The National Health Policy 2017: Through the Accountability Lens (Part 3)

III. Strategic Purchasing 

The NHP 2017 advocates for the strategic purchasing. Its effects can be significant as it  helps in aggregating the demand for health care, unbundling and outsourcing some components within the health production process. Governments get in better position to restructure the supply-side of the market by responding to the needs of the population and strengthen developing mechanisms of greater integration of primary and hospital care.

However, it is not clear how the government will realize these benefits from strategic purchasing through existing Government financed health insurance schemes (GHISs).

The policy states that GHISs shall be aligned to cover selected benefit package of secondary and tertiary care services purchased from public, not-for-profit and the private sector in the same order of preference, subject to availability of quality services on time as per defined norms. 

This view does not reflect the fact that insurance companies already deal with a highly fragmented private health service providers and has its own problems in aggregating the demand.

There is general belief that some of the services such as diagnostic and various investigative procedures can be produced efficiently by the private sector and governments can buy these services and make them available to people in need. It is important to understand the context and characteristic of health markets in the background of policy option of strategic purchasing. One of the features on which the markets are typified is whether they are contestable. Contestable markets are one that has no exit/entry barriers. If in that market prices increase much beyond the average price level (and generate excess profits), potential rivals will enter the market to exploit this situation. The existing players will respond by bringing down the prices appropriate to yield normal profits. The perfect contestability will make it sure that even a single player can exhibit competitive behavior.

The way the medical markets have grown in India with no control on the need (domain and geographic specific), this market is not perfectly contestable as there are huge sunk costs creating huge barriers to exit and entry. It may be hard to find a suitable buyer of assets once it is discovered the entity is not doing well. 

Compounded with this is the fact that most decisions to use a particular procedure is decided by the doctor and not by the patients leading to a situation of information asymmetry between doctors and patients. Given perverse incentives, this leads to a situation of supplier-induced demand. With these imperfections, it is well known that insurers are not in position to address this problem. For example, the fee for service system, which increases the discretion and unnecessary clinical interventions, adversely affects insurance. In private health care settings, in particular, the ability to pay takes precedence over the need, and pricing policies give dominance to business interests over health care. The recent cardiovascular stents pricing illustrate this point leading to strong regulations.

Some countries have made reforms towards improving the contestability in the health markets by separating the role of purchaser and provider. This is done through formalizing relationships between buyers and sellers in the form of contracts, which articulate the volume, price and quality characteristics of transactions aimed at improving contestability in health markets*. This is the reform UK embarked on through the creation of quasi-markets when District Health Authorities were assigned the role to assess local health care needs and purchase "cost-effective" treatments to meet these needs within available budget**.

NHP 2017 proposes to step in areas of strategic purchasing without examining the contours of reforms critical for its successful implementation. 

The pace and consequences with which the process of strategic purchasing unfolds in the system are always unpredictable. There are several reasons for optimism for these strategies, but at the same time, some well known grounds for caution need to be addressed.

How does one instill accountability and responsibility of clinicians recommending the purchase of services without having sound budget culture? In a large system clear identification of roles and rules is a challenge and on top of it ensuring (a) what is being purchased, (b) for whom it is purchased and (c) of what quality requires sophisticated responsibility/accountability systems in place. How does the system protect from market price manipulations and inflation in costs? Just stating that multi-stakeholder trusts or registered societies with institutional autonomy will be created is an over simplification of the strategic purchasing challenge.

The policy makes a suggestion for creating a robust independent mechanism to ensure adherence to standard treatment protocols. The mandatory disclosure of treatment in a transparent manner and compliance to right of patients to access information should be an integral part of the system reform. But they should not be seen just in the context of strategic purchasing only.

Given we have limited knowledge of cost-effectiveness of various technologies available, the problems of measurability and contestability associated with expensive, complex and concentrated procedures may require a stronger regulatory environment and skilled contracting mechanisms before governments can rely on obtaining these services from the private sector*. 

The accountability framework for strategic purchasing strategy needs to evolve.

* Alexander S. Preker, April Harding, and Phyllida Travis (2000) ‘‘Make or buy’’ decisions in the production of health care goods and services: new insights from institutional economics and organizational theory. Bulletin of the World Health Organization, 2000, 78 (6) 779-790.

** Alan Maynard (1991) Developing the Health Care Market. The Economic Journal, 101:1277-1286.