Challenges in
Resource Allocation
and Health Service
Purchasing
Stellenbosch
1 July 2011
Agenda
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Major Reform of Purchasing for South Africa
Strategic Purchasing
Challenges in Contracting and Reimbursement
Lessons from Other Systems
South African Challenges
Functions, Objectives and Goals
Health system functions
Revenue
collection
Intermediate objectives
of health finance policy
Health system goals
Equity in access
Government Stewardship
Optimise Health
Equity in finance
Quality
Pooling
Financial
protection from
impoverishment
Efficiency in
delivery
Purchasing
Financial
sustainability
Cost
containment
Affordability
Service Delivery
Choice
Transparency
and
accountability
Source: Adapted from Kutzin, J. (2008). Health financing policy: a guide for decision-makers.
WHO Europe. Additions from healthcare financing workshop, iHEA Beijing 2009.
Responsiveness
(public
satisfaction)
Major Reform of
Purchasing
for South Africa
MoH on NHI Progress, May 2011
 “We are working around the clock everyday around this issue of NHI.
 The problem is that many believe that NHI is just the release of a
document. For us in health, we know that it also involves an extensive
preparation of the health care system while at the same time preparing
a policy document.
 In this case … the reengineering of the Health Care System is very
vital. Under the present health care system whether public or private,
no national health insurance can ever survive.
 … While it is very true that the public health care system is bedevilled
by very poor management leading to poor quality of care adding to the
very low resources available in the public health sector, I wish to
categorically state that the present overall health care system both
public and private will be completely re-engineered.”
Source: Health Budget Vote Policy Speech, National Assembly, Dr A Motsoaledi, 31 May 2011
MoH on Re-engineering
 “The reengineering of the Health Care System will be according to
three main streams.
 The first stream will be a district based model. In this model a team of
5 specialist or clinicians shall be deployed in each district. These teams
will specifically focus on maternal and child mortality. This will help
us arrive at our Millennium Development Goals.” …
 “The 2nd stream … is a School Health programme”. Will include eye
care, dental and hearing problems and immunisation programmes in
schools. Later contraceptive health, HIV/AIDS, drug and alcohol abuse.
 “The last stream will be a ward based PHC model which will deploy at
least 10 well trained PHC workers per ward. This method is being put to
good use in Brazil” and India. Example of TB care pilot which includes
enhanced diagnostics.
Source: Health Budget Vote Policy Speech, National Assembly, Dr A Motsoaledi, 31 May 2011
District Management Team
“The district management team (DMT) is responsible and accountable for
everything that happens in the district.”
Source: Re-engineering Primary Health Care in SA, Discussion document, Nov. 2010
Financing and DMTs
 “It is recommended that all funds for the functioning of the DHS and
the associated PHC should be under the control of the DMT both in
terms of budgeting and financial management.
 The DMT should use these funds to purchase selected services from
private providers (e.g. doctors, optometrists, audiologists) where these
skills are not available in the public sector and where there are gaps.
 With the NHI in mind it is also recommended that the DMT become
the fund holders for any proposed PHC capitation and become
responsible for allocation of budgets to ensure the necessary services.
 In the short term they will probably require provincial support and
mentoring for contract management.”
Source: Re-engineering Primary Health Care in SA, Discussion document, Nov. 2010
DMT Reform Questions
Current
 National Treasury allocates
budget to nine provinces.
 Risk-adjusted allocation from
2011.
 Province responsible for
facilities and delivery.
 Some purchasing and private
contracting.
Proposed
 52 Districts
 Who allocates budget?
 Risk-adjustment to districts?
Problematic data issues.
 What is a district?
 DMT responsible for PHC,
clinics, community health
centres and district hospitals.
Also school health and
environmental health.
 Presumably province
responsible for regional and
tertiary hospitals? Other?
 Emergency transport?
Strategic
Purchasing
WHO on Purchasing, 2000
 Purchasing is the process by which pooled funds are paid to
providers in order to deliver a specified or unspecified set of health
interventions.
 Passive purchasing implies following a predetermined budget or
simply paying bills when presented.
 Strategic purchasing involves a continuous search for the best ways
to maximize health system performance by deciding which
interventions should be purchased, how, and from whom. It involves
the use of selective contracting and incentive schemes.
 Purchasing uses different instruments for paying providers, including
budgeting.
Source: WHO World Health Report 2000
WHO on Purchasing, 2010
 “Health-care systems haemorrhage money.”
 “While some countries lose more than others, most, if not all, fail to
fully exploit the resources available, whether through poorly executed
procurement, irrational medicine use, misallocated and mismanaged
human and technical resources or fragmented financing and
administration.”
 “All countries can look to improve efficiency by taking a more strategic
approach when providing or buying health services, e.g. decide which
services to purchase based on information on the health needs of the
population and link payments to providers on their performance and to
information on service costs, quality and impact.”
Source: WHO World Health Report 2010
Reimbursement and Risk
Percentage
of Premium
High
Capitation
Provider
Risk
Per Case
Per Diem
Low
Fee-for-Service
High
Fund Risk
Source : Garofalo et al, Managed Care Contracting, 1999
Low
WHO on Reimbursement
 “All provider payment mechanisms have strengths and weaknesses,
but particular care should be taken with fee-for-service payments,
which offer incentives to over-service those people who can pay or
who are covered from pooled funds, and to underservice those who
cannot pay.”
 “Many alternatives have been tried. All have advantages and
disadvantages.”
 “Paying service providers is a complex, ever-changing process and
some countries have developed a mixed payment system, believing it
is more efficient than a single payment mode.”
 “Countries will decide where they can operate based on their ability to
collect, monitor and interpret the necessary information, and to
encourage and enforce standards of quality and efficiency.”
Source: WHO World Health Report 2010
WHO on Waste, Corruption
and Fraud
 Estimated 10–25% of public spending on health linked to procurement
is lost each year to corrupt practices.
 Experience has shown that to significantly curb corruption …, two
complementary strategies need to be applied:
 a discipline approach (top-down) based on legislative reforms,
establishing laws, administrative structures and processes needed
to ensure transparent medicine regulation and procurement; and
 bottom-up values approach that promotes institutional integrity
through moral values and principles, and tries to motivate ethical
conduct by public servants.
 Also, accrediting and licensing health providers, facilities and
products (to improve quality), internal oversight and audit functions.
 Improved governance requires intelligence and better use of
information, so that breaches of practice can be identified and
changes monitored.
Source: WHO World Health Report 2010
WHO on Fragmentation
 The bigger the risk pools, the better. Large pools offer several
advantages, notably a greater capacity to meet the costs of
occasional, costly diseases. Small pools are not financially viable in
the long run. Small pools are vulnerable.
 The most efficient health systems avoid fragmentation in pooling but
also in channelling funds and distributing resources.
 Fragmentation can also be inefficient. Systems with multiple funding
channels and pools, each with its own administrative costs, duplicate
effort, are expensive to run and require coordination.
 Similarly, fragmentation in other parts of the system – running
hospitals, distributing medicines and equipment, supporting laboratory
systems – results in unnecessary waste and duplication.
 This applies also to small government-managed pools, such as a
district health budget. In some cases, adequate coverage in poorer
districts can be achieved only when there is direct subsidy from central
funding pools or districts can share costs.
Source: WHO World Health Report 2010
Strategic
Purchasing
 www.euro.who.int/observatory/
Pitfalls in
Contracting and
Reimbursement
Incentives in Building Work
Per Uur?
Source: Dr Reinder Nauta, Carecross
Per Muur?
Price
Intensity
Severity
Frequency
Actuarial
Marketing
Percent Premium
P
I
S
F
A
M
Capitation
P
I
S
F
Per Case
P
I
S
Per Diem
P
I
Fee-for-Service
P
Risks Taken
Reimbursement
Source : Garofalo et al, Managed Care Contracting, 1999
Primary Care Contract Example 1
P
Medical Scheme
I
S
F
Transferred
Capitation
Managed Care
Organisation
P
Fee-for-Service
GP Practice
P
I
S
F
I
S
F
A
M
A
M
Primary Care Contract Example 1
P
National Treasury
I
S
F
Transferred
Capitation
District Health
Board
P
Fee-for-Service
GP Practice
P
I
S
F
I
S
F
A
M
A
M
Encouraging
entrepreneurial
behaviour
while protecting core
social values
 www.euro.who.int/observatory/
Impact of Switching to
Retrospective Hospital Payments
 Countries with an emerging health insurance model tend to start with a
mixture of retrospective methods of payment and traditional item-byitem funding of medical facilities. [i.e. fee-for-service]
 Insurers in the Czech Republic, Hungary and the Russian Federation
 This encouraged hospitals to increase workload and contributed to
higher internal efficiency of hospitals [from command and control].
 But structural inefficiency has worsened owing to the growth of
inappropriate admissions and a lack of constraint on using costly
methods of care.
 Czech Republic: introduction of retrospective payment system: health
expenditure increased by almost 40 per cent in 2 years.
 Need for tougher regulatory requirements for health insurers to use
less open-ended provider payment schemes.
Source: Regulating Entrepreneurial Behaviour in European Health Systems
DRG-based
Payments to
Hospitals
 http://www.oecd-ilibrary.org/social-issues-migration-health/healthsystems-institutional-characteristics_5kmfxfq9qbnr-en
Payment for
Performance
 www.euro.who.int/Document/HSF/P4P_Estonia.pdf
Lessons from
Other Systems
New Zealand
Aotearoa
Auckland: 1.5 m
North Island
3.3 m people
Total health expenditure:
9.7% of GDP
US$ 2,634 per capita pa
Government expenditure 80.2%
71% of private expenditure is OOP
Oldest NHS in the world – 1938
4.3 m people
18% aged 60 and over
Unemployment 6%
South Island
1.0 m people
Source: StatsNZ June 2010; WHO Observatory 2009
NZ District Health Boards
 20 District Health Boards
 Providing directly or funding the provision of Government funded health
care services for the population of a specific geographical area.
 Risk-adjustment formula to allocate funds to DHBs
See: http://www.nationalhealthboard.govt.nz/DHB-Links
Health Reform: HBs, AHBs,
CHEs, HHSs, DHBs?
 1938-1983: Hospital Boards had a strictly hospital focus; publicly
elected (DoH ran non-hospital public health and some mental health).
 1983-1993: Area Health Boards (AHBs) -hospital and public health
services; partly publicly elected and partly appointed by Government.
 1993-1997: 23 Crown Health Enterprises (CHEs), 4 Regional
Health Authorities and Public Health Commission. Publicly owned
companies, boards appointed by Government.
 1997: 24 Hospital and Health Services (HHSs) and Health Funding
Authority. Publicly owned companies; wider range of health and
disability service provision; boards appointed by the Government.
 2000: 20 District Health Boards (DHBs) - very wide responsibilities
for publicly funded health and disability services, including purchasing
of services; bodies corporate owned by the Crown; elected and
appointed boards.
 2002: Primary Health Organisations (PHOs) formed.
 2009: National Health Board (NHB) established.
Source: http://www.moh.govt.nz and http://www.health.govt.nz/
Improving Health System
Performance
 The question of determining the appropriate purchasing agent –
that is, what configuration buys health services more costeffectively and according to the needs and wants of the population
it represents – has yet to be answered.
ANYWHERE
Source: Purchasing to Improve Health System Performance
Canterbury DHB
 Canterbury District Health Board (DHB) is the second largest by
population and geographical area (510,000 people in 2010).
 Plan, fund, provide healthcare and promote health and well-being.
 Largest employer in South Island; over 8,000 staff employed in 14
hospitals and numerous community bases. 80% of staff are clinical.
 Similar number of people employed in delivering health and disability
services, funded either directly or indirectly by the Canterbury DHB.
 Over 500 contracts.
 Primary health organisations (PHOs) funded by DHBs to support the
provision of essential primary health care services through GPs to
those people enrolled with the PHO. 46 PHOs (countrywide) vary
widely in size, structure; all not-for-profit organisations.
 GPs in private practice. Some private hospitals and specialists.
 Centralised budget for medicines administered by Pharmac.
NHS Administration
 The NHS employs 1.4 million staff and has a budget of £100 billion.
[Population 61.8 million in 2009; world's biggest employer after Indian
rail and Chinese Army; half are clinical staff]
 Total number of NHS staff increased by around 35% between 1999
and 2009, but the number of managers increased by 82%.
 “The NHS today faces great challenges: ...
 It remains stifled by a culture of top-down bureaucracy …”
 “For too long, processes have come before outcomes, as NHS staff
have had to contend with 100 targets and over 260,000 separate data
returns to the Department each year.”
 “We will remove unjustified targets and the bureaucracy which
sustains them.” “We will rebalance the NHS, reducing management
costs by 45% over the next four years …:
 “The dismantling of this bureaucracy will help the NHS realise up to
£20 billion of efficiency savings by 2014.”
Sources: The King’s Fund, How Many Managers are there in the NHS? April
2010 Andrew Lansley, “Liberating the NHS” announcement July 2010
NHS Accountability
 http://www.kingsfund.org.uk/publications/nhs_accountability.html
 Accountability in the NHS: Implications of the government’s health
reform programme
 Seeks to inform the debate around the nature of accountability
relationships in the NHS and how these will change under the reforms.
 The authors identify five types of accountability most relevant to
health care – by scrutiny, management, regulation, contract and
election.
Countries with Risk Adjustment
in National Health System
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Developed Countries:
Australia
Canada
Denmark
Finland
Ireland
Italy
New Zealand
Norway
Spain
Sweden
United Kingdom
USA
Source: Studies at UCT in 2010
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Developing Countries:
 Republic of Korea
Brazil
 Singapore
Chile
 Sri Lanka
Colombia
 Taiwan
Costa Rica
 Tanzania
Cuba
 Thailand
Ghana
 Vietnam
India
Indonesia
Malaysia
Namibia
Not an exhaustive list !
“Post-code Lottery”
 “The ‘postcode lottery’ means that waiting times can range from six
months to three years depending on the health board area.” [ 2009]
 “…palliative care services had become a postcode lottery.” Two Health
Boards had no palliative care strategy …. [Scotland, 2008]
 Best performing GPs “tend to cluster in the affluent areas of the city,
which is reflective of the 'post code lottery' where those that reside in
the affluent wards … are able to demand a better quality of NHS GP
services than those that tend to reside in the deprived wards who tend
to suffer in silence …”
 “Outgoing health watchdog Ron Paterson has lashed out at New
Zealand's "post-code lottery" public health system, after finding a
woman's access to diagnostic scanning was unfairly delayed.”
 “At the heart of the Gillard Government’s [Australian] health reform are
an Independent Hospital Pricing Authority and a National Health
Performance Authority”… “Fixing the hospital postcode lottery is a
matter of life and death” [May 2011]
Source: Press reports 2008 to 2010
King’s Fund on Variation 2011
 “Variations in health care in the NHS are a persistent and ubiquitous
problem. But which variations are acceptable or warranted – for
example, variations driven by clinical need and informed patient
choice – and which are not? The important question is how to promote
‘good’ variation and minimise ‘bad’ variation.
 Variations in health care: The good, the bad and the inexplicable
explores the possible causes of variation, shows the different ways in
which variations can be measured, and analyses variations by PCT.
 The data itself is not always easy to collect and analyse. The report
outlines the different ways in which variations can be measured and
how these measures can be adjusted for need – age and gender,
economic and social characteristics.”
Source: King’s Fund, 2011 http://www.kingsfund.org.uk/publications/healthcare_variation.html
Decentralization in Healthcare
 “The logic of decentralization is an
intrinsically powerful idea: that smaller
organizations, properly structured and
steered, are inherently more agile and
accountable than larger organizations.”
 The recent upsurge in countries reversing
the trend and beginning to recentralize
key functions “raises new and
fundamental questions about the overall
strategy of decentralisation”.
 “Is the period of decentralization of health
systems in Europe coming to an end?”
 Published European Observatory, 2007
 www.euro.who.int/__data/assets/pdf_file/0004/.../E89891.pdf
Complexities of
Decentralization in Europe
 “Many countries have decentralized, recentralized and then
decentralized again in an on-going cycle, searching for the right
balance of efficiency and responsiveness in their health care system.”
 “Looking at the arguments for and against, in many cases the same
reasons are used to justify movement in opposite directions.”
 “These debates are still current and decentralization is a highly
contested process across Europe.”
 “Whatever the nature of the decentralization, it is highly contextspecific …”
 “Comparison across Europe is difficult given the complex nature of the
arrangements, the importance of the underlying historical context and
the lack of strong evidence.”
Source: Euro Observer Spring 2011
South African
Challenges
Governance
in South
Africa
“The development of proposals
for a District Health System (DHS)
have engaged policy discussions
within South Africa for around
twenty years.”
Defining Decentralization
 “Deconcentration is generally the most common and limited form of
decentralization, and involves the transfer of functions and/or
resources to the regional or local field offices of the central
government agency in question. Within a deconcentrated system,
authority remains within the same institution (e.g. MoH), but is spread
out to the territorially decentralized instances of this institution.”
 “Delegation implies the transfer of authority, functions, and/or
resources to an autonomous private, semi-public, or public institution.
This institution then assumes responsibility for a range of activities or
programs defined by the central government, often through the
mechanism of contracting.”
 “Devolution is the cession of sectoral functions and resources to
autonomous local governments that, in some measure, then take
responsibility for service delivery, administration, and finance.”
Source: Classification by Bossert in DBSA report on Governance, v.d. Heever, February 2011
Governance, Accountability
and Decentralisation
Source: DBSA report on Governance, v.d. Heever, February 2011
Financial Systems
and Corruption
 “According to the Special Investigating Unit, it is estimated that 20-25
percent of state procurement expenditure, amounting to roughly
R30 billion a year, is wasted through overpayment or corruption.”
 “Research done by Municipal IQ revealed serious problems with
regard to municipal finance and intergovernmental fiscal issues.”
 “… financial auditing and the investigation of corruption have revealed
that weak systems make it easier for corruption to occur.”
 “Improving the overall capacity and functioning of the public service,
particularly in relation to financial systems and controls, information
systems, and overall management capability might be the single most
effective way of deterring corruption.”
Source: National Planning Commission, Diagnostic Overview, 2011
Ghosts in the System
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Ghost workers (on PERSAL)
Ghost social security beneficiaries (SASSA)
Ghost doctors (no qualifications)
Ghost procedures (medical schemes)
Ghost taxpayers (SARS, March 2011)
 Ghost patients?
Budgets and DMTs
 “All available resources need to be harnessed and focused on
improving PHC.
 The budgets for Programme 2 (district level services) together with the
relevant conditional grants and other sources of external funding need
to be given to the DMT for their control and responsibility.
 In addition capital budgets need to be made available so that the
necessary infrastructural improvements (clinic upgrades, water,
electricity, sanitation) and equipment are made available.
 It is recommended that the budget for district level services be ringfenced based on a formula, largely based on a capitation fee per
person living in the district.”
Source: Re-engineering Primary Health Care in SA, Discussion document, Nov. 2010
Western Cape Health Districts
Eden (S. Cape) Total
513,325
9.7%
Cape Town: Northern
325,104
6.2%
Central Karoo Total
56,222
1.1%
Overberg Total
212,779
4.0%
Cape Town: Western
393,534
7.5%
Western Cape
2008
5.125 million population
Cape Town: Southern
520,327
9.9%
Cape Winelands Total
712,438
13.5%
Cape Town: Klipf ontein
419,109
7.9%
West Coast Total
286,748
5.4%
Cape Town: Eastern
408,519
7.7%
Cape Town: Khayelitsha
393,536
7.5%
Cape Town: Mitchell's Plain
480,288
9.1%
Cape Town: Tygerberg
556,685
10.5%
Dominance of the City of Cape Town in the province. Additional
districts (not in Census 2001) designated for City for planning.
Source: WCDoH Facility Norms Model
Western Cape Districts and Wards
Number of Voting
Rough Estimate Rough Ward
District
Municipality
Wards
Population
Total Population Avergae 2011
City of Cape Town CPT - City of Cape Town [Cape Town]
111
1,745,853
3,449,593
31,077
WC011 - Matzikama [Vredendal]
8
26,630
52,618
6,577
WC012 - Cederberg [Citrusdal]
6
21,058
41,608
6,935
West Coast
WC013 - Bergrivier [Velddrif]
7
23,213
45,866
6,552
WC014 - Saldanha Bay [West Coast Peninsula]
13
47,173
93,208
7,170
WC015 - Swartland [Malmesbury]
12
42,249
83,479
6,957
WC022 - Witzenberg [Ceres]
12
42,208
83,398
6,950
WC023 - Drakenstein [Paarl]
31
115,089
227,402
7,336
Cape Winelands WC024 - Stellenbosch [Stellenbosch]
22
79,551
157,183
7,145
WC025 - Breede Valley [Worcester]
21
71,849
141,965
6,760
WC026 - Langeberg [Robertson]
12
38,275
75,627
6,302
WC031 - Theewaterskloof [Caledon]
13
48,092
95,024
7,310
WC032 - Overstrand [Greater Hermanus]
13
45,298
89,503
6,885
Overberg
WC033 - Cape Agulhas [Bredasdorp]
5
17,632
34,839
6,968
WC034 - Swellendam [Barrydale/Swellendam ]
5
15,909
31,434
6,287
WC041 - Kannaland [Ladismith]
4
13,088
25,860
6,465
WC042 - Hessequa [Heidelberg/Riversdale]
8
27,251
53,845
6,731
WC043 - Mossel Bay [Mossel Bay]
14
52,146
103,034
7,360
Eden
WC044 - George [George]
25
90,601
179,017
7,161
WC045 - Oudtshoorn [Oudtshoorn]
13
47,736
94,321
7,255
WC047 - Bitou [Greater Plettenberg Bay]
7
24,975
49,348
7,050
WC048 - Knysna [Knysna]
10
36,332
71,788
7,179
WC051 - Laingsburg [Laingsburg]
4
4,150
8,200
2,050
Central Karoo
WC052 - Prince Albert [Prins Albert]
4
6,566
12,974
3,243
WC053 - Beaufort West [Beaufort West]
7
23,812
47,050
6,721
Western Cape Total
387
2,706,736
5,348,182
13,820
Province
Western Cape
Sources: IEC, Census 2001, WC DoH, ASSA2008
District Numbers and Profile
 Census 2001 collected data at District and
Sub-district level outside metropolitan areas.
 Metropolitan areas treated as one district.
 Sub-district populations too uncertain to be
used: undercount of 1 in 6; “hot-decking”.
 Census 2011? Every ten years.
 Voting information – voluntary registration; no-one under voting age.
 Department of Home Affairs?
 Dorrington, 2005: “It is quite possible that clinics near the borders of the
health districts also service people from neighbouring health districts.”
 Registration in each district (with payments for out-of-area use) would
be a highly expensive administrative system.
In Summary
 Tension between local responsiveness and “post-code lottery” of
variable services and quality.
 How important is equity?
 Increased responsiveness AFTER consistent delivery.
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Need for managers and strong information systems.
Size of risk pools is critical for financial viability.
Contracting is not simple – can easily jeopardise financial soundness.
No data at district level for capitation and risk-adjustment.
 Devolve fund holding when a province is well-functioning, not before.
 And then, only if it makes sense.
Public Service
Performance
 “Addressing the uneven performance of the public service will not be
achieved through multiple new initiatives but rather through a focused
and coordinated approach.
 This will require addressing a set of interrelated issues including
instability resulting from repeated changes in policy, under-staffing and
skills shortages, obstacles to building a sense of professional common
purpose in the public service, political interference, lack of
accountability, and insufficient clarity in the division of roles and
responsibilities.”
Source: National Planning Commission, Diagnostic Overview, 2011
Heather McLeod
The New Zealand Centre for Evidence-based Research into Complementary
and Alternative Medicine (ENZCAM), University of Canterbury,
Christchurch, New Zealand.
Extraordinary Professor, Department of Statistics and Actuarial Science,
University of Stellenbosch
hmcleod@integratedhealingmbs.com
www.integratedhealingmbs.com