1. EFFECTIVE RESOURCE MANAGEMENT: THE OPTIMAL PROVIDER PAYMENT MIX Cheryl Cashin Senior Felllow, Results for Development Institute November 4, 2013

2. Overview of the Presentation 2 Defining the problem –balance between revenue and expenditure for universal health coverage Emerging messages from the Japan- World Bank Partnership Program for Universal Health Coverage Learning from experience—the role of the Joint Learning Network for Universal Health Coverage

3. Revenue and Expenditure: 2 sides of the Universal Coverage Coin Revenue Resources available to expand and sustain effective coverageRevenue Expenditure Benefits package (service and medicines guaranteed) Subsidies Payment to providersExpenditure Benefits package (service and medicines guaranteed) Subsidies Payment to providers 3

4. Revenue and Expenditure: 2 sides of the Universal Coverage Coin Revenue Resources available to expand and sustain effective coverageRevenue Expenditure Benefits package (service and medicines guaranteed) Subsidies Payment to providersExpenditure Benefits package (service and medicines guaranteed) Subsidies Payment to providers Does revenue generation get more attention than expenditure management? 4

5. Ghana’s NHIA has achieved a growing and diversified revenue base Raising revenue for UHC is not enough But the gap between revenue/member and claims/member is closing 5

6. What role does provider payment play? Health care provider payment systems--the way providers are paid to deliver the covered package of services—are an important strategic lever in universal health coverage Help balance system revenues and costs and create incentives for providers to improve quality and deliver services more efficiently This ultimately makes it possible to expand coverage within limited funds 6

7. What are the options? 7 Payment MethodDefinition Line-item budget Providers receive a fixed amount to cover specific input expenses (e.g., personnel, drugs, utilities,). Global budget Providers receive a fixed amount of funds for a certain period to cover aggregate expenditures. Budget is flexible and not tied to line items. Per diem Hospitals are paid a fixed amount per day that an admitted patient is treated in the hospital. Case-based (“DRG”) Hospitals are paid a fixed amount per admission depending on patient and clinical characteristics. Fee-for-service Providers are paid for each individual service provided. Fees are fixed in advance for each service or group of services. Per capita (“capitation”) Providers are paid a fixed amount in advance to provide a defined set of services for each individual enrolled for a fixed period of time.

8. What are the options? 8 Payment MethodDefinition Line-item budgetProviders receive a fixed amount to cover specific input expenses (e.g., personnel, drugs, utilities,). Global budgetProviders receive a fixed amount of funds for a certain period to cover aggregate expenditures. Budget is flexible and not tied to line items. Per diemHospitals are paid a fixed amount per day that an admitted patient is treated in the hospital. Case-based (“DRG”)Hospitals are paid a fixed amount per admission depending on patient and clinical characteristics. Fee-for-service (fixed fee schedule) Providers are paid for each individual service provided. Fees are fixed in advance for each service or group of services. Per capita (“capitation”) Providers are paid a fixed amount in advance to provide a defined set of services for each individual enrolled for a fixed period of time. There is no perfect payment method. They all have strengths and weaknesses. They all can create undesirable incentives and adverse consequences. They all can be useful at different times depending on the objectives. There is no perfect payment method. They all have strengths and weaknesses. They all can create undesirable incentives and adverse consequences. They all can be useful at different times depending on the objectives.

9. What is the optimal mix? Messages emerging from the Japan-World Bank Partnership Program for Universal Health Coverage 9

10. Overview of the Study The Japan-World Bank Program on Universal Health Coverage is a joint effort by the Government of Japan and the World Bank to support the Low and Middle Income Countries in their aspirations for UHC, following the 50 th anniversary of Japan’s own achievement of UHC in 1961. 10

11. Countries Participating in the Study 11 The countries have been selected to represent: different stages of UHC different geographic regions diversity in the type of health systems in place willingness to explore key policy questions in the analytical framework

12. The countries included in the study Group 1: Early Adoption Bangladesh Ethiopia Bangladesh Ethiopia Group 2: Coverage Expansion Ghana Indonesia Peru Vietnam Ghana Indonesia Peru Vietnam Group 3: UHC— Deepening Coverage Brazil Turkey Thailand Brazil Turkey Thailand Group 4: Sustaining Coverage/Adaptive Systems France Japan France Japan 12

13. Coverage-enhancing vs. Coverage-eroding Expenditure Management Expenditure management that frees up resources to expand coverage is “coverage-enhancing.” –E.g. better negotiated medicines prices and well-targeted subsidies 13 “Countries that have achieved universal population coverage and financial protection have balanced revenue generation efforts with coverage-enhancing expenditure management.” Controlling expenditure by limiting benefits, increasing cost-sharing, or under-paying providers can reduce access to necessary services and financial protection and is therefore “coverage-eroding.”

14. Countries relying on fee-for-service payment are facing coverage-eroding cost escalation and inefficiencies (except Japan) 14 Country Main Provider Payment System Consequences Ethiopia France Ghana Indonesia Peru Open-ended Fee-for-Service Sustainability concerns Implicit access and service restrictions Imbalance between primary and tertiary care Vietnam Fee-for-Service with soft caps based on historical expenditure Over-use of high-cost services Cost escalation High out-of-pocket payment Japan Fee-for-Service with annual negotiation to maintain budget neutrality (“closed-ended”) Well-functioning expenditure management

15. What is different about fee-for-service in Japan? Strong governance – Biennial revision of the fee schedule – Prices adjusted downward for services and medicines with large volume increases Set tighter conditions for billing/payment – Example: Fee for diagnosing MRI image can only be billed once every calendar month Strict enforcement of cost containment measures – On site audits to check claims with medical records Unified payment system across providers and insurers makes the mechanisms more effective and efficient – Only option: Play by the rules, or exit 15

16. Some countries are using coverage-eroding expenditure management approaches 16 Under-paying for servicesBrazil; Peru; Vietnam Supply-side constraints and implicit access restrictions Bangladesh; Brazil; Indonesia; Peru Shifting of financial risk to providers (more than they can manage) Vietnam Increasing cost-sharing (higher deductibles) France Leakage to private insurance coverage Brazil, France Excessive shifting of financial risk to patients (creating access barriers) Bangladesh, Ethiopia, Indonesia, Peru, Vietnam

17. What does coverage-enhancing expenditure management look like? 17 Japan Fee schedule revision as a cost containment tool Global targets for expenditure increases France A set of "soft" expenditure controls System-level spending targets Sub-level targets (ambulatory care; hospitals; rehabilitation) Monitoring and “early warning” Thailand Closed-ended capitation contracting with DRG hospital payment Strong primary care gate-keeping Tough negotiation with pharmaceutical companies Priority-setting for expansion of benefits Turkey Closed-ended payment systems with performance-based component (global budget for hospitals and capitation for primary care) Expenditure caps at the hospital level and on pharmaceuticals

18. What does coverage-enhancing expenditure management look like? 18 Japan Fee schedule revision as a cost containment tool Global targets for expenditure increases France A set of "soft" expenditure controls System-level spending targets Sub-level targets (ambulatory care; hospitals; rehabilitation) Monitoring and “early warning” Thailand Closed-ended capitation contracting with DRG hospital payment Strong primary care gate-keeping Tough negotiation with pharmaceutical companies Priority-setting for expansion of benefits Turkey Closed-ended payment systems with performance-based component (global budget for hospitals and capitation for primary care) Expenditure caps at the hospital level and on pharmaceuticals Spending targets Closed-ended provider payment

19. Key Features of “Optimal Provider Payment Mix”? 19 Closed- ended Incentives to limit high-cost services Emphasis on Primary Care Negotiation of drug prices

20. Key Features of “Optimal Provider Payment Mix”? 20 Closed- ended Closed-ended payment systems impose a cap at some level (usually the provider) For example, Capitation DRG with global budget—pay for admissions until volume targets are exceeded [e.g. Thailand] Challenge: what happens when volume target is exceeded and cap is reached?

21. Key Features of “Optimal Provider Payment Mix”? 21 Incentives to limit high-cost services For example, Pay providers below cost for some high-cost/low priority services (e.g. MRI) Limit volume [e.g. Japan] Higher cost-sharing for self- referral [e.g. France, Thailand, Turkey] Challenge: requires a high degree of monitoring and information

22. Key Features of “Optimal Provider Payment Mix”? 22 Emphasis on Primary Care For example, Primary care gate-keeping “Ring-fencing” or setting targets for share of expenditure for primary care Paying relatively higher rates for primary care [e.g. France, Thailand, Turkey] Challenge: primary care system is still weak in some countries Resistance to gate-keeping

23. Key Features of “Optimal Provider Payment Mix”? 23 Negotiation of drug prices For example, Reference pricing Budget caps [e.g. Turkey] Mandatory rebates and discounts [e.g. Turkey] Health technology assessment to expand medicines covered [e.g. Thailand] Challenge: the pharmaceutical industry is a powerful interest group Challenge: pushing drug prices too hard could limit market participation and innovation

24. Examples of Provider Payment Mix 24 Payment for primary care Payment for inpatient services DRG with Global Budget Capitation (FFS for some preventive services) Payment for outpatient specialty services Thailand UC Scheme Global Budget (pay-for- performance/ FFS) Capitation (pay-for- performance/ salary deduction) Turkey SSI

25. Ongoing process of analysis, revision, and response Ongoing process-there is no endpoint Good provider payment systems require a high degree of institutional capacity and information  takes time to build Involvement and negotiation with providers is key Some coverage-enhancing expenditure management strategies can eventually put too much pressure on the system and begin to erode coverage—so it is an ongoing process Countries take steps, gain experience, do analysis, and revise 25

26. Role of the Joint Learning Network These big picture messages require detailed technical action Technocratic solutions have to get implemented in the real world with interest groups and politics Sharing experience with countries who are facing the same challenges can provide innovative ideas and help avoid some pitfalls 26

27. 27 How it all fits together 27 Identification of the Need for Reform Step 1: Diagnostics Step 2: Payment System Design Step 3: Implementatio n Roadmap JLN PPM Diagnostic and Assessment Guide Topic specific joint-learning activities (e.g. JLN Health Services Costing Collaborative) General JLN events, knowledge products and community interaction PPM Reform Proposal Country process Joint learning input Stakeholder consultations and data analysis Share country experience with JLN members JLN targeted country support

28. 28 Co-production of knowledge  Practical guidance “Soon after the costing work is commissioned, the costing team should identify and prioritize stakeholders and develop a strategy to engage them throughout the costing exercise. “ “Adopt the least expensive and labor- intensive data collection and management plan that is necessary to get valid results.”

29. 29 Joint learning in action

30. Final Thoughts Revenue generation is important, but using expenditure management and provider payment levers early on or at key junctures of system refinement is critical for coverage expansion. Sustaining UHC is a constant balancing act. Countries that have been most successful make choices that are coverage-enhancing, learn from past challenges, and continuously adjust and adapt. Learning from other countries can help make better technical decisions and navigate real-world implementation challenges. 30

31. THANK YOU 31