Context
European health care systems have faced major challenges in recent years. These have included drives for more effective cost containment, particularly in the public sector; the quest for greater efficiency in the use of scarce resources;
increasing pressures to become more responsive to the needs and preferences of patients and the public; increased emphasis on health outcomes and popula-tion health gain; and renewed scrutiny of the roles of government in health (Saltman et al., 1998). Of course, not all countries have faced these challenges to the same extent. Variations in emphasis have been apparent between, for example, Beveridge and Bismarckian systems, and between Eastern and Western Europe. Despite this diversity, what has been in many ways more remarkable is the emergence of certain common trends in health sector reform. Among these, there has been a move from hierarchical, often highly integrated forms of ser-vice delivery and finance, towards devolved models based upon the separation of the responsibility for purchasing services from the responsibility for provid-ing them. The distinct role of purchasprovid-ing has been established as part of these changes.
Recognizing the potential of this approach, the World Health Report 2000 put forward strategic purchasing as a major option for improving performance of health systems. It argues that where a purchaser model exists, countries should move from passive purchasing – whereby a predetermined budget is followed or bills are simply reimbursed retrospectively – to strategic forms of purchasing in which proactive decisions are made about which health care services should be purchased, how and from whom (WHO, 2000).
In fact, a number of countries in both Eastern and Western Europe have already moved from integrated command-and-control models of publicly operated health care services towards some form of purchasing-based model. In these models, public, or quasi-public, third-party payers are kept organizationally
separate from health service providers. The rationale for this purchaser–provider split can be summarized in terms of five main objectives. First, services may be improved by linking plans and priorities to resource allocation, for instance, shifting resources to more cost-effective interventions and across care boundar-ies (such as from inpatient to outpatient care). Purchasing can thus be regarded as an alternative way to take some of the measures that have been traditionally pursued via planning. Second, population health needs and consumer expect-ations may be met by building them into purchasing decisions. Third, providers’
performance can be improved by giving purchasers levers such as financial incentives or monitoring tools, which can be used to increase provider responsiveness and efficiency. Fourth, the separation of functions within pub-licly operated health systems can reduce administrative rigidities generated by hierarchically structured command-and-control models. Management can be decentralized and decision making devolved by allowing providers to focus on efficiently producing the services determined by the purchaser. Finally, the sep-aration of functions can be used to introduce competition or contestability among public as well as private providers and thereby use market mechanisms to increase efficiency (Savas et al., 1998).
Countries that have introduced some form of purchasing within the public sector include Sweden (beginning in several county councils in 1990), Finland (1993) and the United Kingdom (1991). Southern Europe also has several examples. For instance, in Spain a number of regions such as the Basque country and Catalonia have adopted a system of purchasing. In Italy, purchasing relationships exist but are limited to teaching hospitals with trust status in certain regions and the degree of implementation varies greatly between them.
In Portugal, special agencies with the responsibility to contract with health care providers were established in every regional health administration in 1998. The scope for purchasing is still limited, but more recently in 2003 legislation has been passed to create a new form of self-governing public hospital trust and purchasing is set to expand rapidly.
The separation of functions and provision of services through contractual relationships has, of course, been part of the Bismarck-style, social-insurance-based health systems of continental Europe since their inception. Until recently, however, purchasing was a passive exercise that involved the reimbursement of expenses to providers with only some financial incentives and overall budget ceilings to ensure cost containment. Contracts did not focus on price or efficiency, nor were they understood to be contestable. For instance, in social health insurance countries such as Germany or the Netherlands, sick-ness funds traditionally had the legal obligation to enter into uniform and col-lective contracts with each physician established in their working area.
In recent years, however, countries such as Austria, Germany, Israel and the Netherlands have sought to transform insurers from being relatively passive payers to become more discriminating and prudent purchasers. These countries are progressively introducing more selective forms of purchasing according to performance criteria. A triggering factor has been the introduction of insurance competition in many of these countries, allowing individual citizens to choose among statutory insurers and purchasers. This reform, first discussed in Europe by the Dekker Commission in the Netherlands, suggests that introducing
market incentives for insurers will lead to better administration of collection, more innovative practices and more cost-effective purchasing. However, as discussed later in this volume, many of these countries are facing substantial difficulties in implementing selective contracting among providers.
In many countries of Eastern Europe, the introduction of social health insur-ance systems has separated functions between insurinsur-ance funds responsible for purchasing and financially autonomous hospitals responsible for service provision. Countries moving in this direction include Armenia, the Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, Poland, Romania, the Russian Federation, Slovakia and Slovenia.
Taken overall, however, the move towards strategic purchasing has been variable in practice. Some countries have embraced the general principle of strategic purchasing in their health care reforms. In others, the approach has been confined to local experimentation. Passive purchasing still dominates in many countries. The variability of purchasing arrangements is compounded because countries differ in the nature of the purchasing agent; its political and technical accountability including the composition of the purchasing boards or the degree of political direction; the population group covered; and the range of purchaser responsibilities. Similarly, the financial, contractual and regulatory mechanisms available to these purchasing organizations to steer provider performance differ substantially. The question of determining the appropriate purchasing agent – that is, what configuration buys health services more cost-effectively and according to the needs and wants of the population it repre-sents – has yet to be answered.
Rationale and objectives
Despite the inclusion of strategic purchasing in many European countries’
health care reforms, there is at present no comprehensive account of the ways in which the health purchasing function has been developed, let alone evidence on their impact. In the light of this gap, this book provides an overview of the existing evidence on purchaser organizational and functional arrangements, evidence on alternative approaches to purchasing and policy lessons on intro-ducing and reforming arrangements for purchasing health services. It is aimed primarily at policy makers, technical experts designing and putting in place purchasing structures and health policy analysts in general.
The book comprises a series of chapters written by international experts on the key components of the purchasing process as well as on the published litera-ture, grey literature and informal intelligence gathered on health care purchas-ing, together with material provided through case studies undertaken in selected European countries by national experts (Figueras et al., forthcoming).
In sum, the book aims to provide:
•
a systematic overview of the theory and practice of purchasing for health services in Europe;•
an up-to-date descriptive analysis of recent experience with purchasing arrangements in Western Europe, the countries of Central and Eastern Europe(CEE) and the former Soviet Republics that are more loosely linked to the Commonwealth of Independent States (CIS).
•
a review of the evidence on purchasing and a distillation of the lessons that can assist policy makers in the formulation of more effective purchasing strategies.Conceptual framework
The first dilemma when aiming to assess purchasing experience is to define the concept of purchasing itself. Most approaches, such as that of the World Health Report 2000, start from the separating of health system functions. Purchas-ing together with revenue collection and poolPurchas-ing of resources are three inter-related components of the health system’s financing function, the three other core functions of the health system being resource generation, provision and stewardship.
Purchasing is often linked to resource allocation. This approach departs from the fact that the function of health service provision requires the mobilization and effective use of financial resources. Purchasing is thus regarded as a mechan-ism by which those who hold financial resources allocate them to those who produce health services (Perrot, 2002).
Øvretveit (1995) argues that purchasing needs to be differentiated from other functions such as commissioning and contracting. In his approach, health ser-vices purchasing is narrower than commissioning. Commissioning is oriented towards maximizing population health and equity by purchasing health ser-vices and influencing other organizations to create conditions which enhance people’s health. Commissioning is a government or public sector function that involves the development of a national health strategy and its implementation through a wide range of public health functions including health services, health prevention and intersectoral strategies. Purchasing, on the other hand, is mainly concerned with buying health services from health care facilities such as ambulatory visits, diagnostic tests, surgery, hospitalization and so forth. Con-tracting is, then, more narrowly defined as the negotiated agreement between purchasers and providers about services they will provide in return for payment.
It includes service specification, tendering, monitoring and reviewing contract performance.
This volume provides a wider view of purchasing than just the allocation of funds to provider organizations. As noted earlier, and in line with the prop-osition contained in the World Health Report 2000, we argue that purchasing can play a key role in improving the performance of the health system, particularly when we move from passive forms of purchasing – the mere reimbursement of providers – to more proactive and strategic forms of purchasing that consider which interventions should be purchased, how they should be purchased and from whom. As all health systems exercise some form of purchasing, the key question therefore becomes how to move along a continuum towards more strategic purchasing so we achieve a cost-effective allocation of available resources and maximize population health gain.
In seeking to understand the various components of strategic purchasing and the organizational environment within which it operates, this book has adopted a principal–agent theoretical perspective. This has provided a framework within which the relationships between different actors may be examined. In fact, in this context, we have adopted a triple principal–agent framework that identifies:
(i) the relationship between consumers/users and third-party purchasers, (ii) the relationship between purchasers and providers and (iii) the relationship between the government and the purchaser.
The first set of agency relationships take place between the consumer (the principal) and the third-party purchaser (a health authority, local government, sickness fund), which acts as the consumers’ agent in the purchase of health care services on their behalf. Key questions here concern the extent to which the agent reflects the needs and preferences of users and the public. In a second set of agency relationships the third-party purchaser, as the principal, employs a series of financial, contractual, regulatory and monitoring mechanisms to ensure that the provider (such as a hospital), as its agent, will deliver the appropriate mix of health care, of acceptable quality, at an agreed price. In this relationship the forms of contract that are used and the mechanisms through which providers are paid are important considerations. Moreover, the organiza-tional environment within which the provider functions (for example, monop-oly or competitive, for-profit or not-for-profit), and the provider’s internal management mechanisms (for example, effective or non-effective combination of financial and clinical management) can also be expected to impact upon this principal–agent relationship. In the third agency relationship the purchaser acts as agent for the government or state. In this instance, the government as princi-pal will seek to ensure that national health priorities are met. This relationship introduces the role of the government as a steward of the health system, a role recently highlighted as ‘arguably the most important’ health system function.
This framework and the insights provided by theory are used throughout the book in seeking to understand better how purchasers behave and ways in which their performance could be improved. However, a word of clarification about the use of the principal–agent framework needs to be made at the outset. The theory has been developed by economists and can become rather arcane in some theoretical discussions. Our interest, on the other hand, is multidisci-plinary and primarily applied. We are interested in how purchasing works in practice and how policy learning can be encouraged. We use economic theory as a tool, not as an end in itself. For this reason, we take due account of political, administrative, legal and other factors that can be expected to influence the principal–agent relationship.
Structure
The book is divided into two main parts.
Part One contains three chapters, including this introduction. It draws on literature reviews and intelligence, specially commissioned case studies and, most importantly, material presented in the individual chapters in Part Two.
Chapter 2 presents a review of the organization of purchasing as it presently exists in the countries of Western and Eastern Europe; and a taxonomy of the main components of the purchasing process, including institutional arrange-ments, functional analysis, market environarrange-ments, accountability mechanisms, incentives, and decision-making mechanisms. Chapter 3 contains a review of the available evidence on the performance of different purchaser arrange-ments and presents a summary of the lessons from international experience that are available to policy makers. The aim of these two chapters is to provide a broad description of the main approaches and developments in purchasing as well as a synthesis of the main lessons for policy making derived from the study. They are aimed at those readers who wish to have a broad and integrated overview of the field.
Part Two, by contrast, provides a more in-depth analysis of the various components of purchasing, ranging from a detailed discussion of the theories underpinning purchasing to a thorough analysis of some of the main tools for purchasing such as contracting or payment systems. These dimensions are presented following the triple agency perspective as set out in our conceptual framework. Part Two contains nine chapters prepared by collaborating teams of multicountry experts.
The first chapter in Part Two, Chapter 4, focuses on theories of purchasing. It covers a number of recent developments in the new institutional economics or economics of organization, and applies these to purchaser organizations. These include discussion of alternative methods of economic organization, including the respective merits of hierarchies, markets and networks, and the role of the new public management in understanding organizational behaviour. The chap-ter shows how the economics of organization – although a rather amorphous set of theories – provides a framework for comparing governance arrangements according to the net costs of undertaking transactions. Its relevance to policy analysis is in drawing relationships between choice of governance structure and outcomes, mediated by the features of the transaction and the principal–agent configurations involved.
Building on the theoretical perspective set out in Chapter 4, Chapter 5 con-centrates on one important aspect of the organization of purchasing, namely the role of markets and competition in purchasing. In the last decade a number of European countries have experimented with the introduction of different degrees of market mechanisms in health care sectors. This chapter reviews these developments – in relation to purchasing – and discusses the advantages and disadvantages of market-based approaches. It argues that, if properly imple-mented, a market in purchasing may increase responsiveness to citizens, act as a spur to innovation and lead a drive for better information. On the other hand, it can increase administrative complexity and bureaucratic costs, threaten equity between patients and lead to instability and market failure.
Chapter 6 deals with consumer participation and accountability. It takes the perspective of the purchaser as the public’s agent. It discusses various mech-anisms drawing on public participation. These may take the form of ‘voice’
mechanisms, such as public consultation exercises, advocacy group activity, formal representation of public and patients on purchaser committees, and the rapidly evolving patients’ rights movement. Alternatively, user influence may
be exerted through ‘exit’ mechanisms; that is, the classic market response whereby consumers are free to shop around and exit from choices that do not suit their preferences.
Chapter 7 focuses on purchasing to promote the population’s health. It assesses the extent to which different purchasing arrangements take account of the public health perspective both in theory and in practice. The chapter covers this dimension in the framework of each of the three principal–agency perspec-tives. First, with regard to the public–purchaser relationship, the chapter looks at whether purchasing organizations have access to public health skills, take a wide population-based health-needs assessment perspective and reflect public health priorities in their purchasing plans. Second, it considers the extent to which national health priorities are reflected in purchasing priorities. Third, the chapter looks at the strengths of mechanisms available to purchasers to ensure that public health priorities are taken up and implemented by providers.
Stewardship is the focus of Chapter 8. It offers a conceptual framework for analysing this function; demonstrates the core tasks of stewardship in relation to purchasing with empirical examples drawn from case studies; discusses the nature of good stewardship; and distils practical lessons. In doing so, it draws on the concept of stewardship as developed in the WHO’s World Health Report 2000 to explore three defined tasks of stewardship in the context of purchasing:
(i) formulating health policy – defining the vision and direction; (ii) exerting influence – including approaches to regulation; and (iii) collecting and using intelligence.
Chapter 9 is devoted to an analysis of contracts as a tool for purchasers to influence provider behaviour. Through the contractual relationship, purchasers have the potential to ensure that an appropriate mix of services is supplied on specified terms and conditions (for example, in terms of cost, quantity and quality). However, as the chapter shows, the concept of a ‘contract’ is under-stood in different ways in different European countries. This chapter reviews the legal status of contracts, their content, the use of quality standards and information and monitoring activities. It also discusses the relative performance of different modes of contracting.
Chapter 10 adds the critical dimension of quality to the framework on health purchasing. Whereas previous chapters discuss the theoretical underpinnings for separating the purchaser from the provider and the introduction of
Chapter 10 adds the critical dimension of quality to the framework on health purchasing. Whereas previous chapters discuss the theoretical underpinnings for separating the purchaser from the provider and the introduction of