The economics of hospitals in developing countries. Part I: expenditure patterns

In recent years, the attention of policy-makers and researchershas been directed at primary health care, with little noticetaken of hospitals except to observe that they take a disproportionateshare of health sector resources. However, it is precisely becausehospitals are large consumers of resources that more attentionneeds to be paid to them by policy-makers and researchers. Itis conventional and traditional to describe developing-countryhealth systems as hospital-dominated, with the great majorityof resources allocated to hospitals in urban centres. Casualinvestigation and observation certainly suggest this to be thecase. Yet the higher levels of a health system have an importantsupportive role in terms of supervision and referrals. Thusrelevant questions should be, ‘what mix of facilitiesis desirable, how can these be most economically provided andhow should resources be shared between the different levelsof facility?’ This paper presents the currently available data on the financingand economics of hospitals in developing countries. Part I firstdiscusses some of the problems of data availability and comparability,and then reviews data on the hospital share of health sectorresources, the extent to which hospital expenditure is distributedequitably, and whether the hospital share of expenditure hasbeen changing over time. Part II (to be published in Volume5:3 of this journal) reviews the cost structure of hospitals,in particular the functional breakdown of hospital expenditure,hospital factor mix and unit costs. Patterns of hospital incomeare then considered, with particular attention being paid tothe potential for shifting the burden of hospital financingaway from governments, through cost-recovery in the governmentsector or greater use of non-government or private sector services.The second part ends by outlining a possible research programmein the field of hospital financing and economics.     

Measles in developing countries. Part II. The predicted impact of mass vaccination

A mathematical model is developed to mimic the transmission dynamics of the measles virus in communities in the developing world with high population growth rates and high case fatality rates. The model is used to compare the impacts of different mass vaccination programmes upon morbidity and mortality arising from infection by measles virus. Analyses identify three conclusions of practical significance to the design of optimal vaccination programmes. First, there is no single optimum age at which to vaccinate children for all urban and rural communities in developing countries. For a given community the best age at which to vaccinate depends critically on the age distribution of cases of infection prior to the introduction of control measures. Second, numerical studies predict that the introduction of mass vaccination will induce a temporary phase of very low incidence of infection before the system settles to a new pattern of recurrent epidemics. Mass vaccination acts to lengthen the inter-epidemic period in the post-vaccination period when compared with that prevailing prior to control. Third, numerical simulations suggest that two-phase and two-stage vaccination programmes are of less benefit than one-stage programmes (achieving comparable coverage) aimed at young children. The paper ends with a discussion of the needs for: improved programmes of data collection; monitoring of the impact of current vaccination programmes; and the development of models that take account of viral transmission dynamics, host demography and economic factors.     

The costs of HIV prevention strategies in developing countries.

Since many evaluations of HIV (human immunodeficiency virus) prevention programmes do not include data on costs, a preliminary analysis of the costs and outputs of a sample of HIV prevention projects was attempted. Case studies, representing six broad HIV prevention strategies in developing countries with differing levels of per capita gross domestic product, were sought on the basis of availability of data and potential generalizability. The six prevention strategies studied were mass media campaigns, peer education programmes, sexually transmitted disease treatment, condom social marketing, safe blood provision, and needle exchange/bleach provision programmes. Financial cost data were abstracted from published studies or were obtained directly from project coordinators. Although estimates of cost-effectiveness were not made, calculations of the relative cost per common process measure of output were compared. Condom distribution costs ranged from US$ 0.02 to 0.70 per condom distributed, and costs of strategies involving personal educational input ranged from US$ 0.15 to 12.59 per contact.     

Health economics and applications in developing countries

The concept of health human capital guides the statistical study of (1) health production functions, (2) derived demands for medical and behavioral health inputs, and (3) determinants of health and productivity outcomes. Health inputs are generally endogenous to health outcomes, and prices of health inputs are the most common instrumental variable for identifying estimates of the causal effects of health inputs. But when health input prices are modified by individual regional migration, the regional prices no longer satisfy the requirement of being independent of preferences and omitted variables. Then the difficulty of evaluating health program effects reinforces the need to design randomized regional treatments, in order to be able to evaluate without bias the consequences of critical health interventions, such as are needed today to deal with the HIV/AIDS epidemic.     

The economics of optimal health and productivity in smallholder livestock systems in developing countries.

Livestock kept or produced in smallholder farming systems are an important component of the agricultural economy in the developing world. The role of livestock on smallholder farms varies widely, providing draught power for crop production or as a production activity for subsistence needs or market sale under systems ranging from extensive pastoralist to intensive, peri-urban feeder and dairy systems. A set of unique conditions and features characterise smallholder systems, and these need to be appreciated when assessing the strategies that have evolved for managing animal health in smallholder systems, and evaluating opportunities for improving disease control strategies. To provide a framework for discussing animal health issues and analytical methodogies, a typology of smallholder livestock and crop/livestock systems is developed. The typology considers livestock systems both in terms of the degree of intensification, as measured by market orientation and intensity of factor use, and in terms of importance within the household economy, as measured by contribution to household income. A number of characteristics are identified that distinguish smallholder systems from the commercialised systems of developed countries, including the multiple functions livestock serve, the integrated nature of livestock activities, multiple objectives of producers and lower capacity to bear risk at the household level, as well as poor infrastructure, markets, and access to information at the community level. Three representative smallholder livestock systems from Africa are described in detail, highlighting the relevant characteristics and the implications for analysing disease control strategies. Smallholder dairy systems in Kenya demonstrate the role of individual producer decision-making for animal health management in intensive, market-oriented systems, placing emphasis on farm-level risk and production management aspects of disease control. In extensive pastoralist systems where epidemic disease are still important and infrastructure is poor, disease control primarily involves managing communal natural resources, requiring a different analytical approach. Finally, in crop farming systems using draught cattle, the livestock activity is an integrated component of crop production and this must be reflected in the approach used to evaluate draught animal health management. Continued development of analytical approaches and decision-support tools for disease control strategies adapted to the special characteristics of these systems will be needed as smallholder systems continue to intensify in areas with good market access, and those in marginal areas face increasing pressures to optimally manage the natural resource base.     

Recurrent costs in the health sector of developing countries.

Widespread concern exists about the recurrent cost problems faced in the health sector of developing countries, and about the difficulties likely to be faced in the 1990s and beyond in seeking to expand further the movement to primary health care. The article accepts that the problem is a real one, and seeks first to define and measure it, and to put together some of the evidence on the scale of the problem. Next, the analysis involves an examination of its causes, and hence its solutions, exploring in some detail issues of budgetary control, management decision making, project selection, and the prospects for mobilizing additional recurrent funds to, and within, the health sector. The article concludes by drawing attention to the complex aetiology of the recurrent cost problem, and offers a five-point plan of action if the problem is to be tackled seriously.     

The income elasticity of health care spending in developing and developed countries

To date, international analyses on the strength of the relationship between country-level per capita income and per capita health expenditures have predominantly used developed countries’ data. This study expands this work using a panel data set for 173 countries for the 1995–2006 period. We found that health care has an income elasticity that qualifies it as a necessity good, which is consistent with results of the most recent studies. Furthermore, we found that health care spending is least responsive to changes in income in low-income countries and most responsive to in middle-income countries with high-income countries falling in the middle. Finally, we found that ‘Voice and Accountability’ as an indicator of good governance seems to play a role in mobilizing more funds for health.     

Capacity building in health economics. Opportunities for training in developing countries

This paper provides an overview of the opportunities available for training in health economics in the regions of Africa, Asia and Latin America, following a WHO forum on Capacity Building in Health Economics held in Geneva in December 1995. It describes in brief the training opportunities available throughout Asia, Africa and Latin America. It then gives a detailed resume of courses available for students and professionals at Chulanlongkorn University, Thailand, the University of Cape Town, South Africa and the University of the West Indies, Trinidad. It also describes the international and regional networks which have developed and now provide further opportunities for training. The final section of this paper looks to the future and suggests that although continued financial and academic support will be needed from the countries of the North, the development of regional capacities in health economics should be as much as possible through regional resources, and regional strategies should be a priority.     

Investigating DRG cost weights for hospitals in middle income countries

Identifying the cost of hospital outputs, particularly acute inpatients measured by Diagnosis Related Groups (DRGs), is an important component of casemix implementation. Measuring the relative costliness of specific DRGs is useful for a wide range of policy and planning applications. Estimating the relative use of resources per DRG can be done through different costing approaches depending on availability of information and time and budget. This study aims to guide costing efforts in Iran and other countries in the region that are pursuing casemix funding, through identifying the main issues facing cost finding approaches and introducing the costing models compatible with their hospitals accounting and management structures. The results show that inadequate financial and utilisation information at the patient's level, poorly computerized 'feeder systems'; and low quality data make it impossible to estimate reliable DRGs costs through clinical costing. A cost modelling approach estimates the average cost of 2.723 million Rials (Iranian Currency) per DRG. Using standard linear regression, a coefficient of 0.14 (CI = 0.12-0.16) suggests that the average cost weight increases by 14% for every one-day increase in average length of stay (LOS).We concluded that calculation of DRG cost weights (CWs) using Australian service weights provides a sensible starting place for DRG-based hospital management; but restructuring hospital accounting systems, designing computerized feeder systems, using appropriate software, and development of national service weights that reflect local practice patterns will enhance the accuracy of DRG CWs.     

Measles in developing countries. Part I. Epidemiological parameters and patterns

This paper presents a review of published data concerning the epidemiology of measles in developing countries. Simple mathematical models provide a framework for data analysis and interpretation. The analyses highlight differences and similarities in the patterns of transmission of the measles virus in developed and developing countries. Whilst the rate of loss of maternally derived immunity to measles is broadly similar, the average age at infection is much lower, and case fatality rates are much higher in developing countries. Data analysis also serves to illustrate inter-relationships between different kinds of epidemiological data. Thus, for example, in order to correctly interpret an age stratified serological profile from a developing country it is necessary to have information on the rate of decay of maternal antibodies and age specific case fatality rates. To determine the probable impact of a given vaccination programme, information on the birth rate in the community concerned is also required. A discussion is given of the epidemiological data required in order to effectively design a community based vaccination programme aimed at the eradication of measles.     

Manufacturing costs of HPV vaccines for developing countries

BackgroundNearly all of the 500,000 new cases of cervical cancer and 270,000 deaths occur in middle or lower income countries. Yet the two most prevalent HPV vaccines are unaffordable to most. Even prices to Gavi, the Vaccine Alliance, are unaffordable to graduating countries, once they lose Gavi subsidies. Merck and Glaxosmithkline (GSK) claim their prices to Gavi equal their manufacturing costs; but these costs remain undisclosed. We undertook this investigation to estimate those costs.MethodsSearches in published and commercial literature for information about the manufacturing of these vaccines. Interviews with experts in vaccine manufacturing.FindingsThis detailed sensitivity analysis, based on the best available evidence, finds that after a first set of batches for affluent markets, manufacturing costs of Gardasil for developing countries range between $0.48 and $0.59 a dose, a fraction of its alleged costs of $4.50. Because volume of Cervarix is low, its per unit costs are much higher, though at comparable volumes, its costs would be similar.InterpretationGiven the recovery of fixed and annual costs from sales in affluent markets, Merck’s break-even price to Gavi could be $0.50–$0.60, not $4.50. These savings could support Gavi programs to strengthen delivery and increase coverage. Outside Gavi, prices to lower- and middle-income countries, with profit, could also be lowered and made available to millions more adolescents at risk. These estimates and their policy implications deserve further discussion.     

The introduction of new vaccines into developing countries II. Vaccine financing

The development of new vaccines for important childhood diseases presents an unparalleled opportunity for disease control but also a significant problem for developing countries: how to pay for them. To help address this problem, the William H. Gates Foundation has established a Global Fund for Children's Vaccine. In this paper, we discuss the allocation of this and other similar funds, which we call Global Funds. We propose that allocation of the Global Funds to individual countries be guided in part by a Vaccine Procurement Baseline (VPB). The VPB would set a minimum of 0.01% of gross national product (GNP) as an amount each developing country would devote to its own vaccine procurement. When this amount is not sufficient to procure the vaccines needed by a developing country, the Global Funds would meet the shortfall. The amount required of donors to maintain the Global Funds would be about $403 million per year for both existing EPI vaccines as well as for a hypothetical group of five new vaccines costing $0.50 per dose and requiring three doses per child. Including program costs, poor developing countries currently spend about 0.13% of GNP on EPI immunizations. In contrast, the United States, as one example donor country, spends about 0.035% of GNP for childhood immunization including several new vaccines. This paper analyzes the Global Funds requirements for hepatitis B and Haemophilus influenzae type b (Hib) vaccines. After a ramp-up period, needier countries would eventually require about $62 million for hepatitis B and $282 million for Hib at current prices. Various additional criteria could be used to qualify countries for participation in the Global Funds.     

Lean healthcare in developing countries: evidence from Brazilian hospitals

The present study evaluates how five sectors of two Brazilian hospitals have implemented lean healthcare concepts in their operations. The main characteristics of the implementation process are analyzed in the present study: the motivational factor for implementation, implementation time, form (consultancy or internal), team (hospital and consultants), lean implementation continuity/sustainability, lean healthcare tools and methods implemented, problems/improvement opportunities, lean healthcare barriers faced during the implementation process, and critical factors that affected the implementation and the results obtained in each case. The case studies indicate that reducing patient lead times and costs and making financial improvements were the primary factors that motivated lean healthcare implementation in the hospitals studied. Several tools and methods were used in the cases studied, especially value stream mapping and DMAIC. The barriers found in both hospitals are primarily associated with the human factor. Additionally, the results obtained after implementation were analyzed and improvements in financial aspects, productivity and capacity, and lead time reduction of the analyzed sectors were observed. Further, this study also exhibited four propositions elaborated from the results obtained from the cases that highlighted barriers and challenges to lean healthcare implementation in developing countries. Two of these barriers are hospital organizational structure (and, consequently, how the senior management works with medical staff), and outsourcing hospital activities. This study also concluded that the initialization and maintenance of lean healthcare implementation rely heavily on external support because lean healthcare subject knowledge is not yet available in the healthcare organization, which represents a challenge. Copyright © 2015 John Wiley & Sons, Ltd.     

The economics of for-profit and not-for-profit hospitals

This paper examines the economics of for-profit and not-for-profit hospitals through the prism of capital acquisitions. The exercise suggests that of two hospitals that are equally efficient in producing health care, the for-profit hospital would have to charge higher prices than the not-for-profit hospital would, to break even on capital acquisitions. The reasons for this divergence are (1) the typically higher cost of equity capital that for-profit hospitals face; and (2) the income taxes they must pay. The paper recommends holding tax-exempt hospitals more formally accountable for the social obligation they shoulder, in return for their tax preference.     

Health economics in low income countries: adapting to the reality of the unofficial economy

There is some evidence in established market economies that health economics is having a positive impact on policy. Although many of the underlying assumptions can be questioned, the predictions made are broadly applicable to a range of relatively wealthy industrialised economies. In low and middle income countries these assumptions are often less applicable. In particular, assumptions about the regulation and functioning of public and private sector activities often fail to account for the operation of the unofficial health care sector. This paper illustrates how unofficial markets might operate in the context of the health care sector in a developing economy. In particular it examines how the motives of practitioners may be influenced by a lack of regulation and under-funding which in turn contribute to the presence of unofficial activities. Unofficial market activities could influence and distort the impact of policies commonly being pursued in many countries. Further research is required into the functioning of these markets in order to align the assumptions of policy with the reality of the developing health care sector.