Hospital Governance Reforms in the
Philippines: Four Case Studies
Oscar F. Picazo
COHRED Global Forum on Research and Innovation
Philippine International Convention Center
August 25, 2015
Health sector context 1
• ~100 million population, 12th largest in the world;
high population growth (1.8% p.a.); high TFR (3.3);
49% urban
• Demographic and health transitions are underway
• Health MDGs likely to be met for child health; shaky
for infectious diseases (TB, malaria, dengue, HIV);
unmet for maternal mortality
• Multiplicity of funders (National Government, local
governments, PhilHealth social health insurance,
HMOs, micro-insurance, employer-based, OOP);
OOP has historically been very high
O. F. Picazo, Hospital Governance in the Philippines
Health sector context 2
• Multiplicity of providers (government, for-profit,
nonprofit)
• Dual health care system, access dictated largely by
ability to pay
• Health spending 3% of GDP; rising government
health spending since 2010
• Major reforms underway to achieve UHC (width,
breadth, depth); “width” reforms in Q1 and Q2
running way ahead of “breadth” (benefits
improvement) and “depth” (full reimbursement and
No Balance Billing).
O. F. Picazo, Hospital Governance in the Philippines
Growth of hospital system, 1970s to
present
2500
20
18
17.5
16.9
16.3
15.9
15.5
15.115 14.9
14
2000
1812
1821
1784
1781
1921
1838
1725
1719
1739
1708
1712
1794
1713
1817
1738
1700
1571
1632
1742
1663
1733
1767
1782
1754
1846
1814
1705
1599
1607
1213
1036
1149
1483
1839
1000
500
14
13.7
12.8
12.312.3
12
11.811.7
11.711.611.8
11.411.111.2
11
10.710.9
10.710.910.4
10.6
10.2
10
1500
1713
No. of Hospitals
13
16
8
6
4
2
0
0
Hospitals
Hospital Beds/10,000
Source: Philippine Statistical Yearbooks
O. F. Picazo, Hospital Governance in the Philippines
Hospital Beds/10,000 Population
18 18.2
17.617.817.9
Hospital by ownership, 1976-2010
Year
1976
1985
1995
2005
2010
Government
Hosp- Beds Ave.
itals
Beds
Private
Hosp- Beds Ave.
itals
Beds
366
44,525
122
670
31,075
46
624
48,395
76
1,190
41,113
35
584
43,229
73
1,111
37,571
34
662
43,739
66
1,057
43,397
41
730
49,372
67
1,082
48,783
45
O. F. Picazo, Hospital Governance in the Philippines
Government hospitals by type, 2011
Type
No.
%
No.
%
Ave. No. of
Beds
DOH
retained
75
11.0
21,819
43.4
295
LGU
managed
572
83.6
22,188
44.2
39
University
5
0.7
453
0.9
91
Military
28
4.0
3,761
7.5
139
Other gov’t
4
0.7
2,011
4.0
40
684
100.0
50,232
100.0
60
All
Hospitals
Beds
O. F. Picazo, Hospital Governance in the Philippines
Government hospitals by level, 2009
Level
1
2
3
4
Total
Hospitals
No.
%
362
271
38
50
721
50.2
37.6
5.3
6.9
100.0
Beds
No.
%
7,213
14,890
5,212
20,834
48,149
15.0
30.9
10.8
43.3
100.0
O. F. Picazo, Hospital Governance in the Philippines
Ave.
No. of
Beds
20
55
137
425
68
DOH-retained hospitals: occupancy rate and patient
load by level, 2011
Level
Level 1
Level 2
Level 3
Level 4
All
Ave.
Implem. Bed
Cap.
21
66
314
389
265
Bed Occ.
Rate (%)
Ave. Annual
Patient Load
70.0
103.0
114.0
108.0
105.0
11,403
21,837
74,632
128,294
85,213
O. F. Picazo, Hospital Governance in the Philippines
Four Hospital Case Studies
O. F. Picazo, Hospital Governance in the Philippines
Overview of case studies
Items
LUMC (1)
Leyte (9+3)
NKTI (1)
SPMC (1)
Location
Ilocos Region,
Northern
Luzon
Eastern
Visayas
Metro Manila
Davao Region,
Mindanao
DOH or LGU
hospital?
LGU
LGU
DOH
DOH
Autonomy
Became
autonomous
as part of
reforms
Not
autonomous
Autonomous
before and
after reforms
Not
autonomous
O. F. Picazo, Hospital Governance in the Philippines
Major reforms undertaken
Reforms
LUMC
Leyte
NKTI
SPMC
Autonomization
Yes
No
No
No
Fee retention
Yes (new)
Yes (but at
LGU level)
Yes (not
new)
Yes (not
new)
Active claiming of
Yes
PhilHealth reimburse-ments
Yes
Yes
Yes
Strengthening PhilHealth
eligibility verification
system
No
Yes (LINKS
call center)
No
No
PPP on equipment
acquisition
Yes, but
minor
No
Yes,
major
Yes,
major
PPP drug consignment
No
No
No
Yes
O. F. Picazo, Hospital Governance in the Philippines
LA UNION MEDICAL CENTER
O. F. Picazo, Hospital Governance in the Philippines
La Union Medical Center (LUMC) –
Background
• La Union, a medium-sized province in Northern Luzon (pop. 720,000)
• LUMC (formerly DGMPH) served as district secondary hospital for 10
municipalities; one of 6 such hospitals owned by the province
• Province faced financial difficulties in supporting these hospitals as
soon as they were devolved; about 33 percent of IRA spent on their
maintenance
• Hospital’s annual budget of PhP35 million deemed highly inadequate;
some PhP80 million to PhP100 million more needed
• Poor quality of services (unfilled staff posts, drug shortage, poor
patient amenities, inadequate diagnostic capacity)
O. F. Picazo, Hospital Governance in the Philippines
LUMC – Reforms undertaken
• Construction of new facilities (EU funded) leading to 100 beds
• Granting of economic enterprise status through presidential Executive
Order; granting of autonomy through Congressional Republic Act; conversion
into a non-stock, nonprofit government owned and controlled corporation
(operating under GOCC Law) of La Union Province
• Change in status from secondary to tertiary hospital
• Reform of fee structure; retention of fees at facility; classification of patients;
creation of paying wards
• PhilHealth enrolment of members initially by the province, then by the
National Government
• Internal restructuring of the hospital through creation of 17 hospital
committees (teams); systems improvement in procurement, financial
system, HR system, and IT
• Selected capital acquisition of diagnostic and imaging equipment
O. F. Picazo, Hospital Governance in the Philippines
LUMC – Governance structure
• Evolution from a hierarchical unit of the provincial government to an
autonomous unit with independent board of trustees (17 members);
the only LGU hospital that has been made autonomous in the
country
• Governor sits as chairman of the board; ensures provincial
commitment to continue its share of the subsidy
• Selection and appointment of members of the board representing a
range of skills
• Formulation of provincial resolutions and ordinances to
institutionalize reforms
• Formation of internal management team
O. F. Picazo, Hospital Governance in the Philippines
LUMC – Results of reforms
• Containment of the provincial fiscal subsidy to a manageable level
(~PhP35 million a year)
• Increase in total patient discharge from an annual average of 8,056
before the reforms to 11,481 after
• Decline in percentage of charity patients from 84.7 percent before
the reforms to 53.4 percent after; Corresponding increase in
PhilHealth patients from 10.2 percent before the reforms to 38.8
percent after
• Increase in PhilHealth collections from PhP1.1 million in 2002 to
PhP19.1 in 2008
• Greater stability in employment among hospital staff, better
employee incentives and morale
• Better patient amenities (rooms, waiting areas)
O. F. Picazo, Hospital Governance in the Philippines
LEYTE PROVINCIAL HOSPITALS
O. F. Picazo, Hospital Governance in the Philippines
Leyte provincial hospitals – Background
• Island province in Eastern Visayas, one of the poorest regions in the
Philippines (direct path of typhoons)
• Involved 12 provincial hospitals (9 secondary + 3 primary)
• Province faced financial difficulty in supporting hospital services since
these were turned over in 1992; 30-35 percent of IRA devoted to
these hospitals
• Provincial budget for hospitals in 2003 of PhP233.8 million deemed
highly inadequate; very weak internal revenue mobilization (PhP7.3
million a year)
• Annual provincial subsidy of PhP223.4 million deemed as
“hemorrhaging” provincial finances
• Poor condition of hospitals has led to declining patient census from
5,867 in 2003 to 5,531 in 2004
O. F. Picazo, Hospital Governance in the Philippines
Leyte – Reforms undertaken: Hospital
Enhancement for Leyte’s Progress (HELP)
• Province-wide governance of 9 secondary and 3 primary hospitals,
under Office of the Governor
• Start of Special Service Fee (SSF) voluntary scheme with standard
fees for hospitals
• Enrolment of PhilHealth members through provincial premium
subsidy; More active claiming of PhilHealth reimbursements
• Establishment of PhilHealth LINKS as a regional call center to assist in
eligibility verification of members
• Establishment of paying and PhilHealth wards in all provincial
hospitals
• Collection of all fee revenues at the provincial level (hospital fees,
professional fees), and their allocation as staff incentives, capital
outlay, and maintenance and other operating expenditures (MOOE)
for all provincial hospitals using set rules
O. F. Picazo, Hospital Governance in the Philippines
Leyte – Governance structure
• Creation of an Ad Hoc Committee on Health in 2004 to implement
HELP program
• Visionary and transformational leadership of Gov. Jericho Petilla;
active governance by the Governor’s office of the HELP program,
which managed provincial hospitals like a holding corporation
• Advocacy and capacity-building (including study tours domestically
and abroad) of hospital directors and managers
• Formulation of provincial resolutions and ordinances to
institutionalize reforms
O. F. Picazo, Hospital Governance in the Philippines
Leyte – Results of reforms
• Hospitals are in better upkeep; Patient census doubled from 5,867 in
2003 to 9,973 in 2012
• Total funding for 12 provincial hospitals increased from PhP227.3
million in 2003 to PhP272.2 million in 2012
• Income from fees and PhilHealth reimbursements increased from
PhP7.3 million in 2003 to PhP118.4 million in 2012
• Provincial subsidy declined from PhP220.0 million in 2003 to
PhP153.8 million in 2012, and further down to PhP100.0 million in
2013
• Doctors now much better remunerated (each earning in the range
from PhP41,000 to PhP162,000 a month); medical vacancies no
longer exist, and there is a queue of applicants
O. F. Picazo, Hospital Governance in the Philippines
NKTI-FRESENIUS HEMODIALYSIS
CENTER PPP
O. F. Picazo, Hospital Governance in the Philippines
National Kidney and Transplant Institute (NKTI) –
Background
• Established in 1983 as an autonomous hospital, one of 4 premiere
government hospitals; major renal hospital and transplant center in
Asia
• Asian financial crisis of late 1990s/early 200os turned capital outlay
to zero and reduced recurrent budget
• Increasing burden of renal patients > high demand for hemodialysis >
high breakdown rate of equipment > overstressed HD nursing staff
O. F. Picazo, Hospital Governance in the Philippines
NKTI – Reforms undertaken: PPP scheme with
private investor, Fresenius
• PhP54 million Build-Operate-Transfer (BOT) scheme, initial contract
from 2003-2008, renewed 2009-2013
• Equity participation: NKTI, 20 percent + Fresenius, 80 percent
• Fresenius’ role: supply of all HD machines, state-of-the-art water
treatment and dialysis reprocessing machines, service maintenance
• NKTI’s role: (a) pay fee-per-treatment to Fresenius in accordance with
agreed lease payment schedule; (b) provision of staff, space, and
water utility supply
O. F. Picazo, Hospital Governance in the Philippines
NKTI – Governance structure
• BOT Law (R.A. 6957) governs PPP contract
• NKTI board of trustees approves all key policy decisions, including
choice of investment partner and renewal of contract
• NKTI management team implements decisions and carries out HD
program
• Unclear whether to attribute success to governance (the board) or to
the management team, but senior hospital staff indicated that
autonomous hospital status makes governance and management
more flexible
O. F. Picazo, Hospital Governance in the Philippines
NKTI – Results of reforms
• Quick award of contract > quick acquisition of latest HD technology at
competitive cost
• From 2007 to 2010, total number of patients reached 27,522 or 6,880
per year (roughly 20 a day)
• Access among patients with limited ability to pay was expanded as
fees remained lower (PhP2,000 per week) than commercial rates at
private hospitals and dialysis centers (PhP4,000 per week)
• Training and rotation of nurses improved, lessening staff stress, and
lowering staff turnover
• Hospital’s budget from National Government has remained fairly
constant since 1998, and HD fee revenues have increased and
outpaced the annual payment to the private partners
O. F. Picazo, Hospital Governance in the Philippines
SOUTHERN PHILIPPINES
MEDICAL CENTER
O. F. Picazo, Hospital Governance in the Philippines
Southern Philippines Medical Center (SPMC) –
Background
• Located in Davao City, the metropolitan area in Mindanao, second
largest island
• One of 72 DOH retained hospitals; regional catchment area; tertiary
facility
• Inpatients (1,107 per day) far exceeds authorized bed capacity (600);
1,096 OPD patients per day
• No capital outlay for the past 3 years (2010-2012); recurrent budget
barely increased from PhP250 million in 2011 to PhP261 million in
2012
• Frequent drug shortage; inadequate diagnostic capability; frequent
equipment breakdown
O. F. Picazo, Hospital Governance in the Philippines
SPMC – Reforms undertaken
• Based on 2008-09 stocktaking exercise
• Hospital financing reforms focusing on maximizing PhilHealth
reimbursements
• Staff recruitment, 7 to 40 for claims preparation; assignment of 3 doctors as
claims adjudicators
• Staff training on PhilHealth rules and ICD-10/11
• Quality assurance on claims preparation
• Adoption of drug consignment system with private pharma providers (“pay
for what you consume”)
• Use of PPP to access diagnostic equipment from private sector (“cost-pertest” payment)
• Chemistry and immune-assay analyzers, dialysis machines, Computed radiography
and digital radiography
• CT scans
• Mechanical ventilators
O. F. Picazo, Hospital Governance in the Philippines
SPMC – Governance structure
• Hospital remained non-autonomous before, during, and after
reforms
• Visionary and transformational leadership of hospital director (who
came from the private sector)
• Strong agreement among senior hospital managers on the direction
and scope of reforms
• Relative latitude provided by central DOH on the execution of the
reforms
O. F. Picazo, Hospital Governance in the Philippines
SPMC – Results of reforms
• PhilHealth patients increased from 32 percent in 2008 to 44 percent
in 2012
• PhilHealth reimbursements increased from PhP170.4 million in 2008
to PhP436.9 million in 2012
• Most of large-scale capital investment program has been completed
(buildings, equipment)
• Drug consignment system has largely solved drug shortage problem;
DOH Administrative Order based on SPMC experience has been
approved, encouraging the practice in DOH retained and LGU
hospitals
O. F. Picazo, Hospital Governance in the Philippines
Summing Up
O. F. Picazo, Hospital Governance in the Philippines
Internal environment affecting governance
• Active and visionary leadership is critical, but rare
• Financial difficulties frequently trigger hospital reforms. While the
solution is available (PhilHealth), hospital leaders usually do not
know what to do, used as they were to passively receiving budget
subsidy.
• No rifts were identified between reform leaders and hospital
managers/staff in the 4 reform sites, but vociferous critics do abound
• Successful reforms in devolved hospitals hinge on the good
relationship between LGU executives and hospital managers; short
tenure of office of LGU executives can be a hindrance
O. F. Picazo, Hospital Governance in the Philippines
Strengths and good practices
• Use of provincial resolutions and ordinances to institutionalize
reforms in LGUs and sustain them across administrations and local
elections; use of Administrative Orders to do the same for DOH
hospitals
• Use of competitive PPP (lease, BOT) as a means of acquiring
expensive medical equipment under conditions of limited gov’t fiscal
capacity
• Centrality of PhilHealth financing as the anchor of reforms; user fees,
which tend to be regressive, used only as transitional mechanism
• Maintenance of budget subsidy during the transition period until the
reforming hospitals are able to sustain themselves with PhilHealth
payments
• Conduct of corresponding systems improvement, especially IT, to
udergird hospital reforms
O. F. Picazo, Hospital Governance in the Philippines
Challenges and recommendations
• Lack of an overall analysis and strategy of government hospital sector
• The few reforms are sporadic and highly “individualized”
(idiosyncratic) based on leaders
• Poor state of government hospital data (collected but not encoded,
analyzed, aggregated)
• Negativity of skeptics within hospitals and public commentators
• Challenge of financing both communicable and noncommunicable
diseases
O. F. Picazo, Hospital Governance in the Philippines