1. Hospitals 1

2.  Contracting is a purchasing mechanism used to  Acquire a specified service  Of a defined quantity and quality  For a specified period.  Not a “1-off” exchange…rather…  Ongoing exchange relationship, supported by a contractual agreement Taylor, 2005 2

3.  Written formalization of the process of agreements between purchaser and provider  Define clearly  Purchaser and provider  Scope definition and volume of services  Price to be paid  Minimum quality of services  Administrative arrangements…..mgmt/m&e KEY!  Our Perspective:  Our Perspective: Insurer or Gov’t (not manager) 3

4.  Ensuring Services for Beneficiaries  Contracting a sufficient number of qualified providers  Acting as a broker between patient and provider to assure timeliness and suitability of the needed services  Performance Review of Providers as Agent of the Beneficiary  Financial Monitoring (Submitted claims for payment)  Clinical Appropriateness & Quality of Care  Paying the services  Optimizing Resource Use and Quality  Selecting providers  Selecting Interventions  Selecting volume of interventions  Selecting payment system  Creating a win-win situation for purchaser and providers  Sticks & carrots 4

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6. Common in Non-OECD Countries (Mills and Broomberg, 1998) 6

7.  Germany  Netherlands  Switzerland  Austria  United Kingdom  Estonia  Czech Republic  Canada  USA  Japan  South Korea  China Taiwan 7

8. Public Health and Primary Care Clinical Support Services Specialized Clinical Services Hospitals Increasing Impact ?? Family Planning Labs, Imaging Dialysis/ Private Management Transplants 8

9.  South Africa  2 build-own-operate district hospitals under 10 year service contracts  3 rd hospital publicly built and privately managed  Studied by Broomberg, Masobe and Mills (1997)  Matched against similar public facilities  Higher productivity  Lower staff costs  Improved staff mix 9

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11. Contracting non-clinical support services common terms Options Contracting clinical support services Contracting specific clinical services Buying hospital services Private management of public hospital Private financing, construction, and leaseback of new public hospital Private financing, construction, and operation of new public hospital Sale of public hospital for alternative use Services & capital contract BOO BOOT PFI Operating contract Private sector responsibilityPublic sector responsibility Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital costs and recurrent costs for services provided. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. Finances, constructs, and owns new public hospital and leases it back to government Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Contracted private hospitals provide services in accordance with contractual provisions Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Provides clinical support services such as radiology or laboratory services. Purchases facility and converts it for alternative use depending on sales agreement Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Manages hospital and provides clinical services; manages contract and pays for services. Manages hospital and provides most clinical services; manages contract and pays for services. Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. Manages hospital and makes phased lease payments to private developer. Monitors conversion to ensure adherence to contractual obligations. Outsourcing; PPP Privatization Outsourcing Contracting Co-location Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Outsourcing; PPP Contracting; Purchasing 11

12. Contracting non-clinical support services common terms Options Contracting clinical support services Contracting specific clinical services Buying hospital services Private management of public hospital Private financing, construction, and leaseback of new public hospital Private financing, construction, and operation of new public hospital Sale of public hospital for alternative use Services & capital contract BOO BOOT PFI Operating contract Private sector responsibilityPublic sector responsibility Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital costs and recurrent costs for services provided. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. Finances, constructs, and owns new public hospital and leases it back to government Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Contracted private hospitals provide services in accordance with contractual provisions Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Provides clinical support services such as radiology or laboratory services. Purchases facility and converts it for alternative use depending on sales agreement Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Manages hospital and provides clinical services; manages contract and pays for services. Manages hospital and provides most clinical services Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. Manages hospital and makes phased lease payments to private developer. Monitors conversion to ensure adherence to contractual obligations. Outsourcing; PPP Privatization Outsourcing Contracting Co-location Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Outsourcing; PPP Contracting; Purchasing Contracting 12

13. Contracting non-clinical support services common terms Options Contracting clinical support services Contracting specific clinical services Buying hospital services Private management of public hospital Private financing, construction, and leaseback of new public hospital Private financing, construction, and operation of new public hospital Sale of public hospital for alternative use Services & capital contract BOO BOOT PFI Operating contract Private sector responsibilityPublic sector responsibility Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services. Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both. Reimburses operator for capital costs and recurrent costs for services provided. Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end. Finances, constructs, and owns new public hospital and leases it back to government Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract. Contracted private hospitals provide services in accordance with contractual provisions Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal). Provides clinical support services such as radiology or laboratory services. Purchases facility and converts it for alternative use depending on sales agreement Provides all clinical services (and staff) and hospital management; manages contract and pays for support services Manages hospital and provides clinical services; manages contract and pays for services. Manages hospital and provides most clinical services Contracts with private hospitals, monitors, pays for services. Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance. Manages hospital and makes phased lease payments to private developer. Monitors conversion to ensure adherence to contractual obligations. Outsourcing; PPP Privatization Outsourcing Contracting Co-location Co-location of private wing or department within or beside public hospital Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions Outsourcing; PPP Contracting; Purchasing “PPPs” 13

14.  Rajiv Ghandi Super Specialty Hospital, Karnataka  Poor District of 1.7 million people 90 KM from Bangalore  Govt constructed and equipped (350 beds) + direct subsidy  Idle for 2 years 10 Year concession Private management Apollo Hospital Corporation Governing Council Government Audits High Levels of Patient Satisfaction 14

15. 1. Block Contracts  Fixed sum for access to services, regardless of volume  Providers guaranteed income  High Volume and Low Cost Setting when access critical (e.g., maternity services)  More than 1 Service or Specialty  1-2 activities monitored 15

16. 2. Cost and Volume  Agreed baseline volume and price for each  Above baseline, marginal payments  Multi-specialty, specialty or even procedure specific  “Tolerance bands” around baseline to protect both purchaser and provider  2-5% and depends on volume and potential for change in case mix 3. Cost Per Case Contract  Can Specify Volume Cap or Not 16

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18.  Retrospective Cost Per Case to Prospective Negotiated Volumes  Risk Corridors (sharing) for deviations from targets  Day Care Cases Also Doubled 18

19.  Supply-Side Budget Funding  “Demand-Side” Financing  Purchaser  Consumer  Out-of-Pocket Payments  “Patient Follows the Money”  “Money Follows the Patient” 19

20. Source: : Langenbrunner et al., Health Financing Note East Asia and Pacific Region, World Bank, 2011 20

21. Third-Party (Pre-Payment) Purchasing Also Important…. In recent years…move to Supply-Side to Demand-Side “Strategic Purchasing” 21

22. Revenue Pooling Resource Allocation Collection or Purchasing (RAP) Strategic Purchasing can include elements of Risk Pooling, Contracting, and Payment Private Public Taxes Public Charges/ Resource Sales Mandates Grants Loans Private Insurance Communities Out-of-Pocket Public Providers Private Providers Service Provision Government Agency Social Insurance or Sickness Funds Private Insurance or Community-based Organizations Employers Individuals And Households Source: World Bank 22

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25. 25 Paying for inputs Paying for outputs Paying for performance Paying for outcomes/ results Line item budgets Fee-for-service with no fee schedule Fee-for-service DRGs Capitation P4P Full capitation with performance incentives Episode-based payment with performance incentives

26. 26 Unit Fee for Service Case-Based/DRGs Global Budgets Capitation Pay Level

27. 27 FEE-FOR-SERVICE (US, Canada, parts of Europe, Philippines, Vietnam) ACCESS/ DEMAND QUALITY COST-CONTAINMENT + - Missing Providers in Remote Regions?

28. 28 CASE-BASED (Europe, US, Thailand, Indonesia? Philippines?) ACCESS QUALITY COST-CONTAINMENT + -

29. 29 CAPITATION (e.g., Parts of US, Canada, Europe, Thailand) ACCESS QUALITY COST-CONTAINMENT + -

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33.  Identity of parties  Their obligations  Terms for renewal  Conditions of termination  Recourse for non-performance  Arbitration or mediation 33

34. 2. Define the Services 3. Design the Monitoring and Evaluation 5. Arrange for Contract Management 7. Carry out Bidding Process and Manage the Contracts 1. Dialogue with Stakeholders 4. Decide how to Select Contractors and Establish Price 6. Draft Contract & Bidding Documents Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20) 34

35. 2. Define the Objectives/Services 3. Design the Monitoring and Evaluation 5. Arrange for Contract Management 7. Carry out Bidding Process and Manage the Contracts 1. Dialogue with Stakeholders/ Feasibility? 4. Decide how to Select Contractors and Establish Price 6. Draft Contract & Bidding Documents Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20) 35

36.  A big advantage in contracting is results focus so concentrate on outputs/outcomes, not inputs.  The purchaser should objectively define:  Quantity of services (e.g., case-mix and volumes? Or specific services to relieve queue? Special such as high tech surgeries? )  Technical Quality (e.g., national technical guidelines)  Equity (ensuring the poor receive services) 36

37. Harding and Preker, 2000 37

38. Payment  Incentive  Performance  Outcomes/Goals Paying Providers based on Performance What is it? Measure performance of participating providers and set financial incentives for improving performance, leading to better outcomes 38

39. Global budgets allocated in monthly installments A 10% retention bonus fund for compliance with performance indicators including Good quality (e.g., hygiene and sterilization practices) Patient satisfaction (no overcharging and perceptions of quality) No fraud (ghost patients) Hire and fire staffing policies Staff mix flexibility/Salary adjustments/bonuses and staff/ promotions flexibility Outcomes  Improvement in quality  general and surgical mortality  lower infection rates  Higher efficiency  improved bed turnover rates, occupancy rates, lower length of stay  physician hours  lower expenditure per admission 39

40.  Main Contractual Terms Related to Global Budget  Inpatient discharges by service  Day hospital discharges  Emergency consultations  Outpatient consultations  Diagnostic tests  Retention Fund (compliance with benchmarks) 40

41. 2. Define the Services 3. Design the Monitoring and Evaluation 5. Arrange for Contract Management 7. Carry out Bidding Process and Manage the Contracts 1. Dialogue with Stakeholders 4. Decide how to Select Contractors and Establish Price 6. Draft Contract & Bidding Documents Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20) 41

42.  Relational Contracts with any Provider  Basic Quality Standards -- Accredited or Licensed?  Long-term relational contracts..tends to be rule with Govt-non-State providers  Selective Contracting?  Which types of Services  Well-defined: Cataract, surgical procedures  “Spot” contracts? 42

43.  Relational Contracts with any Provider  Basic Quality Standards -- Accredited or Licensed?  Selective Contracting?  Which types of Services  Well-defined: Cataract, surgical procedures  Hybrid Approach  Any provider, but Levels of Payment/Co-Pays according to quality and performance 43

44.  Relational Contracts with any Provider  Basic Quality Standards -- Accredited or Licensed?  Selective Contracting?  Which types of Services  Well-defined: Cataract, surgical procedures  Hybrid Approach  Levels of Payment according to quality and performance  Public and Private? How about Non-Profit? 44

45. 1) Growing  Draw Investment Flows  New Services not in Public Sector  Haiti, Guatemala, Cambodia, Romania 2) Harnessing  Gov’t buyer can harness sector to achieve priority goals  South Africa – slide 13, reaching the poor  Guatemala, Argentina – geographic regions of poor  Philippines (2011) – Mandate beds for poor/scale up to UHC 3) Convert Public to Private Management  India, PPPs etc (April covers…. 45

46. Private Sector allows Selectivity 46

47. ContractPurchaserProvider 47

48.  Major Public Hospital in Bucharest  21 Private Operators of CT Scans invited to bid for services  Indicative volume  Set service and quality parameters  Public patients a priority but private pay patients allowed and fee schedule developed  Public services offered at 35% discount, renovated space and new equipment…all without government expenditures 48

49.  “Top-Down”  Cost Accounting  Philippines – 18 hospitals  Germany – 52 hospitals  Brazil – improved over time…benchmarked  “Bottom-Up”  Time and Motion  Activity-Based Costing (“ABC”)  Negotiation  Sometimes…no cost data…  Services may need to be well-defined 49

50. PUBLIC PROVIDER RATE PRIVATE PROVIDER RATE 50 Capital Re-current

51. 2. Define the Services 3. Design the Monitoring and Evaluation 5. Arrange for Contract Management 7. Carry out Bidding Process and Manage the Contracts 1. Dialogue with Stakeholders 4. Decide how to Select Contractors and Establish Price 6. Draft Contract & Bidding Documents Over Time, Move to Performance-Based Contracting The Contracting Cycle: A Systematic Approach (page 20) 51

52. Challenges of Contracting 1 (Internationally) ‏ Transactions costs: often are 7-20 percent of the value of the contract (depends of payment system, e.g., budget or FFS)‏ 52

53. Challenges of Contracting 1 (Internationally) ‏ Transactions costs: often are 7-20 percent of the value of the contract (depends of payment system, e.g., budget or FFS)‏ Purchaser (MOH or HI Fund) capacity – Management (enough staff, right measures?) – Enforcement capacity – Russia pre-admission controls in Moscow in late 1990s – did not work – 19% inappropriate admissions; 67% not referred by polyclinics – South Africa – poor contract management meant government actually paid more (Broomberg) 53

54. Challenges of Contracting 1 (Internationally) ‏ Transactions costs: often are 7-20 percent of the value of the contract (depends of payment system, e.g., budget or FFS)‏ Purchaser (HI Fund) capacity – Management (enough staff, right measures?) – Enforcement capacity Provider capacity to deliver – Hospital Board Oversight (e.g., Brazil) 54

55. Challenges of Contracting (2) Internationally Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services -- where one wants to monitor outcomes not inputs (except for adjusting, e.g. a DRG system’s price/DRG)‏ Information reinforces financing, purchasing, enforcement Brazil Electronic Cost Accounting systems installed in all hospitals Monthly statements sent to State Basis for budget/contract negotiations 55

56. M and E Contracting Policy and Implementation Determine the Indicators of success? Examples: Access/Equity: – Surgical waiting times; Geographically, e.g. travel to provider: 15 MN; to 2 nd level hosp. 30 MN Prevention (UK blood pressure screening) Quality (avoidable admissions; guidelines for heart attack admission -- US, Korea) Efficiency (use of generics, emergency room visits – US) Financial protection of members e.g., OOP down 20% 56

57. Asthma% of patients with asthma who have had an asthma review in previous 15 months Cancer% of patients with cancer reviewed within 6 months of confirmed diagnosis Chronic obstructive pulmonary disease (COPD) % of patients with COPD with diagnosis confirmed by spirometry and reversibility testing Coronary heart disease (CHD) % of patients with CHD whose last blood pressure measurement was 150/90 mm Hg or less Diabetes% of patients with diabetes whose last blood pressure measurement was 145/85 mm Hg or less Hypertension% of patients with hypertension with last blood pressure measurement was 150/90 mm Hg or less Hypothyroidism% of patients with hypothyroidism with thyroid function tests recorded in the previous 15 months Mental health% of patients with severe long-term mental health problems reviewed in the preceding 15 months Source : Pay for Performance Program, UK. www.nejm.org 57

58. 58

59. 59 Lower Administrative Burden; Clearer Market Signals Higher Validity

60. 60 Lower Administrative Burden; Clearer Market Signals Higher Validity

61. Challenges of Contracting (2) Internationally Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services where one wants to monitor outcomes not inputs (except for adjusting e.g. a DRG system’s price/DRG)‏ Regulatory framework : must be enforceable and assure proper behavior, i.e. presupposes adequate working judicial system and/or arbitration. Accountability is meaningful due to effective enforcement 61

62. Challenges of Contracting (2) Internationally Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services where one wants to monitor outcomes not inputs (except for adjusting e.g. a DRG system’s price/DRG)‏ Regulatory framework : must be enforceable and assure proper behavior, i.e. presupposes adequate working judicial system and/or arbitration Contracting learning curve (for both parties )‏ 62

63.  NGOs, Religion-based Organizations  May be less opportunistic  …with same goals as public sector  Contracting may be easier  Even with poor monitoring and poor contract process..  Serve poor, deliver high quality services for low rates of remuneration 63

64.  Cannot Pay Late  Public Sector Budget allocation lags  Reimbursement Must Cover Capital, Not Just Operating Costs (Slide 51) 64

65.  Hospital Contracting Tool Most Powerful Tool for Influencing Private Hospitals or Private Services  Hospital Services Most Difficult to Contract of all Health Services  Privates Survive on Income!  Most Effective for ensuring Quality, too 65

66.  Hospital Contracting Tool Most Powerful Tool for Influencing Private Hospitals  Hospital Services Most Difficult to Contract of all Health Services  Privates Survive on Income!  Most Effective for ensuring Quality, too  South Africa  Brazil  Romania  Bangladesh  India  Philippines  Indonesia  Thailand  China  Mongolia  Cambodia 66

67. jlangenbrunner@worldbank.org 67