Cost recovery in the health-care sector in Sub-Saharan Africa

Cost recovery, or the pricing of health-care services in government-run health-care facilities, continues to be a politically delicate subject in Sub-Saharan Africa. Nevertheless, ministries of health are now beginning to understand that the selective pricing of healthcare services can be a powerful tool for achieving the efficiency and equity goals that their governments have set, and for increasing ministry financial resources that can be used to improve the quality of care offered. This article provides a blue-print for these nascent cost-recovery efforts. After a consideration of the rationale for cost recovery within a theoretical context, a set of pricing principles for the whole public health sector is presented and a prototypical systemic price schedule is derived from the principles. Constraints to effective and equitable cost recovery are then discussed, and topics for further empirical research are suggested.     

Local cost sharing in Bamako Initiative systems in Benin and Guinea: assuring the financial viability of primary health care

The fourth in a series of five, this article presents and analyses data on cost recovery and community cost-sharing, two key aspects of the Bamako Initiative which have been implemented in Benin and Guinea since 1986. The data come from approximately 400 health centres and result from the six-monthly monitoring sessions conducted from 1989 to 1993. Community involvement in the financing of local operating costs in the two national scale programmes is also described. In Benin and Guinea, a user fee system generates the community financed revenue with the aim of covering local operating costs including drugs. Health worker salaries remain the responsibility of the government and donor funding covers vaccine and investment costs. Village health committees manage and control resources and revenue. The community is also involved in decision making, strategy definition and quality control. In Benin in 1993, community financing revenue amounted to about US$0.6 per capita per year and generally covered all local recurrent non salary costs except vaccines and left a surplus. Although total costs and revenues were slightly lower in Guinea for the same period, over-all user fee revenue (around US$0.3 per capita per year) covered local recurrent costs (not including salaries or vaccines). A comparison of costs and revenue between regions and individual health centres revealed important differences in cost recovery ratios. In Benin, some centres recovered more than twice the local costs targeted for community financing. Twenty-five per cent of centres in Guinea did not manage to cover their designated local recurrent costs. The longitudinal analysis showed that the level of cost recovery remained stable over time even as preventive care (and especially EPI) coverage rose significantly. To better understand the most important characteristics affecting cost recovery levels, best performing health centres in terms of cost-recovery levels in 1993 were compared to worst performing centres. This analysis showed that the size of the target population of the health centre is a key determinant of cost-recovery in both countries. In addition, in Guinea the utilization of curative care linked to geographical access and in Benin the average revenue per case linked to the number of deliveries proved to be additional factors of importance. In best performing centres, financial viability improved over time in both countries between 1990 and 1993. Finally, the implications of these conclusions for the planning of health centre revitalization in West Africa are discussed.     

The impact of alternative cost recovery schemes on access and equity in Niger

The authors examine accessibility and the sustainability of quality health care in a rural setting under two alternative cost recovery methods, a fee-for-service method and a type of social financing (risk-sharing) strategy based on an annual tax+fee-for-service. Both methods were accompanied by similar interventions aimed at improving the quality of primary health services. Based on pilot tests of cost recovery in the non-hospital sector in Niger, the article presents results from baseline and final survey data, as well as from facility utilization, cost, and revenue data collected in two test districts and a control district. Cost recovery accompanied by quality improvements increases equity and access to health care and the type of cost recovery method used can make a difference. In Niger, higher access for women, children, and the poor resulted from the tax+fee method, than from the pure fee-for-service method. Moreover, revenue generation per capita under the tax+fee method was two times higher than under the fee-for-service method, suggesting that the prospects of sustainability were better under the social financing strategy. However, sustainability under cost recovery and improved quality depends as much on policy measures aimed at cost containment, particularly for drugs, as on specific cost recovery methods.     

Costs and revenue of health care in a rural Zimbabwean district

The District Health Executive of Tsholotsho district in south-west Zimbabwe conducted a health care cost study for financial year 1997-98. The study's main purpose was to generate data on the cost of health care of a relatively high standard, in a context of decentralization of health services and increasing importance of local cost-recovery arrangements. The methodology was based on a combination of step-down cost accounting and detailed observation of resource use at the point of service. The study is original in that it presents cost data for almost all of the health care services provided at district level. The total annualized cost of the district public health services in Tsholotsho amounted to US$10 per capita, which is similar to the World Bank's Better Health in Africa study (1994) but higher than in comparable studies in other countries of the region. This can be explained by the higher standards of care and of living in Zimbabwe at the time of the study. About 60% of the costs were for the district hospital, while the different first-line health care facilities (health centres and rural hospitals together) absorbed 40%. Some 54% of total costs for the district were for salaries, 20% for drugs, 11% for equipment and buildings (including depreciation) and 15% for other costs. The study also looked into the revenue available at district level: the main source of revenue (85%) was from the Ministry of Health. The potential for cost recovery was hardly exploited and revenue from user fees was negligible. The study results further question the efficiency and relevance of maintaining rural hospitals at the current level of capacity, confirm the soundness of a two-tiered district health system based on a rational referral system, and make a clear case for the management of the different elements of the budget at the decentralized district level. The study shows that it is possible to deliver district health care of a reasonable quality at a cost that is by no means exorbitant, albeit unfortunately not yet within reach of many sub-Saharan African countries today.     

The impact of the introduction of user fees at a district hospital in Cambodia

Proponents of user fees in the health sector in poor countries cite a number of often interrelated rationales, relating inter alia to cost recovery, improved equity and greater efficiency. Opponents argue that dramatic and sustained decreases in service utilization follow the introduction of user fees, highlighting evidence that user fees reduce service utilization when they fail to result in improved quality of care and/or when services are priced higher than those charged by private health care providers. Utilization of public health services in Cambodia is low. Supply-side factors are significant determinants of such low public sector utilization, including low official salaries of service providers (forcing many to seek additional income in the private sector), and operations budgets which are erratic and often insufficient to cover running costs of service delivery outlets. The Cambodia Ministry of Health (MOH) encourages user fee schemes at operational district level. By allowing revenue to be retained at the health facility level, the MOH aims to improve health care delivery--and consequently service utilization--through increased salaries to health facility staff and increases in operations budgets. This case study of the introduction of user fees at a district referral hospital in Kirivong Operational District in Cambodia, using the findings from empirical research, examines the impact of user fees on health-careseeking behaviour, ability to pay and consultation prices at private practitioners. The research showed that consultation fees charged by private providers increased in tandem with price increases introduced at the referral hospital. It further demonstrates--for the first time that we are aware of from the available literature--that the introduction and subsequent increase in user fees created a 'medical poverty trap', which has significant health and livelihood impact (including untreated morbidity and long-term impoverishment). Addressing the medical poverty trap will require two interventions to be implemented immediately: regulation of the private sector, and reimbursing health facilities for services provided to patients who are exempted from paying user fees because of poverty. A third, longer-term initiative is also suggested: the establishment of a social health insurance mechanism.     

Improving quality through cost recovery in Niger

New evidence on the quality of health care from public services in Niger is discussed in terms of the relationships between quality, costs, cost-effectiveness and financing. Although structural attributes of quality appeared to improve with the pilot project in Niger, significant gaps in the implementation of diagnostic and treatment protocols were observed, particularly in monitoring vital signs, diagnostic examination and provider-patient communications. Quality improvements required significant investments in both fixed and variable costs; however, many of these costs were basic input requirements for operation. It is likely that optimal cost-effectiveness of services was not achieved because of the noted deficiencies in quality. In the test district of Boboye, the revenues from the copayments alone covered about 34% of the costs of medicines or about 20% of costs of drugs and administration. In Say, user fees covered about 50-55% of the costs of medicines or 35-40% of the amount spent on medicines and cost-recovery administration. In Boboye, taxes plus the additional copayments covered 120-180% of the cost of medicines, or 75-105% of the cost of medicines plus administration of cost recovery. Decentralized management and legal conditions in the pilot districts appeared to provide the necessary structure to ensure that the revenues and taxes collected would be channelled to pay for quality improvements.     

Reforming health care in the Republic of Kazakstan

Kazakstan, as in other former communist countries, is currently replacing the soviet system of health care financing for a model based on medical insurance. The main initial purpose has been to generate additional revenue for a sector suffering considerably from reductions in state funding induced by economic transition. Two key issues need to be addressed if the new system is to produce genuine reform. First, the rural areas have suffered disproportionately from the changes. There is an urgent need to adapt the existing system so that adequate funding goes to redress this imbalance. Second, although the fund has concentrated on raising revenue, it will only induce real reform if it begins to exercise its role as an independent purchaser of health care. There is a need for the future roles of both health ministry and insurance fund to be clearly defined to ensure that wide access to medical care is preserved.     

Containing health costs in the Americas

In recent years, a series of policy measures affecting both demand and supply components of health care have been adopted in different Latin American and Caribbean countries, as well as in Canada and the United States. In applying these measures various objectives have been pursued, among them: to mobilize additional resources to increase operating budgets; to reduce unnecessary utilization of health services and consumption of pharmaceuticals; to control increasing production costs; and to contain the escalation of health care expenditures. In terms of demand management, some countries have established cost-recovery programmes in an attempt to offset declining revenues. These measures have the potential to generate additional operating income in public facilities, particularly if charges are levied on hospital care. However, only scant information is available on the effects of user charges on demand, utilization, or unit costs. In terms of supply management, corrective measures have concentrated on limiting the quantity and the relative prices of different inputs and outputs. Hiring freezes, salary caps, limitations on new construction and equipment, use of drug lists, bulk procurement of medicines and vaccines, and budget ceilings are among the measures utilized to control production costs in the health sector. To moderate health care expenditures, various approaches have been followed to subject providers to 'financial discipline'. Among them, new reimbursement modalities such as prospective payment systems offer an array of incentives to modify medical practice. Cost-containment efforts have also spawned innovations in the organization and delivery of health services. Group plans have been established on the basis of prepaid premiums to provide directly much or all health care needs of affiliates and their families. The issue of intrasectorial co-ordination, particularly between ministries of health and social security institutions, has much relevance for cost containment. In various countries, large-scale reorganization processes have been undertaken to eliminate costly duplications of resources, personnel, and services that resulted from the multiplicity of providers in the public subsector. Given the pluralistic character of the region's health systems, an important challenge for policy-makers is to find ways to redefine the role of state intervention in health from the simple provision of services to one that involves the 'management' of health care in the entire sector.     

Overview: health financing reforms in Africa

Three broad strategies for health financing reform include: 1) cost recovery through user fees to expand access and improve quality of health services along with means testing to increase equity; 2) reallocation of existing resources to improve efficiency and access; and 3) assessment of the efficiency and quality of private health providers for making better use of the private sector in expanding access to quality health services. Research on the extent to which cost recovery reforms have improved access showed mixed results. A 1993 survey of more than 50 user fee experiences in Africa showed that in roughly half the cases, utilization either remained the same or decreased, whereas in the other cases, utilization increased after fees were introduced. Pilot tests of alternative cost recovery methods in 1993 and 1994 in rural Niger provided strong evidence that some form of social financing or risk-sharing mechanism may have advantages over pure fee-for-service methods in rural Africa. The main reason user fees are believed to be inequitable is that new or increased prices may provide a stronger disincentive to the poor than to the better-off. Informal means testing in Niger suggested that even moderately effective means testing can play a positive role for other incentives to utilization by the poor. A study identified specific measures of structure, process, and outcomes to assess quality improvement in 18 rural primary health care facilities involved in the Niger cost recovery pilot tests. Reallocation of existing resources to improve cost-effectiveness represents the second principle type of health financing reform. Private providers also play a role in promoting access in Sub-Saharan countries. Public and private sector efficiency in Senegal was also examined. Household spending to promote efficiency suggested that people could allocate money for health care more efficiently. Finally, some policy research needs were identified.     

Competition and primary care in the United States: separating fact from fancy

Competitive strategies have been advocated as the solution for the economic ills of the U.S. economy. During the 1980s many economists and health care practitioners are arguing that a competitive strategy will bring down health care costs; these plans emphasize the existence of perverse incentives which reward cost reducing behavior with less revenue. Competitive strategies assume the existence of a "health care marketplace." Historically, the United States health care sector has not conformed to the ideal of the competitive market because of the special characteristics involved in the production and consumption of health care. Consumers have the least power in the health care sector and yet most competitive proposals are explicitly directed at changing consumer behavior, especially in the area of primary care. Much evidence indicates that competitive plans inhibit consumers from using primary care services, increase long-term health care costs, and ultimately require more government regulatory action.     

Research note: does cost recovery for curative care affect preventive care utilization?

Findings are presented from cost recovery pilot tests implemented by the government of Niger, with technical assistance from USAID's Health Financing and Sustainability (HFS) Project, in the primary health care sector in Boboye and Say districts during 1993-94. The tests focused upon the use of free prenatal care for pregnant women. Two different payment methods were tested along with interventions to improve the quality of care. An annual adult tax plus a small fee-per-episode at the time of use were assessed in Boboye, while a straight fee-per-episode of illness was implemented in Say. The difference in the financial burden to the consumer between the two schemes depended upon the number of illnesses experienced. Preventive services remained free of charge in all public facilities. Together with the introduction of cost recovery, health facility staff in the two test districts were trained on diagnostic and treatment protocols, an initial stock of generic drugs was provided to the involved health facilities, and a drug inventory and financial management system were established. Far from suffering with the introduction of cost recovery and quality improvements, the use of preventive services actually increased. Additional research is needed on the effect of cost recovery upon the use of preventive services.     

National community health insurance at village level: the case from Guinea Bissau

The experience in Guinea Bissau of a voluntary levy scheme atvillage level, called ‘Abota’, makes one point veryclear. Collective health insurance schemes at village levelmay be feasible and manageable in rural parts of Africa if thevillage population is allowed to decide on the amount of moneyand method of collection and if the government supports thescheme by guaranteeing sufficient drugs, low prices, effectivecontrol measures and a village health worker who is officialllypart of the national referral system. Without these conditions, cost-recovery schemes should perhapsbe postponed until a continuous and integrated care system canbe guaranteed. It should be recognized that the absence of aninformal drug market in Guinea Bissau and the relative isolationand small-scaleness of its population have been two importantenabling factors for the success of the collective health insurancescheme. Suggestions to introduce similar cost-recovery schemesin other settings therefore need to be analysed with caution.The best that UNICEF and WHO can do at the moment, related tothe Bamako Initiative, is to abandon the ‘easy and rapidsolutions approach’ to development and negotiate withnational governments for a more equitable and participativeapproach to improve the health of those that both UN agencieswant to serve. Fee-for-service schemes appear the easiest solutionto cost recovery, but they are not necessarily the best in thelong-term.     

What Is the Impact of Health Reforms on Uncompensated Care in Critical Access Hospitals? A 5‐Year Forecast in Washington State

Context: The 2008 financial crisis had a far‐reaching impact on nearly every sector of the economy. As unemployment increased so did the uninsured. Already operating on a slim margin and poor payer mix, many critical access hospitals are facing a tough road ahead. Purpose: We seek to examine the increasing impact of uncompensated care on the revenues earned by Washington's critical access hospitals; to forecast uncompensated care to the year 2014; and to forecast the financial impact on rural hospital uncompensated care of HR 3590, the Affordable Care Act (ACA). Findings: For critical access hospitals in the state of Washington, total uncompensated care increased by almost $16 million, a 22% increase from 2008 to 2009. By 2014, total uncompensated care is forecast to more than double from 2009, totaling $174 million annually without health reforms. Using the Urban Institute's Health Insurance Policy Simulation Model, uncompensated care is forecast to fall by $106 million in 2014, thereby reducing the uncompensated care percentage from 5.31% to 2.07%. Conclusions: Policy makers and health care managers should note that a substantial portion of the newly insured from the ACA will most likely be Medicaid participants. Given this source of lower revenue per case, critical access hospital administrators should seek additional public and private sources of revenue. Most importantly, rural hospital managers must maintain or improve their cost efficiency, while serving the needs of their rural population as we move closer toward the implementation of health reforms.     

Modelling the affordability and distributional implications of future health care financing options in South Africa

South Africa is considering introducing a universal health care system. A key concern for policy-makers and the general public is whether or not this reform is affordable. Modelling the resource and revenue generation requirements of alternative reform options is critical to inform decision-making. This paper considers three reform scenarios: universal coverage funded by increased allocations to health from general tax and additional dedicated taxes; an alternative reform option of extending private health insurance coverage to all formal sector workers and their dependents with the remainder using tax-funded services; and maintaining the status quo. Each scenario was modelled over a 15-year period using a spreadsheet model. Statistical analyses were also undertaken to evaluate the impact of options on the distribution of health care financing burden and benefits from using health services across socio-economic groups. Universal coverage would result in total health care spending levels equivalent to 8.6% of gross domestic product (GDP), which is comparable to current spending levels. It is lower than the status quo option (9.5% of GDP) and far lower than the option of expanding private insurance cover (over 13% of GDP). However, public funding of health services would have to increase substantially. Despite this, universal coverage would result in the most progressive financing system if the additional public funding requirements are generated through a surcharge on taxable income (but not if VAT is increased). The extended private insurance scheme option would be the least progressive and would impose a very high payment burden; total health care payments on average would be 10.7% of household consumption expenditure compared with the universal coverage (6.7%) and status quo (7.5%) options. The least pro-rich distribution of service benefits would be achieved under universal coverage. Universal coverage is affordable and would promote health system equity, but needs careful design to ensure its long-term sustainability.     

Community self-financing of water supply and sanitation: what are the promises and pitfalls?

As a result of the debt crisis in developing nations and shrinkingdonor resources, the water supply and sanitation sector is increasinglyorientated towards recovering some portion of the cost of systemdevelopment from beneficiary communities. In some cases, fullcost recovery, including capital costs, is the goal. Sustainable projects continue to be perceived as the major indicatorof successful sector development. Community acceptance of responsibilityfor system operation, maintenance and management appears tobe essential to sustainability. Creating this kind of capabilityin communities requires both significant time and resources. ‘Willingness to pay’, initially used as an indicatorof community preferences for level of service, has become ameasure of a community's hypothetical willingness and abilityto bear the cost of operations and maintenance and/or systemdevelopment. The methodologies used to establish willingnessto pay are imprecise as predictors of actual behaviour. In designing ways to implement cost recovery, donors and implementingagencies have adopted some strategies that endanger the timespent in developing community management capability and, thus,under mine system sustainability. There is a need to understandall of the implications of cost-recovery strategies, and particularlyto examine their impact on sustainability and building communitycapability.     

Can post‐acute care programmes for older people reduce overall costs in the health system? A case study using the Australian Transition Care Programme

There is an increasing demand for acute care services due in part to rising proportions of older people and increasing rates of chronic diseases. To reduce pressure and costs in the hospital system, community-based post-acute care discharge services for older people have evolved as one method of reducing length of stay in hospital and preventing readmissions. However, it is unclear whether they reduce overall episode cost or expenditure in the health system at a more general level. In this paper, we review the current evidence on the likely costs and benefits of these services and consider whether they are potentially cost-effective from a health services perspective, using the Australian Transition Care Programme as a case study. Evaluations of community-based post-acute services have demonstrated that they reduce length of stay, prevent some re-hospitalisations and defer nursing home placement. There is also evidence that they convey some additional health benefits to older people. An economic model was developed to identify the maximum potential benefits and the likely cost savings from reduced use of health services from earlier discharge from hospital, accelerated recovery, reduced likelihood of readmission to hospital and delayed entry into permanent institutional care for participants of the Transition Care Programme. Assuming the best case scenario, the Transition Care Programme is still unlikely to be cost saving to a healthcare system. Hence for this service to be justified, additional health benefits such as quality of life improvements need to be taken into account. If it can be demonstrated that this service also conveys additional quality of life improvements, community-based programmes such as Transition Care could be considered to be cost-effective when compared with other healthcare programmes.     

Health insurance as a catalyst to change in former communist countries?

A large number of former communist countries are currently undergoing a process of insurance led health sector change. Social health insurance is seen as a major source of income for the health sector, as a way of inducing fundamental restructuring of provision and of encouraging greater individual awareness of the costs (and benefits) of publicly financed health care. Attempts to introduce social medical insurance have generally been criticized by western policy analysts yet continue to have much appeal in each country. Obtaining additional revenue for the health sector is clearly a major motivation for these reforms. Yet available evidence suggests that many countries will obtain revenue that is lower and less stable than envisaged. For some countries other reasons for insurance may be as important. One of the most important is the greater autonomy given to the national Ministry of Health and local health departments over expenditure allocation. Recent experience of voluntary insurance in Turkmenistan confirms many of the fears about the feasibility and impact of social health insurance. Yet establishing an attractive but contained benefits package has been popular with the population and offers a potentially useful approach for inducing more fundamental reform.     

Improving the implementation of cost recovery for health: lessons from Zimbabwe

In the current debate over health financing policy in developing countries, governments are increasingly focusing on cost recovery--having patients pay part or all of their health care costs--as a way to mobilize more resources for health, improve equity by selectively charging the wealthy, and increase efficiency by encouraging reinvestment of fee revenues into cost-effective primary care. Zimbabwe offers an important example of a country with a tradition of levying fees in government health facilities, but where enforcement became lax in the 1980s. In 1991, policymakers resolved to resuscitate and strengthen cost recovery, as part of a broader economic reform program. This paper discusses the strengths and weaknesses of Zimbabwe's cost recovery system, its potential for improvement, and the obstacles to change in revising the fee structure and billing and collection procedures. It argues that cost recovery can help to achieve Zimbabwe's health objectives, but only in conjunction with other measures to redirect public spending to essential public health and clinic care and improve the efficiency of government services. The paper finds that during the 1980s, the fee schedule became badly misaligned with actual medical care costs and created distortions in patient referral patterns. Billing and collection were also weak, because of deficiencies in personnel and information systems and lack of incentives for revenue generation. The paper concludes that if key steps were taken to raise the collections-to-billings ratio, recover fees from privately-insured patients, and adjust fees in line with medical cost inflation, recoveries could increase fourfold, from 5% to 20% of government spending for clinical care. At the same time, access to government health services for the poor could be maintained by improving exemption procedures.     

Economic aspects of mental health carve-outs

BACKGROUND: Recent empirical research has found behavioral health carve-outs in the US to reduce costs immediately and considerably, compared to indemnity insurance and HMOs. Carve-outs have quickly captured a large part of the organized market in US behavioral health. At the same time, market concentration has increased significantly. METHODS: The current paper uses concepts and results from the industrial organization and transaction cost literature to explain (i) why carve-outs hold cost advantages over other institutional arrangements, (ii) why these hold in particular for behavioral health and (iii) why this did not happen earlier. RESULTS: The main explanatory variables relate to economies of scale, the avoidance of diseconomies of scope, and the avoidance of personal relationships. The sometimes surprising lack of explicit risk-taking by carve-outs and of explicit cost-reducing incentives in carve-out contracts are more than overcome by incentives created from gaining large contracts. The specific advantages of carve-outs in behavioral health derive from a combination of lack of economies of scope with other health services, lack of economies of scale in provision of behavioral health and presence of economies of scale in management. It is conjectured that behavioral health carve-outs have benefited from biomedical innovations that changed the direction of treatments, from computerization that enables large-scale standardized management and from financial pressures on the behavioral health sector. DISCUSSION: The empirical basis for the current study is a number of case studies and the rapid penetration of mental health carve-outs in the US. Cost reductions caused by such carve-outs appear to be quite robust. Explaining cost reductions from institutional changes has to start with the question of why the old institution did not implement the same or similar changes. We have emphasized reasons why such changes were not feasible under indemnity insurance and HMOs. Nevertheless, we have not been able to evaluate quality changes that might have accompanied those cost reductions. IMPLICATIONS FOR HEALTH POLICY: While further cost reductions may follow a logistic curve, which simply flattens out, there are developments, regulatory and legal in particular, that could lead to a regression of carve-out costs towards those under other institutional arrangements. Thus, the main health policy questions arising from this study are to what extent the freedom of carve-outs to hold costs down should be upheld and to what extent the cost reductions should be used to increase behavioral health coverage. IMPLICATIONS FOR FURTHER RESEARCH: I see three main avenues for further research. The first is to find more empirical evidence for the hypotheses developed in this paper. The second is to look for other countries and other areas of health care with characteristics that would lend themselves to the application of carve-outs. The third is to analyze the quality aspect of carve-outs. The empirical question here is "What has been the effect of carve-outs on the quality of behavioral health care in the US?". The theoretical question is "What are the incentives of the sponsors of carve-out plans and of the carve-out management to assure quality provision of care?".