For many years there was the belief that willingness to pay and ability to pay can guide the allocation of health care resources in any country. Development of the health care financing options was guided by these two principles. However, the collectivist view as articulated in Thatcherism era in the UK in the eighties articulated the principal that (1):
The initiatives of the Delhi state government provide several reasons for the optimism if the reforms of strategic purchasing of health services they have embarked on go well. The option of strategic buying may also turn out to be preferable option to health insurance option.
Diagnostic and investigative procedures (DIP) market has its challenges, and it is important to understand the characteristic of this market in the background of policy option of strategic purchasing. One of the characteristics on which the markets are typified is whether they are contestable. Contestable markets are one that has no exist/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 DIP markets have grown in India with no control on the certificate of 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 is difficult 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 patient leading to a situation of information asymmetry between doctors and patients. Given perverse incentives, this may lead to a situation of supplier-induced demand. It has been shown that given these imperfections, insurers are not able to solve this problem. For example, insurance gets seriously affected by fee for service system which increases the discretion and unnecessary clinical interventions. Given the contestability issues even having a large number of players, the competition will not necessarily lead to efficiencies and good practices. In private health care settings, in particular, the ability to pay takes precedence over the need, and DIP pricing policies give dominance to business interests over health care.
How does one improve the contestability in the DIP market? The reforms that separate the role of purchaser and provider by formalizing relationships between buyers and sellers in the form of contracts which articulate the volume, price and quality characteristics of transactions helps in improving contestability in health markets (1). 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. Under the system, the larger primary care practices could also elect to hold budgets for the purchase of diagnostics, outpatient care, and non-emergency inpatient treatments. When government intervenes through the process of creating quasi-markets, they become aggregators of demand in some sense. The insurance system is not able to deal with the fragmented providers and have to be negotiate with them individually either through TPA or insurer themselves. The aggregation of demand provides an advantage of bargaining volume based prices increasing efficiency with which government resources are used.
The pace and consequences with which the process of strategic purchasing unfolds in the system are always unpredictable. But its effects can, however, be significant as the strategic purchasing 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 needs of the population and strengthen developing mechanisms of greater integration of primary and hospital care. Any system is fraught with some challenges.There are several reasons for optimism for these reforms, but at the same time, some reasons for caution are well-known.
How does one instill accountability and responsibility of clinicians recommending the purchase of services? Are there clear identification of roles and rules that ensure (a) what is being purchased, (b) for whom it is purchased and (c) of what quality? How does the system protect from market price manipulations and inflation in costs? Given we have limited knowledge of cost-effectiveness analysis 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 (1).
Adequate health care should be provided for all, regardless of their ability to pay, must be the foundation of any arrangement for financing the health services.This collectivist view also gained prominence as the government systems failed to provide healthcare to all and the consequences of OPP expenditures on health care started affecting lives of a large section of the population. The challenges arose as the public health sector, which assumed responsibility for producing and distributing the services started crippling as they were not able to cope up with the demand or turned out to be inefficient. The result was that people resorted to buying the services from the private sector which resulted in high OOP expenditures. The governments in such situation explore health financing options in the following ways:
- Developing targeted health insurance options by pooling the risks and providing protection from catastrophic expenditures. The government in India and various states developed and implemented RSBY insurance programme targeted at BPL population group. As per the IRDA annual report of 2015-16, about 273 million persons are covered through various government-sponsored insurance schemes. This may be considered as one of the major policy reforms by bringing a very large pool together in a targeted manner to address health finance challenge. The annual spending by government on these schemes is about Rs 2,500 crores per annum.
- Price controls by regulating the prices of selected drugs and interventions ensuring that such measures result in lower financing burdens and private providers do not take advantage of market imperfections. Healthcare access in India is affected with 70:70 paradox; 70 per cent of healthcare expenses are incurred by people from their pockets, of which 70 per cent is spent on medicines alone, leading to impoverishment and indebtedness (2). Since the spending on drugs and medicines is a significant part of total OOP expenditure on health, regulation of the price of essential medicines has been another policy option government has implemented. National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing and revising prices of controlled bulk drugs and formulations and to enforce prices and availability of the medicines in the country. The NPPA also monitors the prices of decontrolled drugs. The annual turnover of the Indian pharmaceutical industry is estimated to be about 165,200 crores during the year 2014-15 of which the share of export is Rs. 78,792 crores. Nearly 680 formulations, spread over 27 therapeutic categories including HIV, diabetes, heart diseases, cancer are under price control.
- Developing option of strategic buying by the government and providing these services to the people in need either at subsidized prices or no cost. 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. These are not under price controls.
The initiatives of the Delhi state government provide several reasons for the optimism if the reforms of strategic purchasing of health services they have embarked on go well. The option of strategic buying may also turn out to be preferable option to health insurance option.
Diagnostic and investigative procedures (DIP) market has its challenges, and it is important to understand the characteristic of this market in the background of policy option of strategic purchasing. One of the characteristics on which the markets are typified is whether they are contestable. Contestable markets are one that has no exist/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 DIP markets have grown in India with no control on the certificate of 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 is difficult 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 patient leading to a situation of information asymmetry between doctors and patients. Given perverse incentives, this may lead to a situation of supplier-induced demand. It has been shown that given these imperfections, insurers are not able to solve this problem. For example, insurance gets seriously affected by fee for service system which increases the discretion and unnecessary clinical interventions. Given the contestability issues even having a large number of players, the competition will not necessarily lead to efficiencies and good practices. In private health care settings, in particular, the ability to pay takes precedence over the need, and DIP pricing policies give dominance to business interests over health care.
How does one improve the contestability in the DIP market? The reforms that separate the role of purchaser and provider by formalizing relationships between buyers and sellers in the form of contracts which articulate the volume, price and quality characteristics of transactions helps in improving contestability in health markets (1). 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. Under the system, the larger primary care practices could also elect to hold budgets for the purchase of diagnostics, outpatient care, and non-emergency inpatient treatments. When government intervenes through the process of creating quasi-markets, they become aggregators of demand in some sense. The insurance system is not able to deal with the fragmented providers and have to be negotiate with them individually either through TPA or insurer themselves. The aggregation of demand provides an advantage of bargaining volume based prices increasing efficiency with which government resources are used.
The pace and consequences with which the process of strategic purchasing unfolds in the system are always unpredictable. But its effects can, however, be significant as the strategic purchasing 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 needs of the population and strengthen developing mechanisms of greater integration of primary and hospital care. Any system is fraught with some challenges.There are several reasons for optimism for these reforms, but at the same time, some reasons for caution are well-known.
How does one instill accountability and responsibility of clinicians recommending the purchase of services? Are there clear identification of roles and rules that ensure (a) what is being purchased, (b) for whom it is purchased and (c) of what quality? How does the system protect from market price manipulations and inflation in costs? Given we have limited knowledge of cost-effectiveness analysis 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 (1).
- Alan Maynard (1991) Developing the Health Care Market. The Economic Journal, 101:1277-1286.
- Golechha M (2015) Healthcare agenda for the Indian government. Indian J Med Res 141:151-153.
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