Saturday, August 29, 2009

Perspective Paper for Health Financing session for MFC 2010 Annual Meet

The health financing strategy of any country is critical for the character and nature of the health system that evolves in that country. If we look at countries where citizens have universal access to healthcare then it is clearly evident that public finance is the predominant mode for provision of healthcare services. Thus in such countries between 45 to 80 percent of health expenditure is accounted for by publicly generated sources like taxes and social insurance. Examples of such countries include all OECD countries with the exception of USA. These include Canada, UK, Sweden, Germany, Japan, Australia, Italy etc.. A number of developing countries too have moved towards universal or near universal access to healthcare for their populations. These include Sri Lanka, Thailand, Malaysia, Brazil, Costa Rica, Cuba, Chile, Mexico etc..

When countries move closer towards universal access through predominantly public financing a very clear shift in out-of-pocket payments take place – from being predominant they become insignificant. Mexico and Thailand are the most recent examples of this trajectory. Similarly when countries reduce public financing for healthcare then OOPs increasingly account for a larger share and inequities start surfacing. Sri Lanka, because of a budgetary crunch is facing this kind of crises and its predominantly tax financed system is under threat, especially so because World Bank is now coming with its classical prescriptions of the government limiting its role to primary care or selective care and allowing the private sector to take charge of the rest and that too in a scenario in Sri Lanka where the private sector has been very weak and unregulated and most of it is anyway government doctors doing legally permitted private practice.

In contrast most developing countries of Africa and Asia have levels of public financing which is under 40% of total health expenditure and this constrains public financing in provision of healthcare and puts a larger burden on households to pay directly for accessing healthcare most of the time. WHO has estimated that 5.6 billion people, mostly the poor, across the world spend out-of-pocket to seek healthcare for over half their healthcare needs and this is often financed through debt or sale of assets. And this is also often one of the primary causes for poverty in such countries. Table 1 provides very clear evidence at the global level of the linkages between income, public financing of healthcare, level of health expenditure and health outcomes.

Table 1: Linkages between income, level of health expenditure, source of Health Financing and health outcomes

While public financing is critical to healthcare access and equity, what Table 1 also tells us is that in order to have a reasonable level of public finance commitment to healthcare we also need adequate revenues accruing to the public exchequer. Thus tax:gdp ratios also become a critical element for public financing of healthcare. Again most countries which have universal or near universal healthcare access have tax:gdp ratios which are above 30%, that is of the total income of that country the government is able to net in over 30% of it as tax revenues. The latter is critical for social sector expenditures because in most countries around 10% of GDP goes towards what we call non-development expenditures like public administration, law and order, defense, governance structures etc.. And most developing countries usually have a tax:gdp ratio of between 10-15%. Thus if 10% goes to non-development spending then what is left for social sectors is grossly inadequate. Thus if we have to meet the globally accepted norm of 5% GDP for health and 7% GDP for education then a tax:gdp ratio closer to 30% becomes critical.

However tax:gdp ratios are closely linked to the structural dynamics of the larger economy, and often political will with a strong social-democratic leaning is the underlying determinant for realizing reasonable levels of revenues for governance. Thus a sense of public good must prevail strongly within governance structures. Thus countries which have high tax:gdp ratios also have a social democratic character and therefore commit larger resources to the social sector or public goods and are able to achieve reasonable levels of equity in access to basic social and economic needs. The schematic in Figure 1 demonstrates the above political economy and its criticality for health financing, universal access and equity.

Figure 1: The Importance of Healthcare as a Public Good with Public Financing

Thus what we conclude from the above is that a healthcare system which has universal access as its goal will emerge only when healthcare is recognized primarily as a public good and consequently receives the necessary resources from public sources.

The other problematic that confronts us in the understanding of health systems and financing is the provision of healthcare. This is an arena of conflict and debate with people taking strong sides in favour of the public or private sectors. The crux of the debate and conflict is that the supporters of private sector criticize the public system for its inefficiency, red-tape, callousness, and mindset and attitude problems. The supporters of public sector blame the private sector as being exploitative and profit-oriented, unethical, and inducing unnecessary demand. Both are correct as well as wrong. Correct because the descriptors mentioned above are indeed quite common and wrong because if the public sector is inefficient then the contrary that the private sector is efficient may not be always true or if the private sector is exploitative that does not mean the public sector is unexploitative and so on. Most countries providing universal access have overcome these problems through organization of systems and regulation. That is the healthcare system is modeled around the financing strategy and the latter is used as the fulcrum to organize, regulate and control. Thus it does not matter whether the provider of services is from the public sector or from the private sector. The financing mechanism which is under public domain defines in detail the structure and nature of services needed and develops a payment or buying mechanism of those services which are regulated and audited. There is no fixed formula across countries. While we see that financing mechanisms tend to be very similar across countries – mostly a combination of two or three modalities, provision of services is much more varied with different kinds of a public private mix, mostly a consequence of their historical position. Thus for example when UK adopted the NHS, the hospital system was largely public owned and hence hospitals under NHS are overwhelmingly in public sector. In contrast ambulatory care was mostly in the private sector and hence the ambulatory care system under NHS devised a mechanism to contract in private providers through a capitation payment system. Similarly when Canada adopted its Health Canada Act hospitals were equally owned by public and private sector and hence under Health Canada there are hospital providers both in public and private sector. The key here is that the healthcare system is organized, regulated and controlled through a financing mechanism which is managed publicly irrespective of whether services are provided privately or publicly.

If India has to move towards a universal access healthcare system it will have to adopt the above principles though its structures and mechanisms may be different. That is India will have to organize, restructure, regulate and control the healthcare system through a publicly mandated financing mechanism which would be some mix of a social insurance and tax based system, similar perhaps to Thailand’s financing strategy. But given India’s historical position the larger challenge would be the provision of healthcare, especially the reining in of the huge private sector in both ambulatory and hospital services. I say that this is a larger challenge because no country in the world which has achieved universal access to healthcare was in a historical position like India, that is having a completely dominating private health sector which is also completely unregulated and lacks ethics in practice.

So what are the options for India? Not an easy question to answer. India spends around Rs. 3000 per capita on healthcare which is around 6% of its GDP. Huge indeed but of this only Rs.450 comes from the public exchequer or a mere 15%. Of the rest 96% is out-of pocket and only about 4% is insurance. The 15% of the expenditure which goes to the public sector accounts for 15% ambulatory care and 55% hospital care and the 85% of private expenditure takes care of 85% ambulatory care and 45% of hospital care. The public sector is plagued with a severe human resources problem especially doctors and nurses as well as supplies and maintenance which has led to a virtual collapse of the public health system over the last decade and a half, though in the last 5 years the NRHM has put in substantial efforts to try and revive atleast the rural public health system. Their efforts have not been very successful as the above said problems continue to plague the public health system and somewhere the health financing strategy in the public sector is to blame because the demands at the unit level where care is delivered are not used as the basis of developing the financing framework but some age old top-down mechanism which is not only ad hoc but bureaucratically suffocating.

In the urban areas while more resources are committed, especially for the hospital sector, the problems of human resources, supplies and maintenance are probably more severe because the numbers using the urban public health system are huge unlike the rural public health system which has very low levels of utilization. This shows that urban health systems, especially from the perspective of the poor have a large demand but it remains unfulfilled again because of a poor and inadequate financing strategy. Overcrowding in hospitals because of a lack of a robust primary care system in urban areas and consequently a lack of a referral system creates havoc with the urban healthcare system rendering it ineffective and inefficient as well as financially unsound. Hospital systems are best served with a global budgeting strategy which implies that funds are allocated on the basis of effective costing of services which are translated into per bed cost for effective delivery of care and budget levels thus determined. This does not happen in India and hence the urban health care system in India fails to deliver despite its high level of utilization atleast in numbers.

Where the private health sector is concerned it functions completely on supply-induced demand which fuels unnecessary procedures, prescriptions, surgeries, referrals etc.. leading to its characterization as an unethical and mal-practice oriented provisioning of healthcare. This has huge financial implications on households, inflating costs of healthcare, spiraling indebtedness and pauperization and being responsible for the largest OOPs anywhere in the world.

So the challenge is huge demanding huge restructuring of the healthcare system in the country through strong regulatory mechanisms both for the public and private sectors, education of professionals in ethics of practice, pushing the politicians for creating a strong political will to make healthcare a public good as well as generate and commit adequate resources to realize universal access. The restructuring of the healthcare system and its financing strategy, given the price advantage of India and economies of scale it offers, will actually reduce nearly by half the healthcare spending in the country and reduce substantially the household burden to access healthcare. Calculations I have done show that for universal access to healthcare across India we need less than 3% of GDP provided we show the political will to shift healthcare from the domain of the market to the category of a public good. This will indeed do a lot of public good!

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