Contracting with Private Sector

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CONTRACTING WITH PRIVATE SECTOR

Hospitals

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Definition Contracting is a purchasing mechanism

used to Acquire a specified service Of a defined quantity and quality For a specified period.

Not a “1-off” exchange…rather…

Ongoing exchange relationship, supported by a contractual agreement

Taylor, 2005

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“What” …Definitions Written formalization of the process of

agreements between purchaser and provider

Define clearly Purchaser and provider Scope definition and volume of services Price to be paid Minimum quality of services Administrative arrangements…..mgmt/m&e KEY!

Our Perspective: Insurer or Gov’t (not manager)

Why? Ensuring Services for Beneficiaries

Contracting a sufficient number of qualified providers Acting as a broker between patient and provider to assure timeliness and suitability of the

needed services

Performance Review of Providers as Agent of the Beneficiary Financial Monitoring (Submitted claims for payment) Clinical Appropriateness & Quality of Care Paying the services

Optimizing Resource Use and Quality Selecting providers

Selecting Interventions Selecting volume of interventions

Selecting payment system

Creating a win-win situation for purchaser and providers Sticks & carrots 4

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Contracting with the Private Sector

Is it a New Idea?Does it Exist Widely?

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Common in Non-OECD Countries (Mills and Broomberg, 1998)

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And in OECD Countries… Germany Netherlands Switzerland Austria United Kingdom Estonia Czech Republic Canada USA

Japan South Korea China Taiwan

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Range of Contracting

Public Health and Primary Care

Clinical Support Services

Specialized Clinical Services

Hospitals

Increasing Impact ??

Family Planning Labs, Imaging Dialysis/ Private Management Transplants

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Does it Work? South Africa

2 build-own-operate district hospitals under 10 year service contracts

3rd hospital publicly built and privately managed

Studied by Broomberg, Masobe and Mills (1997)

Matched against similar public facilities

Higher productivity Lower staff costs Improved staff mix

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IS CONTRACTING THE SAME AS PPP?

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Contracting non-clinical support services

common termsOptions

Contracting clinical support services

Contracting specific clinical services

Buying hospital services

Private management of public hospital

Private financing, construction, and

leaseback of new public hospital


operation of new public hospital

Sale of public hospital for alternative use

Services & capital

contract

BOO

BOOT

PFI

Operating contract

Private sector responsibility

Public sector responsibility

Provides nonclinical services (cleaning, catering, laundry, security, building maintenance) and employs staff for these services.

Finances, constructs, and operates new public hospital and provides nonclinical or clinical services, or both.

Reimburses operator for capital costs and recurrent costs for services provided.Reimburses operator for capital and recurrent costs for services provided. Takes facility ownership at end.

Finances, constructs, and owns new public hospital and leases it back to government

Manages public hospital under contract with government or public insurance fund; provides clinical and nonclinical services. May employ all staff. May also be responsible for new capital investment, depending on terms of contract.

Contracted private hospitals provide services in accordance with contractual provisions

Provides specific clinical services (such as lithotripsy; dialysis) or routine procedures (cataract removal).

Provides clinical support services such as radiology or laboratory services.

Purchases facility and converts it for alternative use depending on sales agreement

Provides all clinical services (and staff) and hospital management; manages contract and pays for support services

Manages hospital and provides clinical services; manages contract and pays for services.

Manages hospital and provides most clinical services; manages contract and pays for services.

Contracts with private hospitals, monitors, pays for services.Contracts with private firm for provision of public hospital services, pays private operator for services provided, and monitors and regulates services and contract compliance.Manages hospital and makes phased lease payments to private developer.

Monitors conversion to ensure adherence to contractual obligations.

Outsourcing; PPP

Privatization

Outsourcing Contracting

Co-locationCo-location of private wing or department

within or beside public hospital

Operates private wing or department (for private & public (?) patients); fulfills payment and service access conditions agreed

Manages public hospital for public patients and contracts with private wing for sharing joint costs, staff, and equipment.; supervises fulfillment of patient access and other conditions

Outsourcing;PPP

Contracting; Purchasing

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common termsOptions










Services & capital

contract

BOO

BOOT

PFI

Operating contract














Manages hospital and provides most clinical services



Outsourcing; PPP

Privatization






Outsourcing;PPP


Contracting

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common termsOptions










Services & capital

contract

BOO

BOOT

PFI

Operating contract














Manages hospital and provides most clinical services



Outsourcing; PPP

Privatization






Outsourcing;PPP


“PPPs”

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India…PPP or Contracting? Rajiv Ghandi Super

Specialty Hospital, Karnataka

Poor District of 1.7 million people 90 KM from Bangalore

Govt constructed and equipped (350 beds) + direct subsidy

Idle for 2 years

10 Year concession

Private management Apollo Hospital Corporation

Governing CouncilGovernment Audits

High Levels of Patient Satisfaction

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3 Basic Types of Contracts(Specific or General Services?)

1. Block Contracts Fixed sum for access to services, regardless of

volume Providers guaranteed income High Volume and Low Cost Setting when access

critical (e.g., maternity services) More than 1 Service or Specialty 1-2 activities monitored

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And…2. Cost and Volume

Agreed baseline volume and price for each Above baseline, marginal payments

Multi-specialty, specialty or even procedure specific

“Tolerance bands” around baseline to protect both purchaser and provider 2-5% and depends on volume and potential for

change in case mix

3. Cost Per Case Contract Can Specify Volume Cap or Not

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Summary..when and what

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Russia (Kemerovo): Cost and Volume Contracts (1998-2000)

Retrospective Cost Per Case to Prospective Negotiated Volumes

Risk Corridors (sharing) for deviations from targets

Day Care Cases Also Doubled

ALOS Admissions02468

101214161820

19982000

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Following the Money: Government/SHI – Private Provider

Supply-Side Budget Funding

“Demand-Side” Financing Purchaser Consumer

Out-of-Pocket Payments

“Patient Follows the Money”

“Money Follows the Patient”

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East Asia Countries Rely Heavily on OOP for Health System Revenues

Source: : Langenbrunner et al., Health Financing Note East Asia and Pacific Region, World Bank, 2011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cam

bodi

a

Chi

na Fiji

Indo

nesi

a

Kore

a, R

ep

Lao

PD

R

Mal

aysi

a

Mon

golia

Phili

ppin

es

Sam

oa

Thai

land

Tong

a

Viet

nam

Direct Tax Indirect Tax Non-tax RevenueSocial Health Insurance Private Insurance OOPsOther

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Third-Party (Pre-Payment) Purchasing Also Important….

In recent years…move to Supply-Side to Demand-Side “Strategic Purchasing”

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Revenue Pooling Resource AllocationCollection or Purchasing (RAP)

Strategic Purchasing can include elements of Risk Pooling, Contracting, and Payment

Priv

ate

Publ

ic

Taxes

Public Charges/Resource Sales

Mandates

Grants

Loans

PrivateInsurance

Communities

Out-of-Pocket

PublicProviders

PrivateProviders

Service Provision

GovernmentAgency

Social Insurance orSickness Funds

Private Insurance or Community-basedOrganizations

Employers

IndividualsAnd Households

Source: World Bank

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“THE WHOLE POINT OF STRATEGIC PURCHASING IS TOCHANGE BEHAVIOR”

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“THE WHOLE POINT OF STRATEGIC PURCHASING IS TOCHANGE BEHAVIOR”

BY PROVIDERS….TO IMPROVE QUALITY AND RESOURCE USE…FOR IMPROVED PERFORMANCE AND OUTCOMES

Contracts are One Mechanism for implementing Payment Systems

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Paying for

inputs

Paying for

outputs

Paying for performan

ce

Paying for outcomes/ results

• Line item budgets

• Fee-for-service with no fee schedule

• Fee-for-service• DRGs• Capitatio

n• P4P

• Full capitation with performance incentives• Episode-based payment with performance

incentives

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UnitFee for Service

Case-Based/DRGsGlobal Budgets

CapitationPay Level

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FEE-FOR-SERVICE(US, Canada, parts of Europe, Philippines, Vietnam)

ACCESS/DEMAND

QUALITY

COST-CONTAINMENT

+

-

Missing Providers in Remote Regions?

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CASE-BASED(Europe, US, Thailand, Indonesia? Philippines?)

ACCESSQUALITY

COST-CONTAINMENT

+

-

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CAPITATION(e.g., Parts of US, Canada, Europe, Thailand)

ACCESSQUALITY

COST-CONTAINMENT

+

-

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Incentives Always Matter

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CONTRACTING WITH HOSPITALS:

THE PROCESS

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Performance-Based Contracting for Health Services in Developing

Countries-A Toolkit

Start Simple Identity of parties Their obligations Terms for renewal Conditions of termination Recourse for non-performance Arbitration or mediation

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2. Define the Services

3. Design the Monitoring and Evaluation

5. Arrange for Contract Management

7. Carry out Bidding Process and Manage the Contracts

1. Dialogue with Stakeholders

4. Decide how to Select Contractors and Establish Price

6. Draft Contract & Bidding Documents

Over Time, Move to Performance-Based ContractingThe Contracting Cycle: A Systematic Approach (page 20)

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2. Define the Objectives/Services




1. Dialogue with Stakeholders/Feasibility?




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Defining Objectives

A big advantage in contracting is results focus so concentrate on outputs/outcomes, not inputs.

The purchaser should objectively define: Quantity of services (e.g., case-mix and volumes? Or

specific services to relieve queue? Special such as high tech surgeries? )

Technical Quality (e.g., national technical guidelines) Equity (ensuring the poor receive services)

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Hospital Services – “Buyability” How Easy to Buy?

Harding and Preker, 2000

Payment Incentive Performance Outcomes/Goals

Paying Providersbased on Performance

What is it? Measure performance of participating providers and set financial incentives for improving performance, leading to better outcomes

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BrazilGlobal budgets allocated in monthly installments

A 10% retention bonus fund for compliance with performance indicators includingGood quality (e.g., hygiene and sterilization practices)Patient satisfaction (no overcharging and perceptions of quality)No fraud (ghost patients)

Hire and fire staffing policies Staff mix flexibility/Salary adjustments/bonuses and staff/ promotions flexibility

Outcomes Improvement in quality

general and surgical mortality lower infection rates

Higher efficiency improved bed turnover rates, occupancy rates, lower length of stay physician hours lower expenditure per admission

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Brazil (2) Main Contractual Terms Related to Global

Budget Inpatient discharges by service Day hospital discharges Emergency consultations Outpatient consultations Diagnostic tests

Retention Fund (compliance with benchmarks)

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Selecting the Provider Relational Contracts with any Provider

Basic Quality Standards -- Accredited or Licensed?

Long-term relational contracts ..tends to be rule with Govt-non-State providers

Selective Contracting? Which types of Services

Well-defined: Cataract, surgical procedures “Spot” contracts?

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Well-defined: Cataract, surgical procedures

Hybrid Approach Any provider, but Levels of Payment/Co-Pays

according to quality and performance43




Well-defined: Cataract, surgical procedures

Hybrid Approach Levels of Payment according to quality and

performance

Public and Private? How about Non-Profit?44

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Why Contract with Private Sector?

1) Growing Draw Investment Flows New Services not in Public Sector

Haiti, Guatemala, Cambodia, Romania

2) Harnessing Gov’t buyer can harness sector to achieve priority goals

South Africa – slide 13, reaching the poor Guatemala, Argentina – geographic regions of poor Philippines (2011) – Mandate beds for poor/scale up to UHC

3) Convert Public to Private Management India, PPPs etc (April covers….

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SAVE MONEY AND IMPROVE QUALITYENCOURAGE COMPETITION

Private Sector allows Selectivity

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ContractPurchaser Provider

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Romania – “Growing” Major Public Hospital in Bucharest

21 Private Operators of CT Scans invited to bid for services Indicative volume Set service and quality parameters Public patients a priority but private pay patients

allowed and fee schedule developed

Public services offered at 35% discount, renovated space and new equipment…all without government expenditures

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Establishing Price… = Costs? “Top-Down”

Cost Accounting Philippines – 18 hospitals Germany – 52 hospitals Brazil – improved over time…benchmarked

“Bottom-Up” Time and Motion Activity-Based Costing (“ABC”)

Negotiation Sometimes…no cost data… Services may need to be well-defined

Level Playing Field?PUBLIC PROVIDER RATE PRIVATE PROVIDER RATE

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Capital

Re-current

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Challenges of Contracting 1(Internationally)

• Transactions costs: often are 7-20 percent of the value of the contract (depends of payment system, e.g., budget or FFS)

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• Purchaser (MOH or HI Fund) capacity – Management (enough staff, right measures?) – Enforcement capacity

– Russia pre-admission controls in Moscow in late 1990s – did not work

– 19% inappropriate admissions; 67% not referred by polyclinics

– South Africa – poor contract management meant government actually paid more (Broomberg)

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• Purchaser (HI Fund) capacity – Management (enough staff, right measures?) – Enforcement capacity

• Provider capacity to deliver – Hospital Board Oversight (e.g., Brazil)

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Challenges of Contracting (2)Internationally

• Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services -- where one wants to monitor outcomes not inputs (except for adjusting, e.g. a DRG system’s price/DRG)

• Information reinforces financing, purchasing, enforcement

• Brazil Electronic Cost Accounting systems installed in all hospitals• Monthly statements sent to State• Basis for budget/contract negotiations

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M and EContracting Policy and

Implementation

• Determine the Indicators of success? Examples:

• Access/Equity:– Surgical waiting times; Geographically, e.g. travel to

provider: 15 MN; to 2nd level hosp. 30 MN• Prevention (UK blood pressure screening)• Quality (avoidable admissions; guidelines for heart attack

admission -- US, Korea) • Efficiency (use of generics, emergency room visits – US)• Financial protection of members e.g., OOP down 20%

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England: Examples of Measures for Chronic Care

Do Process Measures = Improved Outcomes?

Asthma % of patients with asthma who have had an asthma review in previous 15 months

Cancer % of patients with cancer reviewed within 6 months of confirmed diagnosis

Chronic obstructive pulmonary disease (COPD)

% of patients with COPD with diagnosis confirmed by spirometry and reversibility testing

Coronary heart disease (CHD)

% of patients with CHD whose last blood pressure measurement was 150/90 mm Hg or less

Diabetes % of patients with diabetes whose last blood pressure measurement was 145/85 mm Hg or less

Hypertension % of patients with hypertension with last blood pressure measurement was 150/90 mm Hg or less

Hypothyroidism % of patients with hypothyroidism with thyroid function tests recorded in the previous 15 months

Mental health % of patients with severe long-term mental health problems reviewed in the preceding 15 months

Source: Pay for Performance Program, UK. www.nejm.org

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How Many Indicators?

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Indicators

Indicators

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United

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120

Indicators

Indicators

Higher Valida

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Lower Administrative Burden; Clearer Market Signals

Higher Validity


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Indicators

Indicators

Higher Valida

Benchmarked costs, production, quality and efficiency

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Lower Administrative Burden; Clearer Market Signals

Higher Validity

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• Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services where one wants to monitor outcomes not inputs (except for adjusting e.g. a DRG system’s price/DRG)

• Regulatory framework : must be enforceable and assure proper behavior, i.e. presupposes adequate working judicial system and/or arbitration. Accountability is meaningful due to effective enforcement

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• Monitoring: Level of detail and kinds of tasks – non-clinical services easier to monitor than clinical services where one wants to monitor outcomes not inputs (except for adjusting e.g. a DRG system’s price/DRG)

• Regulatory framework : must be enforceable and assure proper behavior, i.e. presupposes adequate working judicial system and/or arbitration

• Contracting learning curve (for both parties)

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Easier with Non-Profits? NGOs, Religion-based Organizations

May be less opportunistic …with same goals as public sector

Contracting may be easier Even with poor monitoring and poor contract

process.. Serve poor, deliver high quality services for low

rates of remuneration

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And…Privates are Not Publics…

Cannot Pay Late Public Sector Budget allocation lags

Reimbursement Must Cover Capital, Not Just Operating Costs (Slide 51)

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Take Away Messages Hospital Contracting Tool

Most Powerful Tool for Influencing Private Hospitals or Private Services

Hospital Services Most Difficult to Contract of all Health Services

Privates Survive on Income!

Most Effective for ensuring Quality, too

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Take Away Messages Hospital Contracting Tool

Most Powerful Tool for Influencing Private Hospitals

Hospital Services Most Difficult to Contract of all Health Services

Privates Survive on Income!

Most Effective for ensuring Quality, too

South Africa Brazil Romania

Bangladesh India Philippines Indonesia Thailand China Mongolia Cambodia

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Thank you!

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