement in balance with political and economic priorities. other development sectors and with the avail­ If the "health for all" effort were not rigidly able internal and external resources. In this time-bound and aimed instead at an improve­ case it becomes difficult to estimate the con­ ment of health levels in parallel with multisec­ tinuously changing resource requirements toral development, the resource requirements over the two-decade span. The process of for health would need to be adjusted to the costing, adjusted to the rates of socioecon­ rate of growth of socioeconomic development omic growth, is not unreasonable, but the time as a whole. frame becomes arbitrary. Social equity at a minimum level of health will change in the For countries that consider the target to be course of time to social equity at progressively a national medical care system, the resource higher levels of health. The year 2000 then requirements could well exceed the practical becomes not so much a "target" as a mile­ availability of both internal and external stone en route to the year JOoo! resources. This second meaning, nevertheless, offers a For the purposes of long-term cost projec­ reasonable approach for the coming two tion, therefore, the intent of governments is a decades, even though it does not lend itself determining factor. The World Health readily to long-term quantitative estimation of

34 Financing of health services resource needs. The principal issues of the use of existing resources. There is a need for North-South Dialogue, the New International minimum additional resources to permit the Economic Order, and the New International testing and assessment of innovations and to Development Strategy relate .to conditions fill scarce resource gaps, but less need for that permit development as a whole, not just large subventions to the public sector budget. progress in the health sector. These condi­ Any extra support to the public sector budget tions, together with the economic and social for health in a developing country should be priorities, and the rate of overall development, seen only as a temporary and progressively determine the resource availability within decreasing[rocess, which would allow a rea­ which each country must make its own sec­ sonable an steady development of the health toral choices. In practice, the development sector until the country is capable of conti­ policies of individual countries at the planning nuing on its own. commission level, together with current donor If, on the other hand, the guiding principle agency policies for country assistance, will is the "attainment ... of a level of health that largely determine the potential availability of will permit. . . a socially and economically resources for health. If primary health care productive life",6 the objective becomes a con­ components such as water supplL, maternal tinuously moving target linked to the varying and child health, malaria contro , or family developmental aspirations of each nation. In planning are to be globally implemented, the this connexion it is of interest that the Devel­ estimated financial requirements will be opment Assistance Committee of OECD closely related to the rates of developmental notes that 6o% of developing countries have growth and to the decisions of national leaders on how the resources are to be allo­ shown an annual per capita income growth of cated. about 1. 5% over the past I 5 years. This trend is predicted to continue except where new The practical question in relation to resources such as oil are developed or where resource requirements for the "health for all" the terms of trade and productivity signifi­ effort is not necessarily that of estimating cantly improve. The World Bank foresees average per capita costs over the next two that, by the end of the century, vast amounts decades. Rather, it concerns the adequate of absolute poverty will remain, largely in training and preparation of health managers Africa and Asia, because the advance of agri­ to enable them to match the estimates with the cultural growth rates through a large range of continuously changing configuration of econ­ crops is slow and difficult. omic growth and social commitment. Other countries, the "middle-income coun­ tries", will make more rapid progress. In 40% What is the Outlook? of developing countries, including Brazil, China (Province of Taiwan), the OPEC coun­ It would be easy to dismiss resource fore­ tries, the Republic of Korea, Thailand, and casting out of hand because of unpredict­ Tunisia, the rates of growth have doubled 20 ability over the next years in fiscal, social, over the past I 5 years to an annual 4.3%: and political matters. It would not be respon­ However, few would predict that growth rates sible, however, to make projections on the are again going to double or triple by the end success of an international initiative such as of the century. that of health for all by by the year 2000 without regard to the availability of resources. Donor assistance (both concessional and Indeed, it is all too easy to agree on objectives nonconcessional) to all sectors has grown when there is no agreement on how the bill is from $ 8 billion in I 960 to $ 78 billion in to be paid! I978. The rate of growth of official develop­ ment aid is about 7% per year. Total assistance If the achievement of health for all is based in I978 was equivalent to only 6% of the GNP upon the Alma-Ata concepts of primary health care and if solutions are adapted to the cur­ 6 Thirty-second World Health Assembly: resolutions and deci­ rent availability of resources, the principal sions. Geneva, World Health Organization, 1979 (Resolution requirement is for innovations in the effective WHA32.30).

35 Health care-who pays? of developing countries. It is obviously fea­ increased allocations that are proportionately sible for the donors to expand beyond the cur­ greater than the rate of economic growth. Not rent level of their contributions, which aver­ all developing countries are poor in resources ages o.I7% of the GNP of the donor coun­ in absolute terms. There is considerable room tries. Nevertheless, there is no sign that the for an increase in health sector allocations, annual growth of official development aid will even at the anticipated 1.5% annual average significantly increase over current rates. growth rate. Support for training that will While the current trends for general devel­ improve the planning capability of health opment funding might be assumed to continue managers in developing countries could lead to the end of the century, the outlook for the to more convincing justification of the claims allocation of health funds within this general of the health sector compared with other funding is less certain. At present about Io% development sectors, and this could have a of donor concessional flows go to the health major impact on the prospects of improving sector. With no specific policy or principle to future resources. restrict the percentage allocated to health, the Important as the abov~ may be for resource potential for increasing that percentage and development, it would be erroneous to suggest influencing the technical content of pro­ that such an increase will produce measurable grammes will depend on the justification of per capita benefits for the world's poor. The the health sector's needs by personnel within outlook for economic growth for the world as the cooperating governments and ~he bilateral a whole over the next 20 years is not bright. and multilateral organizations. Energy crises, increasing balance of payments It is not unthinkable that the estimated cur­ deficits, external debts, food shortages, and rent official development aid flow of $ 3 bil­ continuing high rates of population growth lion for health in I978 could be increased by will adversely influence the prospects for an additional Io% per year under current increased resources. donor guidelines. Consultative visits to Euro­ With regard to family planning, it is gen­ pean and Pacific donor countries in early I 980 erally acknowledged that current efforts will made it evident that the potential for further not have a global impact until well after the health allocations has by no means been fully turn of the century. While it must remain a explored. The potential for increase does not high priority for health, as well as for its gen­ include a!; donors, some of whom are fully eral demographic effects, family planning is committed at present and are candid about not expected to yield major economic changes their limits. Others are willing to help further, in the next ten years. subject to dialogue with an international organization such as WHO to negotiate new * * * agreements. A very important element in the outlook on There is little room for optimism about the resources is the future size of health sector outlook for major increases in health allocations by the developing countries them­ resources within the next two decades. The selves. As noted earlier, current public sector principal resources are within the developing allocations within those countries are esti­ countries themselves. The strategies for health mated to be $ 2.8 billion for the 67 poorest for all by the year 2000 must necessarily fit countries, excluding China, which is expected within those constraints. The relatively mar­ to allocate about $ 2.9 billion. Private sector ginal potential increases from donors will health inputs in these countries, excluding need to be used with the greatest care to pro­ China, are estimated at $ I 1.2 billion. Total vide knowledge, training, and preparation to public and private resource availability is of meet the rigorous planning requirements at the order of $ I 4 billion. Considering the low the country level. To create expectations priority commonly accorded to the traditional beyond the wisdom of self-reliance and self­ health sector in developing countries, there sufficiency would be to render a real disser­ are, in countries where there is progress in ' · vice to the efforts, goodwill, and sincerity that health development, good prospects for underly Health for All by the Year 2000.

36 World Health Fon~m, 6: 99-105 (1985) Health 2000 David de Ferranti Paying for health services in developing countries: a call for realism

For many countries, formulating and implementing_ better policies to pay for health services will not be easy. Yet the stakes are h1gh, and governments that fail to face the choices before them risk missing opportunities to achieve unprecedented progress in health care before the end of the century.

What should the governments of developing tion of the incentives they create or reinforce, countries do to cope with the present crisis in or of their impact on the behaviour of service the financing of health services? Current Pc;>li­ providers, users, and government agencies. cies have failed to mobilize enough financtal, Would alternative approaches lead to some­ human, and other resources to meet existing or thing better? Answering that question is sel­ anticipated needs. A sense of urgency has beg­ dom easy, since many alternatives would be un to emerge in recent years as the extent and improvements in certain respects but not in severity of the problems have been better others. The options available to governments recognized. With respect to the health-for-all are generally thought to include mobilizing goals, there is now a greater ap~reciation of the additional resources (a) from outside the health size of the resource gap, estimated by one sector or (b) from inside the sector through source at US$ 50 billion annually for the devel­ increased cost recovery from users. Another oping world as a whole ( 1). This figure is more option is to alter the organizational make-up of than 14 times the current total amount of health care delivery. external assistance for health (2). Current policies also have other, more fun­ Mobilizing Additional Resources damental shortcomings relating to efficiency from Outside the Health Sector and equity issues. Heavy reliance on taxation There can be little hope that funds from to finance health services often adversely af­ outside the health sector will do more than rise fects the efficient allocation and use of re­ slowly in the next 5-10 years. In some coun­ sources, especially when taxes are distortional tries a period of no increase or even of real or costly to collect. If, as often happens, inef­ decrease (after adjusting for inflation) may ficiency is accompanied by disparities in the occur. This is not to say that pressing for larger distribution of services, equity is also dimin­ outlays is a mistake; but if ardent promotional ished. Furthermore, present policies have not efforts are allowed to suppress hard thinking usually been designed with much considera- about more realistic options there may well be little to cheer about in the year 2000. The author is Senior Economist in the Population, Health Aid from developed countries and inter­ and Nutrition Department of the World Bank, Washing­ national institutions is limited. The total ton, DC, USA. This article is based on one published in a special issue of World health statistics quanerly, 31: amount of aid in 1979 has been estimated at 428-450 (1984), dedicated to the financing of health $ 3.5 billion (1). There is little likelihood that it services. has risen much since then and even less chance

37 Health care-who pays?

that it will soon reach the $7-30 billion countries, the key question about government that some say would be needed to attain the outlays for health in the years ahead will not be health-for-all goals. In the early 1980s, exter­ whether new plateaus can be reached but nal aid for all sectors has fluctuated between whether old ones can be maintained. approximately 3% and 13% above the 1979 A related question often raised is: how has level, but health's proportion has not increased health, a social sector, fared in comparison and may even have fallen. with other sectors in recent years, particularly Prospects for increases in domestic public during periods of economic downturn? Data spending on health appear equally unpromis­ analysed by Hicks (3) show, contrary to com­ ing. mon perceptions, that the social sectors, and health in particular, have experienced smaller Over the last decade, real public expenditure per capita on health exhibited a rising trend in declines in their budget allocations than other sectors during recent periods when public ex­ some 34 of 4 7 countries studied, a falling trend penditure in total has fallen in real terms. On in about 8, and a fluctuating or constant pat­ tern in the remainder. Among low income and the other hand, during periods of rising public expenditure, health and other social sectors upper middle income countries, the number have done less well than sectors such as agri­ with a rising trend was double that with a fall­ culture and industry. ing trend. In the lower and upper middle income groups, gainers led losers by 4 to 1. There are enormous differences in health Over the same period, health's share of total expenditure per capita between the poorest public expenditure fell in 25 countries and rose and richest countries: in 1980, public health in 14. In the low income group, falling trends expenditure per capita ranged from below $2 dominated (11 of 14), as they did also in the to over $600. The share of GNP spent on upper middle income group (7 of 11); but they health rises as income level increases, although were in the minority (7 of 22) in the lower this relationship is weaker among developing middle income group, which had 12 countries countries than it is among industrial nations. with rising trends. Unfortunately, the path of There is also a positive but weak correlation private spending over time cannot yet be simi­ between income level and health's share of larly documented. total government expenditure. A large proportion of spending on health is private; in some countries-e.g., Burkina Faso, Haiti, and the Philippines-private spending is more than double public spending. Household spending on health as a proportion of household income tends to be between 1 % and 5% in most countries.

Mobilizing Additional Resources Within the Health Sector The evidence suggests that government The bleak outlook for funding from outside spending on health services in developing the health sector has lent added urgency to the countries has been increasing in real per capita exploration of options for mobilizing addition­ terms in many places but not universally and al resources within it. In essence, this means drifting downward as a percentage of total considering whether households should pay public expenditure, though again not uniform­ for services, and if so, what form such pay­ ly. ments should take. The only other potential Overall, current trends do not appear even sources within the sector are providers and remotely likely to lead to substantial global financial intermediaries, and their need to cov­ increases in health spending by the govern­ er costs with fees, donations, or subsidies casts ments of developing countries. For many them more in the role of conduit.

38 Financing of health services

Household payments can be classified either Second, there is a difference between (a) as user charges or as coverage charges. The user charges that are nominal amounts in­ former include any type of payment that is tended principally to deter unnecessary utili­ directly related to use and varies with the zation of services by households and that are amount of use-e.g., fees for services and not expected to generate large revenues and prices for medicines, either of which can be in (b) user charges that are more substantial, cash or kind. Coverage charges do not depend reflecting additional objectives (e.g., greater on the amount of use and serve essentially to cost recovery and/or marginal cost pricing). ensure the household's eligibility to receive Many of the charges made at public facilities treatment from participating providers when are of the nominal sort. needed, usually at reduced or zero charge. Third, while discussions of user charges tend Familiar examples include insurance premi­ to focus chiefly on public facilities because ums, membership assessments by cooperatives, and deductions from pay for employer-spon­ sored health plans. Whereas user charges fall exclusively on the ill, coverage charges are made on all participants to subsidize the cost of treating the ill. Coverage charges thus are closely bound up with risk sharing.

User charges User charges are viewed with disfavour in many countries. Until very recently there was a trend towards reducing or eliminating them in governments have less control over private public facilities, and some governments have providers, it should be remembered that sub­ reaffirmed that a free health service should be a stantial fees exist already in the private sector, basic right for all their citizens. Nevertheless, accounting for a significant portion of total user charges are still widespread in the devel­ health expenditure. Policies on charges for oping world. Most private spending on health public services should be designed with an is through user charges, and private expend­ awareness of the opportunities that households iture accounts for a large fraction of total have on the private side and of how they react health expenditure-larger, often, than in the to them. developed countries. Furthermore, public ser­ vices, despite rhetoric to the contrary, do have Bearing these points in mind and taking charges in many instances, although the rev­ distinct types of service one at a time, planners enue usually represents a small proportion of will normally need to ask themselves several total expenditure. key questions before reaching decisions about charges. Although the choice made will under­ As countries assess possible policies on user standably vary markedly from one set of cir­ charges, their planners should be aware of cumstances to another, some services will three points. The first is that different strate­ frequently be suitable for expanded application gies will often be appropriate for different of user charges, while others will be candidates types of service. Health services are extremely for exemption from charges. An illustrative heterogeneous with_ respect to the arguments classification of services is presented in the for and against user charges. For instance, ser­ table. vices like environmental intervention (e.g., removing vegetation from stagnant waterways For the services in Group I, user charges will to control schistosomiasis) have very little in typically be impracticable or socially undesir­ common, in terms of attributes relating to user able. These Group I services are provided pre­ charges, with services like out-patient consul­ dominantly or exclusively by the public sector, tations, drug sales, or elective cosmetic surgery. and exempting them from charges will not To lump together these diverse activities when result in any incompatibility with private sec­ user charges are discussed can be misleading. tor charging practices.

39 Health care-who pays?

Suitability of health services for user charges public facilities. In general, greater use of well­ designed fees at public units would be benefi­ Group I (least suitable) cial. For out-patient services, a minimum first Disease control programmes, including step would be a nominal charge for a first con­ - vector control (e.g., spraying against malaria mosquitos) sultation on a given illness episode, with no - population prophylaxis (e.g., mobile teams that immunize or extra cost, irrespective of the follow-up care deparasitize whole villages) - environmental intervention (e.g., removing vegetation from needed. stagnant waterways to control schistosomiasis) This nominal fee might be determined in relation to the daily agricultural wage, the aim Sanitation - human waste disposal being to promote the more efficient use of - general sewerage resources, e.g., where too little is currently - inspection (e.g., of food purveyors and processors) spent on essential and cost-effective activities Education and promotion on health and hygiene because valuable staff and supplies are over­ - through institutions (e.g., schools) burdened with treating minor cases. Concerns - through media (e.g., radio, posters) about whether households would be able and Control of pests and zoonotic diseases - in domesticated animals willing to pay an access fee may have been - all other exaggerated, given the accumulating evidence Monitoring (e.g., for outbreaks of communicable diseases) that they are not easily dissuaded by price from seeking essential medical care (4-6). Also, Group II households in many countries are reported to spend much more on traditional practitioners Maternal and child health out-patient services (mostly preven­ than they would have to on modern pro­ tive care for well patients) viders. Family planning In addition, there will be some circum­ Preventive aspects of village health services stances where a higher than nominal access fee Rural water supply will be appropriate, bearing some relationship to the long-term marginal cost. This does not Group Ill (most suitable) mean that the access fee has to equal the long­ General out-patient services (mostly consultations for ill term marginal cost (usually there will be good patients) reasons why it should be lower) or that elabo­ In-patient services rate calculations of cost functions are neces­ - general (bed and nursing) sary. Rather, planners should at least think - special services (deliveries, surgery, etc.) about the cost and develop some rough idea of Curative aspects of village health services what the long-term marginal cost of providing Drug sales to individuals (excluding medicines used as an the services might be; and if they adopt lower integral part of other services mentioned above) fees they should be clear about their reasons. Urban water supply Deciding what to do for in-patient services is more difficult. Since they are provided in response to referral by doctors and are seldom Group II services are more borderline. For initiated by the patients themselves, it can be several of them, prevailing opinion tends to argued that in-patient fees might deter patients oppose charges strongly. Yet fees are possible and already exist in many private facilities. from complying with the recommendations of those best equipped to know what services are Whether they are desirable or not depends on needed. Also, if fees benefit providers person­ the situation. In general, countries should ally there is an incentive to prescribe more strengthen their policies with respect to Group treatment than is justified. Patients cannot III services first, before cautiously considering themselves easily determine what is best. For charges for Group II. these and other reasons, policies involving Group III services account for the largest itemized charges for diverse kinds of in-patient share of total health expenditure, amounting to services should often be avoided. However, the 50-80% in many countries. User charges are ·issue of overprescription by providers is not prevalent among private providers and at some always a serious concern, either because the

40 Financing of health services gain is insignificant (e.g., if fees are low or treatment at reduced or zero additional cost to revenue does not return to individuals) or the household. In other instances, it may mean because the providers adhere to high profes­ that any fees incurred will be paid in whole or sional standards. In such circumstances there in part by someone else (e.g., by a third-party may be merit in applying a simple fee for insurer or a cooperative). accommodation and nursing on a daily basis, Because coverage charges do not vary with with one charge for general wards and higher the number of services received, they, like amounts for smaller wards, and possibly a few taxes but unlike user charges, contain no disin­ other basic fees (e.g., for drugs, laboratory centive to households to curb over-utilization work, and/or surgery). of health facilities. However, unlike taxes, Purists will object that even these fees would some forms of coverage charge are voluntary, be ill-advised, in view of the referral nature of in the sense that the household can elect to in-patient care. However, providers seeking to cancel its coverage and spend its health outlays do what is best for their patients may not in some other way. Where this possibility always do what is best for society. To serve the exists, there is an incentive to providers and patient's interest most efficiently, the Hippo­ risk-sharing schemes to be responsive to house­ cratic oath enjoins providers to continue ad­ hold preferences regarding the type, quality, ministering care as long as there is some net and cost of care offered. This feature dimin­ benefit to the patient. Yet this goal may be ishes as the household's degree of freedom less­ excessive from society's standpoint, since it can ens. For example, where suppliers are few or lead to providing services that cost more than employers provide only one coverage option they yield in benefits (i.e., the marginal social the stimulus to efficiency may be modest. In benefit is less than the marginal social cost, the case of mandatory social security contribu­ implying that greater overall welfare could be tions, coverage charges become indistinguish­ achieved by using the same resources for other able from taxes. purposes). Fees, while not a flawless means of Risk sharing is attracting growing interest signalling resource scarcity to both providers from both governments and donors as a poss­ and users, can none the less discourage some ible alternative to having to choose between excesses. substantial increases in user charges on the one However, before tampering with in-patient hand and continued gross underfunding of ser­ charges generally, consideration should be vices on the other. In part, this interest derives given to certain additional options. One is a from a sense that risk-sharing arrangements bypass fee, which would be imposed, for exam­ ple, on people going to hospital without stop­ ping first at the local health post. Whether this sort of fee can be enforced effectively over a Serious consideration should be given long period in developing countries has yet to to using a combination of cov e be adequately tested. Another possibility, ap­ charges and user charges in plied now in a few African countries, is to sharing schemes. charge for the accommodation in the guest quarters at hospitals, where relatives come and stay with patients. could be made more equitable than some other Coverage charges and risk sharing types of policy, not only because costs are shared between those who happen to become Payments to obtain and keep coverage are ill and those fortunate enough to remain well the principal means of cost recovery for risk­ but also because coverage charges can be grad­ sharing arrangements of diverse forms, includ­ uated with respect to income and can be ing formal insurance, prepaid plans, coopera­ reduced to zero for the poor. In part, too, there tives, community-based schemes, and health has been recognition of the high cost-recovery maintenance organizations. In some cases, potential of such schemes, since relatively coverage may guarantee eligibility to receive modest coverage charges, when spread across

41 Health care-who pays?

an entire participant population, can raise sub­ Progress on user charges can be of considerable stantial revenue. Furthermore, there is a wide­ value in the interim period and can provide a spread willingness to pay something for pro­ good foundation for subsequent transitions to tection against being unable at some future greater risk sharing. time to obtain or pay for health care, even when the probability of this occurring is Altering the Organizational small. Make-up of the Health Sector Against these hopeful perceptions, however, Even with vigorous efforts to mobilize addi­ must be set the reality that existing schemes tional resources both inside and outside the have numerous shortcomings. Social insur- health sector, many countries will still be faced with severe financing problems. Sound re­ forms in user-charge policies might raise the amount of revenue that public health facilities obtain from charges to as much as 25% of their costs. Higher levels within the next 5-10 years are extremely unlikely, given the hesitations that some governments may have or the resist­ ance they may encounter. Other measures-in risk-sharing, restructuring of public subsidies, ance, employer health plans, cooperatives, and revamping of resource allocations, and addi­ community-based systems have had mixed tional areas-may help in some degree, but results. how rapidly remains uncertain. Moves towards greater use of risk-sharing Governments should re-examine the organ­ devices should be entered into only after care­ ization of their health sector by asking in effect ful planning, since mistakes are easily made (a) what sorts of public, private, and quasi­ and the price of ill-conceived ventures can be public providers and financing intermediaries high. Serious consideration should be given to there should be, (b) what roles they should using a combination of coverage charges and have, and (c) what relationships should exist user charges, rather than coverage charges among them. alone, in risk-sharing schemes. The user charges would be set high enough to serve as a Deciding how much should be done by gov­ modest disincentive to over-utilization. They ernment in administering services directly and would thus foster efficiency on the demand how much should be left to private entities is a side, compensating for the inability of cover­ key issue, to be resolved on the basis of efficient age charges to do so; yet, unlike some other resource use. Certain special constraints re­ forms of user charges, they would be small flecting national goals would also have to be enough not to raise major equity concerns. At met, particularly relating to equity (e.g., many the same time the coverage charges would countries would probably insist that all seg­ accomplish the major part of the cost recovery. ments of their population should eventually Any new initiatives in the risk-sharing field have access to primary health care). that do not involve a combination of coverage Whether private entities are more or less charges and user charges, or that would lead to efficient than public facilities is a hotly con­ diminishing or eliminating user charges, tested issue. Most evidence is too anecdotal for should be avoided. The combination of both general conclusions to be drawn, but it seems types of charge should be introduced into exist­ clear that, at least for some services and in ing schemes wherever possible. The introduc­ some countries, government may not be the tion of new user-charge policies consistent most efficient provider. A related considera­ with the points discussed above should not be tion is that reducing the public role in service delayed while new strategies are worked out delivery diminishes requirements for scarce for risk-sharing options. The development of public funds. It must be stressed, however,_ that risk-sharing devices will often be a long time in this may or may not increase efficiency for a the planning stages and even longer in start-up. country overall. Much would depend on the

42 Financing of health services service provision characteristics of both public setting. For example, in situations where ser­ and private sectors. As with user charges, dif­ vices from more than one group are provided ferent types of health service may call for dif­ jointly (e.g., health centres that offer both gen­ ferent handling with respect to public, private, eral out-patient care, from Group III, and and quasi-public responsibilities. For each ser­ immunizations, from Group II), trade-offs vice, two preliminary questions must be con­ must be made in selecting the best overall sidered before the most efficient approach is organizational structure. sought. First, can and would private providers deliver the service widely and on a long-term * * * basis? Second, if they did, would the terms on Other opportunities should also be explored which it was offered meet whatever special for mitigating financing problems. Firstly, an constraints were deemed societally import­ attempt should be made to use the resources ant? already available within the health sector more efficiently. Secondly, the application of public In delving into these questions, an assess­ subsidies might be altered to increase incen­ ment must be made of the extent to which tives-e.g., by changing the emphasis given to market mechanisms would be able to lead to (a) the funding of government facilities socially optimal amounts and allocations of through budgetary channels, (b) the partial expenditure. supporting of nongovernmental facilities, and (c) the reduction of the cost of services through For certain services there is little doubt that public interventions affecting the price of in­ public agencies need to be the leading provid­ puts such as drugs and medical staff. Thirdly, ers. Most of the Group I services in the table attention might be given to reorienting activi­ fall in this category. For other services (partic­ ties in other sectors that have an impact on ularly those in Group III), the arguments in need for health care (e.g., increasing invest­ favour of a strong public role are not very ment in water supply). D compelling. A reduction or less rapid expan­ sion of the government share in direct admin­ istration of Group III services may therefore be appropriate in some situations, if indicated on efficiency grounds. A first step would be to REFERENCES allow or foster further development of private or quasi-public institutions while restraining 1. Document EB69/1982/REC/1, pp. 29-40. additional growth in public facilities. Devolu­ Geneva, World Health Organization, 1982. tion of control and private ownership could be 2. HOWARD, L. M. World health forum, 2: 23-29 considered later. Such a shift in responsibilities (1981). should be gradual to avoid dislocation, and 3. HICKS, N. & KUBISCH, A. The effects of expenditures may require a large public role initially. Also, reduction in developing countries. Washington, DC, although government authorities would be re­ World Bank, 1983 (mimeograph). ducing their participation in the direct admin­ istration of services, they would often need to 4. HELLER, P. S. A model ofthe demand for medical and health services in Peninsular Malaysia. Ann Arbor, retain or even increase their activity in plan­ Center for Research on Economic Develop­ ning, monitoring, and regulation. ment, University of Michigan, 1976 (Discussion Other services (such as those in Group II) paper No. 62). are somewhere in the middle with respect to 5. AKIN,). S. ET AL. The demand for primary health care public/private arguments. For pragmatic rea­ services in the Bicol region of the Philippines. Paper sons, it may frequently be advisable not to alter presented at the National Council for Inter­ existing policies for them until more clear-cut national Health Conference, Washington, DC., options relating to Group III have been dealt 14-16 June 1982. with. 6. ASCOBAT, G. The demand for health services in rural area ofKarangyar Regenry, Central java, Indonesia. Bal­ Naturally, any changes must be made with timore, School of Hygiene and Public Health, due consideration for the existing institutional Johns Hopkins University, 1981 (thesis).

43 World Health Forum, 2 (1): 79-89 (1981) Sharing the costs of health care

Conclusions of an international seminar 1 held at Wolfsberg, Switzerland, March 1979

The system of organizing and financing the health service exercises a major influence on the measures that can be taken to control the costs of health care. Wh3t will work in one country may not work to anyone's satisfaction in another.

The social value of using resources on has not brought commensurate returns in health care cannot be assessed without careful improved health, as judged by changes in stan­ consideration of the objectives of the health dardized mortality rates. Secondly, in coun­ care system. The explicit objective is to tries which have increased spending on health improve health-to reduce morbidity, post­ care much less than other countries (e.g., the pone mortality, and give people a higher United Kingdom) mortality rates have quality of life. The routes to achieve this can improved at similar rates and are in some be preventing ill health, curing it when it has respects better than those in countries such as occurred, and enabling those whose condi­ France or the USA which have vastly tions cannot be cured with existing knowledge increased health care spending. to live as full lives as possible, despite their dis­ This argument can however be challenged. abilities. People attach great importance to Improved mortality rates are a grossly inade­ health once ill health has struck them. This is quate measure of what societies expect to not disproved by the fact that many people obtain from increased health care spending. take actions which they know places their By analogy, it could be argued that developed health at risk-by, for example, smoking ciga­ industrialized societies are spending for too rettes, consuming alcohol in excess, driving motor vehicles after having consumed too much on cars and that new cost containment much alcohol, and failing to use seat belts in measures should be devised to apply in this cars or crash helmets when driving motor­ field in addition to present taxation of cycles. Although people take risks with their motoring. Judged by the objective of trans­ health, it is still true that health is regarded as porting persons and luggage safely and rap­ of very great importance once the more basic idly from one place to another, most current needs are met as they are for most of the pop­ automobiles are grossly inefficient. They are ulation in the more affluent industrialized generally too large, not as safe as they could societies. Studies show that people attach very be, and consume much more of the world's great importance indeed to greater life expec­ limited petrol than is needed to do the job effi­ tancy. Hence it can be argued that more ciently, and in the process, they impose pollu­ rather than less should be spent on health care tion on other people. We tend to accept the services. This argument, however, does not present situation as right because existing take account of the fact that there are in prac­ vehicles appear to satisfy the needs of con­ tice technical limits to the extent to which sumers, firms, and governments which buy health improvements can be provided with existing knowledge however much is spent. 1 The full report of the seminar, prepared by Professor Brian Abel-Smith, Rapporteur, has been published by the National Center for Health Services Research, poo East-West Highway, Two findings stand out from a careful anal­ Hyattsville, MD 20782, USA, as one of its Research Proceedings Series: Sharing health care costs. Hyattsville, US Department of ysis of trends over the past few decades. First, Health, Education, and Welfare, 1980, DHEW publication the vast expansion of spending on health care No. (PHS) 79-3256.

44 Financing of health services them. Presumably users are applying other cri­ pared to spend after their future earning teria than the narrow efficiency criteria capacity has been placed at risk is a grossly defined above. They are concerned about inadequate indication of what they would be space inside vehicles, comfort, accessories, the prepared to spend if they had perfect knowl­ status conferred by the particular vehicle used, edge in advance of what would happen to and many other considerations. On this their health in the future and could plan their analogy, simple judgments cannot be made whole lifetime allocation of resources accord­ about the value of health care spending. It is ingly. Moreover, some people become seri­ not just an investment to obtain better health, ously ill before they are old enough to start there is a considerable element of consump­ earning. Somehow judgments have to be made tion. People want reassurance, comfort, and about the consumption aspects of health care care when they are ill, and they may be pre­ spending since the criteria of what people are pared to see anything spent which might help prepared to spend is simply not available in them (especially if it is other people's money!). the same way as it is for cars. This is precisely Action taken, even action with only remote why both private insurance and social security prospects of improving their health may give were introduced in the first place-for the satisfaction by showing that others are con­ more healthy to share the risks and pay for the cerned about them. It confers status to the more sick. This is the essence of the principle "sick role." of risk-pooling or 'solidarity.' But against this, it is argued that the analogy with automobiles is false because those buying cars (consumers, firms and gov­ ernments) know precisely what they are The vast expansion of spending on spending on the vehicle, on the petrol, oil, and health care has not brought commensu· maintenance. They still know the costs if the rate returns in improved health. vehicle is bought on hire purchase. What is different about health care is that so much is paid indirectly by employers in insurance premiums, by governments in subsidies, direct But there is a further argument based on expenditure and tax concessions, all of which current unmet "needs." Too much should not reduce the cost of the premium paid by the be made of the proposition that we are getting employee, which is generally deducted before zero marginal product from extra spending on net income from work is paid. All of this cer­ health care. Even where the immediate money tainly reduces the cost at the point of con­ barrier has been virtually eliminated, the sumption often to (or nearly to) zero. The poorer and less educated who have worse than case for cost-sharing is to make health care average health seek health care much less than more in line with the purchase of motor cars. their objectively measured health status would But this is precisely what cannot be done. require. They also under-use important pre­ Cars are bought by consumers out of their ventive services, such as immunization, ante­ regular income and savings. The special char­ natal and postnatal services. Money barriers acteristics of health care spending are that are therefore not the only barriers to the use serious illness destroys earning capacity, and of health services. People consider the costs of even when the illness starts, neither the con­ time off from work and the costs of waiting, sumer nor even his physician is generally able and in addition there are cultural and psycho­ to predict what needs to be spent over what logical ,barriers to the use of services even period of time. While consumers can plan the when money barriers are removed. The rein­ purchase of a car, they cannot plan their tro~':lction of money barriers would make the expenditure on health care as they cannot position worse. know in advance when they will be ill, how Secondly, it is only in the more acute ser­ often they will be ill, how serious the illness vices that the case can be made that we are will be, how long it will last, or what "needs" approaching zero marginal value from the use to be spent. What consumers would be pre- of extra resources. Few countries can say that

45 Health care-who pays 7 the standards of care provided for .long-stay public spending that have been rising faster patients-particularly elderly patients-are than GNP. For example, in both the Federal satisfactory. There is a whole new drive in Republic of Germany and the Netherlands, Europe towards what is called "the humaniza­ politicians have set themselves the explicit aim tion of hospitals" aimed particularly at long­ of seeing that health care spending that is stay hospitals. Nor can many countries claim publicly financed does not rise in the future that their care of the mentally handicapped or faster than the GNP. The problem of public of long-term mentally ill patients is satisfac­ sector financing is real in the sense that politi­ tory-either in hospitals or in the community. cians inevitably respond to the public's objec­ Similarly, care is often inadequate for drug tions to what is seen as excessive taxation. addicts, alcoholics, and attempted suicides. They sense the limit to what people, most of There are many fields where there is over­ whom are reasonably healthy, are prepared to whelming evidence that much more needs to pay to help those who are not-particularly if be spent to attain socially acceptable standards there is evidence that some of the spending is of care. The problem consists to a consider­ unnecessary. able extent of an imbalance of priorities. It can be argued that this is only likely to be put Secondly, and parallel to the tax resistance right in terms of practical politics if more is problem in the public sector, is premium resist­ spent, because of provider resistance to cut­ ance problems in the private sector. Those associated with the private insurance industry ting expenditure in areas which have come to be more favoured. point out that the public has now become highly critical of rising insurance premiums. If the real concerns are about efficiency and At the very least the public expects premiums justice, percentage of GNP are grossly inade­ not to rise faster than their incomes after tax. quate criteria for making judgments. The real Because of this after-tax criterion, the two problem is to examine alternative ways of problems are interrelated. achieving particular objectives so as to find Whatever force there might be in the more less costly ways of achieving the same results. academic arguments on both sides of the ques­ Research, and even more important, a willing­ tion, public attitudes to paying cannot be ness of the health care system to respond to ignored. This is the overwhelming thrust the findings of research, could lead to a reduc­ behind pressure to contain health care tion of resources used in doing what is now costs. done and needs to be done and release resources for what is now done inadequately. But it is not necessarily the case that fewer total resources would be needed. It is just as Strategies of Cost Containment possible that more resources would be required. Budget limits Without denying the force of all these argu­ An important distinction can be made ments, there are two facts that cannot be within European systems of financing health ignored. First, where health care costs fall in services between those that are mainly govern­ the public sector either through taxation or ment financed and those that are on an insur­ through compulsory health insurance contri­ ance basis. Services may be mainly under the butions, politicians are under very strong pres­ control of local government, as in Denmark sure to contain costs. The recent experience of or Sweden, or mainly under the control of lower rates of growth in national economies central government as in Ireland or the United or of no growth has accentuated this problem Kingdom. A service-based system of financing of tax resistance. People feel that too high a involves budget limits that cannot normally be proportion of their incomes is being taken exceeded. Thus governmental authorities are away in compulsory levies. They want a able to limit the rise in expenditure on health higher proportion of their original incomes to services mainly by limiting budget allocations, spend themselves. It is therefore natural for assuming that they have the political will to do politicians to look very closely at areas of so. Such control seems in practice to be easier

46 Financing of health services to apply tightly when the money comes wholly recent years in Belgium, the Federal Republic from central government. When local govern­ of Germany, France, and the Netherlands. ment is financing services there is room for There has, moreover, been discussion of alter­ argument and divided responsibility between native ways of paying hospitals, and some central and local government because of the experiments are being undertaken in France. grants coming from the former. Central gov­ The system of daily payment is widely ernment can cut grants to local government regarded as unsatisfactory because of the with the intention of restraining the growth in incentive for hospitals to retain patients longer expenditure, but local authorities can, if they than necessary. wish, replace a drop in central funding by increasing the taxes they levy .. In the USA, hospitals are not paid on a negotiated per day basis or on a prospective Nevertheless, experience shows that budget budget basis but largely on the basis of what limits can be effectively applied. In I976, the they spend, after the fact. In the period Irish government kept the budgets of Regional 197 I -7 4 comprehensive cost controls were Health Boards to the level of I 97 5 in real applied to hospitals as part of the economic terms. In the United Kingdom, the target rate stabilization program. The goal was to halve of growth of the current expenditure of health the inflation rate in hospital costs by regu­ authorities on hospital and community ser­ lating how much they could adjust their vices was reduced to less than half in real revenue. Hospitals had to refund overcharges terms for the period I 97 5-76 to I 979-8o-a if they broke the limits or request exemption rate of growth lower than the expected from the regulations. growth of the gross national product. A some­ what higher rate of growth was later per­ The 2 Y2 years of the program showed an mitted for the year I978-79. Similarly, capital increase in costs of 8.9% compared with expenditure was reduced in the United I 4-I 5% before the program. Hospital workers Kingdom by about 20% in I976-7 compared bore the brunt of this control. Within a year of with I 97 3-4. It was also cut in Ireland the ending of the control, hospital costs rose between I973 and I976. by 14-20%-more than 2 Y2 times the increase In countries where capital expenditure is in the consumer price index. Hospitals have grant-aided by government (as in the Federal recently been given a 9.7% voluntary target Republic of Germany), or partly by govern­ for increases in total spending compared with ment and health insurance funds (as in the hospital industry's goal of I I .6%. Legisla­ France), these grants can be and have been tion to impose mandatory cost containment cut. In the Netherlands, the value of licences did not pass in Congress. for new buildings in I975 was less than half In the case of physicians paid on a fee-for­ the value of licences granted in I 976 in real service basis, limits have been agreed in the terms. In France capital expenditure is largely Federal Republic of Germany on the growth being restricted to the replacement and of total fees. These agreements have been upgrading of old buildings. effective. In 1977, the cost of payments to doctors rose 4.3% less than the growth of Regulation in insurance financed systems GNP and in 1978 in line with the GNP. Moreover, changes in relative fee structures In the case of health insurance systems, are being negotiated to discourage the exces­ short-term action to control costs is normally sive use of diagnostic services. Such changes by regulation. In some countries the regula­ have also been suggested in Switzerland to tion is imposed by government, in other coun­ increase the remuneration for services pro­ tries regulation requires the assent and co­ vided directly by the doctor and to reduce the operation of those being regulated. Where share of remuneration for servicesfrovided by hospitals are paid on a daily rate basis, action others. In France, about 96% o physicians has been aimed in a number of countries at contracting with health insurance have agreed limiting the rate of growth of daily payments to charge at rates· established by social secu­ to hospitals. Such steps have been taken in rity. These rates are reviewed annually. Since

47 Health care-who pays?

I 970, price control has led to a smaller growth tain the growth in costs in the nine countries in the purchasing power of physicians ( + 1.7% of the European Community: per year from I970 to I976), as compared to (I) fixing of prices or limiting of profits of the population as a whole ( 4.2%). + pharmaceutical companies in all countries in In the case of prescribed pharmaceuticals the Community except the Federal Republic the following measures have been used to con- of Germany and the Netherlands;

How to control the cost of health care

Conclusions of the Wolfsberg seminar There are essentially four possible ways of regulations can be kept to a minimum, but controlling the cost of health care paid for the administrative cost of securing effective by public funds or health insurance contri­ participation in decision-making should butions. not be underestimated. • The first would be to try and introduce • The third is to apply really effective price competition between agencies pro­ regulation of providers so that costs are viding health insurance. How far this contained. That regulation can be effective option would really succeed in keeping is shown, for example, by the experience of down costs in the long run has yet to be France, but it is operated there within a established on a national basis, and the context of considerable cost-sharing. The bureaucratic costs of "policing" the system bureaucratic costs of effective regulation should not be underestimated. There are likely to be high. Whether the German wpuld, moreover, be considerable problems system of cost control by agreement under in introducing such a system to cover a the concerted action program provides an whole nation. Paradoxically, it would seem effective long-term way of restraining costs easier to transform monopoly public service has yet to be seen. systems into a competitive system than • The fourth is to apply cost-sharing to health insurance systems of financing the extent necessary to keep health insur­ which pay providers on a fee-for-service ance premiums within desired limits. To a basis and hospitals on a daily charge basis. considerable extent, costs are likely not to This is because budget financing and capi­ be reduced but shifted back to the direct tation or salaried payment of physicians are payment of consumers. The administrative already well established in such systems of cost will vary according to the system of financing and organizing health services. insurance. What is very doubtful is whether • The second is to establish local budgets this provides a permanent solution. While for health services which cannot be insurance premiums may fall temporarily exceeded. The control of the budget can be when each further dose of cost-sharing is in the hands of representatives of con­ applied, premiums are likely soon after­ sumers selected by political election or wards to resume their upward trend. If it is appointment and who act in close consulta­ unacceptable to apply cost-sharing to care tion with representatives of providers. This in the hospital (other than a modest daily is the underlying logic of the British or charge), this sector is likely to go on and on Italian national health services or the increasing in cost under open-ended insur­ Swedish or Danish systems of providing ance. Indeed, it is this sector of care which health services. By delegation and decen­ has in most countries been causing the tralization of control, detailed bureaucratic greatest problems in recent decades.

48 Financing of health services

(2) limiting of sales promotion activity by that both these assumptions are untrue. Italy is reducing what will be allowed as a cost when in the process of moving over from a largely profits or prices are calculated (Belgium, fee-for-service basis of paying general practi­ France, Italy, and the United Kingdom) or tioners to a capitation basis. Specialists limiting the extent to which samples can be practicing in public health centres are paid on sent to doctors (all countries in the Commu­ a part-time or whole-time salaried basis. It is nity except Ireland and Italy); also moving over from an insurance-based system of financing to a budget-based (3) regulation of retail margins in all coun­ national health service. Under the new system, tries in the Community excepr the Nether­ money will be collected centrally from taxa­ lands, where margins are controlled by the tion and health insurance contributions and pharmacists' profession; then channeled to regions and on to the local (4) restriction of the opening of pharma­ health units, which will provide the main hos­ cies (e.g., Belgium, Denmark, France, Italy, pitals and community health services. and Luxembourg); Other more gradual changes in the organ­ (5) drawing up of lists or formularies spec­ ization of services are being made in other ifying the pharmaceuticals that may be pre­ European countries to encourage continuity scribed (e.g., Belgium, Denmark, Italy) or that of medical responsibility for patients seen by are recommended to be prescribed under specialists in the community and later health insurance (e.g., France, the Federal admitted to a hospital. In the Federal Republic Republic of Germany, and the Netherlands); of Germany, encouragement is being given to the development of outpatient activities for ( 6) specification of the quantities that may doctors working in hospitals and inpatient or should be prescribed in a particular pre­ activities for doctors who work outside hospi­ scription (e.g., Denmark, France, Ireland, tals. The thrust of policy in France is also to Italy, and the Netherlands); establish further outpatient departments at (7) circulation of information to doctors to public hospitals. In many countries measures encourage economical prescribing (e.g., com­ are being taken to encourage care in the com­ parative prices of similar products as in the munity as an alternative to general hospital United Kingdom and the Netherlands or in care and to encourage prevention. the Federal Republic of Germany and Ireland, where it is proposed that efficacy will also be taken into account); (8) examination of the prescnpuons Regulating supply written by doctors under health insurance, in Many European countries are planning for a~! countries in the Community except Bel­ an overall reduction in the number of general gmm; hospital beds per thousand of population. This (9) arranging for visits to be made to doc­ is also being planned in the USA. Ten years tors whose prescribing appears to be excessive ago, out of nine countries of the European (Ireland and the United Kingdom). Economic Community, only France and the United Kingdom had hospital plans; now all nine countries have such plans. In the period I 970-77, about 26 hospitals have been closed Changing the organization and financing or transferred to other uses in Denmark. In England I 34 hospitals have been closed over a It is widely believed that measures to substi­ period of three years. tute a budget-financed service for a health insurance system could never be applied in In Ireland, Denmark, and the Netherlands, any country because of the political opposi­ reduced quotas have been established for the tion. It is also widely believed that it is polit­ entry of students to medical education. ically impossible to change the system of In the USA, many regulations have been paying doctors. The experience of Italy shows introduced mainly to protect the funds paid

49 Health care-who pays? out in public programs. They include utiliza­ In Italy all benefits supplied under health tion review; professional standards review insurance are free. organizations to monitor hospital care; hos­ pital routine per diem cost limits under public In the Netherlands those covered receive programs; maximum allowance cost limits for free care with some exceptions: for example, drug purchasing and requirements for "certifi­ 6o% of the cost of dentures has to be paid by cate of need" approval for building new facili­ the beneficiary and a dailr payment has to be ties and the purchase of major new equip­ made towards the cost o nursing home care ment; comprehensive technology assessment after one year of stay. Dental care is free to for determining the appropriateness of new children under four. A treatment certificate and existing medical technologies. for 6 months of dental care can be bought at a low price. Recent proposals to make patients pay up to a maximum of 100 florins a year for The Role of Cost-Sharing primary care and for single persons to pay When health insurance was proposed in 1 o florins a day for general hospital care France, after the First World War, the medical (because of "home savings") did not secure profession stood out against the principle of the approval of parliament. direct payment by a third party and insisted that the patient should pay the doctor directly. From the start, only part of health care costs In countries which have increased were reimbursed, the patient being left to pay s~ding on health care much less than a proportion of the cost-the "ticket modera­ other ·countries (e.g., the United teur." This "ticket moderateur" could, how­ Kingdqm) mortality rate$ have improved ever, be paid by public assistance in the case of at similar rates and are in some resl'ects the poor. Similar systems were introduced in better than those in countries such as Belgium and Luxembourg. Italy followed the France or the United State$, whjch have precedents of Austria, Denmark, Germany, vastly increa,sei health cl\fe spending. and the United Kingdom by operating direct payment of the provider without any charge •••• •• h • • •••• falling on the patient. These historical origins are still influential in explaining the position In the United Kingdom all health care today, although a number of changes have under the National Health Service was origi­ been introduced over the years. nally free. But charges for dentures, spec­ tacles, and pharmaceuticals were introduced Direct payment systems in 1951 and 1952· The present charges are still restricted to dentistry and the ophthalmic ser­ In Denmark the patient pays 25-50% of the vice, where patients pay about a quarter of the cost of pharmaceutical products but otherwise cost and a flat rate charge of 4 5 pence for care is free for those (the majority) who have pharmaceuticals. There is a complex system of chosen to register with a particular general exemptions for children, the aged, those with practitioner for at least a year. low incomes and other categories from certain charges. In Germany patients now are required to pay one mark for pharmaceutical products, to pay for spectacles (children and veterans are Reimbursement systems exempt), part of the cost of appliances, of In Belgium patients generally pay 25% of transport, and 20% of the cost of dentures. the tariffs for outside hospital care (plus any In Ireland about 39% of the population excess charges above these tariffs). Pensioners, defined by low income receive wholly free orphans, widows and invalids with low care. Those in a higher band of income incomes can generally be exempt from these receive free hospital care except for payments payments. There are lump sum charges for to consultants and are refunded only part of pharmaceutical products (2 5 francs for drugs the cost of pharmaceuticals. made up by the pharmacist and 6o francs for

50 Financing of health services specialties), with some exemptions. Hospital daily charge in the Netherlands, which was care is free as the 25% "ticket moderateur" is not approved by parliament, was presented in paid by the state for the first 40 days of treat­ terms of the "home savings" caused by being ment. A charge of 50 francs per day is made in hospital. from the 4 I st to the 89th day. From the 90th (3) Pharmaceuticals are often subject to day charges are higher. The charges are for charges presumably because not all those "hotel costs." The full cost of dentures has to taking pharmaceuticals are absent from work be paid by those under the age of 50. or prevented from continuing their normal In France the patient has to pay the fol­ activity. Moreover, it can be argued that a lowing main charges: 25% of the cost of med­ charge may make the physician think twice ical services provided outside hospital, 20% of before imposing the charge on the patient. the medical service costs of practitioners and of tests in public and private institutions, 20% (4) Most countries make no charge for the initial contact with the physician so as not to of the rate for short-term hospital care (up to discourage early access to medical care when 30 days) in public and private institutions, but maternity care and major surgical care are the patient believes it to be necessary. This principle is observed in all the direct payment free. In the case of pharmaceuticals, the systems listed above (with the exception of patient pays 6o% of the cost of "comfort" medicine (e.g., laxatives}, 30% of the cost of those who are on low income in Ireland or most other pharmaceuticals, but only Io% of those who do not choose to register with one the cost of particularly expensive or irreplace­ general practitioner in Denmark). This prin­ able medicines. There is a complex list of ciple is also observed for wage earners in exemptions from these charges (e.g., old age Luxembourg but not in Belgium, France, or pensioners, those who have suffered serious Switzerland. industrial accidents, those with certain dis­ (5) Many countries have special arrange­ eases, and those receiving supplementary ments to exclude the poor from charges and allowances). also children and pensioners. (6} Maternity care tends to be given spe­ Cost-sharing after receiving care cial exemption from charges presumably because of the importance of contacting the This brief resume of the use of cost-sharing health service early in pregnancy and because in a number of countries in Europe enables childbirth requires women to be absent from some generalizations to be made about what work. services tend to be selected for payment. (I) Dental and ophthalmic care, if covered The Case for Cost-Sharing by health insurance, are frequently subject to cost-sharing, presumably because this type of Revenue raising. Here the objective may be need does not normally lead to absence from no more than to raise revenue in a way that is work and the need for dentures and spectacles least politically sensitive. As there is a problem is within limits postponable. The patient can of tax resistance and premium resistance, save up to pay for them. making the user of health services pay part of the cost may be less politically resisted than (2) Hospital care tends to be excluded any other alternative. presumably because the cost is high and it involves absence from work in the case of Asserting priorities. By making a charge for earners. It is moreover a serious need for care services of lower priority, scarce resources are as indicated by the physician's decision to released to provide services of higher priority. admit the patient to the hospital. When the For example, in the United Kingdom when patient is required to pay, the daily payment is charges were introduced for dentures it was presented in Belgium as payment for hotel argued that more of the time of dentists would facilities provided by the hospital and not for be devoted to the conservation of natural the treatment. Similarly, the proposal for a teeth, which was judged more important. This

51 Health care-who pays? did in fact occur. If charges for pharmaceuti­ vices. As mentioned earlier, the poorer and the cals lead those with minor illnesses to treat less educated tend to under-use services. themselves with over-the-counter medicines, Attempts to exempt the poor from cost­ more physician time is released to treat the sharing are never wholly successful and in so more seriously ill. far as they are successful they tend to carry some stigma. The principle of solidarity avoids As mentioned above, charges for hospital this. The reduction in use from those who care tend to be presented in terms of charges ought to be using health services more than at for "hotel services" or "home savings." It is present is too damaging to justify any correc­ argued that it is cheaper for the patient if he is tion of abuse or moral hazard among others. treated in a hospital rather than outside Even charges for pharmaceuticals may make because he gets free food, laundry, fuel, etc., some people hesitate to go to the physician which he would have to pay for if he were sick through fear that they will not be able to at home. Thus the patient prefers to be treated afford the pharmaceuticals he will prescribe. in a hospital and the doctor is aware of this. It may also be more convenient for the doctor to treat a patient in the hospital where he can visit at times of his own choosing and more easily terminate the consultation. The real problem is to examine alterna­ tive ways of achieving particular objec::­ Combating the "moral hazard. "The assump­ tives so as to fmd less costly ways of tion is that free services are likely to be unne­ achieving the same results. cessarily used. Some people will use services when they are not ill (e.g., to obtain a certifi­ cate of sickness to take time off work and receive cash benefits) or for such trivial health In the developed countries there is generally needs that the use of a doctor's time is not no longer a problem of scarcity of health care warranted. resources to justify prices being used to direct Conveying price signals to the patient and resources towards health needs of higher pri­ physician. Here the objective is primarily to ority. use the patient as a way of communicating to The argument about home savings from the physician. If the patient has to pay part of hospital care is greatly overstated. Account the cost and the physician knows this, it is needs to be taken of: argued that the physician will become more - the cost of travel for relatives visiting cost-conscious. This may happen because he the hospital; thinks patients will decide not to go to physi­ cians who become known locally as unneces­ - the cost of gifts to the hospital patient; sarily costly users of resources. Or it may be - purchases made of new bedclothes and that the physician will want to present himself toiletries by the patient (what has been called to the patient as being concerned about the "the trousseau effect"); and patient's pocket as well as about the patient's health which he has no need to do if no pay­ - costs that fall on the family when the ment falls on the patient. It is accepted that mother is admitted (e.g., child care costs, the bulk of the use of resources is not the phy­ home help costs and the extra cost of ineffi­ sician's own time (which he can ration him­ cient catering by the father in the form of self) but what the physician authorizes for the meals out and convenience foods, or the cost patient (pharmaceuticals, diagnostic tests, of catering for a relative who comes to stay treatment by medical auxiliaries, hospital care, and take temporary charge of the household). etc.). An alternative way of allowing for home savings is by reducing pensions and sickness The Case against Cost-Sharing cash benefits after a period of stay in the hos­ Nothing should be done to discourage pital. This method is applied in the United people from early access to professional ser- Kingdom.

52 Financing of health services

Arguments about moral hazard fail to take tive health insurance. Under present health proper account of all the other costs of using insurance there is no effective price competi­ health services (travel costs, time, and psycho­ tion, as social security funds act as oligopolies. logical costs). Moreover, fee-for-service payments reward physicians for providing more and more costly Co-payments do not stop cost inflation. All services, and hospitals are rewarded with more they might do is to create a temporary check revenue for generating more costs. This is the before the advance of costs continues. basic incentive system under existing oligopo­ It is wrong to punish the patient for the lack listic insurance. The aim of introducing of price consciousness of the physician. More­ competition would be to change the incen­ over, physicians do not and normally cannot tives, so that insurers and physicians working quote costs in advance. Nor can patients who in each competitive health insurance agency are worried about their health or their child's would find it profitable to try and provide health be expected to negotiate charges or better value for money. shop around. Any financial incentives should operate directly on the physician. Alterna­ One way of achieving this would be to give tively, regulation and administrative action each consumer a voucher which could be used should be used to correct excessive or unwar­ only for health insurance. The value of ranted use of resources. If anyone should be vouchers would vary by age and sex according punished it should be the physician if he to average risk. authorizes what is not needed (for example, Each year, each consumer would have the by fines paid out of his remuneration). Politi­ opportunity to choose a health insurance plan. cians seek to introduce cost-sharing because The plans would be in competition with each they lack the courage to challenge the power other and would offer different patterns of of well-paid and prestigious professional care at different prices. All insurance plans groups when they are acting irresponsibly. would be required to accept anyone who chose to join the plan without discrimination. The administrative cost is seldom fully cal­ The premium for each plan would reflect the culated and compared with the savings. Many costs of providing the services. Each plan health-care systems do not at present have to would have to offer defined comprehensive maintain detailed records. In such cases cost­ benefits and full protection against the costs of sharing would make it necessary to maintain catastrophic illness. These and other rules them and the administrative cost would not would be designed to ensure fair competition. justify the savings. The more complex the Thus any plan which was able to offer what system of exemptions to avoid penalizing consumers regarded as a service of adequate children, the poor, and others, the greater the quality at a lower price would attract con­ administrative costs become. Nor can the sumers. The competitive system would reward problem be resolved by relating charges to plans which provided better care at lower income as health insurance agencies do not costs. normally have records of the insured person's current income. In some countries there The physicians in each community would would be strong resistance to collecting the divide themselves into competing economic charges. In the Netherlands, for example, groups. The key to generating competitive neither doctors nor hospitals-nor indeed the pricing would be the involvement of the physi­ insurance companies-want to bear the cians working for each plan in the search for at:lministrative cost and suffer the criticisms of ways of giving better value for money. There patients from the collection of charges. would be room for the physicians working in each plan to receive extra remuneration out of the savings made by providing better value for Cost-Control by Consumer money for patients. Plans may pay the physi­ Choice and Competition cians working for them by salary or capita­ tion, plus bonuses. A plan would become An alternative way of controlling costs uncompetitive if its physicians provided un­ could be through encouragement of competi- necessary services-particularly admissions to

53 Health care-who pays7 the hospital. Such plans would be driven out care to deny him drugs, radiographs, patho­ of business by the competition. logical tests, and to persuade him that admis­ Experience with prepaid group practices in sion to the hospital was unnecessary. Would the USA shows that costs can be cut substan­ not this be damaging to the doctor/patient tially if doctors are given the incentive to do relationship? The fact that existing health so. For example, hospital bed usage has been maintenance organizations and pre-paid halved. But the model would not depend on group practice plans retain the confidence of their users does not guarantee that the situ­ any one way of providing services. For example, physicians working in a plan could ation would not be different if competition work from their own offices and be paid on a became really fierce. Would competition lead to the provision of services by some plans fee-for-service basis but agree to control costs. Alternatively, general practitioners could be at which were grossly inadequate by any profes­ sional standard? The key problem of health the entry point of the system and decide what care is that while the patient can judge the was and what was not necessary for the politeness and apparent concern of the physi­ patient. They would approve all bills. cian, he has no real competence to judge In practice, each plan would be working on whether he really needs particular services, a budget basis. The premiums they attracted what services might or might not be helpful to from consumers each year would constitute him, or even whether he has been denied the annual budget for each plan. The task essential services. Patients who become dis­ would be to provide adequate care for all abled may be grateful to their -physician for members out of this budget and if possible saving their lives without knowing that their achieve a surplus for distribution. A substan­ disability could have been prevented by better tial surplus in one year would indicate that diagnosis and more services. premiums could be safely lowered in the fol­ (3) Would advertising be allowed and lowing year to attract more members at the what effect would this have? If some plans next annual stage of selection of plans by con­ were advertised as offering everything you sumers. could possibly want from any physician or The following criticisms can be made of the hospital you chose, how many people would consequences and feasibility of the system. be persuaded to opt for costly and wasteful plans? ( 1) The whole working of the system (4) While compeuuon would be practi­ depends on the ability of consumers to select cable in highly populated areas, there could plans from information provided about them not be effective choice in less populated areas. and to judge whether or not they are getting (5) Could competition secure that profes­ an adequate service. While the selection of a sionals were willing to practice in unattractive plan might well be within the competence of areas? Might it not make the geographical better educated consumers, it would be diffi­ maldistribution of services worse? cult for the less educated ones. They might simply opt for the cheapest plan. Indeed, some (6) How could it be possible to secure the consumers might not exercise any choice at transition to competition, when most physi­ all. How would the problem be solved for cians and most hospitals would be likely to be those who did not select a plan and thus opposed to the threat of competition to their would be left without coverage? security? (2) The consumer would know that it was (7) Would it really be practicable to pre­ profitable to the physician responsible for his vent plans from skimming off the best risks?

54 World Health FDnlm, 7: 3--32 (1986) Round Table

Brian Abel-Smith Funding health for all is insurance the answer?

Health insurance offers a means of obtaining a substantial part of the funds for urban health services from employers and employees, so that taxes can be released for preventive and promotive action and for primary health care where coverage is now inadequate or absent.

In those developing countries where the cost and this raised still further the cost of oil of plans for health for all has been roughly imports. On top of all this, many of these calculated, the key problem that has countries were burdened with debts that had emerged is how to pay the bill. There is a been incurred when economic prospects reluctance to cut down on existing facilities, seemed much brighter. Interest payments such as urban hospitals, in order to finance and capital repayments have become primary health care for whole rural formidable proportions of government populations. As a result, plans for health budgets, and other government expenditure for all are seen as additions to existing has had to be cut to make room for these programmes rather than as a redistribution obligations. Quite a number of developing of health resources. Where is the necessary countries have felt it necessary to spend money to come from? more rather than less on defence. Finally, many countries in Africa have suffered year The world economic situation has changed after year of drought, which has decimated for the worse since the health-for-all agricultural production and brought large objectives were launched in 1977. The sections of their population up to and drastic rise in oil prices in 1979 cut rates beyond the brink of famine. of economic growth and forced many developing countries into painful policies of Though there are now some signs of adjustment. Currencies had to be devalued, economic recovery, the world is no longer the place viewed so optimistically in 1977. Complete evidence of what has been The author is Professor of Social Administration at the London School of Economics, Houghton Street, happening to health expenditure is not London WC2, England. available, but some countries have been

55 Health care-who pays7 spending less in this area than in 1977. Existing resources Some health budgets have been heavily cut in real terms, although not all developing The message has got home to developing countries have been affected in this way. Oil countries that they are largely on their own. producers have until recently done well, and There will be no foreign fairy godmothers. a number of countries in south-east Asia and Health-for-all programmes will have to be the Far East continue to prosper, having paid for almost entirely by countries' own experienced only a somewhat reduced but resources. One possible way forward is to still relatively high rate of growth. make people pay, or pay more, for using urban health services-at least those people Back in 1977, there were hopes that the who can afford to do so. Money collected in North (i.e., the major developed countries) this way can be used to develop primary would be willing to pay more to help the health care for rural people who lack any sort of organized services within reasonable distance. The promise of free health services makes good political rhetoric, but has a hollow ring when it leads to a substantial Many health insurance subsidy for urban populations who are, on programmes seem to be run for average, considerably better off than rural the Convenience of doctors rather populations, among which the poorest than patients. · communities get no health services at all. They have to wait for a tomorrow that never seems to come, simply because the money cannot be found to give free health South (i.e., the developing countries) if the services to everyone. case for doing so were well presented. The Brandt Report argued that there were But making sick people pay for a substantial reasons of self-interest for the North to act part of the cost of the health services they in this way. But that powerful plea has use is far from being an ideal solution. It largely fallen on deaf ears. The attention involves making the sick pay for their own of the industrialized countries has been treatment rather than making healthy people concentrated on their own internal problems contribute to the care of those who are sick. of adjustment. Budgets have been strained Taxation falls more heavily on the well than by the burden of supporting, in one way or the sick and is therefore a good way to another, millions of unemployed persons, obtain funds for health services. Why is it many of them young. The problem has been therefore so difficult to persuade ministries to persuade governments to find the money of finance to find the extra money to for their own unemployed without cutting support health-for-all programmes? budgets aimed at helping much poorer people elsewhere in their struggle for development. Such evidence as there is The options suggests that external cooperation in support of health programmes has held up fairly It may be true that ministries of finance well. But there is no evidence that the tend to underestimate the contribution that endorsement of health for all has made the health can make to development. The key industrialized countries willing to support gain may only be won after many years-a the world programme with extra money. new generation capable of achieving greater

56 Financing of health services physical and mental development compared because this places a clear obligation on you with the stunted growth and the burden of to give me help, should I need it". Helping long-term disability found today. But the others builds up a capital of obligation, and value of health is so hard to quantify. in the village situation social control ensures Ministries of finance like to deal in figures. that obligations are honoured. In the The potential gain from an irrigation modern insurance model, careful calculation scheme or any other improvement in the of risk against premium ensures that money economic infrastructure is much more easily is available to meet future obligations. presented quantitively. Moreover, when an economic project proves successful the health contribution towards it can easily be overlooked. Health insurance

Though ministries of finance undervalue A long history health developments, the fact must be faced that taxation cannot be increased without Among the industrialized countries, health limit in the developing countries. There are insurance dates from the time when they formidable administrative difficulties in were themselves still developing. It can be expanding the yield of income tax, and traced back to the medieval guilds or clubs additional taxes therefore tend to be levied of craftsmen that existed hundreds of years on goods. Where luxuries are already ago. Voluntary health insurance has been severely taxed, extra taxes on goods tend to promoted in different countries by fall disproportionately on poorer people. employers, doctors, trade unions, and local They can, moreover, be damaging to export groups of working men with a diversity of prospects and thus hinder development. occupations. Inability to earn because of Taxing the poor most heavily to pay for health for all may be better than making the sick pay for the sick, but it is hardly in line with health-for-all policies which identify poverty as a major cause of ill health. It would be perverse to advocate making the poor still poorer by taxation, even though the consequences are difficult to see except under close analysis.

In this context, health insurance emerges as a potentially better option. The essence of insurance is the sharing of risks. It is a mechanism designed so that those fortunate sickness was recognized as a risk that could enough to be healthy pay for those who are be shared. The doctor was needed to certify sick, with a clear understanding that should sickness and aid recovery. In dangerous those well now fall sick later on, their costs occupations such as mining, it was will in turn be covered. Insurance can be recognized at an early stage that it was seen as a formalization of the mutual better to pay in advance for the treatment of support system to be found in villages accidents by a system of contributions than throughout the world, based on the notion to wait until injury had destroyed earning that "I will help you in your current need capacity.

57 Health care-who pays 7

The background against which voluntary others they did so on a geographical basis. health insurance developed in Europe well The funds were sometimes controlled by the over a century ago was, however, very workers, sometimes by employers and different from that of developing countries employees jointly, and sometimes by a today. Doctors had much less training and special body set up by government. were generally in plentiful supply. Herbal medicine was practised and bleeding, Compulsory health insurance was then cupping, and applying the leech were adopted in Latin America, where there was common treatments. The hospital was a virtually no tradition of voluntary health place for care rather than cure, and often insurance, at a time when the hospital was a place to die. The age of expensive high beginning to be regarded as an important technology medicine was still to come. In so component of the health care system and far as there were public health services, when medical education was moving, under provided by charity or government, they American influence, towards science, surgery were poor and stigmatizing. Insurance gave and specialization. Some of the new social poor people access to the same services as security organizations built their own lavish were used by the better-off. The cost of this hospitals to demonstrate that nothing but low technology medicine was easily covered the best was good enough for the worker. by regular contributions, which were within Doctors generally received a part-time salary the means of at least the more skilled for health insurance work. They thus came workers. to have several different sources of income among which social security work was not The first compulsory insurance scheme was necessarily seen as the most important. introduced in Germany in 1883, and many Nevertheless, health insurance soon became other European countries followed this costly in relation to the earnings of the example sooner or later. Employers were worker.

The final stage of development in Europe came after the Second World War, when more and more countries made available to their whole resident populations the same services as had been developed to provide for the insured and their dependants. In many countries, insurance contributions paid by employees and employers were retained forced to pay, as well as employees. Some as a source of income for financing the schemes covered only the doctor and the services, although tax funds were used in drugs he prescribed, others included the addition. hospital. Some paid the doctor on a capitation basis (i.e, he was given a fixed sum for being -available to treat a member Developing countries throughout the year, whether he was called upon to treat or not). Other schemes paid Developing countries currently attempting the doctor per case or per visit, and still to provide free services for their whole others reimbursed the patient for part of populations are trying to jump two stages of the doctor's bill. In some countries, funds the European transition -voluntary and developed on an occupational basis, in compulsory insurance. They are unable to

58 Financing of health services provide universal health services by taxation. Health insurance has added so much to the European countries which now provide the rewards of urban curative practice that same services for all waited until their tax ministries of health may be outbid for base was strong enough to sustain them, or almost every category of staff. continued to rely in part on the revenue from insurance contributions. This suggests It is not surprising that ministers of health that insurance contributions may be the do not push for health insurance if they see crucial source of additional finance needed it as a monster which is bound to destroy by many developing countries if they are to achieve health for all. There has been a revival of interest in the insurance approach during the past decade. Indonesia, the Republic of Korea, the Philippines, and Singapore have started different schemes, and there are plans for others in Syria, Thailand, and Zimbabwe.

Why is the insurance approach not more them. Thus they may muster all the actively sought by ministries of health if it arguments against it: health insurance is promises to bring in substantial extra funds bound to be socially divisive; the only for the health sector? The first and most people who can be covered are those in obvious reason is that responsibility for regular employment; initially it may only be working conditions, and thus for any possible to cover those working for the prospective developments in social security, larger employers; people are not going to usually rests with ministries of labour, not pay contributions unless these lead to much ministries of health. Nevertheless, ministers better services; better services for employees of labour could be pressed to act by would be socially divisive and a distortion of ministers of health, or the issue could be health priorities; more benefits would be raised in the wider forum of agencies given to those who already have the responsible for national planning. Perhaps it advantage of being in the modern sector is feared that ministers of labour are bound of regular employment; men would be to exercise control over any health insurance favoured yet the major health effort should scheme that might emerge, and consequently be devoted to mothers and children; still that substantial power over future develop­ more money would go into urban areas, ment of the health sector would be where regular employees are primarily transferred elsewhere. Indeed, this is concentrated, yet the vital need is to get precisely what has happened in many health resources into rural areas; and countries of Latin America. In terms of funding would inevitably go to curative wealth, health insurance has become by far services in the main, yet the priority need the larger part of the health sector, often is for prevention and promotion. leaving ministries of health as starved poor relations, even though they may be expected On top of all this it may be argued that to provide much wider services and look health insurance is bound to become an after the larger section of the population. administrative nightmare open to all sorts of Not only may they be underfinanced but graft, abuse and corruption. Why waste they may also be unable to attract good staff money on issuing and regularly updating to work for them, particularly in rural areas. documents of entitlement to health

59 Health care-who pays7 insurance? Why not spend the money Lessons instead on improving services for everyone? Why create a mechanism which, as While health insurance has undoubtedly experience has shown, stimulates cost become an obstacle to the achievement of escalation and provides money for health-for-all objectives in some countries, it technology emulation. Even the richest does not follow that health insurance should countries of the world are now finding that be avoided at all costs. Lessons can be learnt they cannot afford health insurance. Money from unfortunate experiences, just as they given to ministries of health is much better can from favourable ones. It is easy to forget spent with a proper balance of priorities. that there are countries where health Moreover, costs are kept rigidly under insurance had none of the unfavourable control. But the fact remains that, in many effects mentioned above. This was true in countries, the extra money needed for health Denmark, Norway, and the United for all is unlikely to be obtained solely by Kingdom before they moved over to taxation. universal services. None of these countries had the acute cost escalation confronting Health insurance has got a bad name with France, the Federal Republic of Germany, many health administrators, by no means and the United States of America. India has always undeservedly. In a number of slowly built up a scheme, covering more countries it has grossly distorted health than 20 million people, with problems priorities by favouring urban populations at nothing like those facing so many social the expense of rural ones, by encouraging security schemes in Latin America. curative medicine to the detriment of prevention, and by absurd waste and duplication of advanced technology. It has Health ministries encouraged unnecessary treatment and the medicalization of social problems. It has The first lesson to be learnt is that if health become so expensive in some Latin insurance is to make a positive rather than a American countries that it would cost well negative contribution to national health over 10% of the gross domestic product to objectives, ministries of health must retain extend the same standard of service to the control, or at least a veto, in respect of any whole population. Furthermore, the service use by health insurance schemes of national does not always give satisfaction to those health resources. Departments of labour who use it. Long queues to see a doctor, must not be allowed to sponsor predators followed by further long queues to get the who enter the market and bribe trained drugs he prescribes, are to be found in some health manpower to leave the ministry of ambulatory treatment centres run by social health's services. The most damaging security departments in Latin America, just scenario is where a whole host of different as they are in the outpatient departments of competing autonomous agencies is government hospitals. This is essentially established, each controlled by employers because doctors arrive late and leave early. and employees, which can levy whatever Many health insurance programmes seem to contributions they like, build separate be run for the convenience of doctors rather facilities, and compete for trained staff than patients. In some countries medical at rates of pay substantially higher than trade unions have outshone all others in the those the ministry of health can offer. restrictive practices they have imposed on Importance attaches not only to the level their employers. of remuneration offered, but also to the

60 Financing of health services method of payment. Experience shows that them. But the level of contribution may be paying doctors on a fee-for-service basis and set so as to bring in an income which not hospitals per day of care is bound to lead to only covers free services and the greater cost escalation. No developing country can utilization of services that is likely to be afford it. If health insurance schemes are to generated, but also transfers to the scheme use resources from the private sector, the part of the original cost of services for those form of contract must be such as to keep who are participating. The justification for costs strictly under control. Contracts need this is that people with regular employment to be carefully examined by ministries of are on average in a better economic position health before they are offered. The objective than those without it. If regular employees of these ministries must be to see that the and their employers pay for a considerable development of health insurance interferes part, if not all, of the services they use, in no respect with established health money collected in taxation can be released priorities and, where possible, helps to to strengthen services where they are still realize them. underdeveloped, e.g., in rural areas.

Existing programmes Providing the service

Administratively, health insurance is most Other advantages which might be given to readily established by building on any insured persons and their dependants existing social security programme. Many include special sessions for curative developing countries have schemes of treatment at primary health care centres workmen's compensation that are usually outside working hours, with reduced financed by employers. Alternatively, or in waiting, and the right to be seen by addition, there may be provident funds to appointment at specified times. The patients which employees are required to contribute. concerned would attend the same centres Where contributions are already being for preventive services as the rest of the collected from employers or employees or population, so as to ensure the use of these both, the level of contributions can be services by the whole catchment area of increased by an additional levy for health each centre. There could be an alternative insurance. The only new administrative option of seeing doctors in their private requirement is to issue documents of consulting rooms. Doctors might be paid a entitlement for insured persons and their capitation fee for each person covered by dependants. Such documents will generally the scheme who registered with them; on need to be reissued each year to adjust for this basis being insured would confer the change in the composition of the work-force right to choose a doctor. This would have and to ensure that they are not given to the vital advantage that the doctor who persons working for an employer who has failed to give a courteous and convenient failed to pay the contributions due. service would lose patients, and the capitation payments that accompanied them, to rival doctors. But safeguards would be Insurance contributions and taxation needed in this last case to prevent insurance practice becoming so attractive that doctors Where charges are made for health services, left the government service. The right to a scheme may do no more than exempt take insured patients might be allowed only insured persons and their dependants from to doctors employed at least part-time by the

61 Health care-who pays? government. The amount of insurance payment of doctors is on a fee-for-service practice a doctor was allowed to have might basis. The end result may be a service which depend on how long he or she had served in is far too costly per head to extend to the a rural area: the longer the service, the rest of the population. greater the maximum number of insured patients. But once again the level of contributions would be deliberately set to National realities cover substantially more than the cost of providing special privileges for insured The particular advantages granted to those people and their dependants. covered by insurance will inevitably vary from country to country, according to whether there are charges for health Equity services, whether government doctors are allowed private practice, whether the Some may argue that the arrangements problem of recruitment of doctors to suggested above are socially divisive. In fact government services is acute, whether they are, but only to a modest extent. People patients are screened by nurses or para­ who contribute expect to get something for medicals, and so on. Introducing health their money. But these measures deliberately insurance is essentially a problem of political stop short of the extreme divisiveness of salesmanship.. It would, for example, be wholly separate clinics, health centres, and quite logical to introduce charges for health hospitals that can only be used with services with the deliberate intention that insurance cover, running parallel to an those covered by insurance should be inferior set of services for the uninsured. exempt from them. Such a move might be accompanied by the introduction of free medical cards which the poor could apply for after a means test. Schemes of this kind operate in the Republic of Korea, Thailand, and elsewhere. But the essential aim is to bring in a new source of revenue to supplement taxation. As pointed out earlier, health insurance contributions levied as a proportion of earnings are much fairer than many other taxes imposed in developing countries.

Duplicated services are much more socially What are the economic arguments which a divisive than what is proposed here, and can ministry of finance would be likely to use be wasteful if the duplication extends to against the introduction of health insurance? specialized facilities. Moreover, if firm It will be said that employers' contributions control is not exercised over a separate will increase labour costs, add to inflation, service for insured patients, the cost can rise raise the price of exports, and worsen the year by year as more and more sophisticated balance of payments. But the crucial medicine is introduced, until the scheme consideration is whether and to what extent runs a deficit which may be quite they will raise labour costs. It is generally inequitably met by the government. This the case in developing countries that the is particularly likely to happen when the largest employers are already spending

62 Financing of health services money on the health care of their Alternatively, coverage of the self-employed employees. In some countries they are might be voluntary, with contributions made required by law to do so. Some employers on a flat-rate basis. It is not, however, finance clinics for their own employees. realistic to expect the rural population to Others provide reimbursement for medical pay the whole cost of its health services in services purchased in the private sector, up insurance contributions. Part of the cost to a money limit per employee. Such must, inevitably, be met by taxation. Health employers will be in a position to make cards giving exemption from charges in savings on existing expenditures and to set government health services might be sold in them against any new contributions they small shops, the retailers being entitled to would be required to pay. It may be wise buy them at a discount so that they made to collect data on employers' health a profit on each card sold. Alternatively, expenditure so as to be able to argue this village volunteers might be encouraged to point cogently. sell cards in addition to carrying out other activities. Health insurance can bring in a steadily rising income in support of the health sector Many developing countries have already as a country develops. The first step may be made use of the insurance mechanism for to cover the largest employers, including financing health services, sometimes with government organizations and other public unfortunate effects as far as equity is bodies. Gradually, coverage can be extended concerned. Other countries have decided to medium and small employers, and the against it, possibly because of a shortage of process may advance hand in hand with doctors. This constraint, however, is likely the extension of wider schemes of social to ease over the coming years, because the security. In this connection it is worth scope for the emigration of doctors has remembering that, as a country develops, the greatly reduced. Not only have openings in proportion of employed persons increases. Europe and North America become severely restricted, but the oil-rich countries of the It might be possible to bring in independent Middle East are steadily replacing foreign farmers by a levy on produce imposed doctors with nationals from their own through their agricultural cooperatives. medical schools. 0

Health costs and financing World health statistics quarterly, 31 (4): 336-469 (1984), Sw. fr. 2 7. 00.

"It is most welcome to see an issue of a WHO journal devoted to concerns of economics and finance .... Questions range from what is the cost of health for all to assessment of alternative mechanisms for financing health and health-related services and consideration of their consequences for efficiency and equity.

'The volume provides comprehensive coverage of many costing and financing issues, including some country-specific studies. " - Anne Mills, Tropical diseases bulletin, 82 ( 10): 785-6 (1985).

63 Health care-who pays? Discussion

D. Banerji such declarations sound very unreal. The right to health of most of the people is - A long, grinding political taken away from them by the privileged struggle is in prospect classes and their supporters from foreign countries. For the deprived people, In discussing the problem of funding health regaining their right to health is thus for all, within a severely restricted reference essentially a political struggle. frame, Professor Abel-Smith provides a vivid example of how it is possible to obscure By discussing the question of funding in some of the basic requirements of the isolation from basic political, social, strategy for attaining health for all through epidemiological and health systems issues, primary health care, e.g., social control over the author has ended up by viewing the health services, community involvement, problems of attaining health for all from the self-reliance, intersectoral action for health, wrong end of a telescope. Naturally, he is subordination of technology to the felt needs disappointed when he does not find any of the people, optimization of health service "fairy godmothers" from affluent countries systems, and the integration of promotive, to dole out funds for the poor. Under such preventive, curative and rehabilitative conditions, he rightly considers that the activities. poorest communities "have to wait for a tomorrow that never seems to come". In the context of primary health care, health service development can be seen as deriving Having adopted a position that is obviously from sociocultural, political, technological Eurocentric, apolitical and ahistorical, in and managerial processes. Funding for sheer desperation he snatches at the straw of health for all is secondary to the dynamics health insurance. He fondly hopes that by of these complex processes. building a health insurance scheme in which "regular employees and their employers pay According to the philosophy of primary for a considerable part, if not all, of the health care, the people themselves should services they use, money collected in own their health services. The question of taxation can be released to strengthen funding is therefore a question of budgeting services where they are still underdeveloped, and making financial adjustments. In India, e.g., in rural areas". For this he visualizes for example, even before the Alma-Ata "special sessions for curative treatment at Declaration, the Government proclaimed primary health care centres outside working that the people's health must be in their hours". own hands (1). Of course, given the prevailing modes of production, structure of Sliding down the slippery slope, the author society, and distribution of political power, considers the rivalry between ministries of health and labour for their share of the medical care service empire, and meditates on how the gods in the ministry of finance Professor Banerji is with the Centre of Social Medicine and Community Health, Jawaharlal Nehru University, can be propitiated so that more money can New Delhi 110067, India. be obtained for medical care. People and

64 Financing of health services their democratic aspirations seem to occupy dispossessed. Nor does the author refer to the lowest position in his scheme of things. instances of failure of privately run but state His approach is patently an above-down subsidized community-based health one. He thus comes perilously close to the insurance efforts in India, e.g., the projects group from the North advocating selective of voluntary organizations in Tamil Nadu (5) primary health care! and Kerala (6}. Thus, the experiences in India should have dissuaded him from Also, naturally, the European experience becomes his model-medieval guilds, voluntary and then compulsory health insurance programmes, culminating, after the Second World War, in national health services of various sorts. However, he disregards the bloody struggle of the working class for basic rights in Europe, and fails to point out that the decimation of the economies of developing countries through colonial exploitation and the continuing imposition of grossly unfair terms of trade have made it possible for the affiuent countries to enjoy their present level of health services. He mentions cost escalation harbouring any hopes of launching insurance in France, the Federal Republic of Germany, schemes to fund health services that could Latin America, and the United States, and cover entire populations in developing the positive cases of Denmark, Norway, and countries. the United Kingdom, but there is no political, social or epidemiological analysis. Political leaders like Gandhi and Mao, who The same blind spots lead him to admire the carried out intense and protracted struggles schemes in Indonesia, the Republic of against colonial exploitation and social Korea, the Philippines, and Singapore. His injustice, realized the need for moving away approving reference to the Indian scheme from the Eurocentric approach to the "covering more than 20 million people" promotion of health and health services in (out of 750 million) exposes yet another set their countries. Their struggles taught them of limitations: he omits to mention that the that there could be different approaches to two major schemes- the Central health service development, based on Government Health Scheme (2) and the self-reliance, and they pursued them in their Employees' State Insurance Scheme social and political actions. They were not (3)- concern only curative medicine, are against science and technology; but they highly subsidized by the state, and are run at insisted that science and technology should a very low level of efficiency (4). Thus, be harnessed to serve people, rather than instead of becoming a source of funds for serving commercial, social and political health-for-all programmes, these schemes vested interests. The Alma-Ata Declaration play the malignant role of swallowing can be considered to be the crystallization of substantial quantities of the very limited this affirmation. Thus, in addition to being a funds and technical manpower that could demanding social and political task, health otherwise have been deployed for extending service development in the Third World is a primary health care to the deprived and major technological challenge. It would be

65 Health care-who pays? simplistic to expect that the problems can be Ramsis A. Gomaa solved overnight: a long, grinding political struggle is in prospect. Powerful innovative -A matter for the international thrusts are needed in order to develop community as a whole people-oriented technologies. There would It would be wrong to expect individual be active opposition to this process from states to shoulder the entire burden of vested interests, and massive inertia achieving health for all, which would, as a associated with a deeply entrenched result, become little more than another of Eurocentric technological culture. the resounding slogans often enunciated but rarely acted upon in the poor countries. This is a matter for the international community as a whole, which has the potential for realizing health for all through the solidarity and cooperation of all countries, rich and poor, developed and developing, North and South.

The goal, however, is unattainable under the present world economic system, distorted by exploitation, monopoly practices, and By skirting the basic political, social and customs barriers-what we have come to technological issues and promoting the case call neocolonialism or masked colonialism. for funding health for all through insurance, Unless the prevailing economic con- Professor Abel-Smith provides a disturbing ditions are put right by. the international example of the obstacles encountered in the community, the chances of achieving health struggle to implement primary health care in for all will remain very slim. the poor and politically dependent countries of the South. D Professor Abel-Smith cites a number of objections to the idea of health insurance in 1. Government of India. Annual report 1977-78. some countries. I should like to add a New Delhi, Ministry of Health and Family Welfare, 1978. pp. 1-11. political objection, which is especially 2. Government of India. Annual report 1984-85. relevant where the national constitution New Delhi, Ministry of Health and Family Welfare, provides that the state shall be responsible 1985. for providing health care for its citizens, 3. Employees' State Insurance Corporation. Annual implying that burdening the citizen with report 1980-81. New Delhi, ESIC, 1981, p. IV. any charge, even a health insurance 4. Banerji, D. Health and family planning in India: an epidemiological, sociocultural and political analysis contribution, would be out of the question. and a perspective. New Delhi, Lok Paksh, 1985, pp. 295-296. When the Egyptian government introduced 5. Sanjivi, K.S. Mini health centres project of the health insurance in the early 1960s, it did so Voluntary Health Services Medical Centre, Madras. In: Alternative approaches to health care. Report of on the assumption that this would improve a symposium. New Delhi, Indian Council of Medical the free services of its the health units, and Research, 1976, pp. 149-162. hoped that health insurance would cover all 6. George, M.V. Community approach to health care services by popularising cooperative rural dispensaries. In: Alternative approaches to health Dr Gomaa is Director of the Health Survey Project and care. Report of a symposium. New Delhi, Indian Expert in Health Services Research, Ministry of Public Council of Medical Research, 1976, pp. 132-137. Health, P.O. Box 5, Safat, Kuwait.

66 Financing of health services state employees within three years. The resources are available. A scale of priorities experiment was successful within one must be worked out before proceeding. One restricted area, the governorate of of the indispensable components in the Alexandria, but a lack of funds with which insurance system is that due emphasis must to pay the government's contributions made be laid on the importance of the family it impossible to adopt health insurance in doctor's role and on the patient's right to other governorates. Subsequently there was a choose his or her consultant, wherever this tendency to adopt the direct health service is feasible. approach through a special insurance agency with all requisites, e.g., hospitals and Participation of the private sector in the doctors, but again the shortage of funds was health insurance system would allow the a formidable stumbling block. public to benefit from its considerable resources and would compel private It became clear from a survey launched in practitioners to compete with each other, Egypt in 1978 that the average cost of again in the patient's interest. Fees paid to health services provided to individuals was doctors should be proportionate to the met to the extent of 60% from the patients' quality of service provided, so as to give a own pockets, white the state contributed further incentive for the greatest possible 40%. Free health services proved to be very effort in the interest of patients. I agree with inferior both quantitatively and qualitatively. Professor Abel-Smith that remuneration Not more than 20% of the population, should be subject to the approval of consisting of urban employees but not their ministries of health when contracts are dependants, had access to health insurance. being drawn up with private medical All this encouraged private practice to institutions. Professional unions should also expand and its charges to soar and become participate in negotiations on maximum and intolerable not only to the poor but even to minimum remuneration. the better-off. It eventually became clear that the only way out was to introduce a The process of organization and admin­ new version of health insurance, allowing istration involved in applying a health participation of the private sector and the insurance system is very important and cooperatives, instead of relying exclusively requires a high degree of coordination and on the model introduced by the simplification of procedures, especially in government. collecting contributions in order to guarantee a steady flow of funds and thus In Kuwait, there is a move to let citizens ensure smooth functioning. Health share in the costs of a state health insurance insurance services should form part of a system aimed at achieving the greatest comprehensive health plan having specific possible degree of economy. Generally aims and being governed by indices related speaking, it is vital for health insurance in to the levels of health services and health any country to be able to meet all individual conditions. Resources and services should be and community needs in the health field, distributed as equitably as possible, so that including preventive as well as curative care. all participants, including those in remote Provision should be made for first aid, areas, get their fair share. family planning, child care, hospitalization, and health education, among other things. A health insurance institution should have Whether such an ideal can be attained an independent budget in order to be able depends, of course, on whether adequate to use contributions to improve services and

67 Health care-who pays? absorb new participants, for otherwise part and any expenditure above it had to be met of its revenue could be claimed by the state, by the consumer from his own pocket; the as happened in Egypt. It is incumbent upon result was a 32% cut in spending. the institution to earn the support of the general public on the basis of efficient In conclusion, health insurance is a way of services, improved information and health realizing social justice because it is based on education, and personal attention to solidarity and cooperation between the well participants' complaints and problems. If and the ill, the rich and the poor, and employers and employees. We call for an international health convention whereby the signatory nations would contribute in proportion to their financial capabilities. In this way it would be possible to establish a system of mutual responsibility for health care on the world scale. D

financially possible, training courses should be organized on a permanent basis for health Beatrice Majnoni d'lntignano personnel in the insurance system, so as to raise their efficiency and acquaint them with -Health for all at a price all that is new in medicine and public all can afford health, and thus further help them to win the confidence of their patients. The industrialized countries provide us with three examples of health systems: in the With a view to discouraging excessive United Kingdom the national system, prescribing of drugs, such as often happens financed by compulsory contributions and during an initial period of health insurance, taxation, sets a limit to global expense and it is essential to bring dispensing under strict to the amount of care, and offers the best control, although not to the extent that quality for cost in care for all. In the United legitimate requirements cannot be met. In States the liberal system, financed by private Egypt, the health insurance institution has insurance, offers a free choice of coverage succeeded in rationalizing the use of drugs and physicians and a high quality of care to by: those who can afford it, but is somewhat inequitable and costly. In the countries of raising the consciousness of both mainland Europe the work-related system, physicians and patients; financed by compulsory health insurance, drawing up a list of drugs that can be involves a fruitful combination of quality, dispensed to cover all medicinal needs; freedom, equity and reasonable cost. The using special packages to distinguish per capita cost of the British system is health insurance drugs from all others, one-third of that of the United States and thus preventing them from finding their half that of mainland Europe. Each of these way to private pharmacies.

Professor Majnoni d'lntignano is Economic Adviser to These measures have cut drug costs by 22%. the Paris Public Hospitals, 3 avenue Victoria, 75004 In addition, a cost ceiling was laid down, Paris, France.

68 Financing of health services systems has notable drawbacks and all afford greater than now: individual contributions useful examples from which developing and benefits seemed to be linked, and countries might learn. checking on the system seemed to present no major problems. When health insurance becomes general, however, contributions Work-related health insurance schemes have begin to resemble taxation, but they are been possible in European social democratic imposed by a bureaucracy without political countries because: sanction, and there is no longer anyone to employers were able to pay contributions monitor the relationship between cost and (in a context of slow growth and chronic quality, which deteriorates at every level. imbalance on foreign trade, however, The authorities then seek to limit businesses cannot meet these costs any expenditure and the care provided. Health more); insurance, which should be designed as a the working population was large in temporary measure, tends to develop into a comparison to the inactive population. national system, as is happening in France.

Such schemes have led to anomalies which On what basis should the funds for health Europe is finding it very difficult to remove. care be collected? In fairness, all forms of As corporatism develops, wage-earners, income should finance health, which means self-employed people, town-dwellers, and that a considerable amount of tax revenue rural groups contribute or benefit should be used. Where the work force is disproportionately. affected by poor health, bringing about absenteeism and low productivity, value-added tax can make up for social These schemes tend to become powerful security contributions, as long as it is bureaucratic monopolies. It is not always earmarked for health. If the added value is clear whether they are at the service of the known, this is a better method of funding patients, the providers of care, or their own than are contributions from employers on a employees. They make for irresponsible payroll basis, which increase the cost of conduct by the medical profession and the labour in relation to capital and, in the long people who are insured. The average price term, limit the creation of jobs and reduce paid by contributors is not the lowest the number of contributors. possible for the quality of care provided. There is too much high technology and too little prevention and basic care. Such Should insurance be relied upon rather than solidarity? Before the age of 40, the schemes, a luxury of ~ich countries, can waste money supporting more hospitals and probability of a person needing medical doctors than are necessary. attention is very low. After 50, it becomes very high. In a young population, insurance can finance essential needs: the many Is there a real difference between health healthy people assist the few sick. When a insurance contributions and taxation? Social population ages, as is happening in the security contributions are sums allocated and developing countries, it is necessary to managed by the beneficiaries. Taxation is provide powerful structures of solidarity so general, and its use is determined by the that the young help the old. Furthermore, political authorities. Initially, the desire and with economic development, the job ability to finance health insurance were structure changes: work-related health

69 Health care-who pays 7 insurance schemes can suffer from These principles should allow the imbalance between the number of establishment of new kinds of health contributors and the number of insurance systems. Professor Abel-Smith is beneficiaries. The very existence of these right in advising ministries of health to keep schemes can be threatened if financial organizational control of them. They could solidarity between them is not organized and help basic centres to survive by paying them accepted; wage-earners, for example, will for the number of patients cared for and one day be called upon to help farmers, their average state of health rather than for whose numbers are decreasing. the number of procedures or doctors involved. Bearing in mind the experience of Europe, should we still, as Professor Abel-Smith The idea of relying on health insurance in suggests, advise developing countries to set the early stages of development is a good up insurance schemes? Yes, we should. But one, but something other than the current perhaps we could advocate a new course, European systems will have to be set up if health for all is to be attained at a price that all can afford. 0

James Midgley -The advocacy of social assurance is questionable Social insurance in the developing nations has expanded remarkably during recent avoiding the snags encountered by European decades. Before the Second World War, it countries. Everybody should be free to was largely confined to certain countries of choose his or her system of social protection, Latin America. After the war, however, it be it of the state, health insurance, or became a popular way of providing income employer. In this way the population will support, health care, and other social gradually learn to choose the system offering services, and a great variety of insurance­ health care at the lowest price. Regrettably, funded provisions, ranging from family this kind of choice was not offered in allowances in francophone Africa to health Europe. In the United States the choice is care in India, were established. The presented very harshly, and there is an expansion of social insurance has continued appalling waste of resources. This freedom as the governments of many developing should lead the poorest people to buy health countries have replaced employer liability vouchers rather than opt for free care. schemes and provident funds with insurance schemes. Zschock (1) found that 48 of 90 Financial responsibility should be given to developing countries were using insurance providers of care by asking them to give all to provide medical services. care at an inclusive charge. This would steer the medical profession towards more prevention and basic care, and discourage The author is Professor of Social Work, Louisiana requests for high-technology equipment. State University, Baton Rouge, LA 70803, USA.

70 Financing of health services

But the expansion of social insurance in countries. Because the tax systems of many the developing countries has not been of these countries are highly regressive, an unqualified success. Problems of government subsidies for social insurance administration, finance, coverage and equity schemes produce a net transfer of resources have been encountered. from the poorest people to the better-off (4). These and other problems of social Administrative problems not only include insurance in developing countries are now inefficiency and maladministration but also well documented and there is a greater reflect the particular socioeconomic awareness of the need for what the circumstances of many developing countries International Social Security Association which make it difficult to assess incomes, calls "alternative forms of social protection" collect contributions, and pay benefits. In in the Third World. addition, the administrative fragmentation of social insurance schemes, especially in Latin Professor Abel-Smith's advocacy of social America, has led to a chaotic situation in insurance as a means of funding health which a plethora of social insurance agencies services in developing countries may caters for different groups of workers. therefore be regarded as somewhat anachronistic, especially since he recognizes Problems of funding have become acute. many of the associated problems. He is Inflation has eroded the value of benefits, particularly concerned about the creation of creating serious hardships for many people. a two-tier health service in which social Present economic conditions limit the insurance institutes provide high standards capacity of governments to provide of medical care to the minority of the additional funds to alleviate financial population in the modern sector of the difficulties. economy while poorly funded ministries of health provide inadequate services to the But probably the most serious problems are impoverished majority. He is also aware of those of coverage and equity. Many studies the problems of administrative inefficiency, have shown that only small proportions of wastage, and abuse associated with the populations of Third World countries insurance-funded health care programmes. are covered by social insurance. In Africa, But he is confident that these problems social insurance schemes often have can be overcome and that insurance less than 50 000 members in populations of contributions can be levied on those in paid several millions (2). Even in Latin America, employment, so as to release tax revenues to where social insurance is better developed fund health care for the majority. However, than anywhere else in the Third World, only a number of difficulties are raised by this a minority of the population is protected (3). proposition. Limited coverage of this kind has created an exclusive system of provision in which Firstly, while Professor Abel-Smith argues the better-off workers in regular wage that funding through insurance is an employment, the military, the civil servants, alternative to funding by taxation, it is and the white-collar employees are covered widely accepted that insurance contributions by social insurance, whereas the mass of the are just another form of taxation-namely, population engaged in peasant agriculture payroll taxes. If there are difficulties in and urban self-employment has no raising revenue for health care through protection. This pattern makes worse the conventional forms of taxation, they are not inequalities existing in developing likely to be eased by imposing payroll taxes.

71 Health care-who pays 7

Both employers and employees resist funding policies are required which will deal increases in insurance contributions, and with the particular problems impeding the their resistance is likely to harden once it is expansion of health care to the mass of the realized that the increases are intended to population. There may well be a place for subsidize health care for the uninsured. And conventional social insurance approaches, particularly in the newly industrializing countries with high levels of paid employment. But in impoverished agrarian countries with a small modern economic sector, the introduction of social insurance is unlikely to bring much in the way of tangible benefits to ordinary people.

Although Professor Abel-Smith touches on alternative forms of health care funding, he does not explore their potential in any detail. He argues that Third World countries that rely on tax-funded health services are both employers and employees in jumping two stages in the evolution of developing countries are politically well health care (as experienced by the industrial placed to oppose such increases. nations), namely voluntary and compulsory insurance. Although it is debatable whether A second difficulty is the assumption that there is any natural evolutionary progression the minority paying insurance contributions in the development of health care, the idea would be content to use the same health of voluntary insurance is an important one. services as the poor. Even if they were State-supported insurance cooperatives of given special privileges, as Professor peasant farmers and self-employed artisans Abel-Smith suggests, members of insurance and traders could mobilize resources for organizations would probably demand and health care and provide services to many receive their own exclusive facilities. The who are at present excluded from modern exclusivity of the insurance approach is social insurance schemes. This is a amply demonstrated in developing countries potentially useful form of funding which is with schemes of this kind. Attempts in still very underdeveloped in the Third Brazil, Mexico, and other countries to World. Indeed, Professor Abel-Smith's extend the services provided by insurance evolutionary model would suggest that agencies to the rest of the population have voluntary insurance of this type should not been notably successful. precede the compulsory type of provision he is currently advocating. The problems of providing health for all are indeed formidable and there is an urgent Another potentially useful form of need for new approaches that will deal with innovative policy referred to briefly by the problems of health care funding in the Professor Abel-Smith is that of levying Third World. The advocacy of social revenues on crops specifically to fund health insurance as an alternative method of programmes for rural people. This approach financing health services in developing has been used in Greece for many years but countries is questionable. What is needed there has been little empirical research into instead is innovative policy-making. New its effectiveness (5), and few assessments

72 Financing of health services have been made of its potential value in the phenomena has encouraged a search for Third World. Professor Abel-Smith also balance, and social security programmes in refers to social assistance as being potentially many countries have sought some degree of useful, and recently there has been some justice in the distribution of wealth and discussion about its role as an alternative income. form of social protection in developing countries (6). His proposal for prepaid health In parallel with economic development, care through the purchase of vouchers from life-styles and concepts of health and illness village traders is also interesting, and have been profoundly transformed. As requires more detailed examination. the factors that produced illness were Although these innovative funding policies discovered, it became possible to adopt require systematic evaluation, they offer a preventive measures. The realization that far better prospect of meeting health-for-all good health depended on a whole range of requirements in the developing nations than economic and other conditions made it does the replication of conventional social possible to work towards people's well-being insurance approaches that have already been in the broadest sense. Health stopped being investigated and found wanting. D simply regarded as the absence of illness.

1 . Zschock, D. K. International social security review, 34: 3-16 (1982). Unfortunately, in the developing countries, 2. Mouton. P. Social security in Africa. Geneva, resources of the kinds needed for health International Labour Office, 1975. development are very scarce. In some areas, 3. Paillas, C. A. International social security review, the current situation is worse than that of 32: 288-303 (1979). several decades ago. And, ominously, 4. Midgley. J. Social security, inequality and the people's expectations are often far higher Third World. Chichester. John Wiley & Sons, 1984. than is warranted by the real possibilities 5. Andricopolous. C. International social security of satisfying them. review, 29: 18-48 (1976). 6. Midgley, J. International social security review, 36: 247-264 (1984). Many developing countries export agricultural produce to markets where competition is very severe; their economic structure is outmoded and their poor are heavily burdened by excessive indirect Guido Miranda Gutierrez taxes. Consequently, the prospects for a - Ministries of health redistribution of wealth are not good, and and social insurance agencies significant improvements in the must work in harmony health-generating factors of nutrition, housing, clothing, drinking-water supplies, The accelerated production of wealth electricity, and sanitation seem remote. brought about by industrialization initially Low-density rural populations lack the caused a greater emphasis on economic than main structural elements necessary for on social development. In recent decades, development, and face the continuing threat however, a better understanding of social of illness before health promotion can come to the fore. Any progress that is achieved results from short-term measures, yet Dr Miranda Gutierrez is Executive Chairman of the Costa Rican Social Security Fund, Apartado 10105, advances in health and education need San Jose, Costa Rica. sustained action.

73 Health care-who pays?

Most of the social insurance institutions perhaps less pressing. Nowadays it is established in Latin America some 50 years politically unavoidable. There is now ago still only provide coverage for salaried a widespread desire to abolish the employees; family benefits are minimal, long-standing division between insured health care facilities carry high maintenance populations receiving costly health care on costs, there is a trend towards the use of the one hand, and uninsured populations highly complex technology, and organization with poor services on the other. is bureaucratic and ponderous. Thus there is an inbuilt resistance to progress in this field. The conventional social insurance agencies The developing countries are suffering from cannot finance health for all. Yet social inflation, reduced export prices, increased insurance is the only means by which import prices, and a hard currency deficit coverage is provided in developing countries for economically active, salaried, or self-employed people through schemes to which employees, employers and the state contribute. The system is self-financing and

Most of the social insurance . w ,~ ~' has a greater freedom to implement new h\$titutions established.·ln ldrii• :· ;,;~:'·;: health care programmes than does that Amel'iqa some 60 v.-rJ .--~ ,t~n;, ::.'\ ~, derived from rigid taxation. It is the best · employees.~ pft)vide coverage...... 1Pt ...... sat•.WI ' ...... ':. . vehicle for the expansion of health care both in urban and rural areas. With state support, it can cover the segment of the population that is not economically active. leading to progressive indebtedness. The The extent to which health care is financed future is uncertain because of the magnitude for members of a scheme will depend on of the problem and the sluggishness of the the degree of horizontal and vertical recovery mechanisms. In facing this development of the social security system. economic deterioration, many of these National budgets, which mainly obtain their countries have concentrated on maintaining revenue from taxes, can largely be allocated whatever standards have been reached, to health ministries, freeing them from the rather than attempting improvement. expense of treating illness. New hope arises Consequently, there has been a notable when health ministries and social insurance decrease in investment in social agencies begin to work in harmony, thus development that might have given rise to getting away from the duplication of health gains, and in programmes for health services. Health care programmes should care and the prevention of illness per se. be part of a national policy on public expenditure, training, and the optimal use of The goal of health for all has profound resources. The scarcity of resources in the social and economic implications, seeking to health sector makes it essential to take firm raise the social value and the dignity of the action for the establishment of national individual. It was set, however, under health care systems based on ministries of economic circumstances that were more health, social insurance, and the community. favourable than those of today. In the much better economic conditions of the 1970s, a Ministries of health should be responsible review of socioeconomic structures was for nutrition programmes, curative care,

74 Financing of health services environmental health, and health education. Gerd Muhr The aim should be to develop all these spheres of activity, and to give particular -The state must assume emphasis to coordination with other the responsibility of providing agencies or ministries. For their part, social equal care for all insurance agencies should seek to establish new, simplified, low-cost services Professor Abel-Smith's arguments may be appropriate for primary health care. This interpreted as a plea for supporting the process is, as a rule, particularly favoured in health sector in developing countries by rural areas, where the people lack services means of social insurance. In any such and are eager to participate in solving their undertaking it is important to avoid certain problems. Pressure from high-technology structural errors which, in many countries urban centres must be resisted. Clear with insurance-financed health care, have statements of national policy on the health already led to escalating costs, social sector can greatly improve the prospects of imbalance, false priorities, and the progress. encouragement of curative as opposed to preventive medicine. Experience in the Federal Republic of Germany, where social In the past, the groups to which services insurance finances most health expenditure, were delivered had little or no scope for largely confirms Abel-Smith's remarks about expressing themselves. Let us not forget that these distortions. social insurance institutions in many Latin-American countries were born of I should like to give a brief description of political expediency; in very few countries the situation in the Federal Republic of were they a direct outcome of working-class Germany and then outline the kind of struggle; in many they are a privilege of structural reform which, in the view of the minority sectors. Their expansion today country's trade union federation, needs to be must take place with active community made if the distortions are to be corrected. participation. Communities frequently surprise the onlooker by their dynamism, In the Federal Republic of Germany we their great ability for learning, and their have witnessed a marked growth in readiness to cooperate, especially in primary expenditure by health insurance funds, health care programmes. To a certain extent especially since the early 1970s. Expenditure it is the first time their direct help has been has risen from about US$ 7000 million in requested, and leaders in this field are quick 1970 to about $ 3 7 000 million in 1985. As to appear; the cost of their training is small a result the rates of contribution were raised and their actions are quickly accepted from 8.2% in 1970 to about 12% in 1985. because the people concerned are familiar Almost all experts are agreed that this trend with the communities in which they work. will continue unless the cost-increasing structures are altered. There is broad agreement that the present proportion of the Circumstances require that the social national product spent on health care is security institutions, if they are to meet sufficient to maintain standards, including community needs, should increase their direct and indirect revenues, decrease their Mr Muhr is Vice President of the Trade Union operational costs, and implement new Federation, Post box 2601, 4000 Dusseldorf 1, modes of health care covering all citizens. D Federal Republic of Germany.

75 Health care-who pays?

the introduction of new advances in • The structure of health insurance follows medicine, if the appropriate structural no unified principle: geographically-based, changes are made. occupation-based and company-based insurance funds exist side by side, with Besides the cost expansion, some other the result that they compete for members. shortcomings and problems can be observed: This is often an obstacle to cooperation on essential health policy issues. over-supply in some areas and under-supply in others; • The relationships between health a tendency towards an excessive use of insurance funds and providers of services technology, especially in diagnosis; are particularly important. The major responsibility for providing outpatient an emphasis on curative medicine; care lies with the physicians or their undue concentration on somatic professional bodies. Consequently, health illnesses; care has a monopolistic structure, in neglect of prevention and psychosocial which private medical practitioners problems. occupy a key position. The resulting divisions between the various areas of It certainly cannot be maintained that these medical care and between the health and distortions are directly linked with the social services tend to hinder integration. insurance principle. The blame has to be • The system of fees for individual services placed instead on specific organizational pushes up costs-as Abel-Smith stresses -and requires a structure of service facilities that makes little sense nowadays from the medical viewpoint: "machine medicine" has been unduly expanded to id certain · \inmany the detriment of physicians' consultations and house calls. cc. . financed he~ltll (;firi )iy ted to e$O~~~~iog· ~~~; • . . ./{mbal~nce, These examples should make it clear that f~bh\t.pri~l:iti,&s~ and ttlt: enpOurage- distortions are produced by policy factors ment Qfcu,.tive as o~sed· relating to organizational structure, .. to preventive medicine. regardless of the form of funding. However, it should be mentioned here that, in the Federal Republic of Germany, the health insurance funds themselves can fix the rate of contribution, which must cover aspects of the service and financing expenditure. Resources are distributed in structures. In this connection, the following response to the persuasiveness of the points should be noted. providers of services, not in accordance with priorities governed by standards and policies. • Responsibility for health care in the The situation has led to a constant Federal Republic of Germany is extremely expansion of the portion of health fragmented, not only within the state­ expenditure financed from insurance organized services but also within the premiums, whereas the portion financed health insurance sector and among the from taxation has dwindled. Thus providers of services. Abel-Smith's analysis is again borne out.

76 Financing of health services

As a result of these distortions, discussion of sources should contribute according to health policy in the Federal Republic of the activities concerned. Germany has concentrated increasingly in recent years on alternative structural It is our belief that such adjustments to options. Economists have suggested radical structural policy will make it possible to market reconstruction, but their ideas are remove most of the distortions in our health not politically practicable and in any case service system. would blatantly infringe the principle of equality. The following are what the It cannot be denied that the financing of country's trade unions consider should be health care by insurance allowed the medical the guiding principles for reform; they services infrastructure to be built up very largely accord with Abel-Smith's suggestions. There is a need to create overall responsibility for health policy at the state, regional and local levels, whereby common objectives and priorities are made binding upon all concerned. Budgeting should become a major instrument for achieving these priorities, and is a prerequisite for the integration of medical and social services. quickly and medical advances to be rapidly Fees for individual services and the introduced into everyday practice. However, payment of hospitals per day of care certain structural policies have led to should be replaced by flat-rate systems substantial errors in the allocation of and payment for groups of services on resources, as a result of which health the basis of diagnosis. services sometimes do not correspond to Relations between health insurance actual needs. This was possible because the funds and providers of services should be country's gross national product increased at so arranged as to create a balance of relatively high rates over a long period of power. time. In view of the change in economic conditions, it is unrealistic to expect this The fragmentation of services­ process to continue: even the richer especially the separation of the health developed countries will no longer be able and social services-should be to afford to squander their resources in this counterbalanced by integrated forms of way (although they will no doubt continue health care. This ultimately means that to squander them on armaments on a grand regional organization should come to the scale). fore, with the active participation of the general public. This applies still more to developing Mixed funding systems need to be countries, which should try to avoid introduced to pay for services and repeating our structural errors, since these therapies with simultaneous medical and would have even more unfavourable effects social inputs, e.g., psychiatric care, than in the developed countries, particularly nursing care, and integrated as regards equality of access to health care; rehabilitation. The various financing for example, the importation of

77 Health care-who pays 7 high-technology medicine would be Milton I. Roemer available to only a small number of privileged people. -Social insurance has great political acceptability We therefore consider it extremely important that the state should assume Professor Abel-Smith has presented very responsibility for health care, setting itself well and concisely the many reasons for the objective of equal care for all in using social insurance to increase the accordance with the World Health financing of health services in developing Organization's concept of primary health countries. Of the 85 countries that now use care. this strategy for medical care coverage of varying proportions of their populations, Beside this central consideration, the form about half are in the developing category. of financing-taxation or insurance-seems The general trend in these countries has of secondary importance. But it has to be been towards a gradual extension of both admitted that Abel-Smith's concept of a the population insured and the services form of mixed financing that takes into provided. account the prevailing policies on structure is very convincing, even if the danger that His essay is wise in stating, and then inequalities will develop cannot be ruled rebutting, the various arguments against out. Ultimately, the choice of a financing health insurance-mainly its limitation system will be governed partly by the to regularly employed industrial and criteria of profitability and fair distribution commercial workers who, along with their of the tax burden. employers, can make periodic contributions, something unfeasible for rural families. A system financed by health insurance has Included are the arguments about reducing an advantage over one financed by taxation equity and aggravating the advantages in that it does not have to compete with already enjoyed by city-dwellers. But I other items of state expenditure. Whether would add still another rebuttal to those funding from health insurance contributions presented. is fairer than funding from general taxes depends on the specific design of the tax About ten years ago I studied the health system. As a general rule, the tax burden on sectors in 12 Latin-American countries, the lower income groups rises in proportion focusing in each on the strength of the with the share of taxation that is levied on ministry of health and the social security consumption, unless taxes on consumer programme. I tried to find out whether goods are graduated, for example, by strong social security health programmes, as imposing higher rates of tax on luxury indicated by the percentage population goods. coverage and per capita expenditure, were associated with relatively weak ministries The use of social insurance to finance health of health, as indicated by per capita care offers good prospects for development if the state assumes the responsibility of providing equal care for all and if policy The author is Professor of Health Services, School of instruments are directed towards this Public Health, University of California, Los Angeles, objective. D CA 90024, USA.

78 Financing of health services expenditure and the percentage of the total value of integration in the delivery of all government budget going to health, and vice health services. This has been demonstrated versa. Such relationships seemed likely if in Burma, Egypt, India, and Tunisia, where ministries of health were right in regarding the health services for social security social security programmes as troublesome beneficiaries are managed largely by the rivals. However, among the 12 countries, ministries of health. Even more supportive those with the largest social security is the mechanism used in Brazil, Italy, New programmes also had the strongest ministry Zealand, and Nicaragua, where a substantial of health programmes, while those with the share of ministry of health costs have been smallest social security programmes had the met by social security funding. weakest ministries of health. In developing countries, social insurance From these findings, it can be inferred that cannot be expected to cover a high making contributions from wages and percentage of the population at the outset. payrolls into a social security fund captured money that would otherwise have been paid to private doctors, pharmacies, and other elements of the urban private sector. There was no effect whatever on tax appropriations for ministries of health, which, in fact, as Professor Abel-Smith notes, were thus able to give more attention than would otherwise have been possible to rural people lacking social security coverage.

In contrast to the situation in Western Nor can agricultural workers and peasants, Europe and North America, social insurance with low and unstable wages, be expected to in most developing countries does not make regular contributions to an insurance support payment to private providers-with fund; yet these are the majority of the all the extravagances this generates. With work-force in developing economies. Health two principal exceptions in Asia (the insurance coverage in such countries must Republic of Korea and the Philippines), start by covering the small proportion, insurance income typically finances perhaps only S-1 0%, of the population in organized health care delivery by salaried industry, commerce, government service, personnel in polyclinics and hospitals. A or mining, where wages are steady and given expenditure supports service far more contributions can be collected regularly from efficiently this way than by the perverse workers and employers. In time, as commercialized patterns of private practice. industrial development proceeds, coverage Furthermore, a nation's overall resources for can expand; in several Latin-American health care (hospitals, polyclinics and health countries over 50% of the population, centres) are enhanced. counting dependants, is now covered.

Fund-raising by the insurance device does Social insurance is essentially a tax not mean that the services financed must be earmarked for the provision of old-age provided through a subsystem entirely pensions, unemployment benefits, health separate from the ministry of health. services, or other specific items. Its Professor Abel-Smith wisely points out the enormous growth throughout the world is

79 Health care-who pays? due largely to its great political acceptability, In order to evaluate the pros and cons of in contrast to financing health care through health insurance, answers to the following general revenues that also have to meet questions are necessary. other highly visible purposes, such as defence, road-building, education and Are the negative aspects of health care agriculture. An earmarked health insurance in the countries where insurance exists fund does not have to compete with these due exclusively to the functioning of the other governmental programmes, and it is insurance mechanisms? also protected from invasion by their Can alternative mechanisms prevent financial claims. The insurance device such negative effects? means self-help and self-reliance; the people are paying for their own health care. But Seeking answers to these questions could be they are doing it in advance of sickness, on based on a comparison of experiences in a group basis. countries with different financing systems. Ideally, in order to obtain the best possible In time, after health insurance has analysis, health systems similar in every demonstrated its value for all to see, the respect except for the presence or absence political dynamics often lead to a second of insurance should be compared. stage. As has been shown in Sweden, the Unfortunately, the complexity of social United Kingdom, and elsewhere, health reality and health care systems makes this insurance can pave the way for a national impossible, and a comparative analysis health service, financed largely from general cannot, therefore, provide definitive revenues, and covering everyone. D answers.

The strongest objections raised against insurance, as summarized by Abel-Smith, are the following: it encourages curative medicine; W. Cezary Wlodarczyk it is detrimental to prevention; -Health insurance an antidote it contributes to the medicalization of to bureaucracy social problems.

The question raised by Professor Abel-Smith Other negative aspects concern the is relevant to developed as well as favouring of urban populations and the developing countries, since not only the necessity of queueing to see doctors who latter have difficulty in gaining sufficient tend to arrive late and leave early. The resources for health services. The problem of evidence from many countries indicates that how resources can be utilized to the greatest such problems are closely bound up with possible advantage is a matter of concern for insurance systems. However, it has to all countries. be said that curative medicine has been favoured by general trends in the philosophy of medical sciences rather than by the establishment of particular financial Dr W~odarczyk is Head of the Organization and solutions. Insurance is also said to have an Management Section of the Institute of Occupational Medicine, 8 Teresy Street, P.O. Box 199, 90-950 adverse effect on health management in t.odZ, Poland. general, but in my view it is bureaucracy

80 Financing of health services that brings about this state of affairs, rather no equal and universal access to health than health insurance itself. In Poland, services; shortcomings of the health service similar premium differentiation; to those attributed to insurance in other differentiation of services, those received countries may be caused by quite different depending on the contributions paid. managerial and social factors. The most striking point here seems to be the Any assessment of the likely outcome of an rejection of equity as a preponderant value insurance scheme in a given country must of health care organization. This is a drastic take account of the level of health service departure from official strategy on health for development and of health policy priorities. all, in which equity is treated as the main Where coverage is small and there are goal. In theories of health management charges for health services, the immediate advantages of insurance are obvious: it helps to increase coverage and releases the insured from the risk of having to pay fees. But it is worth considering the advantages of insurance in countries with a high or full coverage as well as unpaid access to health services. Before this can be tackled, however, a certain prerequisite would have to be met. Abel-Smith assumes that the term "health insurance" is unequivocal and that its advantages and disadvantages can therefore be determined with precision. based on socialist ethics or welfare state Unfortunately, the term takes on different ethics, equity is usually favoured over meanings in different contexts. It often efficiency. However, the development of happens that a citizen entitled to health health care based on the rule of equity can services is called "the insured" and that a be harmful to the principle itself. A lack of tax is called "the premium", and one may resources makes the realization of equity gain the impression that a system is based impossible, and formal barriers to access, on the concept of insurance even where this now abolished, are replaced by a physical is not so. Thus in the Polish national health inability to meet the demand. At this point service, where the notion of "insured" is the insurance option may be tempting, not regarded as a key one, being "insured" only because it enables additional funds to entitles a person to free health care. The be obtained, but also because a specific citizen who is not "insured" has no access to change in attitudes becomes possible. The free health services, cannot buy prescribed health insurance option, as understood here, medicines at a reduced price, and has no makes it possible to restore an awareness right to many welfare services. Less than 1% of connections between participation by of the population remains in this category. individuals and groups in health care Nevertheless, it cannot be concluded that financing on the one hand, and services the true insurance approach has been rendered on the other. adopted in the Polish health service. In many contemporary health systems, with In theory a health insurance system should both budgetary and insurance financing, have the following characteristics: there is no longer any awareness of such

81 Health care-who pays? links. Where health care has come to be There is a long list of possible solutions. regarded as a right, guaranteed by the state, Even more important, they can be adjusted the utilization of health care facilities has to the preferences expressed by the insured exploded, even in countries with no people. The introduction of health insurance explosion of health care costs. In Poland, for may not be contrary to the principle of example, the mean numbers of contacts that equity in health care but only to the urban dwellers had with the health services excessive uniformity that suits bureaucrats. D in 1960 and 1984 were 7.5 and 11.1 respectively. A reversal of the trend cannot be achieved unless psychological change occurs, in particular the development of a

Professor Abel-Smith replies

I am sorry to have caused Professor Banerji so much annoyance by not repeating so much of the common ground that exists between us and by not writing an article on a different subject. We are, however, clearly in agreement that many of today's insurance schemes have perpetuated or created unacceptable privilege. Moreover, I was very careful not to say which, if any, of the schemes I mentioned met all my criteria. sense of personal responsibility in health Neither of us would want to see an matters. The introduction of an insurance insurance scheme launched which could scheme might well help to bring this about. never cover the entire population. But I see no objection to people in regular If insurance is to be effective both economi­ employment paying specific contributions cally and socially, the people have to accept for much the same services as those used by an increase in their contribution towards people not in this position, thanks to funds financing health services. An element of derived from taxation. choice can be present even if compulsory insurance is adopted; in this case, premium I looked in vain to find Professor Banerji's differentiation has to be matched by service solution to the problem that I was writing differentiation. A homogeneous scheme about. I cannot agree that funding is gives no scope for satisfaction on the part of "secondary" and "a question of budgeting people wishing to pay extra for better care. and making financial adjustments" once Where general coverage and free access to people control their health services. Surely health services are already established, he is not expecting poor communities to insurance could bring about improvements pull themselves up entirely by their own in services. These could include: a free bootstraps. Tax money could be channelled choice of doctor; home visits instead of to these communities if the better-off were outpatient services, particularly for babies; made to pay for their health services by and treatment of emergency cases by family insurance, and this would surely help the doctors, instead of by unknown specialists. poor to build better services and to do so

82 Financing of health services more quickly; this is bound to be a contributions financing it are just another top-down process. And it seems to me that form of taxation. But in many developing support from the finance ministries will be countries it is a tax which is not yet used or necessary, no matter who ends up in control not used to its full potential. My concern is after "the long, grinding political struggle". that ministries of health should bid for this Moreover, I dared to suggest that such extra revenue before it is claimed for other support might even be won now, as the purposes, and use it, as Dr Miranda year 2000 is not that far ahead. Gutierrez suggests, for "new, simplified, low-cost services appropriate for primary Professor Midgley restates all that has gone health care". These would, of course, wrong with health insurance in so many include preventive services, as Dr Gomaa countries and reminds us that the rightly stresses. 0

83 Health care-who pays 7

Health insurance: some considerations

If your country already has health Financial master plan insurance It is important that a financial master plan exist in Does it include prevention? every country, giving estimates of funds Is it built on primary health care principles? obtainable from public, private and foreign sources. If your country does not already have Does it promote equity or create privilege? such a plan, you may wish to consider: What say has the Ministry of Health about its resources and how it uses them? distributing to key officials and training institutions the WHO manual on this What would it cost to give the uninsured the subject;* same services as the insured? holding seminars to promote awareness How could health insurance be adapted to among senior staff of the importance of conform better to health-for-all objectives? financial planning; organizing a national workshop on financial If your country has no health insurance planning for health; including an element of financial planning in Whom could it cover? (What proportion of courses on health management and health the population is made up of people in planning; regular employment and their dependants?) undertaking a study on health financing and Is there a social security scheme on which it health expenditure in your district or could be built (e.g., occupational injury, country; provident fund)? contacting institutions that can provide basic What could the insured be offered for their training for the health sector's financial contributions without undermining planners, providing fellowships for such health-for -all goals? training, and developing a training programme; Health care can also be financed by: reviewing the financial implications of your daily work - where do your financial • obtaining more tax revenue, possibly as resources come from, do you spend them earmarked taxes; wisely, and are additional resources available • attracting more external cooperation; locally? • requiring employers to provide defined services; • introducing or raising charges for government services; • encouraging fund-raising by nongovernmental organizations; • stimulating community financing and voluntary health insurance; • economizing through more efficient use of * E. P. Mach & B. Abel-Smith. Planning the finances of the resources; health sector. A manual for developing countries. Geneva, World Health Organization, 1983. Available from the • reorienting priorities within existing services sales agents listed on the final page of this journal or or selecting less costly methods of service from the World Health Organization, Distribution and delivery. Sales Service, 1211 Geneva 27, Switzerland.

84 Part 3: Empirical evidence on the economics of Health for All

These six articles show at what an early stage the assessment of Health-for-All costs and their determinants remains. Grosse & Plessas review the costs and coverage of seven primary health care programmes. The larger-scale programmes were found to have lower per capita investment and operating costs than the demonstration projects.

The Kasongo project team, reporting on a project of intermediate size, provide evidence of a low-cost system in which local financing (based on a flat fee per episode of treatment) is responsible for almost half the operating costs of health centres. By separating the fixed and variable components of project cost, informed estimates can be made of the costs of expanding coverage.

Stinson's review of experience in over one hundred community financing initiatives contains many lessons: "the choice generally reflects national budgetary constraints, not the communities' willingness and ability to pay. Community financing would be more viable if planners started by studying demand." Unrealistic expectations and frustrated plans result. The partial role of the community and the parallel needs to reallocate current resources and explore all other financing possibilities are emphasized.

Jajoo et al. produce what Stinson called for-a case study. Underutilization by the needy, underpayment by the more prosperous, and the need both to decentralize access to village health workers and to refer complex cases were all experienced in this project in Maharashtra (India). The establishment of an insurance scheme took several years, owing to doubts and suspicion, but it now finances 84% of the very low village health workers' costs. A second case study by Jancloes et al. details partial self-financing by a carefully designed selective fee system. The respective roles of government and the local community in administering the project are also described.

The final contribution provides empirical material in relation to the question of cost increases, discussed in the preceding section. Switzerland's health care costs, in particular those of its hospital services, rose rapidly between 1966 and 1982. The percentage share of health in gross national product more than doubled from 1960 to 1980, and the country's health system incentives are said to be "cost-generating, not cost-saving". Policy options to increase the competitiveness of the health care industry are suggested. In the discussion that follows, budget limits and closer regulation of health costs in other industrialized countries are shown to have been effective. These achievements may be significant for the poorest countries if they allow the release of resources for use in well-planned primary health care actions.

85 World Health F01Wm, 5: 226-230 (1984)

Robert N. Grosse & Demetrius J. Plessas Counting the cost of primary health care

A study of seven primary health projects in different countries has estab­ lished that large-scale programs offer primary health services more cheaply than demonstration projects do. Health sector planners should re-examine their strategies for the expansion of primary health care in the light of this finding.

In recent years there has been a growing real­ projects from the standpoints of cost and cov­ ization that it is impracticable to try to extend erage. At the moment, donor countries, bi­ modern health services to the bulk of the peo­ lateral assistance programs, and international ple in developing countries through a physi­ development agencies appear to favor "inte­ cian- and hospital-based system of the urban grated" approaches to primary care, opting type. Moreover, the kinds of health services more often for demonstration projects rather needed by low-income rural populations rarely than large-scale programs linked with local involve high technology. Thus, many coun­ ministries of health. This article examines costs tries, following the Alma-Ata Conference and and coverage in three large-scale and four other initiatives of the World Health Organiz­ demonstration programs. ation, have decided to adopt an approach to Lack of interest in cost analysis characterizes rural health that is largely based on auxiliary the whole range of health activities, but it is medical workers living in, and supported by, particularly pronounced in the case of primary the community. There are considerable vari­ health care, probably because of the diversity ations in the way this approach, usually known of the activities involved. Shortcomings in­ as primary health care, is applied and imple­ clude poorly defined concepts of cost, the use mented in different countries. of services irrelevant to the community's There is disagreement between the propo­ needs, the performance of costly studies and nents of a comprehensive approach to primary surveys that are not essential to the actual task care and those who consider that such an of providing primary health services, and the approach is too expensive but that programs continuous absorption of technical assistance for the control of specific diseases, such as costs-particularly in demonstration pro­ tuberculosis, schistosomiasis, and malaria, jects-by activities that are often reproducible could be handled with available technology at from one country to another. low cost and would have a considerable impact on mortality and disability. Another disputed The Field Projects issue is whether large-scale programs offering primary care are superior to demonstration The field projects studied were three large­ scale programs in Afghanistan, the Dominican Republic, and the United Republic of Tanzan­ Drs Grosse and Plessas are, respectively, Professor and Associate Professor in the Department of Health Planning ia, and four demonstration projects-namely, and Administration, School of Public Health, University of the Montero project in Bolivia, the Cali project Michigan, Ann Arbor, Ml, USA. in Colombia (known as PRIMOPS), the Danfa

86 Empirical evidence project in Ghana, and the Narangwal project in numbers of people in remote rural populations India. Studies were carried out on site in Bol­ in a relatively short time. ivia, the United Republic of Tanzania, and the The demonstration projects were quite small Dominican Republic, but for the other four by comparison, with a population coverage programs we used data provided by the organ­ ranging from 11 000 to 22 000. With one izations responsible for them. 1 exception, they were designed by American The projects examined varied markedly. The universities, which also took part in studies and large-scale programs were older, run by minis­ experiments that added to total costs without tries of health, and provided primary health extending coverage, although this does not services through decentralized rural dispensa­ appear to have been part of the original plan. ries and health centers using a wide variety of health workers living in, and supported by, their communities. They have achieved a mass coverage ranging from a "high" of 80% of the population in the United Republic of Tanzania to a "low" of less than 10% in Afghanistan. In the United Republic of Tanzania, health care was delivered mainly through rural dis­ pensaries and health centers, the major services provided being maternal and child care, first aid, health education, environmental health All four projects were subsidized to a consider­ services, initial treatment of serious illness, and able degree by the US Agency for International referral to health centers. A variety of primary Development and offered a wider range of pri­ health workers were employed, ranging from mary health services than did the large-scale village medical workers and health auxiliaries programs. to rural medical aids and medical assistants. The Danfa project in Ghana, the second In the Dominican Republic, too, extensive oldest project in this group, was located in one use was made of local health workers, but ser­ of the country's 60 rural health centers. The vices were confined to communities in rural area was selected in 1970 as the site for an areas with extremely limited access to other innovative, cost-effective health care system types of health service. This had an impact that might serve as a model for the other health both on coverage and on investment and oper­ centers. However, it was burdened with a ating costs. Services were primarily aimed at number of atypical operations that added to women and children and initial treatment and costs without improving coverage. These in­ referral activities were minimal. cluded family planning studies, special epi­ The program in Afghanistan, which is sup­ demiological surveys, community laboratories ported by UNICEF, has emphasized the dis­ for Ghanaian physicians, and other related pensing of drugs by village health workers, and research. There were three satellite units, pro­ the provision of maternal and child health ser­ viding health education, family planning ser­ vices by trained birth attendants (dais). The vices, and immunizations respectively. somewhat narrow range of primary health ser­ The Narangwal project in India was in­ vices was compensated for by an active train­ tended to study upward referral to a hospital ing program for both village health workers from six sites in the locality. It provided basic and dais, which extended coverage to large health services but had no outreach to the community and covered only a limited popu­ 1 These are the Johns Hopkins University for the lation. Narangwal project in India, Tulane University for the Cali project in Colombia, the University of California at The project in Bolivia had no university con­ Los Angeles for the Danfa project in Ghana, and Man­ nection, suggesting that it included no experi­ agement Sciences for Health for the program in Afghan­ ments or innovations. It relied on promoters to istan. bring basic services to the community (mainly

87 Health care-who pays7 in the form of drug supplies), but had consider­ of investment costs required special care since, able difficulty in keeping its staff and resupply­ in many externally funded projects, investment ing the promoters with drugs. It operated with­ costs are not kept separate from operating costs out drugs during 1978-79 and came to an end but are merged in the total costs. shortly afterwards. In estimating population coverage, we con­ The project in Cali, Colombia, was an urban centrated on accessibility, that is, the number one. It trained health workers to make regular of people who could reach and use the services. house visits and had health posts for women Where trained health workers were stationed and children outpatients. It used existing in villages, we assumed that the population was buildings and the equipment of other health covered. Where health centers had responsibil­ centers-which kept costs low-and reached ity for a number of rural villages (or rural resi­ between 80% and 90% of its target popu­ dents who did not live in organized communi­ lation. ties), rough estimates of population density and distances from health centers were made. As Measurement of Costs and Coverage the distances lengthened, increasingly lower For operational convenience, costs were percentages of the population were estimated classified into investment costs and operating to be covered, the estimates being based on costs. previous surveys of relationships between dis­ Investment costs include the one-off outlays tance and utilization in developing countries. required to establish a fully operational pro­ Discussions with project managers were also gram. They primarily depend on the program's helpful in estimating coverage. size, the combination of services, the manner The Findings of providing them, and production capacity. They cover: The table summarizes the findings for all research and development; seven sites. Per capita costs, as a percentage of per capita gross national product (GNP) evi­ facilities and major equipment; dently vary significantly. The large-scale pro­ initial inventories of supplies and drugs; grams are substantially less costly. and The two largest programs, those in Afghan­ initial training of manpower. istan and the United Republic of Tanzania, Operating costs are the recurrent outlays have per capita annual operating costs of one required to operate and maintain the pro­ US dollar or less, which is from 0.3% to 0.6% gram's levels of service. They cover: of the per capita GNP. Investment costs are also low, particularly in Tanzania, where they staff salaries, allowances, and other ben­ reflect the program's age and high utilization efits; rate. In the Afghan project, the rate is about replacement and maintenance of equip­ one visit per capita per year, lower than those ment and facilities; of both the others, probably because of the replacement training; program's relatively short existence and re­ liance on extensive staff training rather than on drugs, supplies, biologicals, etc.; and expansion. Moreover, it was addressed to a fuel, utilities, etc. population in which women are less likely than men to visit a health center or consult village Since our aim as regards demonstration pro­ health workers. The Tanzanian program on jects was to determine costs relating to the the other hand is older and more intensively innovative or experimental health services used, reflecting the country's long commit­ provided, we examined utilization levels be­ ment to rural health services. fore and after the introduction of each new type of service. This was particularly relevant The other large program, which covers in the case of the Narangwal and Cali projects, 651 000 women and children in the Domini­ which existed prior to the introduction of the can Republic, has higher operating and invest­ demonstration component. The consideration ment costs in dollars, but they are well under

88 Empirical evidence

1% of the per capita GNP. This program serves accessibility was the major reason, while in fairly inaccessible populations-which ex­ Narangwal the high rate is explained by the plains the high costs-through a strong out­ intensive referral activities that were, after all, reach component using trained workers. Pre­ the major function of the project. dictably, it also has the highest manpower costs of all. Most of the variations in costs can be ex­ plained by coverage and program ownership. Primary health services are provided at sub­ Programs incorporated into the mainstream of stantially higher cost in the demonstration pro­ local health administrations (which helps to jects than in the large-scale programs. Operat­ explain the large coverage) are more cost­ ing costs range between $6 and $15 while effective than innovative experiments, which investment costs range from a "high" of$32.80 may not be suitable as prototypes for the deliv­ for Ghana to a "low" of $5-6 for Narangwal. ery of primary health care. High costs alone Naturally, compared with those for large-scale may preclude their final adoption-in partic­ programs, costs as a percentage of per capita ular high recurrent costs, which discourage the GNP are 3-10 times higher in the demonstra­ expansion of health services in rural areas. tion projects for countries with similar per Thus, all four of the demonstration projects capita incomes, suggesting that primary health studied have ceased operations and probably care in these countries is less affordable than in none was finally adopted by a host country. those with large-scale programs. High investment costs, on the other hand, All four demonstration projects were struc­ are related to the length of operations, i.e., the turally similar in that certain innovations were longer a program is in operation the less are its conducted and improved coverage was not total costs dominated by investment costs. A part of their goal. They varied in terms of visits case in point is that of Afghanistan, where the per capita, Cali and Narangwal having higher investment costs form a high percentage of the rates than the other two sites or any of the total costs. Other key variables are the ratio of larger programs. In the case of Cali greater external funds to investment costs-almost

Primary health care projects: population coverage and costs

Operating Annual Annual costs per Population Investment Visits per operating Investment Visits operating capita as a Country and project covered costs capita per costs per capita (thousands) costs percentage (thousands) ($) year per capita ($) ($) of GNP ($) per capita large Scale Programs Afghanistan 1555 1 02ga 676000 786 000 0.9-1.0 0.6 0.7 0.3 Dominican Republic 651 2 735 726000 1 220000 4.2 2.7 1.g 0.4 Tanzania 12000 66000 11 800000 2 676 000 5.5 1.0 0.22 0.6 Demonstration Projects Bolivia, Montero 11 17 167 000 218000 1.6 15.4 1g.8 3.9 Colombia, Cali 22 137 217000 NA 6.2 9.8 NA 1.6 Ghana, Danfa 15 29b 170000 655 000 1.5 8.5 32.8 1.5 Area I India, Narangwal 11 37b 62000 62000b 7.2b 6.1 5.4-6.0b 3.4-4.1C a Applicable only to visits to basic health centers and visits from village health workers. Visits from the 430 dais not available. b Applicable to about half of the services offered by the project. cEstimated range. NA =not applicable.

89 Health care-who pays? identical for all seven sites-and the combina­ It may also be worth investigating whether tion of services offered. Coverage is not necess­ the success of demonstration projects is related arily related, however, to the range of services to their performance or to the fact that they offered but rather to whether the services are create fledgling bureaucracies outside the im­ "consumable", e.g., immunization, maternal mediate control of the ministries of health, and child health services, and counseling on which leads to their collapse once donor re­ family planning, or "not consumable", e.g., sources run out. surveys and studies. Another issue of some importance to the planning of primary health services is the role of cost analysis. In the current context of increasingly scarce resources, cost analysis is essential to this type of programming as deci­ sion-makers are increasingly concerned with rising costs and future financial ability to ex­ tend coverage to various population groups. If health planners are to deal with these ques­ tions, they must understand not only the poss­ ible effectiveness of programs in terms of out­ reach capacity, impact on death and disability, In the long run, demonstration projects may and so on, but also the probable costs involved, not be incompatible with high coverage and including the incremental costs for the devel­ low, affordable costs provided they lead to opment, installation, and operation of new reproducible prototypes, but more research is facilities over a period of time. D needed to ascertain the ultimate place of "low­ cost", '·'integrated", primary health care pro­ jects in the developing countries. The degree of ACKNOWLEDGEMENT representativeness of the sites selected for the four demonstration projects studied may be The research reported above was funded by the questionable in itself, although, with the poss­ US Agency for International Development through ible exception of the Montero project, they a contract with the American Public Health Asso­ were all considered in professional circles as ciation. The views expressed are the authors' and examples of moderately successful projects. -may not coincide with those of the sponsors.

Introducing an integrated managerial process for national health development World Health Organization Regional Office for the Eastern Mediterranean, Alexandria, 1981, 51 pp., US$ 3.00 (EMRO Technical Publication, No.5).

As countries work towards their common goal of Health for All, they are becoming increasingly aware of the usefulness of modern management techniques in improving their health services. This publication explains the management process through its stages of monitoring, evaluation, assessment, forecasting, and development and implementation of a strategy. It helps health managers to perfect the techniques of applying these functions in the correct sequence, as only then can the management process be considered "integrated".

90 World H1alth p.,.,, 5: 211-215 (1984) Primary Health Care

Kasongo Project Team Primary health care for less than a dollar a year

Cost analysis of health centres in Zaire shows that primary health care can be provided for less than US$ 1 a year per person and that activities could even be extended without overstepping this mark.

The Kasongo administrative zone in the Kivu itants but there was no budget for other team Province of Zaire covers nearly 15 000 km 2 of members. Vaccines, tuberculostatics, anti­ forest and savannah. According to the 1980 leprosy drugs, and a few other products could census the zone has a population of 19 5 000, of be supplied, but not drugs for the most com­ whom 30 000 live in the capital. The rest live mon ailments. The salary of the supervisor and in a town of 15 000 inhabitants, 10 villages of the cost of a car, transport, and simple techni­ 2000-5000 inhabitants, and many smaller cal equipment were paid for partly by the gov­ communities. An earlier article in World health ernment and partly by foreign aid. No budget forum describes the primary health care project was available for the building and furniture. started in 1972 by a team of Belgian and Zair­ Complementary, self-supported financing had ian medical personnel (1). to be found. The official health service of every zone in In the analysis that follows, all costs are Zaire receives an annual budget provided from related to a "unit" of 10 000 people. In the general tax revenues by the central govern­ towns, the 10 000 inhabitants will yield 7000 ment. In Kasongo, after subtraction of the cost new attenders per year at the health centre. In of the general hospital and of the manpower the rural areas the number of new attenders required for its functioning, the remaining will be nearer 3500. budget was insufficient for the financing of the network of health centres. It was possible to appoint one auxiliary nurse per 10 000 inhab- Choice of the T)rpe of Financial Self-Help

The Kasongo Project T earn is directed by the Unit for The finances of the health centres are man­ Research and Training in Public Health at the Prince Leo­ aged by health committees consisting of mem­ pold Institute of Tropical Medicine, Antwerp, Belgium. bers of the local population and the staff of The team leaders are Dr P. Mercenier and Dr H. Van Bal­ the centre. Various ways of financing were en, who wrote this article, and the field work was done by Drs P. Daveloose, M. De Bruycker, A. De Muynck, F. Ka­ discussed by the Kasongo Project Team and namugire, R. Meloni, F. Monet, P. Pangu, B. Storme, and the committees. Private health insurance was W. Vandenbulcke. discarded because it would have been a psy-

91 Health care-who pays? chological error to ask all families to make a The sum of the variable and fixed costs financial contribution before services were shows a higher cost per inhabitant for the more rendered. Charitable contributions were not frequently used urban health centre than for envisaged because the continuity of the ser­ the rural health centre. Per attender, however, vices developed by such means could not be the cost is higher in the rural health centre. guaranteed. Direct household expenditure and commu­ Variable costs supported ~ the central budget nal self-help were considered suitable types of The treatment of tuberculosis and leprosy private financing. Community participation patients is supported by the central govern­ was in any case a condition for the develop­ ment: the schedule applied in Kasongo to ment of a health centre, as the local community tuberculosis patients costs $17.60 per patient, had to commit itself to the building and main­ and one year of sulfone tablets costs $1. 10 for tenance of the facility and to making the fur­ each leprosy patient. At the present time, of niture. In some centres communal self-help 1000 new attenders a year, about one person covers part of the salaries. starts an antituberculosis treatment and about As far as direct household expenditure is 10 leprosy patients require a yearly dose of concerned, payment for drugs and for each sulfones, yielding costs of $17.60 and $11 item of service was not considered appropriate respectively. These figures must be multiplied because such a system could become a barrier by 7 in the towns and 3.5 in the country. to the continuity of care, especially for chronic The immunization schedule applied to patients. However, the health committees mother and child (2 doses of tetanus toxoid, 1 opted for another form of direct household of BCG, and 3 doses of DPT) is estimated to expenditure: the payment of a flat rate per cost about $0.80, making a total cost of $160 sickness-episode (or per episode of risk neces­ for 200 new attenders per year out of the popu­ sitating preventive activities), however serious lation of 10 000. or long-lasting a particular episode might be. This type of payment makes explicit the "con­ Contraception is not widespread in the tract" between the service provider and the towns and is nonexistent in the rural areas. In service recipient concerning a specific health the urban centres the yearly number of new problem and enhances the continuity of the accepters is a little more than 3% of the birth care. The flat rate can be adapted periodically rate, or about 14 accepters per 10 000 inhabi­ in each of the health centres, according to the tants. One in three receives, in the health balance between income and expenditure. If a centre, three-monthly doses of long-acting centre has a debit balance, the health commit­ progestogens (costing about $12 per accepter tee decides whether the rate should be in­ per year), the other two preferring a Lippes creased or whether the deficit should be cov­ loop at the hospital ($1.50 each). The average ered by collective resources. cost is $5 per accepter, i.e., $70 per 10 000 urban inhabitants. The hospital provides laboratory supplies Costs of Primary Health Care and locally produced mixtures and ointments at an estimated cost of$30 per 1000 new atten­ The table shows the different items of ex­ ders, giving total costs of$210 in urban health penditure. The consumption of products such centres and $105 in rural ones. as drugs, vaccines, contraceptives, laboratory supplies, stationery, and other miscellaneous Variable costs financed~ the health centres items varies according to the number of atten­ ders. On the other hand, the salaries of the staff Every month, the central store reports the and supervisor and the cost of maintenance quantities of drugs ordered by each health and depreciation of the car, equipment, build­ centre from a standard list. For 23 of these ing, and furniture are fixed and are scarcely items, representing about 95% of the expend­ influenced by the quantity of services ren­ iture on drugs, the quantity ordered per 100 dered. new attenders is calculated regularly. Between

92 Empirical evidence

June 1979 and July 1980 the average cost per tional to the workload. They are estimated per 100 sickness episodes (new attenders) was $16, 10 000 inhabitants. the actual costs in the different health centres ranging (in spite of instructions to apply stan­ The nurse is on the official payroll with a dard charges) from $12 to $21. salary of about $1200 a year. The salary of the supervising doctor and the cost of the vehicle Monthly accountancy reports show that are supported by either government or foreign drug costs represent 65% of the locally sup­ aid. The monthly supervisory activities take an ported variable costs; cards and other printed average of 1.5 doctor-days (one day in the field matter, except initial family files, 21 %; small and half a day of preparation and reporting). hospital supplies, such as syringes and needles, Estimating a doctor's salary to be $40 a day, 1 %; and local miscellaneous expenses, such as each supervision costs $60 ($720 a year). soap and ingredients for the preparation of meals for nutritional rehabilitation, 13%. A four-wheel-drive car is required for the supervision of the health centres. Under local Fixed costs supported by the central budget conditions, the costs of insurance, mainte­ nance, and fuel amount to about $0.50 per km. The fixed costs that are met by the govern­ The average distance from the hospital to the ment or from external sources are not propor- health centre being 50 km, transport for 12

Yearly cost and financing of Kasongo health centres

Cost in US dollars

Urban health centre Rural health centre Items (7000 new attenders per year (3500 new attenders per year per 10 000 inhabitants) per 10 000 inhabitants)

Central Local Central Local budget finance budget finance

Variable costs Standard list of drugs 1 120 560 T uberculostatics ( 1 case per 1000 new attenders) 123 62 Anti-leprosy drugs ( 10 cases per 1000 new attenders) 77 38 Vaccines (200 new maternal and child health episodes 160 160 per 10 000 inhabitants) Contraceptives ( 14 new accepters per 10 000 inhabitants) 70 Laboratory products, ointments, and mixtures 210 105 Printed matter 371 186 Other hospital supplies 21 10 Local purchases 224 112

Fixed costs Salary of nurse 1200 1200 Incentive payment to nurse 100 10el Salaries of 3 other staff 1300 1300 Salary of supervisor (1.5 doctor-days per month) 720 720 Transport (100 km per month) 600 600 Depreciation of car 200 200 Depreciation of bicycle 40 40 Depreciation of equipment 140 140

3500 3176 3225 2 308 Total per health centre 6 676 5 533

93 Health care-who pays 7 supervisory visits costs $600 a year. It has been new under-fives and 280 pregnancies, the flat estimated that a car to the value of $15 000 is rate should be $0.56 in order to reach the replaced every five years; this gives a deprecia­ $2308 needed from local sources. The total tion figure of $200 per year for each of the 15 costs of the health services rendered by the centres. For each health centre, depreciation of health centres, per inhabitant covered, are $140 a year has been estimated to cover a $0.67 in the towns and $0.55 in the country microscope ($500) and other equipment such districts. as scales, cookers, and stethoscopes. Habicht (2) compared four programmes of primary health care by nonphysicians in Gua­ Locai!J supported fixed costs temala. The number of sickness episodes An incentive payment to the nurse and the ranged from 0.1 to 4.2 per inhabitant per year, salaries of the other three staff (medicosocial and the cost of each diagnostic visit varied worker, clerk, and sweeper) are borne by the between $0.64 and $1.61. We believe that it is difficult to reduce the cost of services without jeopardizing either their acceptability or their effectiveness. The person in charge of a health centre should be at least a nurse (preferably a nurse-practitioner) with about three years of training. A full-time clerk is required as well for receiving the payments and for keeping the files, registers, and defaulter retrieval systems. Withdrawal of either the low-skilled aid (medicosocial health centre. A bicycle ($200) is needed by worker) or the unqualified worker (sweeper) each health centre for mobile maternal and would mean that the nurse would be over­ child health clinics in remote villages. A re­ worked. placement every five years would cost $40 a An extension of activities is still possible year. The buildings and furniture and their without overstepping the one dollar threshold. maintenance are taken care of by the commu­ An increase in the number of sickness episodes nity. Built in local style and maintained by from 7000 to 10 000 a year would mean an local arrangements, it is difficult to estimate increase in variable costs by about $600 (three­ the cost. sevenths of $1320, the first three variable-cost items for an urban health centre mentioned in Discussion the table). The additional cost of a higher cov­ Excluding the cost of the building and fur­ erage (e.g., 80%) with the existing maternal niture, the total cost of a health centre as it and child health programme would be between $100 and $150. When the national cold chain functions in Kasongp is $6676 a year in town is improved, immunization against measles can and $5533 in the country, of which respec­ be added (cost estimated at $200 for 320 doses). tively $3176 and $2308 are met by local financ­ An increase in the number of accepters of the ing. family-planning programme to 100 a year The amount of the flat rate varies from one would add $430 to the cost. If these additional centre to another, as explained above. A rough figures are added to the $6676 for an urban calculation shows that in an urban health health centre, we see that the enlarged service centre 7000 sickness episodes occur each year, could be provided for a total of little more than 120 new under-fives are treated, and 280 preg­ $8000. No additional staff would be needed. nancies are presented. An amount of $0.43 The additional cost of monthly doses of chlor­ paid for each of these episodes would be suffi­ oquine for 80% of the children would be $160 cient to secure the local financing of$ 31 76. In but it would require a supplementary team the "average" rural health centre, with 3500 member. As long as salaries remain at the pres­ new attenders a year and the registration of 320 ent level, the described hypothetical increase

94 Empirical evidence in activities remains feasible for one dollar per We should stress that in the Kasongo Project inhabitant per year. local financing is only one element in a broader set of measures aimed at improving primary In order to apply the costs in the table to care. The others include the delegation of stan­ other circumstances, each of the items should, dard curative care to a small team of multipur­ of course, be re-estimated. Salaries of the per­ pose auxiliary personnel; the provision of pre­ sonnel of the centre and/or of the doctor might ventive care by the same team; the organiza­ be much higher; drugs might be supplied at a tion of the continuity of care; the introduction higher price; and the building might have to be of flat-rate payments; the limitation of the supported by the health services. On the other population served to a maximum of 10 000; hand, the road might be better so that a cheaper discussions with individuals and groups at dif­ vehicle could be used for transport. Alternative ferent levels; logistic support by fully qualified forms of transport for use by health services in personnel operating at the referral level; and developing countries have been discussed by the rationalization of medical care at the refer­ Gish (3). rallevel. D Even in a low-income rural area, half the cost of adequate coverage by a health centre REFERENCES can reasonably be expected to be borne by the local population. The involvement of the pri­ 1. KASONGO PROJECT TEAM. World health forum, 4: mary health team and representatives of the 41 (1983). target population in the regular assessment of 2. HABICHT, J.-P. Delivery of primary care f?y medical the services rendered will contribute to a more auxiliaries: techniques of use and ana!Jsis of benefits cost-conscious provision and utilization of achieved in some rural villages in Guatemala. Washing­ health care. Discussions about health costs will ton, P AHO, 1973 (P AHO Scientific Publication facilitate the orientation of community efforts No. 278). towards health-promoting alternatives such as 3. GISH, 0. ET AL. International journal of health seroices, water supply and improved eating habits. 8 (4): 633 (1978).

Financial planning for Health for All by the Year 2000 Report of an Intercountry Seminar. World Health Organization Regional Office for South-East Asia, New Delhi, 1984, 236 pp., Sw.fr. 7.00 (SEARO Technical Publications, No.5).

Having accepted the goal of Health for All by the Year 2000, the Member Countries of the South-East Asia Region are now seriously engaged in realigning their health plans in the context of total socioeconomic development, particularly health infrastructure development. However carefully health plans might be drawn up, they will be rendered ineffective unless they have the necessary financial backing. Thus, financial planning assumes considerable importance in such an endeavour, and only an absolute synthesis of health and financial planning can germinate a programme that can be implemented in its totality.

In addition to country presentations and discussions thereon, this book contains an overview of health care and financing studies, and analyses of overall health costs and planning, resource distribution and development of health insurance schemes.

95 World Health FDnlm, S: 123-125 (1984)

Wayne Stinson Potential and limitations of community ·financing

There are two schools of thought on the financing of health care by the com­ munity. One considers it as possibly the only feasible way of overcoming the lack of funds for primary health care. The other argues that it places a heavy financial burden on the shoulders of those who can least support it. Here are the conclusions of a review of what has been attempted in the way of community financing of health care in more than a hundred projects and programs.

Advocates of community financing argue that contributes to reduced birth rates, and gives it is a largely untapped resource and may be the people the sort of hope for the future that is only feasible way of overcoming the lack of essential for development. Community financ­ funds for primary health care. Existing govern­ ing is particularly inequitable in countries that ment financing is closely tied to secondary and provide free services in politically influential tertiary care and would not be adequate for areas. Community financing is largely untested primary health care-even if it could be outside revolutionary China and a few small shifted-in face of the massive population privately sponsored projects. Its development growth now occurring. Community financing costs may be high because of initial failures and uses readily available nonmonetary resources, the need to mobilize thousands of individual such as labor and local produce. It increases communities. Community financing, its op­ community self-reliance and organizational ponents argue, is not the solution its supporters ability for both health and other problems. It is think it is but rather a diversion for govern­ the key to community participation in general, ments lacking the political will to generate and its advocates say that this is reason enough new national resources or to reallocate existing to encourage it-even if other funds are ade­ ones. quate. The impressive experience of China is This paper favors neither position unequi­ often cited. vocally. It is worth looking at the results Opponents of community financing argue obtained in the financing of the many projects that it places the burden of financing health that have actually been carried out. The project care on the people least able to support it, reports reviewed do not support the conten­ namely the rural and urban poor and others tion that community financing is untried, but without access to existing facilities. Health care they do indicate that its strengths and weak­ is a "public good" and should, therefore, be nesses have not been rigorously evaluated. It is nationally financed. It improves productivity, impossible, for lack of adequate documenta­ tion, to generalize from reports of community self-sufficiency or near sufficiency in a few projects. This article is extracted from: STINSON, W. Community financing ofprimary health care. Washington, DC, Ameri­ The most common forms of community sup­ can Public Health Association, 1982 (Primary Health Care port are voluntary labor and direct personal Issues, Series 1, No.4). payments, and both are of limited utility. Vol-

96 Empirical evidence untary labor is useful chiefly for one-off con­ • The project paper for the Sine Saloum pro­ struction costs, while direct personal payments ject in Senegal states that "No inputs will be place the financing burden on the sick and invested in any community unwilling to limit access to persons who can afford to pay. shoulder the responsibility of arranging re­ Community financing, at best, is just one ele­ muneration of the village health workers, con­ ment in a balanced financing approach. It does struction of a health hut, and a village medical not pay for supervision, logistic support, or sales operation." referral linkages and can be effective only if these services are financed from other • A rural medical assistance project in Mauri­ sources. tania requires communities to pay health workers and to purchase and transport medi­ cine and supplies. Agreement on a payment system is necessary before a community health worker begins work, to ensure adequate re­ It must be. realized that cE.Unm.\ltXlty supply. financing is, at best, otUy· .iitl,<.· . solution,. that it may be more <.\: : Other projects have not required prior com­ . rutd less effective than the rea :' munity commitment but have trained workers · . tion of current resources, and tha~· ; or provided an initial drug stock on the as­ :go~':m.mc:nts ha~e to e~courageaJ:l.d····· sumption of future support. Community fi­ facilitate tt, not unpose tt. ·. ·... ·· · nancing, particularly of health workers, has often not materialized as expected, and so training and other investments have some­ times been wasted. Whenever partial community financing has The initial costs of community financing been attempted, the usual approach has been to often exceed planners' expectations, and this identify specific costs and ask the community has sometimes led to failure. At least three to cover them. The costs most frequently iden­ kinds of input from outside the community are tified have been: essential: a major effort to promote community • costs of construction and maintenance of mobilization and liaison; technical and man­ health posts, sanitation facilities, and other agerial assistance to individual communities; physical resources; and back-up resources for temporary deficits. • costs of providing community health work­ These are required in addition to the financ­ ers; and ing and management of the broader primary health care network, without which commu­ • costs of basic drugs in local currency. nity programs will fail. A better understanding The choice generally reflects national bud­ of community mobilization and liaison may be getary constraints, not the communities' will­ needed. Communication between the project ingness and ability to pay. Community financ­ and the community must be two-way. The ing would be more viable if planners started by government must describe the services it has to studying demand. offer, educate the public about environmental and behavioral factors, and convince the com­ Many different strategies for the implemen­ munity that minimally trained health workers tation of community financing have been de­ can be effective. The government must also act veloped. One approach has been to require as a catalyst in helping disparate parts of the communities to commit themselves to cover­ community to work together. Because the gov­ ing certain costs as a precondition for govern­ ernment's responsive role requires rare ment inputs. bureaucratic flexibility, it is usually more diffi­ • The Hanang project in Tanzania, for exam­ cult. It includes allowing communities to par­ ple, requires communities to purchase first-aid ticipate in designing appropriate delivery sys­ boxes and to support future health workers tems, selecting health workers, developing during a ten-month training period. local financing mechanisms, deciding who

97 Health care-who pays 7 will contribute and how much, managing rev­ believe that communities should be allowed to enue to prevent misuse, and making sure that fail, because they will not make enough effort if all community members benefit appropriately. someone else will cover the losses. Others These activities must occur within units that argue that failures are often attributable to pro­ the members themselves perceive to be com­ fessional error, to shortfalls in drug supply, or munities. In large projects, staff will have to to other factors beyond the community's con­ make a vast number of individual contacts with trol. Some balance between community self­ hundreds of communities. reliance and outside support is clearly desir­ Some projects make no special provision for able. The Dana Sehat schemes in Indonesia set assisting community financing activities, while up their own community credit unions to pro­ others - the Kibwezi in Kenya and the Mau­ vide needed reserves, and others could explore ritania project, for example-emphasize con­ this possibility. tinuing stimulation and technical support. Finally, we need to consider where commu­ While only a little technical knowledge may be nity financing is going and how observers can needed to build a health hut or pay health contribute to its evaluation. The rhetoric of workers informally, more is required to make Alma-Ata and the widespread belief in self­ utilization estimates or to guarantee a mini­ reliance demand a more important role for the mum support level for health workers. Tech­ community, and the goal of health for all calls nical skills may be required to assess ability and for the exploration of every financing option. willingness to pay, analyse cost and expected There must be balance in this exploration, income, calculate fees, premiums, and other however. It must be realized that community charges, measure utilization, and record all income and expenditure routinely. Alternative ways of meeting these needs include using consultants, hiring full-time technical staff, and training community man­ agers. Foreign consultants are useful for overall project analysis but can rarely travel from vil­ lage to village to assist individual activities. As an alternative, full-time traveling technical advisors could be hired to provide individual community counseling. The training of community managers has been attempted in several places. The Montero project in Bolivia, for example, gave health financing is, at best, only a partial solution, that committee members three days' training in it may be more difficult and less effective than leadership techniques and two days' training in the reallocation of current resources, and that financial management and drug procurement. governments have to encourage and facilitate The Niger project gave book-keeping training it, not impose it. Researchers must produce to the presidents and treasurers of village more case studies and report not only on the health committees, though it had to be sus­ income raised but also on the community pro­ pended because of conflicts between health cesses involved in raising funds and on the committees and workers. Village groups in subsequent effects of this on the scope and Pikine, Senegal, used their own funds to train accessibility of services. The time has come to members in book-keeping procedures (1). Such move from rhetoric to reality, and from small training is especially desirable in respect of demonstration projects to routine national pro­ community activities involving cash or drugs, grams. D since these are particularly susceptible to mis­ allocation. REFERENCE The need for back-up funds varies from activity to activity and may become apparent 1. JANCLOES, M. ET AL. World health forum, 3: 376 only as a project progresses. Some persons (1982).

98 World Health Forum, 6: 15Q-152 (1985) Health Systems

U. N. Jajoo, 0. P. Gupta & A. P. Jain Rural health services: towards a new strategy?

Experience with a rural health service in 12 villages in the Indian State of Maharashtra showed that such a service could successfully be financed in part by a health insurance scheme. The costs of running this service were consid­ erably less than those budgeted by the Government of India.

In India, 80% of health expenditure goes on a dispensary in the school building. An initial few urban hospitals with intensive coronary contribution of Rs 4 (US$ 0.40) per family was care units, dialysis centres, sophisticated car­ collected by the village leaders to fund the diac surgery units, cancer institutes, and many purchase of medicines for a drug bank. A vil­ other facilities, while the vast majority of the lage health worker was selected and assigned population does not receive even adequate pri­ the job of buying the medicines on our advice. mary health care. Although a large number of Then he dispensed the medicines at cost price charitable hospitals and dispensaries provide and recorded each transaction. low-cost or free medical services to the poor, the funds and staff available are never enough One day a mother brought a sick child who to meet the enormous need. A few contribu­ was suffering from bronchopneumonia. The tory health insurance schemes have been estab­ cost of the medicines prescribed was about lished by organized labour, particularly in Rs 15 ($ 1.50). The mother did not have towns, but we are not aware of any successful enough money to pay for the medicines and schemes among the unorganized rural poor asked to be given a week in which to pay. We that might serve as a model for wider applica­ agreed, because of the child's need, and later tion. This article therefore describes our ex­ granted credit in similar deserving cases. But perience in setting up a rural health service, many debtors defaulted, and the drug bank was initially in a single village in the State ofMaha­ bankrupted. At a village meeting it was unan­ rashtra, that was ultimately financed in part by imously decided that defaulters should not be a health insurance scheme. given medicines on credit until outstanding debts were paid. Starting the Service The inevitable result-revealed by an ana­ We organized a village meeting and a deci­ lysis of the first year's data -was that the dis­ sion was taken to start a weekly out-patients pensary was being utilized more by the rich in the community than by the poor. Instead of providing medical help for sick children in poor families and others in real need, we were Dr Jajoo is a Reader in the Department of Medicine, Mahatma Gandhi Institute of Medical Sciences, Seva­ mainly treating the minor illnesses of those gram, Wardha, India. Dr Gupta is Professor and Head, who could afford to go to the local hospital and Dr Jain is Associate Professor of that Department. 5 km away.

99 Health care-who pays 7

The Health Insurance Scheme From the third year onwards, the village dispensary was linked with Sevagram Hospital So we again sat with the villagers in an for referral and free hospital admissions. But attempt to evaluate our services. The idea of we still had new lessons to learn. A pregnant communally contributing money to an insur­ woman, for instance, was admitted a month ance scheme according to an individual's ca­ before delivery because she complained of pacity to do so was accepted. And there was recurrent abdominal pains. But we discovered general agreement that, if the health service there was nothing medically wrong and that was to be accessible to the poor, it must be free her husband simply expected us to give her free at least for acute unforeseen illnesses. It was food and treatment for the last month of her therefore decided that a village fund formed­ ical treatment should be established and ad­ ministered by us, based on contributions in kind to be collected at harvest time. The con­ tributions, it was agreed, should vary according to land ownership and wage income. Farmers The villagers accepted the idea of would contribute 2 bags (2.5 kg) of sorghum contrib9ting t,noney to an insur~~. .. ·.. per acre and wage-earners a flat rate of 4 bags. :;t~i,.~~~·t~an indiyiduaJ's .. Anyone who had additional sources of income would contribute a further 4 bags. Non-contri­ . butors would be excluded from free treat­ ment.

When the harvest was being gathered, we pregnancy. Others used admission as a means went from house to house to collect the prom­ of avoiding a court summons. And a paraplegic ised bags. But, to our surprise, those who had was taken to hospital by relatives and aban­ most actively and enthusiastically supported doned. the health insurance scheme in the village meeting were conspicuous by their absence. So we modified our criteria for admission. During our second visit we were met by similar We continued to deal with acute and emergen­ evasions or excuses. By the fourth visit it was cy cases free of charge, funded from the insur­ obvious that the richer villagers had decided ance contributions, but started to charge 25% not to support the scheme. of the hospital bill for normal deliveries and chronic illnesses, e.g., cataract and hernia. We made changes in the village dispensary, too. In the end, the total contribution collected We handed over responsibility for running it to fell short of the funds required for the drug a village health worker, who was provided bank. So, for that year, we had to rely on free with an adequate drug kit. We supported him medicine samples. At the end of the second by providing the services once a month of a year our analysis of dispensary data showed mobile health team consisting of a doctor and a that 9 5% of the illnesses dealt with were self­ woman assistant for maternal and child health limiting ones that could be treated by a village care. health worker-upper respiratory tract infec­ tions, viral fevers, gastrointestinal infections, In the fourth and fifth years, our work, based etc. The other patients needed expensive on this operational link between a village medicines (mostly antibiotics) and hospitaliza­ health worker and a mobile health team, tion, which poor villagers could not afford. We financed in part by village contributions in therefore concluded that rural health services kind, has been extended to 12 villages. We catering for both the poor and the more pros­ have made special arrangements to ensure perous cannot be totally self-reliant. We also timely referrals to hospital. And, in addition to realized that a dispensary such as ours needs to the clinical work of the dispensaries, we rou­ be run in association with a central hospital, to tinely weigh children under 5 years of age, and which patients with acute illnesses can be have undertaken mass vaccination pro­ sent. grammes.

100 Empirical evidence

Was the Scheme a Success? be of interest to others involved in improving rural health services. Obvious conclusions from our operational records are that it took some time for villagers Contributions in kind provided 84% of the to trust us and that the health service is cheap money required to finance the village to operate. health worker, his drug kit, the antenatal assistant, and fuel expenses for the mobile The total number of hospital admissions health team. increased in parallel with the number of people insured. This suggests that the services pro­ Income from non-insured patients (who vided by the hospital are used if patients can did not receive free treatment) subsidized afford them. The average length of stay in the the cost of each hospital admission by hospital was six days. And it is worth noting Rs 16.67 ($ 1.7). that the ratio of annual hospital admissions to Running costs (excluding hospital admis­ the rural population served remained constant sions) were as little as Rs 1.5 ($ 0.15) per over three years at 1: 13. head. It is difficult to calculate the amount that The Government of India at the same time Sevagram Hospital spends on admissions. It is budgeted to spend Rs 27.86 ($ 2.8) per head for attached to a medical college and, because it is all its medical services. It is our belief that oriented towards teaching and research, has much improved health services, which have different costings and admission policies from the advantage of involving villagers as contri­ those relevant to a local service-oriented hos­ butory participants, can be provided within pital. But the cost analysis for 1982 leads to the existing resources if the strategy we have des­ following conclusions-which we hope will cribed is implemented. D

lntersectoral action for health: the role of intersectoral cooperation in national strategies for Health for All World Health Organization, Geneva, 1986, 150 pp., Sw.fr. 24.00.

This book elaborates a powerful new health strategy that takes its driving force from the intrinsic value of health. On the surface, the strategy appears straightforward: because the determinants of health are so broad, the control of health risks and prevention of disease will require support from sectors of government and public life that are not directly concerned with health. Yet, as the book goes on to show, the implementation of such a strategy involves the difficult task of uncovering the health components of different sectors and elevating them to the level of conscious planning. The main part of the book is thus devoted to an in-depth examination of what intersectoral collaboration entails in terms of its practical implementation.

Sophisticated in its conceptual approach and yet highly practical in its arguments and explanations, the book offers rewarding reading for any planner or policy-maker interested in learning how intersectoral collaboration can be used to create sustained improvements in the health status of populations.

101 Wurld Health Font,, 3 (4): 376-379 (1982) Primary Health Care

M. Jancloes, B. Seck, L. Van de Velden, and B. Ndiaye Primary health care in a Senegalese town: how the local people took part

Where the government cannot meet wide-ranging health needs of the popu­ lation, can the people themselves start their own health service 7 Do they have the resources to do so-or the leadership 7

No satisfactory method has been developed to done with government support, which was predict the potential resources of a poor com­ essential. munity. To improve their health conditions all Since Senegal became independent in 1960, people, even the poor, have some resources the capital city of Dakar has experienced a available. When people are given the oppor­ demographic explosion as a result of a huge tunity to manage their 0\Vn affairs and to be exodus from the rural areas. To cope with this involved in decision-making, they can become problem, the Senegalese Government devel­ very efficient and contribute many of the ma­ oped an urbanization policy based on the crea­ terial and human resources needed to organize tion of a new town called Pikine 10 miles from health facilities, especially in new cities. This Dakar. The town, as planned, had no hospitals was demonstrated by an ·~xperiment in Senegal and there were only four well-functioning between 1975 and 1981. dispensaries. A strategy for primary health care with the active participation of the local communities In successive waves, Dakar's slum popu­ was developed to provide a network of accept­ lation was moved to this new city. In 1959, the able and accessible health services in the town population of Pikine was estimated at 30 000 of Pikine, in the suburbs of Dakar. This was persons. Today there are about 450 000 inha­ bitants living both in the planned urbanized area and in several squatter settlements. Few houses have electricity, and a proper waste Mr Jancloes was with the Medical Belgo-Senegalese disposal system is far from universal. Employ­ Cooperation Project, Pikine, Senegal. and is now with the World Bank, Washington, DC, USA. Mr Seck is Director, ment opportunities in Pikine are few, and the Medical Circumscription of Pikine, Senegal. Mr Van de lack of adequate transport makes it difficult to Velden is with the Medical Belgo-Senegalese Coopera­ get to work in the Dakar area. tion Project, Pikine. Mr Ndiaye was President of the Health Council, Association of Pikine Committees for In 1974, a Belgo-Senegalese team of public Health, Pikine. The article is a condensed version of a health experts-Cooperation technique Bel­ paper entitled "Soins de sante prioritaires finances et contrOies conjointement par Ia population et par I'Etat" go-Senegalaise -went to Pikine to study the published in Medecine tropica/e, November-December health needs of the population. The team made 1982. two important observations.

102 Empirical evidence

(1) Most of the people who used a health Within the framework of the Pikine project, facility for common ailments lived within 1 km curative, preventive, and educational activities of it. Therefore the team concluded that in­ were expanded progressively. With the help of stead of having a few large health centers it was four physicians and a biologist, consultations in better to have many small health units so that dermatology, gynecology, social psychiatry, the distance between the health units and and respiratory diseases were also organized. homes was not more than 1 km. More than one million treatments have been given through the self-financing approach. (2) People were willing to pay a predeter­ Under preventive medicine, facilities for the mined fee for proper medical treatment with care of pregnant women (about 14 000 preg­ the necessary drugs. This observation was sig­ nancies per year) and of children under 5 years nificant because the free health services pro­ of age were also set up. In particular, an vided by the government did not have an ade­ expanded program of immunization was in­ quate supply of essential drugs and the govern­ itiated against tuberculosis, diphtheria, tetan­ ment health budget was severely limited. us, whooping cough, poliomyelitis, measles, Taking these observations into account, the and yellow fever. team designed a primary health care project in which the communities in Pikine would parti­ According to home surveys carried out in Pikine before the launching of the project, the cipate in the development of a network of population coverage rate by the existing health health services accessible to a large majority of the people. The project began in 19 75 with a community meeting in an area of Pikine with­ out any health unit. Unable to receive imme­ diate financing, the community leaders (Eld­ ers' Committee) decided to open a health unit in a borrowed two-room private house. They also decided that except for the wages of the nurses employed by the Ministry of Health, all other costs of health care would be borne by the community, patients being asked to pay services was as low as 5%. However, after the only a modest fee. Another house was bor­ project started the rate rose to 60% in most rowed and necessary changes were made to areas ofPikine and to 90% in some. In an effort turn it into a storehouse for drugs and other to further improve the coverage and quality of supplies. health care, paramedical workers are given At regular intervals, new health committees courses once a week by the health unit nurses. were formed in other areas of Pikine and new A training program in management and health health units were opened in the same way. In education has also been set up for interested 1980, three maternity centers, two under-fives members of the health committees. clinics and 20 other dispensaries in the Pikine area were also integrated into the project. Each health unit served an area with about Community's Contribution 25 000 inhabitants and was managed by a Before opening any new health unit or inte­ health committee comprising about 15 mem­ grating an old one into the project, it is essen­ bers elected from among the residents of the tial to elect a community health committee area. All health committees were unified to with the approval of all interested parties-the form an Association for Health Promotion community, local administration, health ser­ which was officially recognized in May 1980, vices, religious groups, etc. by the Ministry of the Interior. In June 1980, the Minister of Public Health recommended Prior to the election of the committee a that community participation in financing general assembly is called in which all groups health care servioes be extended to all regions of the community are represented regardless of of the country. their economic or social status, political views,

103 Health care-who pays? and religious or ethnic backgrounds. This monthly budget estimates for recurrent expen­ meeting is attended by the medical director ditures, especially drug requirements. who explains to the people the purpose of the project, how the community will take part, and Each day the ticket seller turns the money the election procedures. Then after several collected over to the treasurer of the health weeks, a new meeting is held to form a more committee, who goes to the bank twice a week, expanded assembly. This assembly elects the deposits the money in a current account, and health committee comprising about 15 per­ obtains a receipt. sons. People who have any managerial or All current expenses are paid by check, co­ administrative skills to contribute to the health signed by the president and the treasurer of the unit are usually elected. health committee. However, the checkbook The general assembly and the health com­ and check register are kept by the nurse. Extraordinary expenditures (e.g., a refrigera­ mittee constitute the basic structure of commu­ tor) have to be submitted to the committee for nity participation. They make decisions con­ cerning the utilization and management of the approval. community's resources. They also participate Most committees distribute funds as fol­ in the definition and execution of local health lows: 65% for drugs and disposable medical programs. supplies, 15-25% for incentive payments for health volunteers, 5 % for miscellaneous, and One of the major responsibilities of the gen­ the rest for extraordinary expenditures. When eral assembly and health committee is to con­ ordering drugs, only the nurse is authorized to trol the community's financial contribution. sign the requisition. At the start of this project, in 1975, the general assembly determined and published the con­ The accountant presents a financial state­ sultation fees, taking into account the prevail­ ment to the health committee three times a ing disease patterns and the multiple expenses year. The table shows an example of a yearly of a self-reliant health unit. For consultation financial statement for health unit with a ma­ and total outpatient treatment, the predeter­ ternity facility. mined prices were set at US$ 0.18 for "pre­ pubescent" children, $ 0.36 for adults, $ 0. 72 In order to organize the supplies of drugs, for pregnant women, and$ 3.60 for deliveries. vaccines, cleaning products, and disposable The patients who needed daily injections or medical supplies for all health units, the Asso­ needed to be watched were to pay each day. ciation for Health Promotion has opened a The committee has, however, made adjust­ community store, which is supervised by the ments: medical care has been delivered free to medical director. This store purchases drugs certain people (e.g., the blind and widows) in from the government pharmacy. If the phar­ emergency situations, and also to those suffer­ macy has a shortage of drugs, the community ing from certain chronic diseases (e.g., tuber­ store is allowed to buy them elsewhere. It pur­ culosis and leprosy). chases supplies at wholesale, stores them, and arranges for their distribution. Drugs and dis­ A man, usually elderly, chosen by the com­ posable medical supplies must be paid for by mittee, sits at the entrance of the health unit check (credit is never extended) and distri­ and sells numbered tickets-red ones for ad­ buted immediately every day. ults and green ones for children. These tickets are issued from a ticket book (with stubs) pro­ Medical guidance was continuously given by vided by the health association. medical doctors and nurses through supervi­ sory contacts in the field and through meet­ Every day the nurse responsible for the ings. Twice a month, separate meetings for health unit checks the receipts, sometimes nurses and for midwives were called to satisfy recounting the money and stubs, and notes educational needs and to solve different logis­ down the amount in his daily record book, tical problems together. In addition, medical which is then initialed by the ticket seller. This and nursing courses were given once a week by auditing of accounts allows the nurse to make nurses, who were health post leaders or health

104 Empirical evidence

Financial statement of a self-financed health unit

Income $ Expenditure $

ChildreA Drugs 12875 45 628 tickets at Cleaning equipment 1482 $0.18 each 8213 Vehicles (fuel and maintenance) 1227 Adults Laboratory expenses 245 35 217 tickets at $0.36 each 12678 Center expenses 1493 Preventive consultations 288 Pregnancies 1062 tickets at Incentive payments : $0.72 each 765 for ticket clerks 1300 for health volunteers 4098 Deliveries other 982 1598 tickets at Recurrent expenses 617 $3.60 each 5 753 Miscellaneous 2 770

27409 27 377 volunteers. Although rather theoretical, these Financial Contributions courses were aimed at accomplishing the del­ of the Community and Government egated tasks. The financial contributions of the commun­ The most complex financial problem was ity and government varied from one health managing the accounts of the community drug unit to another. In a health unit that treated store. At this level, the self-financing system 120 patients a day, the personnel salaries de­ has required the periodical intervention of a pended to the extent of 76% on government skilled accountant. Before a drug unit cost allocations, but for a larger health unit with price could be set, it was necessary to deter­ twice as many patients the government paid mine the cost of the system as a whole, allow­ only 28% of the salaries. The average cost of a ing for inflation rate, contingencies, unex­ consultation was estimated at $ 0.49. Finan­ pected consumption, delivery delays, and so cing of health care directly by the beneficiaries on. fosters a spirit of self-reliance in the commun­ Government's Contribution ity, and allows decentralization of decision­ making. Even though absolute self-reliance is The government provides the basic struc­ not technically and financially possible, it is ture of its health services to which the com­ possible in spirit. For example, the committees munity contributes. In other words, the health ofPikine disagreed with the government's pro­ units are part of the general health services. posal not to charge people for repeated mass­ The community contributes financial and vaccination campaigns. In order to ensure a human resources to improve the coverage of reliable supply of vaccines they decided to the health units and at the same time to combine the funds generated by their self­ improve their efficiency and effectiveness. The financing services with those from the state. government, for its part, provides the medical The community also supported the campaign staff, technical guidance, and logistic support through a block census and arousing of public and has helped the community volunteers to awareness. develop sound accounting procedures. The minutes of the various health commit­ The government also engaged a social work­ tees in Pikine show that the funds were allo­ er to encourage community participation be­ cated more for answering the needs of people cause communities seldom take the initiative than the needs of medical personnel. For spontaneously. The influence of this social example, the committee gave preference to "booster" should not be underestimated, but a building wind or sun shelters in waiting places social worker capable of playing this role is rather than to buying refrigerators or givi~ hard to find. incentives to health volunteers. D

105 World Health Forum, 6: 3-19 (1985) Round Table

JOrg H. Sommer Health care costs out of control: the experience of Switzerland

Supply and demand in medicine are far removed from the classical free-econ­ omy model. Only by restoring a competitive market will it be possible to bring health costs down in a permanent way. Until then, costs will have to be con­ trolled by rigorous management and by restraints on the intake of students into medical schools.

The sharp rise in health care spending is a a transfer of financing from direct payment worldwide phenomenon. There is a substantial by individuals to insurance schemes and measure of agreement among the experts of government (1). developed countries about the main causes: These causes are certainly true for Switzer­ demographic changes producing popula­ land too, and most of them will continue to tions that are older on average; operate in the future. a changing pattern of disease towards In Switzerland, overall expenditures for chronic illness and handicap associated health services, estimated at 2.8% of GNP in with aging, often aggravated by life-style 1950, rose to 3.3% in 1960 and to 7% in 1980. factors; Between 1960 and 1980 the fraction of GNP spent on medical care more than doubled, advances in medical technology introduc­ representing a tenfold increase in total health ing far more sophisticated patterns of diag­ care expenditures in 20 years (see table). Pro­ nosis and care and extending the scope of jections for 1982, at about 15.2 billion Swiss medical care; francs or 2400 Swiss francs per capita rising public and professional expectations (US$1090), amount to 7.4% of GNP. connected with technological advance and increased reliance on formal health ser­ Total health care expenditures in Switzerland vices for alleviation and comfort, rather than on informal coping mechanisms in Total health care expenditures the family and the community; Year Swiss francs as percentage higher wage and salary costs caused by a (millions) of GNP catching-up process of health sector wages and by increased specialization and higher 1950 600 2.8% 1960 1200 3.3% skill levels; and 1970 4400 5.0% 1980 12 300 7.0% 1982 projection 15 200 7.4% Dr Sommer is with the University Teaching Hospital, Basle, Switzerland, and is Deputy Director of the Swiss Source: Medical demography in Switzerland: public health and national research programme No. 8, which is investigat­ future outlook, 1900-1974-2000. Lausanne, Statistical Office ing efficiency and effectiveness in the Swiss health care of the State of Vaud, 1976. Gygi, P. & Frei, A., Public health in system. Switzerland. Basle, Krebs, 1982.

106 Empirical evidence

Expenditure on personal health services has increased at a far greater rate than consumer prices, as the figure shows. Within the health sector, it is the cost of hospital services that has increased most dramatically, the largest item being person­ nel, whose share of total hospi­ tal expenditure rose from 44.3% in 1950 to 77.6% in 1981 (2). Three factors render the ob­ served cost escalation unlikely to abate without fundamental changes in national health care policy.

1. The aging population Demographic projections imply a rise in the proportion of the elderly (65 and older) to about 16% in 2000 and to more than 24% in 2040. Medical care use increases dramatically with age: for example, the health care costs at 70 are on average ················ five times greater than at ... ··· ·········c~~;~~er prices 20 years. Holding all other fac­ ····· tors constant, the change in the population structure alone by 2040 will increase health care costs by 23% (3). Consumer prices, wages, and expenditures on personal health services (with components) in Switzerland, 1966-81 ( 1966 average costs indexed 2. The growing number ofpi?Jsicians as 100) Source: Trends in health care costs, receipts, and expenditures as well as in The number of physicians has assests since 1966. Berne, Federal Social Insurance Office, 1982. more than doubled in the last two decades while the population increased by creases that turned out to be far too high. As a only 18%. As a result, there is now one physi­ result, in 1980, with 6. 7 acute-care hospital cian professionally active for every 400 people, beds per 1000 people, Switzerland had about one of the highest physician/population ratios 50% higher short-stay hospital capacity than in the world. At the same time, the Swiss uni­ Belgium, Canada, the United Kingdom, or the versities are producing 800-900 new physi­ USA, and the average length of stay was cians yearly; their number is thus expected to 14.3 days compared with 7.6 days in the USA. double again between 1975 and 1990 and to Many of these expensive short-stay hospital triple between 1975 and 2010. As the statistics beds are occupied by frail elderly people who of the sickness funds show, the more physicians need nursing care rather than sophisticated practising in an area, the higher are the per medical services. capita health care costs in that region. Are We Spending Too Much? 3. Overcapacity in the acute-care sector Nobody knows the "right" share of the GNP The expansion of hospitals in the fifties and to be spent on medical care. However, a review sixties was based on projected population in- of the literature reveals little evidence that

107 Health care-who pays 7 further investments in medical services in de­ Because of the great uncertainties that pervade veloped countries will lead to any marked medical care and the variety of acceptable reductions in overall mortality and morbidity treatments, the physician has wide latitude in rates. The per capita expenditures for health his recommendations. care among Western nations vary by more than 5. The sickness funds pay the physicians a 200% but most of their health indices vary by fixed fee for every service provided, and so no less than 5% and there is little correlation price competition occurs when new physicians between the two (4). Once a reasonable mini­ are entering the market. mum of care is provided, factors other than medical care-diet, life-style, heredity, envi­ Thus, the Swiss medical marketplace is not ronment-appear to have a much larger effect in any way a competitive market. Consumers on health and longevity than does more med­ and providers are not rewarded for cost-con­ ical care. Yet Switzerland is currently investing scious behaviour. an additional 1.5 billion Swiss francs every The insured patient has no incentive to year in medical care. How do we know how search out suppliers that deliver the same much medical care is really wanted by the product at a lower price. All members of Swiss? his sickness fund will share any costs of his The standard economic approach is to rely use of medical services, and his own pre­ on signals sent by market forces. In theory, mium will be negligibly affected. consumers with well-defined preferences are assumed to be able to purchase goods and ser­ The more services the physician in private vices from a variety of suppliers. Because they practice provides, the higher is his income. attempt to maximize their use of these goods A physician who avoids services of ques­ and services, given their income levels, they tionable or low efficacy gets penalized with wish to find the lowest-cost supplier. Suppliers less income. Physician gross incomes ac­ are assumed to maximize profit. As a result, count for only about 19% of total health they have an incentive to produce their goods and services at the minimum possible cost and to offer the range of qualities that consumers want to purchase; otherwise, another supplier Between 1960 and 1980 the fraction of may take business away. If there is an ineffi­ GNP spent on medical care in Swit­ cient group of suppliers in an industry, it is zerland more than doubled, repre· assumed that other firms from outside the senting a tenfold increase in total industry will enter the market in pursuit of health care expenditures in 20 years. profits, thereby ensuring that those goods consumers most wish to purchase with their incomes are produced at minimum cost (5). care spending in Switzerland, but physi­ The Swiss medical marketplace differs from cians control or influence most of the rest. this model in many important respects. Yet the Swiss health care system assigns 1. New providers cannot enter the market them no responsibility for the economic freely. consequences of their decisions. Most phy­ 2. Most hospitals are not profit-oriented; sicians have no idea of the costs of things their existence is guaranteed in so far as the they order-and no real reason to care. cantons and communes will cover their losses The more revenues paid on a per diem more or less automatically. basis by the sickness funds a hospital can 3. The average patient lacks the knowledge get, the lower is its deficit. Medically un­ to decide whether he could profit from a par­ necessary patient admissions, unnecessary ticular therapy. Therefore, the usual presump­ prolonged lengths of stay, and higher costs tion of consumer sovereignty is not valid. are the result. 4. The consumer expects the physician to The sickness funds can only control their translate his vague medical needs into demand. own administrative portion of the pre-

108 Empirical evidence

mium. If they attempt to control the claims savings are to be achieved, measures like the portion, both consumers and providers ob­ following ones will be needed. ject, and play the insurers off against each 1. The size and the scope of the hospital other. system in every canton should be checked and In contrast to a competitive market, the possible overcapacities in beds, personnel, and incentives in the Swiss health care system are equipment identified. The reduction of unne­ cost-generating, not cost-saving. Therefore, cessary beds will automatically shorten the we cannot simply rely on market forces when average length of stay. considering whether the medical services con­ 2. Cantons and communes should ensure sumed by the Swiss are really worth their cost. that an adequate, well-coordinated range of Even though the suspicion is great that they are home care and social support services exists in spending too much, there is no firm evidence their area that allow the elderly to stay at home that the Swiss are unwilling to invest between as long as possible. In an aging society, an 7% and 8% of GNP in medical care. However, increasingly important approach in controlling when the federal government convened a na­ health care costs is the way in which limited tional conference on health cost containment resources are matched to the needs of the at the end of 1982, its highly publicized first elderly. meetings did reveal a consensus that the Swiss just do not want to let this percentage get much 3. The present very liberal policy towards higher. If so, how can health care costs be held the training of physicians should be modified. more in line with the rest of the economy? By reducing the output and graduating only 250 medical students yearly, the physi­ Two main approaches to containing health cian/population ratio would still increase to care costs can be distinguished. one physician per 300 people in less than 1. The numbers of general practitioners and 10 years, but such a measure would at least specialists, the size and equipment of hospitals, stabilize the physician density, although at a very high level. As a consequence, Switzerland would need only one or two of the five medical schools that it has at present. Resource control is effective but has its limi­ tations because no system can succeed in cost restraint if those who are expected to reduce expenditure get financially hurt in the process. In the long run, nothing will succeed that does not alter the cost-increasing incentives built into the Swiss health care system. and other medical resources should be better matched to the needs of the population served. Creating a Competitive Health Insurance Market 2. The existing financing and delivery sys­ tem has to be changed to a system in which We have imposed on medical care a finan­ providers are rewarded for finding ways to give cial system borrowed from casualty insurance, better care at less cost and consumers are moti­ which assumes that financial incentives do not vated to search for such efficient suppliers. play an important part in decisions about the use of health services. The idea underlying cas­ Resource Controls ualty (fire and collision) insurance is that the damage is caused by act of God and the cost of Even though there are no agreed standards repair can be determined objectively. on the "right" physician density or short-stay hospital bed density, international compari­ Medical insurance, as the American econ­ sons indicate that Switzerland is heavily over­ omist A. C. Enthoven points out correctly, invested in both respects and, if short-term does not fit this model at all (6). The element of

109 Health care-who pays 7 judgement and choice in the decision to seek The premium is set in advance on the basis of a care and in the amount of care provided is too fixed amount per person per month. Thus the great. Uncertainty pervades medical diagnosis organization has a fixed budget within which and treatment. In most cases there is not one to provide the care. More services do not mean correct or standard treatment. There may be more revenues. Preventing medical problems several accepted therapies. Health insurance, or treating them in less costly ways is rewarded. by making more free care available to the In an alternative delivery system, the patient patient and thus increasing the doctor's re­ muneration, leads to more and more costly care being deiE,anded and provided. In a world of limited resources the more we spend on medical care the less we can spend for other The $wiss ~edlcafmarke~pliceunot purposes. Yet our present health insurance . h.t ~111 waY a< competitive 0:1~~~ arrangements are shaped as if the available ¢Pn~mers and providers are ti~ .~­ resources were unlimited. A basic strategy of . yard~d for cost-conscious beliav:-. ·····tour.· reform has to make sure that somebody has an i ~' ~ ~!:; \~ incentive to ask (and answer) difficult but nec­ essary questions like: are the extra days in hos­ pital worth their cost? Since it is not the insurers but the providers accepts a limited choice of doctors (those par­ and the patients who control the cost and use ticipating in that particular system) in ex­ of services, health economists believe that the change for what he or she perceives to be better remedy for spiralling health costs is to make benefits at lower costs. In contrast to the the providers compete between themselves. insured fee-for-service system, the provider The main point of this approach is to allow the organization is responsible for a voluntarily consumer to choose among several groups of enrolled population. Thus it can carefully plan providers, with different insurance premiums. the availability of resources to match the needs The consumer will be rewarded for choosing of this population. There is evidence in the an efficient provider and the latter will be USA that prepaid group practices reduce total rewarded because it gets the business. The inef­ per capita costs of medical care by 10-40% ficient providers will therefore have to shape compared with the costs for similar people up or fail for lack of patients-a remarkable cared for under insured fee-for-service (7). change from the present system. The competi­ The following main elements of fair eco­ tive strategy relies on the (assumed) consum­ nomic competition among various types of er's ability to choose the most appropriate health plans, including traditional insurance health care plan if given the necessary infor­ and fee-for-service, are proposed by Enthoven mation on costs and benefits and an economic in his "consumer choice health plan" (6). incentive to choose prudently. Because con­ sumer preferences are so varied, the availabil­ 1. The population has to be divided into ity of many different provider and insurance "actuarial categories" based on age, sex, loca­ systems would be most likely to maximize indi­ tion, and other factors determining predicted vidual satisfaction. medical need. Competing sets of providers, known as alter­ 2. Each health plan would set its own prem­ native finance and delivery systems in the iums for each actuarial category on the basis of USA, include prepaid group practices, individ­ its own costs and its own judgement of what it ual practice associations, primary care net­ can charge in a competitive market. works, and preferred provider organizations. They all have in common that premiums are 3. Each plan would be required to cover a paid to an organization that itself accepts re­ minimum list of basic health services. To make sponsibility for providing or arranging com­ price comparisons easier, all policies could prehensive medical care and assumes at least then be described in terms of basic health ser­ part. of the financial risk in the provision of vices plus a manageable number of additional serv1ces. benefits.

110 Empirical evidence

4. Each plan would be required to charge expenditures adjusted for general cost-of­ the same premium to all persons in the same living factors outside the control of the area category enrolled for the same benefits in a health system. given area. By using area-wide expenditures for the resi­ 5. Each health plan would be required to dent population, random fluctuations due to participate in an annual government-super­ specific patient differences are averaged out. vised open enrolment, in which it would have Ideally, the areas used should be natural health to accept all eligible persons choosing to care market areas, i.e., areas outside which resi­ join it. dents seldom travel to obtain health care. McClure terms the resulting measure "ac­ tuarially equivalent expenditures" (9). They permit comparisons to be made, between plan­ ning areas, of the adequacy and efficiency of the health care system and allow us to identify much more precisely the areas where cost per­ formance of the health care system is accept­ able and those where it is deemed to be exces­ sive and wasteful. It is important for Switzer­ 6. Each plan would be required to publish a land to introduce the collection of such data to clearly stated annual limit on family expend­ facilitate planning and the setting of targets. iture for the services covered. Since high cost areas, i.e., those with actuar­ 7. People unable to afford the full pre­ ially equivalent expenditures much greater miums would get a refundable tax credit to than the national average, are more wasteful help them pay. This subsidy might be adjusted than low cost areas, both efficiency and equity according to economic status, age, and family suggest that high cost areas should be held to a size but would not be payable just because peo­ lower target rate than low cost areas. However, ple wish to choose more costly plans. there is no technically "right" way to deter­ mine precisely the optimum level of health Only an actual test in a country or area will care expenditures. The choice of target rates of show if the proposed market strategy has increase is a political decision. enough regulatory safeguards against potential abuses in "selection of risks" or "preferential pricing", as Milton and John Roemer caution * * * ( 8). Yet abuses occur in any system, and pains­ Why does a small country like Switzerland taking private and public surveillance is the need over 500 sickness funds? In their special best answer we have. agreement of 1965, these funds tried to exclude any competition among themselves. They Data Collection agreed not to advertise comparisons with other funds or try to enlist members who are already To evaluate the results of cost controlling insured in another fund. Without competitive strategies, policymakers and planners must pressure, they have been very passive with res­ have a valid and reliable measure of the actual pect to health cost controls. A fundamental level and the rate of increase in health care reform is needed in the way medical care is expenditures. Such a measure would be pro­ financed and organized. vided by the following annual area-wide fig­ ures of per capita expenditure: Currently, Switzerland does not have any alternative delivery systems at all and until population-based expenditure, to remove such plans are started, there is little incentive variations due to patient migration; for practitioners to adopt a more cost-effective expenditures adjusted for health risk factors approach to health care. Sooner or later, how­ (age, sex, etc.) to correct for differences in ever, the ever increasing health care costs and health status between areas; and the rapidly rising number of physicians will

111 Health care-who pays 7 force the providers to study new ideas about 3. LEU, R. E. & FREY, R. L. Budget incidence, demo­ how to finance and deliver medical care. It is graphic change, and health poliry. Paper presented at certainly time for the concerned consumer 39th Congress on Public Finance and Social Pol­ groups, business, labour, and the federal and icy, Budapest, August 1983. cantonal governments to begin to exert pres­ 4. McCLURE, W. Journal of health politics, poliry, and sure for a change in health policy. law, 1: 1 (1976). 5. NEWHOUSE, ]. P. The economics of medical care: a Although competition may work slowly and poliry perspective. Reading, MA, Addison-Wesley, imperfectly, it would at least point the Swiss 1979, p. 49. health sector in the right direction -towards 6. ENTHOVEN, A. C. Health plan, the on!J practical organized systems with built-in incentives for solution to the soaring cost of medical care. Reading, economy and consumer satisfaction. D MA, Addison-Wesley, 1980. 7. LUFT H. S. Health maintenance organiZtZtions: dimen­ REFERENCES sions of performance. New York, Wiley, 1981. 8. ROEMER, M. I. & ROEMER,]. E. Internationaljour­ 1. MAXWELL, R. ]. Health and wealth: an international nal of health services, 12 ( 1): 111 ( 1982). study of health-care spending. Lexington, MA, Lex­ 9. McCLURE W. Comprehensive market and regulatory ington Books, 1981, p. 38. strategies for medical care. Hyattsville, MD, Bureau 2. ASSOCIATION OF SWISS HOSPITAL~ Annual Report of Health Planning, 1979, (PHS-HRA-230-77- 1982, Aarau, 1983, p. 13. 0033), pp. 52, 54.

Discussion

Brian Abel-Smith they all apply in every country (e.g., the catching-up process of health-sector wages). Moreover, there is -There are serious risks a notable omission from the list, viz., the effects of payment systems that create strong financial incen­ in giving control tives for excessive services (fee-for-service for doc­ to the providers of health care tors and daily payments for hospitals) in countries such as Switzerland; this crucial point is only men­ Dr Sommer's opening statement that the sharp rise tioned later by Dr Sommer. The ageing population in health care spending is a worldwide phenome­ is a very small factor, accounting for a projected non could have been made more appropriately increase in health care costs of less than 0.5% per 10 years ago. Sadly, a considerable number of coun­ annum according to Dr Sommer's figures; an in­ tries in Africa and Latin America have responded crease of this order could easily be absorbed with to the world economic crisis and their severe debt only a modest rate of economic growth. problems by cutting health expenditure. And sev­ eral developed countries, such as Belgium, Den­ Dr Sommer asks: "How do we know how much mark, Ireland, the Netherlands, and the United medical care is really wanted by the Swiss?". One Kingdom, have cut real health expenditure in cer­ might similarly ask: "How do we know how much tain years or have plans to do so, particularly with education is really wanted by the Swiss?" But at respect to general hospitals. In other words, health least teachers are not in a position in which they can care costs are not out of control everywhere. generate any extra spending on education that they think might conceivably help their pupils (whether My remaining comments refer only to the situa­ by extra classes, further supporting staff, or sophis­ tion in the more developed countries. ticated equipment) and get rewarded for doing so. While accepting Dr Sommer's list of the main Spending on education is largely a political deci­ causes of higher health spending, I do not think that sion. Later in his article, Dr Sommer actually remarks that the choice of target rates of increase is The author is Professor of Social Administration at the a political decision. Why does he exclude the pos­ London School of Economics and Political Science, sibility of target rates of decrease also being a po­ London, England. litical decision?

112 Empirical evidence

The pressures for increased spending on health Italy did so in 1980; a similar move is being planned care are being successfully controlled in some coun­ in Spain and Greece. While the change extends tries by tightening budgets, by regulation, or by rights to all citizens, it can also secure economies by changing the financing system from health insur­ abolishing the costly bureaucratic process of estab­ ance to a national health service, which may also lishing title to health insurance and establishing involve changes in the way in which doctors are budgets for services under political control. It can paid, as has happened in Italy. also help to achieve the goal of health for all through greater geographical equity in the distribu­ Where health expenditure is financed wholly or tion of health resources and through the coordina­ largely by central or local government budgets or a tion of local curative and preventive services. combination of the two, health care spending is, by definition, under political control. This has long As Dr Sommer points out, Switzerland does not yet have a quota for numbers of medical students. In the EEC, only Belgium and Italy lack such a quota. Some countries have used quotas to secure One solution to the overproduction of. drastic reductions in student entry. One solution to dOOtors would be to encourage service· the overproduction of Swiss doctors might be for in developing countries. the Swiss Government to supplement local salaries for doctors willing to serve in developing countries. This would cost less than it would if they stayed in Switzerland providing more services than are been the case in some north European countries, in needed. He also points out that Switzerland has no Canada (in the case of hospitals), and in New Zea­ system of controlling hospital bed numbers such as land. What is ingenious is the way budget ceilings operates in every country of the EEC. are increasingly being imposed on state health insurance systems, in whole or in part. Thus budget The essential point I am making is that other limits have recently been imposed on hospitals in countries are finding ways of controlling the cost of Belgium, France, and the Netherlands. health care without embracing the particular one In the Netherlands, budget limits have also been that Dr Sommer advocates. His solution, which is imposed on specialists' earnings outside hospitals. being canvassed in the USA, is to establish compet­ Any extra services provided by existing or new ing insurance organizations offering comprehen­ specialists up to 1986 will lead to proportionately sive medical care from a budget determined by their lower fee levels. In the Federal Republic of Ger­ premium income. There is nothing new in this many, the system of target-setting for different sec­ idea. Indeed it is precisely this system that was used tors of the health care system, though not binding, by the early sickness funds or friendly societies of has not been ineffective over the years. Europe a century ago. The establishment of budget ceilings for general The crucial point is that the early sickness funds hospitals has been accompanied in some countries were non-profit-making and were controlled by by the stimulation of less costly alternatives to hos­ consumers, not providers. Dr Sommer is content to pital care, including long-stay facilities at lower allow providers not only to control these organiza­ rates, nursing homes, day hospitals, and home care. tions but also to pocket the profit from them. Other countries have negotiated changes in the Dr Sommer underestimates the difficulties and relative value scales of fee-for-service systems of payment for doctors' services, so as to reduce the ignores the dangers of his solution. Dividing the financial incentive to provide technical services, population into "actuarial categories" is no easy matter. What about persons with pre-existing particularly diagnostic tests. A range of measures health problems, including psychiatric illness? has also been taken to restrain expenditure on drugs What about persons with handicaps and disabili­ for ambulant patients: thus positive and negative ties? Moreover the health insurance policies he lists have been drawn up, pharmacists' margins proposes would include a number of additional have been reduced, and tighter controls have been optional benefits that would make it even more applied to drug prices and sales promotion. I have difficult for consumers to choose "their efficient described the full range of recent regulatory meas­ provider". Quite a number of consumers might ures adopted by 12 European countries (1). assume that the most expensive provider is neces­ In 1968-69, Portugal changed over from nation­ sarily the best. The main danger is that in trying to al health insurance to a national health service, and remove cost-increasing incentives Dr Sommer

113 Health care-who pays? would generate incentives for dangerous underpro­ years before impairment of the activities of daily vision. Is it ethically desirable to put doctors into a living) as a more sensitive and valid criterion for position where the less they do for their patients, the assessment of alternative health policies. the more money they will make? For this is what it Recent statistics indicating a dramatic increase in means "to make the providers compete between themselves". the life expectancy of adults in a growing number of countries demonstrate the need to reconsider the I accept that there may be constitutional obsta­ relationship of medical care to health and survival cles (e.g., the strong power of the cantons in Swit­ (4). The issue is complicated by disappointing zerland) in the way of adopting the solutions that results in major experimental programmes aimed at some countries have painfully evolved. The power achieving changes in life-style (5) and by the find­ of certain pressure groups may often be such that ing that, on the whole, preventive programmes really effective regulatory mechanisms or changes contribute to a rise in health care expenditure in financing systems never get through the legis­ (6). lature. It may even be unthinkable for consumer Dr Sommer presents the cost explosion in Swit­ organizations or politicians to control budgets gov­ zerland as if it were a universal phenomenon. How­ erning professional activity, despite all WHO's ever, the second health expenditure survey con­ preaching about community participation. If, in ducted by the Organisation for Economic Co-oper­ such circumstances, Dr Sommer's solution is the ation and Development in the industrial countries only viable political option, it should be recognized during 1982-83, presented in May 1983 at the that it involves serious risks not only in terms of European Health Policy Forum, indicates that in a effectiveness but also to the health of some patients. number of countries-Australia, Belgium, Canada, It is far from being the best solution to what is Finland, Norway, and the United King­ essentially a political problem. D dom-health expenditure as a percentage of gross 1. ABEL-SMITH, B. Cost containment in health care. London, national product has levelled off. In Canada this Bedford Square Press, 1984. happened in 1972, and in Finland and Norway expenditure is actually beginning to fall. Thus cost containment in health care is feasible and, indeed, has been achieved. It is probably a question of pol­ Jan E. Blanpain itical will, acceptance by the public, cooperation of -Cost containment the providers, and the use of effective methods. has already been achieved Finally, Dr Sommer restricts himself to setting resource control against the creation of a competi­ in some countries tive market. He neglects such approaches as utili­ Dr Sommer says that further investment in medical zation review, price control, budgeting, and cost services will probably not lead to any marked sharing. The Canadian results show the importance reductions in mortality and morbidity, a standpoint of budgeting as a cost-control mechanism, while deriving from the observation that the life expec­ the Belgian experience demonstrates how price tancy of adults in developed countries did not not­ controls combined with utilization control and cost ably increase between 1950 and 1975. He also sharing can dampen down the cost explosion. D believes that changes in life-style will yield better results, although there is no documentary evidence 1. McDERMOTT, W. American journal of medicine, 70: supporting this view. 833-843 (1981 ). McDermott (1) and Fries (2) advocated a revi­ 2. FRIES, J. New England journal of medicine, 303: 130-135 sion of the conventional wisdom regarding the so­ (1980). called ineffectiveness of health care. In terms of the 3. KATZ, S. , ET AL. New England journal of medicine, 309: effective functioning of individuals and the post­ 1214-1224 (1983). ponement of the time in life when fitness is lost, 4. McGINNES, J. M. New England journal of medicine, 306: health care has undoubtedly contributed more than 671-673 (1982). can be inferred from mortality statistics. Katz eta/. 5. MRFIT: health poliry implications. San Francisco, Insti­ (3) suggested using the active life expectancy (the tute for Health Policy Studies, 1983 (IHPS Report No. 1). Professor Blanpain is Chairman of the European Health 6. RUSSELL, L. B. The economics of prevention. Health Policy Forum, Leuven University, Belgium. poliry, 4, 85-100 (1984).

114 Empirical evidence

Pierre Gilliand ships will be between the various health profession­ als? The notion of cutting the annual output of -Free competition doctors by two-thirds to three-quarters and reduc­ or prearranged strategy 7 ing the number of medical schools from five to one or two is opposed to the spirit and federalist tradi­ Dr Sommer claims that the only way to bring about tions of Switzerland. a lasting reduction in health care costs in Switzer­ Moreover, such a measure would have many bad land is to restore a competitive market but then effects. The fear of excessive numbers of doctors is a immediately proposes drastic intervention in the red herring: excessive use of facilities and excessive form of limitation of the intake into medical costs are the real problems. Limitation of intake schools. into medical schools is only likely to delay measures It has to be understood that the services provided for the rationalization of health policy and reorgan­ by the public and private sectors of the health sys­ ization of the health sector. In any case, forces have tem in Switzerland are highly complex and inter­ been at work for many years to keep the number of dependent. No panacea is available to resolve the new doctors down. Fewer candidates are passing problem of mounting costs. In my opinion a plan­ the preparatory examinations, and the number of ned comprehensive approach is necessary. young people reaching university age is declining During the third quarter of the twentieth cen­ each year owing to the fall in the birth rate a gen­ tury, economic progress permitted spectacular de­ eration ago. velopment of the medical and hospital sector, while Efforts need to be focused on the training of the wider coverage of social insurance schemes doctors, the promotion of certain specialist fields, made it easier to obtain access to care. the way in which care is delivered, the methods of Quantitatively, Switzerland is now well provided payment, and the evaluation of services, so as to with hospital facilities and health personnel, and ensure that the right medical skills are available and the quality of the health care delivery system has to safeguard the quality of the services patients reached an enviable level by international stan­ receive. dards. Life expectancy at birth is high by world It is essential to bring costs in the health field standards. under control, otherwise it will become necessary Some of the reasons why the costs of medical and to ration services. When the same facilities are hospital care in Switzerland are getting out of con­ available in many different places and health care trol are mentioned by the author, and many others procedures are performed in accordance with the could be added. Chronic deficits are in prospect, principles of free trade and free enterprise, costs are and we are heading towards a two-tier system of bound to become inflated. Action needs to be taken medical and hospital care: one for the poor and one "upstream", by coordinating the means available. for the rich. The house is on fire, yet our politicians The expenditure explosion needs to be combated by are using only buckets of water to quench the blaze. careful allocation of resources. For example, the Many of the people offering advice are obsessed ageing of the population has many repercussions in with economics, whereas few are economy­ the health field; some Swiss cantons are trying to minded. My interpretation of the facts is similar to forestall the consequences of the growing propor­ Dr Sommer's, but I differ from him in the remedies tion of old people with disabilities, but the efforts to be applied. are small and the obstacles immense. The introduction of a strict limit on the number I do not believe in spontaneous competition in of students entering medical schools would not the public health field. Needs increase faster than mitigate the urgency of the economic problems. the possibilities of meeting them. Prevention could The number of doctors practising would not be simply lead to an increase in medical interventions. affected until almost the year 2000. And who can The financing arrangements proposed by Dr Som­ say today what the ideal physician/population ratio mer are apparently intended to provide a frame­ will be at the start of the twenty-first century, or work for competition. There is a need for caution how practices will develop, or what the relation- here: what may be a good thing in North America is not necessarily so in a different sociopolitical struc­ ture. We must be wary of inflexibility and niggling Professor Gilliand is with the Faculty of Social and Political inspection procedures. Sciences, University of Lausanne, Switzerland, and also with the Institute of Advanced Studies in Public Admin­ On the other hand, financing by budget alloca­ istration, Lausanne. tions agreed betweeen the parties concerned, tak-

115 Health care-who pays? ing into account the purposes of hospitals and other -a corresponding reduction in the number of hos­ health establishments, is proving successful in the pital beds and an increase in beds for the old and canton of Vaud. By fixing the amounts allocated to handicapped; these establishments in advance, instead of meeting - the construction of dwellings designed for the deficits at the end of the financial year, expenditure handicapped and the very old, so that these peo­ is brought under control. The health establishments ple can continue to look after themselves - a must keep within their budget allocations but are social policy that might be financed from the given greater managerial autonomy. substantial funds of the employees' old-age in­ surance scheme; This system should be extended to medical fees -an improvement in the continuity of care, by as a whole. The corollary to the fixed budget is that making hospitals and other establishments more information must be available so that evaluation flexible and getting them to coordinate services can be performed. It would be up to the doctors to with the outpatient sector; work out their own policy within the agreed finan­ - the encouragement of neighbourliness and mu­ cial framework. Competition could then take place but would be characterized by the control of tual help, to prevent the old and handicapped resources instead of the explosion of costs. from retiring into seclusion and to promote human contact and social integration; and Health can be seen as an investment as well as a - a redesigning of the system of financing health cause of expenditure. Improved health standards services, using mechanisms that are plainly visi­ should be seen as an investment in the greater well­ ble and can therefore be evaluated. being of the population in general and of the sick in The Swiss health system cannot maintain the particular. Moreover, health is a powerful driving expansionist trend of the third quarter of the twen­ force for the economy and for employment. tieth century. The methods of public health financ­ ing have both socialist and capitalist features-not Controlling costs does not mean that the propor­ the easiest of situations to contend with, as is illus­ tion of the national product devoted to public trated by Dr Sommer's call for simultaneous com­ health will be reduced. In order to keep up with petition and highly restrictive measures. progress and to cope with the likelihood of a shorter working week, more personnel will probably be Keeping a tighter rein on health care, at both the needed, despite rationalization measures. The care individual and community levels, involves a grad­ of the sick demands direct relationships between ual restructuring of the ways in which care is pro­ patients and health personnel. Rationalization is vided. Particular attention must be paid to the fact hardly possible at the patient's bedside, unless we that the population is ageing considerably, while are prepared to accept a decline in the quality of the total number of people is constant or even service and less individual attention. The only way declining. Some kind of rationing will probably be to curb the expansion of costs is to channel part of necessary, but it would be a serious matter to ration the demand for institutional care towards the out­ patient sector and to give priority to the care of .. patients in their own homes. This will only result from a strategy agreed between the parties con­ There is no basis for fearing excessive cerned, in which the patient's right to decide is numbers of doctors. respected. Health policy embraces all measures that contri­ services and personnel: action needs to be taken to bute to people's health, and its goals will not be deal with excessive facilities and equipment in a achieved by some hypothetical self-regulation re­ country where, in the health field, pseudocompe­ sulting from competition. Rather will they result tition and considerations of prestige tend to in­ from the gradual yet strict application of coordi­ crease material resources at the expense of relation­ nated measures, namely: ships between health personnel and patients. - improvement of the income of the poorest The era of half measures is coming to an end. among the old through supplementary benefits, This is a time for choosing between freedom of so that these people do not have to enter an competition and prearranged strategy. I prefer the institution simply because of poverty; second alternative, which could give scope for the - an increase in home nursing and support ser­ exercise of individual responsibility and indepen­ vices and in home calls by doctors; &~. D

116 Empirical evidence

Bengt Jonsson amount of resources, and so a major challenge is presented to the system. -In Sweden the health care Like Switzerland, Sweden now has about 25 phy­ explosion is a thing of the past sicians per 10 000 population. In. 1960 the numb~r of physicians per 10 000 inhab1tants was 9.5 m The health care systems of Sweden and Switzerland Sweden and 13.5 in Switzerland, so growth has differ in organization, financing, and management. been more rapid in Sweden. From 1950 to 1970, Nevertheless, there are striking similarities in the health care costs increased faster than the number trends of health care costs over the last 20 years. of physicians. The imbalance was solv~~ by incr~as­ From 1960 to 1980, a period of significant eco­ ing the number of other staff per phys1c1an. Dunng nomic growth in Sweden, the share of health care the next decade the reverse happened, but the expenditure in the national domestic product of the imbalance was solved by reducing average working country rose from 4. 7% to 9.6%. However, both hours for physicians. In the present decade the economic growth and the increase in health care number of physicians will increase twice as fast as expenditure were most rapid during the earlier pa~t the total resources, and the imbalance will probably of the period. From 1963 to 1973 the real econom1c be corrected by increasing the physicians' share of growth rate was 3.8% per year, whereas for the next total health care expenditure. In the long run, how­ ten years it was only 1.5% per year. Health care ever there has to be a balance between the total costs increased by 5. 1% annually from 1963 to reso~rces and the number of physicians. Further­ 1973, and by 3.6% per annum from 1973 to 1983. more, manpower planning in the health service Thus the reduction in the growth of health care must include all categories of personnel. expenditure was less marked than the reduction in economic growth. In Sweden about 17% of the people are aged 65 or more; this proportion is higher than in most An examination of the trend in health care other countries, and people over 65 consume 50% expenditure during the last three years and of fore­ of health care resources. However, there is no evi­ casts for the coming years clearly indicates that the dence that the increasing proportion of elderly peo­ growth of health care expenditure w.ill decline even ple will significantly increase health care costs. further. The projection for 1984-88 lS that real costs Only 10-15% of the increase in Swedish health care will rise by 0. 7% per year. In Sweden the health expenditure can be explained by demographic fac­ tors. It is much more interesting to observe the dramatic changes in health care consumption per .... :' capita in different age groups than to make forecasts Our main problem is to adapt the of what will happen if consumption patterns re­ health care system to a limited growth main constant and the number of elderly people of resources. increases. It is frequently said that increased wages paid to health care employees have resulted in markedly increased health care costs. In support of this hypo­ care cost explosion is a historical phenomenon, and thesis, its formulators have pointed out that a great the main problem now is to adapt the health care many health care employees are low-paid and that system to a limited growth of resources. the thrust of wage policy is to raise the pay level of this very group. In Sweden, average hourly wages, This would not be very difficult if the health care including payroll taxes and social security contribu­ system were static. However, new objectives for the tions, are lower in health care than in manu­ health services and advances in medical technology will require significant structural changes in the facturing industry but higher than in other service trades, such as retailing and catering. Historically health care system in the years to come, involving an increase in resources for prevention and primary no clear trend can be detected in the relative pay of health workers. The increase in health care costs health care, and a decrease in those for hospital care. These developments have to take place cannot be explained by rises in the relative pay level of the sector's employees, but corresponds to a real against a background of a more or less constant increase in the input of resources. Income redistri­ bution in favour of the sector's employees is Professor Jonsson is with the Department of Health and not involved. I believe this to be true in most other Society, Linkoping University, Sweden. countries.

117 Health care-who pays?

The basic economic need in the Swedish health many of the problems of collective decision-mak­ care system is to improve resource allocation. This ing and government regulation can be explained. can be tackled by market reform and improved Marmor & Christianson (1) have shown this to be management. Sweden has a small private health true for government policies in the USA, and the care sector, whereas about 85% of resources are same reasoning can be used to explain a number of spent in public institutions. An intense debate is in peculiarities of government policies in Europe, progress about the right mix of public and private such as those in the Netherlands (2). If it is indeed sectors. There is obviously room for more compe­ impossible to redress the failures of collective deci- tition and more private contractors, but changes in this direction will only be marginal. It is therefore necessary to improve management within the pub­ lic system. I agree with Dr Sommer that physicians' There js no financial incentive to decisions are the key to efficient decision-making in strive ·£or efficient health care provi­ the health care system. Consequently, decentraliza­ sion in most European social health tion and deregulation can open the way to greater efficiency. Budgeting and accounting systems have insurance systems. to be developed that will give the right incentives for efficient decision-making and cost contain­ ment. It is also necessary to undertake more careful evaluations of new as well as established medical sion-making in health care, the introduction of technologies. Sweden will probably choose a mid­ more market mechanisms in health care allocation dle way, involving both market reform and im­ would be the way to proceed. This is the clear proved health planning, for the development of the position of advocates of competition like Alain health services. D Enthoven (J) and Clark Havighurst (4). I would like to consider two basic options for introducing market mechanisms in health care allo­ cation. With emphasis on the competitive ap­ Frans F. H. Rutten proach, I would like to sketch a way in which we could proceed, taking into account traditional -Market strategies within views on how to provide health care within the a social insurance system social security systems in Europe. In these systems, resource allocation through Dr Sommer suggests that Switzerland should go in the direction of a competitive health insurance individual decisions by suppliers and consumers in market. He does so after describing current re­ a market is replaced by collective decision-making source allocation in health care and identifying a in government or in social security agencies. There number of adverse incentives built into the system. seem to be two points at which market incentives The problems described by Dr Sommer will be might be introduced: in the relationship between familiar to policy-makers and researchers in other insurer and producer, or in that between consumer European countries. and producer. What phenomena have led to the presence of so The first approach is mentioned by Sommer when he describes the development of prepaid many adverse incentives in our health care sys­ group practices in the USA: the insurer selects from tems? In the first place, certain historical factors common to the various systems in Europe explain competing providers and enters into contract with the existence of fee-for-service remuneration for those who deliver good quality at low cost. The physicians, the free location of physicians, and oth­ insurance organization may even own a number of health care institutions itself. As is pointed out by er matters. Sommer, Enthoven has proposed government reg­ Political economists point to another way of ulation to protect prepaid group practices from explaining the inefficiency in our health care sys­ unfair competition with traditional insurers and to tems. Given the hypothesis that all parties in the prevent socially undesirable consequences of com­ political scene pursue their separate objectives, petition. The second approach is based on the idea that The writer is Professor of Health Economics at the Uni­ efficiency in health care can be achieved only if versity of Limburg, Netherlands. patients themselves have a direct financial stake in

118 Empirical evidence efficient health care delivery. In contrast with the Sommer's article points to, but does not answer, first approach, this involves cost-sharing, which is the question of whether the gradual introduction of being widely introduced in a number of European socially acceptable competition into European so­ countries. Thus in Belgium drugs have been classi­ cial insurance systems is possible. I shall make a fied according the therapeutic and social criteria: number of suggestions on how to proceed in this four categories are distinguished, and the percen­ direction. Let me first briefly mention some basic tage of expenditure reimbursed through social characteristics of most European social health in­ health insurance differs between them. In the first surance systems. category there is full reimbursement, whereas in the fourth there is none. Cost-sharing has also become - The fees of health care providers and the prices more important with respect to other service items. of health care institutions are fixed by a national Furthermore, co-insurance of 40% for physiother­ or regional authority. apeutic care has been introduced, and people now Premiums are collected centrally, and social pay a fixed amount for each day spent in hospital. In insurance agencies or sickness funds are reim­ the Federal Republic of Germany there was virtual­ bursed for expenditure incurred. ly no cost-sharing by patients before the introduc­ - Social insurance agencies or sickness funds are tion of a law on cost control in 1977; now there is obliged to settle contracts with any provider or co-payment and co-insurance for a number of se­ health care institution meeting certain quality lected services. Recently, a fixed co-payment per requirements. hospitalization day was introduced in Germany. In the Netherlands, co-payment has been introduced In such a system there is no financial incentive for pharmaceutical consumption within the public whatsoever to strive for efficiency in health care scheme. From the Rand Health Insurance Study (5) provision. In my opinion, it would be possible to we know that the decrease in consumption attri­ stimulate competition between health care provid­ butable to cost-sharing can be quite substantial. ers by adopting a four-stage strategy. Recent information from the same study (6) sug­ 1. The social insurance agencies or sickness gests that long-term effects on the health of people funds would be freed from their obligation to settle who lower their consumption because of cost-shar­ contracts with any provider or health care institu­ ing are insignificant. tion meeting certain quality requirements. This is One reason why cost-sharing is being widely currently under debate in the Netherlands. Social used for cost containment is that it can be intro- insurance agencies would be able to break contracts with providers failing to meet certain efficiency '\u criteria. In this way a situation similar to that in the USA could develop, in which, for instance, "pre­ Cost-sharing ean be introduced rela­ ferred provider organizations" come into existence, tively easily in a social insurance con­ i.e., organizations that offer people a reduction in text. insurance premiums as long as they use the ser­ vices of only a restricted group of health care pro­ viders. duced relatively easily in a social insurance context. 2. The rules for reimbursing sickness funds It seems, however, much more difficult to intro­ would be altered, e. g., by changing from reimburse­ duce a fundamental change in respect of competi­ ment on the basis of costs incurred towards bud­ tion, as described by Sommer. Government circles geting. This would give social insurance agencies or have shown clear interest in the ideas of Enthoven sickness funds a clear incentive to contain expend­ and Havighurst, but this has not resulted in action iture. The budget for the sickness fund could, for to stimulate competition in health care. On the example, be based on the number of people insured, contrary, there seems to be a tendency to make allowing for the characteristics of the insured pop­ social insurance systems more dependent on gov­ ulation. In this situation, sickness funds might be ernment finance and to decrease the influence of inclined to assume an active role in the selection of private enterprise in health care, especially in sou­ providers offering both high quality and low thern Europe. Italy established its national health costs. service in 1978, and Portugal introduced a national system financed out of general revenues one year 3. There would be a change from a system of later. Similar measures are being considered in fixed prices to one of maximum prices. This would Greece and Spain (7). allow competition between providers, not only on

119 Health care-who pays 7 the basis of quality of care and efficient behaviour, Detlef Schwefel but also in respect of fees and prices. 4. Reimbursement from central funds to social -From cost containment insurance agencies or sickness funds would not go to effect assessment beyond a point at which additional funds would have to be raised by sickness funds themselves as In pre-industrial societies, agriculture frequently direct consumer charges, and competition would be had the highest share of gross national product; possible in respect of these charges. Regulation as why should the health sector not rank high in post­ proposed by Enthoven and described by Sommer industrial societies? A structural shift of the econ­ could help to achieve a socially acceptable distribu­ omy in favour of health care could be justified in tion of health care resources. four ways. Firstly, in terms of the quality of growth, Because of the need for brevity, I have not con­ this sector produces health, a basic need-oriented sidered a number of difficulties. It makes a differ­ item. Secondly, because health care is labour-inten­ ence, for example, whether one or several sickness sive it creates and secures jobs-and indirectly funds are operating in a region. Only in the second health-in times of mass unemployment. Thirdly, case would consumers be able to make a choice there are essential forward and backward linkages between competing sickness funds on the basis of to other sectors, like the equipment and chemical premium and service. Discussion of these issues has industries. Finally, the market for health care ex­ begun in the Netherlands, where a social insurance pands quite strongly with the supply. Many other system coexists with a considerable private sector, economic sectors do not have comparable advan­ in which there is now vigorous competition be­ tages. Why should we not allow the health sector to tween health insurers. As health economists have expand? Why should the health sector not be one of pointed out, in order to obtain the full benefits of those leading economic recovery after recession? competition, it should not be restricted to insurers To force cost-containment policies on the health but should also include health care providers and sector could be misguided from the economic point institutions (8, 9). of view as well as inhumane. In this contribution I have made a few sugges­ But do we really produce health through health tions as to how such a situation might be gradually care? Is there not room here for scepticism ? Nearly attained. It may be interesting to follow develop­ all statements on the efficacy of health care are ments in the Netherlands, where government pol­ hypothetical rather than factual, or relate only to icy-makers have made proposals for extending the isolated topics. There are few comprehensive private sector and incorporating more market in­ evaluations of health care covering both context centives into the system. D (e.g., availability, quality) and effects, especially side-effects (e.g., iatrogenic diseases) and after­ 1. MAR!-.IOR, T. R. & CHRISTIANSON,). B. Health care polity: effects (e.g., cost increase because of higher life a political economy approach. Beverly Hills, Sage Publica­ expectancy). On the other hand, some factors seem tions, 1982. to affect health more than the health care sector 2. RUTTEN, F. F. H. Openbare uitgaven, 15: 328-343 itself, viz., nutrition, sanitation, and real income. (1983). Without contrasting the economic and health im­ 3. ENTIIOVEN, A. C. Health plan: the on(y practical solution to pacts of health care against those of other sectors, a the soaring cost of medical care. Reading, MA, Addison­ plea for containment of expenditures or costs in Wesley, 1980. health care seems to be at least premature, and 4. HAVIGIIURST, C. C. Deregulating the health care industry. certainly inhumane, since health care undoubtedly Cambridge, MA, Ballinger, 1982. produces more health and well-being than most 5. NEWHOUSE, J. P. ET AL. New England journal of medicine, other social and economic sectors do. So, if cost 305: 1501-1507 (1981). containment is nothing but expenditure contain­ 6. BROOK, R. H. ET AL. New England journal ofmedicine, 309: ment, let us contain it, even if we do not fully 1426-1434 (1983). understand whether health care prevents illness or 7. VAN DE WERFF, A. Planning and management for produces health and well-being. A similar situation health in periods of economic stringency and instabil­ ity. In: WHO European Conference on Planning and Manage­ ment, Scheveningen, Netherlands, August 1984. (In press). Dr Schwefel is Head of the Socioeconomics Department 8. RuTTEN, F. F. H. Effective health care, 1: 35-43 (1983). of the Institute for Medical Informatics and Health Sys­ 9. VAN DE VEN, W. P.M. M. Studies in health insurance and tems Research, GSF Research Centre, Munich, Federal econometrics. Leyden (thesis), 1984. Republic of Germany.

120 Empirical evidence is presented by many economic and social sectors: combine market intervention with bureaucratic we know the outputs but seldom the outcomes in regulation, as with the closing of the market for terms of satisfaction of basic needs. new physicians and the opening of that for practis­ ing doctors. Proposals are made for reducing wel­ In all economic and social sectors, inefficiency is fare policies, for rationalization, for the introduc­ unethical because it involves the wastage of re­ tion of markets and competition, and for co-pay­ sources that could have been put to better use (1). ment. Bureaucratic planning is now often disre­ There seems to be a variety of inefficiencies within garded, and what might be called the health under­ the health care sector: misallocations, surplus of ground economy often bears costs that had been specialists and beds, shortage of general practition­ contained elsewhere. ers, double diagnoses, overtreatment, extremely high use of technologies, unnecessary hospitaliza­ Greater freedom for market forces in health care tion, and excessive utilization and wastage of drugs. should lead, via competition, to the emergence of cost-effective providers (physicians and insurance companies), since consumers would be able to exer­ cise choice. Proposals regarding supply - alterna­ tive delivery systems, consumer choice health plans, health maintenance organizations, workers' cooperatives - have not yet found favour in the Federal Republic. Demand-oriented proposals are predominant: co-payment for minor diseases, drugs, dental care, and hospitalization have been implemented for the 90% of the population with If there are no policies of primary prevention, statutory insurance rights. As in other highly devel­ where can we best use measures to decrease costs oped countries, only embryonic measures for com­ and increase efficiency within the health care sec­ petitive supply have so far been taken; demand tor? management measures are more likely to be effec­ tive. Consequently, we do not have valid answers in Let us consider cost containment in the Federal respect of such matters as risk selection, preferential Republic of Germany. Assuming that supply cre­ pricing, unjustified demand decreases, cost shifting, ates demand in health care and that the most im­ monopolization, consumer sovereignty, consumer portant resource allocations are made by providers, preferences, and distributional equity. At present then, given that over 80% of health insurance we can only speculate about them. expenditure in the country is induced by practice­ based physicians, it is clear that cost containment Throughout the cost-containment discussion the requires persuasion or incentives directed towards federal authorities are said to have increased their these physicians. This was done, in fact, in Bavaria. power. Professional medical organizations and the The Federal Republic, however, has chosen a com­ administrations of sickness funds have tried to prehensive procyclical approach (instead of alle­ strengthen their positions too. But there is no viating health problems caused by recession anti­ strong evidence, either empirical or theoretical, on cyclically) based on macroeconomic data. About 60 their effectiveness and efficiency in overcoming representatives from government and industry problems arising from lack of consumer sovereign­ meet twice a year (in what is called a "concerted ty, high transaction costs, and inadequate informa­ action") to analyse the background and to discuss tion. Such features usually call for state interven­ strategies and measures for cost containment, such tion (2). It is uncertain whether the state and the as ceilings on expenditure increases. So far it is not bureaucracy fulfil their raison d'etre by defining need clear whether such policies strengthen efficiency and demand and by producing merit goods. The rather than merely reduce expenditure or transfer it belief that effectiveness can be strengthened by to the weakest parties involved. It is also uncertain state intervention is a matter of social theory or whether people do not inadvertently undercut such political preference. There is an absence of empir­ policies and vitiate any long-term containment ical knowledge based on thorough evaluation. effects. There are other uncertainties. For example, to In spite of all the uncertainties, there is an explo­ what extent do lay people themselves contribute to sion of ideas (salvation doctrines) about how to health and well-being, independently of the health achieve cost containment and efficiency in the Fed­ market and health plans, through participation, eral Republic of Germany. Most proposals try to self-help, and life-style? It is not clear how mem-

121 Health care-who pays? bers of the public, using their own common sense, ification. We need independent, rigorous health react to cost-containment policies, which are shift­ systems research rather than mere belie£ ing the costs in terms of time, pain, and money to To summarize, we do not know whether ex­ the private sector, nor how this is to be avoided or penditure or cost containment in health care is rel­ reversed. The only certainty is that strong provider evant from a macroeconomic point of view. It is interests compete with weak consumer interests. conceivable that containment policies are abolish­ According to the extent to which costs are con­ tained by the market or by health plans, the third ing the most effective measures. It is unclear sector-the lay system or the shadow econo­ whether cost containment has the effect of increas­ ing efficiency or of decreasing expenditure; shifting my-expands. Costs contained elsewhere are paid here. expenditure to other areas might prove even more inefficient. We simply do not know which of the Various of these doctrines of salvation have been usual doctrines of salvation -competition, plan­ implemented in the world: full competition in ning, and/or self-help-can do most to improve many Third World countries, models of competi­ effectiveness and efficiency. In the absence of con­ tion with only slight state intervention in the devel­ crete information, we should not try excessively to oped countries, comprehensive planning of health curb costs and expenditure in health care but should care in widely diverse countries, many forms of invest in the rigorous evaluation of the effects and payment such as capitation reimbursement or fee­ side-effects of actual and alternative measures with­ for-service occuring in one and the same country in and outside the health sector, even if this means and, all over the world, alternative delivery models increasing health care costs. Expenditure on health of every kind. Before starting to implement one of care seems to be more useful in terms of health and the modern doctrines of salvation on a large scale, economics than expenditure on arms and many one should try to evaluate the effects, side-effects, other items in the economy, and this should be our and after-effects of intended policies, checking main hypothesis. D them against comparable policies carried out at other times and in other areas and creating scenar­ 1. MAYNARD, A. Resource mobilization: an economic task !if ios to assess which policies are likely to work. planning and management for HFA2000. Working paper prepared for European Conference on Planning and As regards evaluation, a direct transfer of theo­ Management for Health, The Hague, Netherlands, ries or results from other sectors to the health sector 27 August to 1 September 1984. is impossible; health care is not a commodity like 2. ROEMER, M. I. & ROEMER, J. E. International journal !if soap. Doctrines of salvation should be open to ver- health services, 12, (1): 111-129 (1982).

Increasing the operational capacity of the health services for the attainment of the goal of Health for All by the Year 2000 Pan American Health Organization, Washington, D.C., 1985, 37 pp., US$ 6.00 (PAHO Scientific Publication, No. 482).

The Technical Discussions held in connection with the XXX Meeting of the PAHO Directing Council in 1984 permitted top-level decision-makers from PAHO's Member Countries to jointly consider their health services' operational capacities and general measures needed to increase them. Principal questions considered during the discussions were: general policy and sectoral organization; the organization and administration of services; and requisites for achieving community participation in health development.

This book will prove useful to policy-makers and others concerned with strategic planning for health services and with potential expansion or modification of those services to meet people's basic needs.

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