Introduction
A central aim of this volume is to provide evidence to help policy makers improve purchasing performance in their respective health systems. As noted earlier, this work is grounded on two fundamental premises. First, all health systems exercise some form of purchasing, which in its most basic form consti-tutes the allocation of funds to provider organizations. Second, this function has the potential to play a key role in determining the overall performance of the health system. Moreover, we start from the hypothesis that performance improvements will result from the introduction of more strategic forms of purchasing. This is when purchasing goes beyond simple reimbursement for products and services and it is aligned to societal health needs and wishes, and results in the most cost-effective provision of services.
The chapters in this volume show a trend towards strategic purchasing in many countries of the European Region and elsewhere. This is not to say, however, that countries converge towards a single purchasing model, but rather that the rationale and some of the principles for strategic purchasing are being incorporated into different health systems. Some elements of strategic purchasing – such as linking of health needs, plans and priorities to the allocation of resources or decentralizing provider management and intro-ducing competition among providers – appeal, albeit for different reasons, to both national health service (NHS) systems in Northern and Southern Europe and social health insurance (SHI) systems in Western and Eastern Europe.
Indeed, there is not one single organizational model of purchasing that can, or should, be applied to all health systems. As illustrated in Chapter 2, purchas-ing arrangements are chiefly determined by the main form of fundpurchas-ing and provision in each country. Generally those organizations responsible for the collection and pooling of funds will also play a key role in purchasing. In the same way, the public–private mix and/or the degree of decentralization will shape the organizational relationship between purchasers and providers. Even if one could incontrovertibly demonstrate the superior benefits of a particular form of purchasing, the room for reform would still be constrained by each specific health system context. In other words as we argued in Chapter 2, pur-chasing systems are very much path dependent – that is, today’s choices are limited by what has gone before (Putnam et al., 1993).
The approach in this volume, therefore, is far from prescriptive. It does not put forward a normative model of purchasing that will work across health systems, nor does it respond to the question of what is the best form of pur-chasing. Rather the aim is to identify the main components of the purchasing function within different health systems and to put forward strategies to improve them and thereby increase overall health system performance. To do so we have adopted a broad systems framework, based on a triple agency model, and have argued that purchasing goes well beyond the mere contract-ing of providers to which it is often equated. As noted in Chapter 1, this conceptual framework also includes the central role played by the citizens and the government as well as the provider organizational forms that will enable effective purchasing.
Indeed, a central lesson derived from the analysis in this volume is that if policy makers are to achieve the desired results they will need to take a broad systems approach to purchasing and act upon all the various components of this function. When purchasing is narrowly focused on individual elements such as contracts, payment systems or provider competition it will not reach its full potential. For instance, the introduction of a new case-mix-based payment system to improve efficiency will only succeed if providers can count on the managerial and organizational ability to respond to these new financial incen-tives, and if the health interventions financed through the new payment system are informed by the evidence on cost and effectiveness and respond to the health needs and priorities of a particular population.
A definition of strategic purchasing, therefore, should reflect this systemic approach. Strategic purchasing aims to increase health systems’ performance through effective allocation of financial resources to providers, which involves three sets of explicit decisions: which interventions should be purchased in response to population needs and wishes, taking into account national health priorities and evidence on cost-effectiveness; how they should be purchased, including contractual mechanisms and payment systems; and from whom, in light of relative levels of quality and efficiency of providers.1
Grounded in this approach, this chapter appraises existing evidence on purchasing and draws lessons for policy makers to improve the performance in their own systems. Thus, this chapter moves from Chapter 2’s description of purchasing to an analysis of performance and suggested recommendations for policy makers. It is intended as a summary of the main lessons resulting from
this volume and thus draws heavily from the chapters in Part Two as well as on the case studies specially commissioned for this analysis (Figueras et al., forth-coming). It also takes into consideration the outcomes of other relevant research, including that resulting from the Health Systems in Transition profiles and from a number of Observatory volumes that have dealt with purchasing-related issues (www.observatory.dk). Explicit references to other materials and particularly to other chapters in this volume have been included in chapter endnotes to signpost relevant material for a more detailed analysis and discus-sion than could not be provided in this chapter, given its broad scope.
The chapter begins with an outline of the main objectives of a health system, against which we should assess the impact of purchasing arrangements. Next, it summarizes the theoretical rationale for purchasing and the expected benefits.
The subsequent sections combine a discussion of existing evidence with a series of lessons for policy makers around five central themes for improving purchasing and which form the basis for the structure of this chapter:
•
empowering the citizen;•
strengthening government stewardship;•
ensuring cost-effective contracting;•
developing appropriate purchasing organizations;•
improving provider performance.The chapter concludes with a section reflecting on the existing evidence and the way forward.
Assessing purchasing
In attempting to assess purchasing we need first to define the main objectives of the health system. There is an ongoing debate about what constitute these objectives and about how to formulate and measure them. A wide range of objectives are often put forward in various mixes in different policy documents, including health gain, cost containment, solidarity, health outcomes, allocative and technical efficiency, consumer satisfaction, equity, access, choice, quality, transparency, accountability, citizen participation and provider satisfaction.
These objectives may all be important but they exist on different levels – from the philosophical to the technical and operational – overlap with each other and are often difficult to define and measure.
One key contribution of the WHO’s World Health Report 2000 in this field is its proposal of a definition of health system boundaries and a set of what are termed primary or intrinsic goals, namely improving health, enhancing responsiveness to the legitimate expectations of the population and assuring fairness of financial contribution (WHO, 2000). The report argues that all other objectives will ultimately affect these three main goals. The health system’s achievements against these goals are labelled attainment whereas performance is defined as attainment in light of what systems should be able to accomplish with given resources. Here we suggest a slight adaptation of this approach and propose the following health system objectives: health, responsiveness, equity and efficiency.2
•
Health improvement is the raison d’être of the health system and it constitutes its primary or defining objective.•
Responsiveness, meeting the legitimate expectations of the population – and the satisfaction drawn from a responsive health service – is an important objective in itself, which goes beyond the health improvement result-ing from an intervention. Responsiveness includes a wide range of dimen-sions such as choice, waiting time and quality of amenities (Valentine et al., 2003).•
Equity refers to the distribution of health and responsiveness among the popu-lation and includes financial contribution, access, utilization and treatment according to need. Conceptually, equity of financial contribution is not linked to purchasing; hence, in this volume we are more concerned with equity of access for equal need.•
Efficiency comprises both technical efficiency or ‘value for money’ (minim-izing costs or maxim(minim-izing outcomes from interventions); and allocative effi-ciency (allocating resources among different sectors, for example between acute care and preventive services and interventions so as to maximize overall health levels from existing resources).The formulation of the above objectives raises a number of questions about the appropriateness of the World Health Report 2000’s definitions as well as about the reliability and validity of the measures and indicators employed.
These issues – including the rich methodological and political debate that followed the report’s publication (Murray & Evans, 2003) – are important, but they go beyond the scope of this chapter and will not be addressed here.
An equally significant methodological challenge, and particularly relevant for this volume, is how to assess the impact of a health system function, such as purchasing, against those objectives. It proves very difficult, if not impossible, to disentangle the effects of the various health system functions on, for instance, health status and responsiveness and to demonstrate causality. This problem of attribution is compounded by the fact that purchasing itself has many different components, such as contracting or stewardship. These have different effects on health system objectives and need to be addressed separately. Moreover, there is very little evaluation available of the impact of various purchasing strategies on health system objectives.
These methodological complexities and the lack of evidence will render any evaluation of purchasing very difficult. Nevertheless this chapter will consider the framework of objectives outlined above when discussing evidence and drawing lessons from the analysis of the various purchasing components. The approach taken here is that of policy analysis, that is, considering not only the impact of particular policies but also the content of these policies and the pro-cesses to formulate and implement them (Walt & Gilson, 1994; Walt, 1998). In some instances, we adopt what has been termed an ‘indirect research’ approach, which considers whether the right conditions exist for a particular policy to succeed (Robinson & Le Grand, 1994).
One final point to consider is that the choice of health system objectives and the relative priority assigned to them will vary in different societies in light of their historical, cultural and political values. The scope of this exercise is to
appraise purchasing against the framework of these objectives without making any judgments of their relative value.
Purchasing in theory
In theory, the introduction of purchasing is set out to meet a wide range of strategic challenges in different health system contexts. First, purchasing aims to link health needs, plans and priorities with the allocation of financial resources to different sectors and interventions within the health system.
Hence, this should lead to a maximization of overall health gain from available resources, that is, increasing allocative efficiency. Purchasing addresses one of the main problems traditionally encountered by health planners – that of bridg-ing the gap between plans and the budgetary allocation of resources. For instance, in many NHS systems these functions were carried out by separate departments with national health plans having little influence over the histor-ical and incremental budgetary processes. Purchasing theory thus underlies the potential of this function when closely linked to the planning process.
Second, the introduction of purchasing addresses the bureaucratic rigidity resulting from command-and-control models and enables many of the strategies put forward by the managerial school, including management decentralization with the establishment of self-governing hospital structures, adoption of performance-related payment systems, introduction of quality and outcomes culture, and generally increased entrepreneurship in the public sector. These should all result in increases in technical efficiency. Finally, the proponents of health care markets also support the introduction of purchasing as an organiza-tional mechanism that enables the introduction of market competition between the purchasers and the providers. So, in theory, purchasing should lead to an improvement in technical efficiency in those countries where there is some competition between providers and whenever services are contestable.
The appeal of purchasing theory to such different schools of thought could be termed the ‘paradox of purchasing’ and helps to explain its wide political acceptance. A review of the new institutional economics may provide a deeper insight into purchasing theory and its conceptual building blocks,3 helping to further understand the paradox of purchasing. This literature makes clear that different forms of purchaser organization and systems of governance can be expected to generate different flows of costs and benefits. The concept of transaction costs is central to understanding these flows. In particular, it shows how different organizational forms based on markets, networks and hierarchies all vary in the costs and benefits they generate, depending upon the particular circumstances in which they operate.
Markets tend to have separately owned and controlled organizations responsible for purchasing and providing services. Contracts are a central mechanism for coordinating activities but these can have expensive transac-tion costs. Hierarchies are a means of economizing on transactransac-tions costs – but the incentive structures for efficiency may be weaker. Networks share some of the features of both markets and hierarchies. Ownership is dispersed, as in markets, but control is often exerted by a single organization, as in hierarchies. However,
whereas hierarchies are characterized by authority and markets by arm’s-length relationships, networks are characterized by cooperation and trust. These issues are discussed in more detail in Chapter 4.
As to the question of whether the separation of purchasing and providing will bring net gains, at least in terms of economic efficiency, organization theory highlights a number of factors. Markets appear to perform well when there is potential for a high level of competition, when investments do not tie providers to specific purchasers, when complexity and uncertainty are relatively low and when few economies of scale apply.
However, the absence of these conditions in health care has led attention to shift towards network models. These may involve partnership models, which retain purchaser–provider separation but encourage long-term relationships and integrated decision making. The relational contracts that are used in this model rely on trust to economize on transaction costs.
Partnership models resonate closely with political ideas of the ‘third way’, which has been described as an explicit rejection of both the old centralized command-and-control systems and of divisive market systems. It seeks to find a middle way that combines a commitment to social values with some of the benefits believed to flow from an entrepreneurial approach.
Following these short reflections on the theories underlying purchasing – and suggesting that ‘in theory it ought to work’ – the obvious question arising from this debate is whether the actual practice of purchasing meets these theoretical expectations. The following sections look at the evidence on the practice of purchasing around the five central themes introduced earlier in the chapter and suggest how policy makers can improve this function in their respective health systems.
Empowering the citizen
A central element in purchasing theory is that the purchaser agent represents effectively the wishes and needs of its citizenry. This section addresses the vari-ous strategies to ensure that citizens exercise effective leverage over purchasers and their decisions.4 Strategies for citizen empowerment in purchasing are grouped here under four categories aimed at:
•
assessing the health needs of citizens at aggregated population level and integrating this information into purchasing decisions;•
ascertaining the views, values and preferences of the citizenry with regard to purchasing priorities and transmitting them to purchasers;•
making purchasers directly accountable to the population in general and to individual consumers in particular;•
enabling individual choice of purchaser and/or provider.It should be noted at the outset that these strategies primarily aim to increase health systems’ responsiveness but also – to the extent that they reflect popula-tion health needs – improve health, equity and allocative efficiency. However, as noted in the discussions below, this will not always be the case and tradeoffs between these objectives will be necessary. One other preliminary consideration
here is that, in addition to these mechanisms that strengthen downward accountability to the population, patient empowerment is also achieved through upward accountability of purchasers and providers to the stewards of the health systems – democratically elected governments. The stewardship role of the government is addressed later in this chapter.
Assessing population health needs
If purchasers are to make decisions that result in the health improvement of their populations, first and foremost they have to have a clear epidemiological picture of the health needs of those populations. This will serve them in allocat-ing scarce financial resources and purchasallocat-ing appropriate interventions across the whole spectrum of preventive, curative and rehabilitative sectors. At the same time this exercise will inform the development of a health strategy (see section below on building a health strategy into purchasing). Ostensibly the extent to which purchasers integrate health needs assessment into purchasing will be crucial in improving three key health system objectives: health status, equity and allocative efficiency.5 Health needs assessment can be carried out by the purchasers themselves or by other public health organizations and its results incorporated in purchasing decision making.6
The review of the case studies (Figueras et al., forthcoming) and the analysis of the literature reveal a disappointing picture. Despite its widely recognized importance, health needs assessment is not routinely carried out in many health systems and when it exists it is not always incorporated into purchasing decisions. This occurs for a variety of reasons, including the general deficiency of the public health function in many countries, the non-geographical delimited coverage of many purchasers – for example, sickness funds in many SHI countries – and the scarcity of public health skills in purchasing organiza-tions, particularly those with small population coverage. Above all it reflects the lack of structural or functional integration of the public health function within purchasing.
The latter is particularly relevant in many SHI countries in Western Europe where public health has little influence on the work of the sickness funds with only a few exceptions, for instance France or the Netherlands where this function has gained in importance.7 A worrying trend is that many of the new SHI systems in CEE and CIS seem to reproduce this problem and, with some exceptions, population health needs are not taken into account in purchasing decisions. This function seems to work better in NHS systems in which coordin-ation or integrcoordin-ation between public health and purchasing is easier. There are
The latter is particularly relevant in many SHI countries in Western Europe where public health has little influence on the work of the sickness funds with only a few exceptions, for instance France or the Netherlands where this function has gained in importance.7 A worrying trend is that many of the new SHI systems in CEE and CIS seem to reproduce this problem and, with some exceptions, population health needs are not taken into account in purchasing decisions. This function seems to work better in NHS systems in which coordin-ation or integrcoordin-ation between public health and purchasing is easier. There are