PN-ABT- 57q

PRlVAT IZATlON OPTIONS IN

JAMAICA HEALTH SECTOR

An Exploratory Research Study for

The Bureau of Private Enterprise Agency for International Development

Prepared by :

James A. Rice, President, Health Central International

Thomas C. Ramey, President, Health Central Medical Trading Co,

L . Dene McGrfff, Executive Consultant, Health Central International

Under Contract No. PDC-0000-t-27-3083-00

With The International Science and Technology Institute

CONTENTS REPORT

PAGE NOS.

1.0 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.0 JAMAICA HEALTH SECTOR SITUATION ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 JAMAICA ENVIRONMENTAL ASSESSMENT 19

. . . . . . . . . . . . . . . . . 4.0 FORECASTING HEALTH SECTOR FINANCE TRENDS 1985-2000 23

- SCENARIO 1: BASE CASE. NO POLICY CHANGE

- SCENARIO 2: PRIVATIZE MANAGEMENT

- SCENARIO 3: PRIVATIZE MANAGEMENT AND ADD NEW "HEALTH ASSURANCE FUND"

5.0 PROPOSALS FOR DEMONSTRATION PROJECT TO TEST . . . . . . . . . . . . . . . . . . . . . . . 36 BENEFIT OF ALTERNATIVE FORHS OF PRIVATIZATION

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0 EXECUTIVE S-Y 47

APPENDICES

Health Central International, Inc. (HCIII was commissioned by the Agency for International Development, Bureau of Private Enterprise to conduct an analysis of alternative strategies of "privatization" to strengthen the Jamaican health sector. Working through a subcontract with the International Science and Technology Institute, Health Central International has completed its analyses and prepared this report as a summary of its findings, conclusions and recommendations.

Purpose of Study

The Jamaican health services sector has been experiencing significant problems with regard to the perceived quality and cost effectiveness of both its publicly and privately operated health services systems. Numerous consulting studies have been performed which define the scope and nature of existing problems. These studies acknowledge that the decline in the economic stability of Jamaica creates an operating environment that frustrates traditional public sector health delivery and health financing initiatives.

The Jamaican health sector "crisis" is too large for either the public or private sector to resolve alone. A new form of public-private partnership has been to be judged the only effective course of action to attack these problems. This study is designed to help shape the features of such a public-private partnership by accomplishing t.he following major three goals:

1. synthesize major conclusions and recommendations from recent consultant studies which had focused upon health sector financing issues ;

2. explore'the economic feasibility of implementing selected forms of "privatization" within the predominantly public health care system of Jamaica, particularly with regard to health sector financing alternatives; and

3. recommend steps to begin implementing demonstration projects which further test the higher-probability forms of "privatization."

Otxanization of Report

This study has utilized Health Central's proprieta~y, conputerized "Health Sector Analysis and Forecasting Model" (HSAFM) to examine the economic consequences of various public policy scenarios "within the laboratory." The results of these examinations must now be further tested "in the real world" via a series of pilot pro-iects or demonstration projects.

The scope and nature of these proposed demonstration projects are described in Section 5 of this report. The conclusions developed from HCI's economic analysis of selected "privatization" options are summarized in Section 4. A description of the HSAFH is summarized in Appendix A.

A summary of HCI's synthesis of previous consultants' reports is provided in Section 2 as an analysis of the scope and nature of the Jamaican health system crisis. Section 3 provides HCI's assessment of major trends within the Jamaican health sector environment which are expected to influence Jamaica's expenditures for health services for the period of 1985-2000.

On the Concept of Privatization

Host countries throughout the world have become concerned with the cost- effectiveness of their health services systems. Uany countries are characterizing the status of their health sectors as in a state of crisis, besieged by the following pervasive problems:

* growth in population;

* not simply rising public expectations that health is a right, but also a demand for more sophisticated and hence more expensive forms of health care;

* provider desires to use more modern medical technology to increase the speed, accuracy, and convenience of their diagnoses and treatments -- technologies which escalate capital investments and add to operating expenditures due to costs of supplies and new technicians;

* faltering national economies that constrain the availability of tax-based revenues for health and social welfare services;

* . health service delivery systems controlled by governmental agencies which face political and civil service constraints to experimentation, "creative management," and flexible problem solving; and

* health sector financing systems which generally:

a) encompass fee-for-service provider payment systems that offer economic incentives for potential overprescription and overuse of services, and/or

b) insulate the consumer of health services from the economic constraints of seeking care in more expensive secondary and tertiary inpatient health service settings, i.e., in hospitals.

EXHIBIT 1: POLICY ANALYSIS GRID

PRIVATIZATION OPTIONS: TO STRENGTHEN SERVICE DELIVERY

I MORE RADICAL

( LESS RADICAL

STRATEGY I

A L L HOH HOSPITALS AND HEALTH F A C I L I T I E S SOLD TO PRIVATE ORGANIZATIONS

... LEASED TO PRIVATE ORGANIZATIONS S E L V L E A S E SELECTED F A C I L I T I E S DECENTRALIZED TO STATE STATUTORY BOD I ES

... W A G E D BY CONTRACT U I T H PRIVATE COnPANIES

... PROVIDE BONUS TO RELOCATING DOCTORS TO UNDERSERVED

... ALLOW PRIVATE DOCTORS TO USE P l l B L I C F A C I L I T I E S AT FEE CHANGE INCENTIVES

...WH BUYS SELECTED CARE FRUM PRIVATE F A C I L I T I E S

APPOINT S P E C I A L ADVISORY BOARDS TO OVERSEE OPERATIONS I CONTRACT WITH PRIVATE COMPANIES FOR DIETARY CLEANING SECLIRITY

NO CHANGE I

PRO CON

HOU TO IMPLEMENT? W D A T E BY F I A T

STIMULATE BY THREATS

STIMULATE BY REWARD

EXHIBIT 211: POLICY ANALYSIS GRID

PRIVATIZATION OPTIONS: TO STRENGTHEN HEALTH FINANCING

LESS TRADITIONAL

MORE TRADITIONAL

STRATEGY OPTION I PRO

A L L HEALTH F INANCING OFFERED BY PRIVATE INSURANCE COMPAN I E S . POOR HAVE P O L I C I E S PURCHASED FOR THEM BY GOVERNMENT

GOVERNMENT PAYS FOR CARE V I A VOUCHERS, ALA C H I L E PEOPLE BUY V I A S L I D I N G FEE SCHEDULE ON A B I L I T Y TO PAY

GOVERNMENT PAYS PRIVATE PROVIDERS FOR CARE OF POOR ON FEE B A S I S ALA MEDICARE MEDICAID

GOVERNMENT ALLOCATES TO PUBL IC HOSPITALS V I A CAPITAT ION B A S I S RATHER GLOBAL BUDGET APPROACH OF E X I S T I N G

WH INST ITUTES RATE REVIEW TO W I T O R PRIVATE COSTS PRIVATE INSURANCE COnPANIES ENCOURAGED TO EXTEND COVERAGE AT E ITHER PUBL IC OR PRIVATE AT F U L L COST

SOCIAL SECURITY ADDS SELECTED 1 HEALTH BENEFITS FOR EMPLOYED ! GOVERNMENT CONTINUES TO FINANCE PUBLIC VIA EXISTING i ALLOCATION BUT STRESSES COST CONTAINMENT AND L I T T L E COLLECT ION

CON

EXHIBIT 2B : HEALTH FINANCING OPTIONS ANALYSIS WORKSHEET

Mi0 I S COVERED - A l l C i t i zens

I - Employed 1 - poor

I I

COVERAGE

I

WAT I S COVERED * Occupational I n j u r y * Doctors * Hospi ta ls * Prevention * Pub l ic Heal th

HOW MUCH I S COVERED * lOOT

I * 80% ! * Fixed haunt

Per Year

SOURCES OF FUNDS

GENERAL TAX FUND

EXCISE TAX WDESICNATED

METHODS OF

EXCISE TAX DES ICNATED

ASSURANCE COMPANIES * Publ ic * P r i va te

USER FEES

BETTER PRODUCTIVITY

RAISING FUNDS --

CENTRALLY GOVERNED - Which

agencies

DISBURSING FUNDS

STATE GOVERNHENT

STATUATORY BOARD

PRIVATE INSURANCE PREHIUH . - Groups - Ind iv idua ls

ALLOCATION GLOBAL BUDGET - which

agencies

CAPITATION TO STATES

CAPITATION TO PRIVATE HMOs

FEE FOR SERVICE

CRITERIA TO DECIDE?

Phi 10~0ph icd l P o l i t i c a l

Are there t r u i s m on what i s best?

- from e f f i c i e n c y basis? - from equ i ty basis? . - from ef fect iveness basis?

Financing and Delivery in Health Service Privatization

During the past five years, many of these countries have come to realize that fundamental changes in putlic policy must occur in both the financinq and delivery of health services. Two generic strategies have surfaced to attack the complex and interconnected problems cited above:

STRATEGY ONE: Improve the cost effectiveness of health care delivery systems through "privatization of management."

STRATEGY TWO: Change the economic incentives of traditional fee-for-service health financing systems by:

a) shifting some of the burden of costs from the government to the users of services with new types of user fees; and

b) shifting the risk of poor health and/or over-utilization from the government to the providers via new forms of prepayment, particulary on a per person or capitated basis.

"Privatization" as a single, umbrella concept has become a frequently-used word in the growing public policy debates over what to do about almost bankrupt public health services systems. Unfortunately, the term "privatization" is rarely well-defined or understood. Within the context of this special AID-supported study, privatization will be defined as:

".. . the establishment of a new balance of responsibility, a u t h o r i t y and r i s k be tween governmental heal t h a g e n c i e s (generally Ministries of Health or Social Securityl and pri vate sector providers and insurance companies i n both the provision and the f i nanci nci /~amnt of heal t h servi ces . . . "

Both aspects of delivery and financing must be considered simultaneously. Exhibit 1 and Exhibit 2 illustrate a continuum of policy options frequently found within the rubric of privatization. These two interrelated aspects are considered throughout this report.

2.0 JAMAICA HEALTH SECTOR SITUATION ANALYSIS

Basic Facts Relevant to Jamaica Health Sector

An analysis of the Ministry of Health (MOH) statistical reports suggests the Jamaican health sector as dominated by a governmentally owned and operated network of hospitals and health centers, with less than six private sector hospitals. This infrastructure serves a population that has been growing steadily since 1975:

Population 2.060M 2.186M 2.310M

Birth rate/1000 30.1 26.9 26.8

Death rate 6.9 5.8 5.5

Rate of Natural Increase 23.9 21.1 21.3

Health expenditures in the public sector have been increasing rapidly to J$225 million for both recurrent and capital costs in 1983-84. This was 8.2% of the Government of Jamaica's budget while it was only 7.6% in 1982-83. This persistent consumption of scarce GOJ economic resources is creating significant anxiety among public policymakers. These expenditures represent an 11% increase in per capita costs, yet complaints persist about the underfunding of the health sector, poor quality of care, and understaffing within the public sector.

MOH total per capita costs 1983-84 $225,153,100 = $97.47 $2,309,900

10.99% change

Exh ib i t 3 p rov ides a comparative a n a l y s i s of HOH expendi tu res growth by t ype of c o s t 1982-1984. These d a t a demonstra te t h a t HOH has been e f f e c t i v e i n i t s a t t emp t s t o i n v e s t r e l a t i v e l y more i n primary c a r e (16.8% of budget i n 1982-83 up t o 1 7 % f o r 1983-84, w i th a p e r c a p i t a d a t a of $12.30 t o $15.71 over t h e same p e r i o d ) . C e n t r a l admin i s t r a t i on c o s t s , however, inc reased more d r ama t i ca l l y from 7.8% of HOH budget t o 14%. E f f i c i ency s t r a t e g i e s mst obviously be examined f o r t h e f u t u r e .

Se rv i ce Util ization/Demand

From 1982-83 t o 1983-84, v i s i t s t o HOH h e a l t h c e n t e r s inc reased 4% t o 2,170,000. These v i s i t s t o f r e e s t and ing c e n t e r s were d i s t r i b u t e d a s fo l lows :

4 3% c u r a t i v e ( l e g u l c e r s , trauma, i n j u r y )

18% home v i s i t s

1 7 % c h i l d h e a l t h

I 1% family planning

4% d e n t a l

EXHIBIT 3

MINISTRY OF HEALTH EXPENDITURES (NON-CAPITAL)

1 Central Administration 1 12,879.4 7.8 $ 5.69 1 30,012.1 14.1 $12.99 ~ i I Type of Expenditure

Primary Health Care Total Ambulatory Visits Cost per Visit

Secondary/Tertiary Discharges Cost per Discharge

1982-83 Amount Per

/ Maintenance Facilities 1.7 1.24 1 3,756.1 1.8 1.63 / I

1983-84 Amount (000's) x Capita Per 1

1 I

1 International Technical 1 246.0 0.2 0.11 1 276.9 0.1 I

0.12 1 I

(000's) x Capita

Medical Support

1 Environmental Control / 540.4 0.3 0.24 1 679.4 0.3 0.29 /

I

2,600.1 1.6 I 5,301.0 2.5 2-29 /

I 1 SUBTOTAL RECURRENT I

I I Training I

Population 2,265,400 2,309,900

I

3,033.2 1.8 1.34 1 4,475.5 2.1 1.94 1

Review of Previous Consultant Studies

This section of the report summarizes major observations and conclusions formulated within a series of recent consultant studies performed in Jamaica. Exhibit 4 provides a graphic sMrmary of these previous studies. The following "situation analysis" has been synthesized from these reports. This situation analysis serves as a backdrop for the HCI studies discussed in the final sections of the report.

Emergency Medical Services Report (November 1982)

* comnnrnications within the health sector for emergency and disasters are inadequate, particularly in rural areas;

* need for better coordination among providers for response to accident scenes -- several are inadequately prepared for first aid and triage functions; and

* high priority should be given to the improvement of primary care services, especially in rural areas.

EXHIBIT 4

OVERVIEW OF PREVIOUS CONSULTANT STUDIES

GENERAL N CONCERN OVER

JAMAICAN HEALTH SECTOR VIABILITY

HAS LEAD TO SEVERAL STUDIES TO DEFINE PROBLEMS

AND EXAMINE ALTERNATIVE SOLUTIONS

]p<<bINSUWCE EMERGENCY SERVICES 1 NOVEHEER 1982 I / FINANCING OPTIONS I I OPTIONS 1 WORLD BANK 1982 1985

i I

WESTINGHOUSE BY A.I.D.

HAT1 OHAL 1 HEALTH I N S W C E P W '

1985 SPECIAL PRIVATE SECTOR INSURANCE COHHITTEE

I PUBLIC-PRIVATE RELATIONS STUDY 1985

HEALTH CENTRAL INTERNATIONAL A.I.D. BUREAU OF PRIVATE ENTERPRISE

WESTIIGHOUSE BEPOBT

Summary of Westinghouse Report on Jamaica Health Care

Section 1: Alternatives for Financing the Demand for Health Services in Jamaica

I. Economic Background (pp. 5-81

A. Jamaican economy deteriorating since 1973:

1. Government running deficit 1976-80, reaching 8.1% of GNP in 1980-81 2. Unemployment reached 26.8% in 11/80 3. Government efforts to turn economy around influenced by agreements

with IHF

B. Effect on health care sector:

1. General tax revenues decline, resulting in decline in financing of UOH

2. Tendency of policy makers to reject health-services financing schemes financed by payroll taxes during period of depressed economic activity

3. Unemployment affects social financing for health services due to tendency for this type of financing to be employment-related (see employment table, p. 7.)

11. Current Pattern of Health Care Financing (pp. 9-54)

A. Financing of UOH delivery system:

1. UOH is underfinanced; it currently operates with a fee schedule created in 1968. Due to reduced value of fees and difficulties in collecting them, UOH delivers services virtually free of charge.

2. UOH financed from general tax revenues. This raises equity issue because: a. it is difficult to judge how progressive the Jamaican income

tax system is (see chart, p. 12) b. progressivity is diminished because only 33% of total

government revenue comes from income taxes; the rest is comprised of indirect taxes which generally impose a larger burden on lower incomes

c. indirect burden on low incomes -- to the extent financing of the health services sector contributes to government deficit, it contributes to inflation, which may be considered a regressive "tax."

3. NOH budget as a percent of total government expenditures has not significantly changed since 1970 and cannot be expected to change (see table, p. 14)

4. Secondary and tertiary health care services account for the bulk of UOH's budget (see p. 16), leaving only 16.9% for Primary Health Care Services Program.

B. The Public Hospital Sector:

1. 1981-there were 3,624 general hospital beds in public sector, for a bed/population ratio of 1.7/1,000

2. Inpatient population ratio for 1981 was 411/1,000 3. Cost per patient day approximately $56, cost per bed per year,

$13,500 4. See p. 20 for table comparing hospital costs per bed year

for government hospitals by region 5. Author examines various units of output to determine

efficiency of hospitals (p. 22)

C. Private Sector Hospitals:

1. Five private hospitals with total of 280 beds (see p. 32). This is less than 8% of number of general hospital beds in public sector

2. Facilities and services are substantially better than public sector, but all are in financial difficulty

3 . Private hospital must get their occupancy rates up to break-even points

D. Drug Sector:

. Financing to meet the demand for drugs in Jamaica is primarily provided by the private sector; UOH drug budget in 1981 represented only 18.8% of total expenditure on drugs

2. Uncertain availability of drugs to consumers of UOH services is a problem: a. small drug budget b. distribution system deficit c. rationality of prescribing patterns questionable

E. MOH Primary Health Care Services Program (PHC):

1. Funded through two government. ministries: UOH and Ministry of Local Government. In 1980, HOH contribution to PHC was $29.7 million MOLG, $8 million.

2. PHC system expected to carry bulk of preventive/promotive services of health services sector, i.e. to be public health component of health services system

3. Public health situation in JA deficient (see pp. 40-411, with result that a large proportion of morbidity in JA has public-health type etiology.

F. Physicians and Nurses:

1. There are about 720 physicians in JA (see p. 43) a. 391 in MOH system b. 400 in private practice

2. Salary levels and career opportunities for nurses are grossly inadequate (see p. 451, resulting in scarcity

G. Comparison of Public and Private Sectors:

1. 1981 health care expenditure of private sector was 51% of public sector expenditures

2. Most private sector spending is for primary health care. Given that private sector expenditure for primary care is twice that of the public sector.

3. Out-of-pocket versus social financing in private sector: a. In 1982, only 25% of total private expenditure for

medical care was financed by health insurance. Too much out-of-pocket financing is occurring. (This may change as a result of GOJ1s decision to help put government employees into Blue Cross.)

b. Given JA unemployment and the fact that only 1/2 of labor force is part of an employed "group," social financing schemes which are not income-related must be found.

Pro jec t Hove Studies :

1. Expenditures 1983

a . Tota l MOH Budget f o r r ecu r ren t and c a p i t a l - primary ca re - secondary and t e r t i a r y

P r iva te Sector - drugs

b. Per Capita

*MOH t o t a l - secondary and t e r t i a r y - primary - support

J $221 mi l l i on

*Private Sec tor $ 59

2. Guiding P r inc ip l e s f o r New Socia l Insurance:

* Users of h e a l t h se rv ices i n publ ic de l ivery systems should pay f o r those se rv ices (whenever poss ib l e ) ;

* Recognizing consumer choice is important; * The use of p r iva t e insurance and p r i v a t e de l ive ry systems is

encouraged.

3. Preliminary Estimates of Costs f o r P r i v a t e Health Scheme with "Minimum Benef i t s Package":

To ta l MOH J $169 mi l l i on

Per Capita Cost Adjusted Per Capita Cost (APCCI APCC with Loading Expected per cap i t a premium f o r

covered population of 262,000

Tota l expected cont r ibut ions $ 91 mi l l i on

Report on Preliminary Concept of P r iva te Insurance

"Privat ize" insurance opt ion within new "Health Insurance Corporation" ( H I C ) with sources of funding a 5% t a x on person 's emoluments, 3% from employee and 2% borne by employer.

Expected amount generated J $91 mi l l i on

Fee f o r s e rv ice charges p a r a l l e l i n g MOH f e e schedule would be an t i c ipa ted .

Overall Conclusions of Jamaica Health Sector

A review of previous studies and HCI's analysis during this project suggest that the scope and nature of the problems facing the Jamaican Health Sector can be broken down proportionately into three areas:

Lack of Modern Management Systems

Lack of Incentives for Cost-Effective

Hanag emen t

Underf inanced Health Sector

While improvements in the quality and cost-effectiveness of the Jamaican health sector are possible through policy changes in management and payment systems, these improvements still are overshadowed by fundamental deficiencies in the availability of funds in both the public and private sectors. Broad- based change in all the following aspects are important:

Relative Contribution of Strategies to Attack Problems

Use of Private Sector Contracts

for Administrative Services

Reliance on Prepaid Capitation Payment

to Providers I

User Fee Extension F-4 New National Health Finance E'und From

New Tax

The remainder of this report summarizes Health Central's examination of the relative economic implications of alternative options which arise from strategies A - D above.

3.0 JAMAICA ENVIROHNENTAL ASSESS1IE13T

This section summarizes Health Central's forecasts of trends within the Jamaican health sector that are expected to influence health service expenditures during the period 1985-2000. The forecasted trends presented here are used for our analysis by their integration into the computer forecasting model of Section 4. There are 10 major variables reviewed here.

Variable 1: Population Growth

The Jamaican population has been increasing at approximately 2% per year. As a result of modest reductions in fertility ratios and the continuing decline in death rates, this rate of growth is expected to continue through 1995. Reductions are anticipated for the period of 1995 to 2000 with modest increases in the quality of life expected during the period 1990 to the year 2000, and steady increases in the average age for the population will result in a high proportion of elderly utilizing chronic disease services. During the period of 1985 to 1995, maternal/child health services and comnnrnicable disease control measures will need to be high priorities for the Jamaican health sector.

Variable 2: Health Status

While the Jamaican economy frustrates initiatives to rapidly expand investment frustrates initiatives to rapidly expand investment into health promotion and health services, a continuing reduction in deatharate will be evident. Disease entities served within the Jamaican health sector will shift from comnnrnicable to chronic debilitating diseases of heart, cancer and stroke during the period 1990 to 2000. Improvements in water supply, sanitation, and environmental health aspects following 1990 will contribute positively to the quality of life in Jamaican society.

Variable 3: Hosnital Admissions Per 1000 Po~ulation

Admissions per 1000 are expected to increase modestly each year during the period of 1985 to 1995. Advances in medical technology and reimbursement systems, encouraging diagnostic and treatment services to be done on an outpatient basis, will become evident in the period of 1995 to 2000. Continuing problems in funding inpatient hospital services in both the public and private sectors will make it difficult to attract population to these facilities during the period of 1985 to 1990. Progressive competition among admissions for patient revenues will encourage diagnostic treatment services to be performed in an outpatient setting rather than in hospitals. These factors will keep the growth in admissions per 1000 to approximately 1% per year.

Variable 4: Average Stay at Hospitals

The average in public hospitals is expected to continue to decline modestly during the period of 1985 to 1990. Initiation of new medical technologies and incentive payment mechanisms which encourage individuals to be discharged from hospitals as quickly as possible will become evident during the period 1990 to 1995. Average stay is expected to level off during 1995 to the year 2000.

The average s tay i n pr ivate hospi ta ls i s expected t o be l ess than i n public hospi ta ls and the public hospi ta ls w i l l continue t o dominate some specia l ty and t e r t i a r y care service delivery a c t i v i t i e s fo r t h i s period of study. The increasing average age of thc population w i l l contribute t o a leveling-off i n t he decline i n average length of s t ay i n the period 1995 t o 2000,

Variable 5: V i s i t s t o Outpatient Clinics and Physician Offices

Vis i t s per 1000 population have been increasing slowly within Jamaica during the period 1980 t o 1983. This trend is expected t o continue as the general population pursues greater access t o heal th services on an outpatient bas is .

The u t i l i z a t i o n r a t e s a r e expected t o be r e l a t i ve ly s tab le during the period of 1985 t o 1990 and w i l l accelerate a t approximately 5% every f ive years during the period 1990 t o 2000. The vas t majority of outpatient v i s i t a c t i v i t y has been concentrated within hospital outpatient f a c i l i t i e s and a t community heal th centers. This trend is expec.ted t o continue through the year 1995. Expansion i n the ava i l ab i l i t y and qual i ty of pr ivate sector outpatient f a c i l i t i e s w i l l cause an adjustment in t h i s p ro f i l e during the period 1995 t o 2000.

Variable 6: Relat ive Mix of Public Versus Pr ivate Hosvital Demand

Jamaica has a predominately public heal th services sector . The vast majority of hospi ta l admissions occur within the public sector . This trend is expected t o continue during the period 1985 t o 1990 as the general economy does not permit individuals t o pursue care i n the pr ivate sector . Introduction of new pr ivate heal th insurance mechanisms o r addit ional public insurance programs could cause a sh i f t i ng i n t h i s balance during the period of 1995 t o 2000. Uti l i za t ion of p r iva te hospi ta ls is expected t o be r e l a t i ve ly f l a t , therefore , during the period 1985 t o 1995.

Variable 7 : Relat ive Mix of Inpat ient Versus Outpatient Set t ings t o Deliver Health Services

Continuing advances i n medical technology w i l . 1 make it sa f e r t o perform many more surgical procedures on an outpatient bas is . I n the United S t a t e s , approximately 30% of a l l surgical procedures a r e currently safe ly performed on an outpatient su rg ica l bas is . This number is expected t o increase t o 60% of a l l surgical procedures during the next 10 years. A s imi la r trend can be expected i n Jamaica during the period 1990 t o 2000. Advances i n non-evasive diagnostic techniques such as ultrasound, catscanning and magnetic resonance w i l l a l so be introduced in to the Jamaican heal th sector during the period 1990 t o 1995. These developments w i l l encourage services' t o be provided on an outpatient bas is . Changes i n heal th insurance and heal th payment mechanisms which provide incentives f o r cos t containment afforded within the outpatient sector w i l l accelera te t h i s trend during the period 1990 t o 1995.

Variable 8: Cost Per Day i n the Hospital

Without consideration of i n f l a t i on , the cost i n hospi ta ls i s expected t o r i s e a s the in tens i ty of disease e n t i t i e s present i n hospi ta ls becomes more complex, and the in tens i ty of medical technology used f o r these pa t i en t s increases. Cost per day w i l l pa r t i cu la r ly accelerate during the period 1990

to 1995 as new technologies are introduced into the Jamaican health sector. The introduction of new modern management techniques could improve the efficiency within hospitals and contribute to honest reductions in the cost per day during the period 1985 to 1995. Explicit public policy, however, will be required to implement these new management techniques within the existing public hospital sector. Private hospital sectors cannot afford to invest in new management techniques or management systems at this time. General economic improvement within Jamaica will be necessary to aggressively implement new management techniques unless external funding sources are identified.

Variable 9: Cost Per Visit In Outpatient Setting

The relative cost per visit in the outpatient setting will continue to rise during the period 1985 to 1990. With the introduction of new technologies during the period 1990 to 2000, dramatic increases in the cost per visit are anticipated. without consideration of inflation.

Variable 10: Capital Investment into Health Services Infrastructure

As a result of the weak economy in Jamaica, no substantial capital investments are expected into either the public or private infrastructure during the period of 1985 to 1990. Pressures for expanded investment due to pent-up demand will be evident in the period 1990 to 2,000. Advances in medical technology will also substantially increase the cost of constructing both hospitals and outpatient health facilities. No significant investments from the private sector into health clinics or hospitals are anticipated in the short run unless dramatic improvements in the economy and tax treatment of health sector investments become evident. This lack of investment in the next five years will contribute to a continuing deterioration in the health services infrastructure of Jamaica within both the public and private sectors during the next 10 years. Substantial foreign aid will probably be necessary to counteract this erosion in the quality of the physical environment for Jamaican health facilities.

Building on these several forecasts. Exhibit 5 provides a quantitative summary of the implications of future health services demand and investment. This set of assumptions will be used as input to the subsequently described computer forecasting model.

E X H I B I T 5 : SUMMARY OF ENVIRONMENTAL ASSESSMENT FOR JAMAICA

= . I L ~ . i ~ i . = = i : I : i = ~ : I = 5 ~ ~ C O ~ : = = E i i i i D = : = O s = = i = = i = = = m E = i : : 5 : = = : E ~ = = = i = I i I I I = I ~ i . = - - - - - - - * - - - - - - - - ------- -------- I rORf CASTING UORKSHEEl I T HEALTH SECTOR ANALYSIS AH0 lINAHCIHG I i I I rUlUWf SCEHARIO 1 :EHUIROtQlEHlRL CHRHGE OHLY 1 ::======:I====551:I.ii5::=I:5~E=Eii:==~~=:iE:::===~f=D=e~==i~=;.==I5EC:ILz::5~5:====E==z:=D~=== I I PERtEHl CHAHGf 1 i fORiCASTIN6 ACTUAL RATIOS: OURINS rORf tRST PEP100 I i IJRRIHBLES: PERCEHT I I 19BD 1903 I N U A L 1985-90 1990-95 1995-2000 I I CHRHSE I I I ===li::==iii:=iilii=:::=~I=====ii==iiI:~~===5~=~=::=::==5*=~==:=:=:i==:z::zi=~=:Di:E~==:~:=== I ? I I i AOnIIS/lOOO 6q 70 3.3X 5.01 5. 0% 2.01 I ............................................................................................ I

I 9 USTSflllH CLIHIC 9000 9000 0.01 I ............................................................................................ I I 10 COSTSiCliHIt 1400000 1540000 3.3% 5.0% 5. OX 5.01 I I I ~ ~ ~ ~ ~ L ~ ~ : ~ : ~ : ~ ~ ~ ~ ~ ~ ~ : ~ ~ ~ ~ S : ~ S S Z S Z ~ ~ ~ ~ ~ ~ S E ~ ~ B ~ L ~ L ~ ~ ~ ~ ~ ~ : ~ S S + ~ S ~ ~ ~ Z ~ ~ ~ ~ ~ ~ : ~ ~ : ~ E ~ E ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ : ~ : ~

SOURCE: HEALTH CCHIRAL IHIERHRlIONRL

BEST AVAILABLE COPY

4.0 FORECASTIUG HEALTH SECTOR FIUMlCE TRENDS, 1985-2000

This section of the report summarizes a number of analyses regarding the economic consequences of alternative policy changes within the Jamaican health sector. Three general scenarios are postulated and tested in an attempt to study the feasibility of introducing selected fonns of "privatization" into the Jamaican health sector. While an infinite number of scenarios could be evaluated, the limited scope of this project examines two generic scenarios. A series of four possible demonstration projects related to the findings of these two scenarios are then examined in Section 5.

Base Case Scenario

As a backdrop for these scenarios, a "Base Case Scenario" was developed and integrated into Health Central's Health Sector Analysis and Forecasting Hodel (HSAFH). This Base Case assumes no change in existing public policies. There are also no assumptions made with regard to inflation nor to currency devaluation in Jamaica. All prices are presented in 1983/84 Jamaican dollars. Changes in demand and expenditure profiles occur only as a result of shifts in key variables as discussed in Section 3.

The economic consequences of this forecast of the Jamaican health sector are summarized in Exhibit 6. These data indicate that in the year 2000, Jamaica's population will be almost 3.1 million people and that the public and private sector investment into health care will be (in 1983/84 J$):

* $662.1 million or $213.86 per person, * $353.1 million will be needed for capital investment, principally

for new ambulatory care clinics, * 11.4% of the Jamaica GNP Kill be consumed by the health sector,

whereas only 5% is estimated for 1983/84.

These dramatic increases will severely strain an already financially weak health services sector. Supporting exhibits on details of service utilization trends and costs per unit of service are enclosed in Appendix B. Assumptions used within the forecasting model are also presented as notes to Appendix B. Key observations from the exhibits in Appendix B are:

Demand

Admissions in both public and private hospitals are forecasted to grow from 64/1000 in 1980 to 70 in 1983 and 81 in the year 2000, an increase of 26.6% from 1980 to 2000.

Avera~e Length of Stay in all hospitals is estimated to have been 7.9 days in 1980 and declining steadily to 6.6 in the year 2000, a decrease of 16.4%.

Outpatient visits to public and private facilities are expected to increase from 1968/1000 in 1980 to 2079 in 1983 and 2827 in 2000, an increase from 1980 to 2000 of 43.6%.

EXHIBIT 6

I I ; S U m A R Y Or r I H A H C I A 1 !HPLICRTIOHS I T TOP RLTERHRTIUE f U I U R E SCEHRRIOS 1 1 !

1 1 I

i==----------------------------------------------------------------------------------------------------------------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -T

1 I I O P E R R I I H G T

i EXPEHOITURES: ! I RtlOUHT : $24@,000,000 8300,000,000 5360,000,000 S434,611,011 8525,217,889 $66?,124,151 I I I 1 PER CAPITA: $109.78 $129.80 $199.86 $1 64.55 51 82.37 $213.86 I I---------------------------------------------------------------------------*-------------------------------------------- I

I I ! C A P I T A L I H U E S l n E H T S : I 1 I I RIOUHT: $1 3,60U,000 $1 7,000,000 $20,400,000 $47,520,146 $66,341,903 $353,066,091 I I I 1 PER CAPITR: $6.22 $7.36 $8.!9 $11.93 523.09 $119.09 I

I I I TOTAL EXPENDITURES: I I I I M O U N T : S253,600,000 $31 7,000,000 $380,400,000 S40!,131,157 $591,559,792 S1,015,190,240 1 I I I PER CRPITA: $1 16.01 H 37.24 $1 58.35 $1 02.55 $205.40 '6327.90 I

I I i 6.N.P. I i n n i l l i o n s ) $9,017 $6,428 $6,685 $7,354 $6,009 $6,096 I I I

I HERLTH A5 I 1 PERtEN! Of 6.H.P. 6.33 4.9% 5.7; 6 - 6 1 7.31 11.41 I

SUURCE: HEAL' IH C E N I R R L I H T E R N A T I [ I H A L

BESTAVAILABLE COPY

Expenditures

* Expenditures per day will rise from an average of $151.35 for all hospitals in 1980 to $257 in 2000, an increase of 65.8%.

* Costs per visit will increase from $16.74 in 1980 to $18.74 in 1983 and $28.17 in the year 2000, an increase of 68.3% from 1980 to 2000, or about 3% per year.

Capital Expenditures

* No new hospital construction is forecasted to be necessary in the public sector. This does not, however, consider replacement and modernization investments which are expected to be very significant from 1990-1995. The health sector investments will be dramatically higher as existing infrastructure becomes obsolete.

* The capital investments in the public sector do increase from a 1983 amount of $17 million to $47.5 million in 1990 and an unusually high $353 million in the year 2000. This amount in 2000 may be artificially high because Health Central's computer model automatically indicates the need for investments of $1.9 million for new outpatient facilities for every 10,500 visits. If technology advances so that no construction occurs unless visits exceed 20,000 visits of new demand, this capital investment amount could be reducted by 50%

Scenario 2: Privatization of Management

Description of Scenario:

Scenario 2 encompasses a generic policy shift toward a greater reliance on private sector management techniques, systems and attitudes to improve the cost-effectiveness of Jamaican health services sector. This scenario attempts to assess the economic consequences of assumed efficiencies and enhanced effectiveness established only through private sector management. There is no assumption of any infusions of capital or operating funds from any new health insurance schemes.

The scenario is based upon an assumption that all UOH health facilities were operated by external management entities specializing in health facility management and/or new decentralized statutory bodies that have semi-autonomous authority for local management planning and decision making.

Exhibit 7 provides a quantitative summary of forecasted changes in key variables judged to influence future service demand and expenditure profiles. Critical assumptions within this scenario are:

Admissions per 1000: Admissions per 1000 are expected to increase slowly through the period 1985 - 1995. Reduction in the rate of growth is forecast in the period 1995 - 2000, as greater reliance on outpatient activities becomes evident.

Average Length of Stay: As in the base case scenario, advancing technologies and cost containment efforts will put pressure on providers to seek alternative treatments in environments outside the hospital. This will result in a steady decrease in the average length of stay of 5% during the period 1985 - 1990, accelerating to 10% during the period 1990 - 1995. This decline will stabilize in 1995 and remain constant through the year 2000.

Visits Per 1000: Outpatient activities are expected to increase, but only following the period 1990. The past rates of increase will be holding relatively constant during the period 1985 - 1990 as the health sector attempts to stabilize within significant funding constraints. Increasing reliance on outpatient activities is forecasted to occur during the period 1990 to 2000.

Costs per day are expected to increase as a result of continuing attention to new medical technology, however, reductions in the rate of increase are forecast as a result of efficient management practices employed by private sector management groups in combination with decentralized statutory boards for health districts and local health facilities. The rate of increase between 1985 and 1990 is forecast to be 5% with an accelerated growth from 1990 - 1995. This rate of growth is considerably less than the base case scenario because of efficiencies achieved in such managerial areas as:

flexible staffing aggressive materials management increasing collections for user fees

E X H I B I T 7 : SCENARIO 2 QUANTITATIVE ASSUMPTIONS O F FLJTURE JAMAICAN HEALTH SECTOR VARIABLES

.............................................................................................. .............................................................................................. T TORECASTIHG UORKSHEET r I

T L(ERLTI! SEtTDP HNRLYSIS AH[I TIHRNC:[NF I ! I ! RGGREGR'IE SEJ [lr ASSLMPTIOHS Or rUTURE I --------------------------------------------------=------------------------------------------ .................................................. .......................................... I l PERCEHT CHANGE I I iORCCHS1IHG HCTUAL RflTIOS: OURIHG TORECRSI PERIOD I ! UACIRBLES: PERCCHI I T !980 1983 AHHURL 1985-90 1990-55 1995-2000 I

i CHAHGE I I I = = F = = = = i P = i = : i ~ i E ~ T : = : = = I i i = = = ~ = i E = ~ : D 5 : = 5 = = 5 ~ = i i I E Z D = ~ = I ~ E = L 5 ~ = Z ~ = i ~ i i i = i 5 ~ ~ = = = = D ~ = 5 = Z i ~ . ; : ~ = ~ I I I I 1 RMITS/lOOCI 64 70 i .3X 5, OX 5.0: i .O? I ............................................................................................ 1 I : RUERAGE STRY 7 .9 1.9 -0.31 -5. 0% -1 0.0: 0.0% I ----------------------------------------------------------------------------..--------------- 1

I 3 UISITS!1001) 1968 2019 1.9% 0.01 5.0: 5 - 0 1 I .......................................................................................... I I 4 ::OUTPATIENT 30.01 30.01 0.01 5.0% 5.0% 5.0X I

------------------------------------------------------------------------------------.------- I ! 5 COSTS/BED 39000D 450000 5.1% 15.01 15.0% 15.0; I ............................................................................................ I I ? USTSMOH CLINIC 9,000 9,000 0.0% 0.0% 0.01 0.0; I ........................................................................................... I I 1 0 COS!S/CLIHIC 1400000 1540000 3,3X 5. OX 5.01 5.01 I ! I S=Z===I5====i=Z==L=::~:D=LZ=S~Zi=:D==S=i i===:==i=LZ=iD=555S=D=iZ=Si=Zi5=IZ=~SZ~E===i i i=IL-- - - ----I

S[IUECC: HERLIH LEHIRRL INTERNRTIOHRL

EXHIBIT 7-A .......................................................................... ____-__~-- -________-- - - - - - - - - -~-~- - - - -~~-- - - - - - - - - - - - - - - - - - - -~- - - - -~- - - - - -~~: : : := :==:~====~===

F O R t i R S I I N f UilRKSHEET I HERLTE SECTOE RHRLYSIS RNO TIHRHCIN6 I

T I I I iUTURE SCEHRRIO 2: I Il:i~~~~~:l~~~Zl~S~~~~I~LS:::D~5::EIDE~~i~~D:~5~~i~~~~i:~iEii~55i~~:~~~~:~:~::::::i~:I:~~~ZZ~ I I PERCENT CHRHFlf 1 I FORCCRSTIHG RCTURL RRTIOS: DURIHG FORECAST PERIOD I I URPIRBLES: PERCENT I

1980 1903 RHHURL 1985-90 1990-95 1995-2000 I 1 CHRHGE I I I : S I : E = ~ l l = = = S = ~ = = = = = = = = = 5 ~ = = : I I E = = i ~ 5 D i I = 5 = = = = = = E ~ = : 5 = Z ~ ~ = = 1 D ~ : I = I I = = = = 5 = ~ I : 5 = = = = ~ ~ ~ D 5 : 5 1 = : S = I i I i i RBi ITS/ !000 64 70 3.3: G. 0: 0. OX 0.0i: I ............................................................................................ I I 2 SUERRGE STAY 7 .9 7.9 -0.3: I ............................................................................................ I I 3 UISITS!lOOO 1 9 6 8 2079 1 . 9 % I ............................................................................................ I

I e c o s r s / e ~ ~ s390,ooo s+so,ooo 5. t r I ........................................................................................... I I 9 USTSMOH CLINIC 9,000 9,000 0 .01 I

SOURCE: HCRLIH CEHTRRL IH'IERHRTIOHRL

improved management of energy costs economies achieved within support departments of laundry, dietary, and housekeeping improved cost finding and financial management leading to more accurate and aggressive billing and collection activities initiation of new revenue-producing services

The net impact of these efficiencies will be enhanced gross operating margins available for cost effective operations. Costs per visit in the outpatient area are expected to remain virtually the same as the base case scenario, as increasing reliance on outpatient activities will drive cost per visit down and increasing reliance on new technologies will also add to the cost per outpatient visit throughout each of the five-year forecasting periods.

As a result of the interaction of these forecast variables, the health sector analysis and forecasting model indicate that. aggregate health sector expenditures in both public and private sectors within Jamaica will increase from a low of 4 . 9 % of GtW in 1983 to approximately 9% in the year 2000. These increases are due primarily to increasing expenditures per capita for recurring operating funds. Significant capital investments by the year 2000 are contemplated as the Jamaican society relies more heavily on new outpatient diagnostic and treatment facilities, rather than the more expensive inpatient centers. Aggregate expenditures per capita are expected to increase from approximately $150 in 1985 to $190 in the year 2000.

Supportive exhibits within Appendix C describe forecasted changes in inpatient and outpatient demand and utilization rates, as well as the relative expenditures for operating capital costs. Hajor observations from Appendix C are as follows:

Aggregate operating costs for both public and private health sectors are forecasted to grow from $360 million in 1985 to $586 million in the year 2000. The relative balance between public and private sector roles within these expenditure profiles is anticipated to shift to a heavier reliance on the private sector. While the public sector will predominate in expenditures, private sector operating costs are expected to grow from approximately 42% in 1985 to 50% within the year 1995.

In exhibit C.2 inpatient utilization rates are expected to increase from 72/1000 in 1985 to approximately 81/1000 in the year 2000. No modification in the intensity of inpatient utilization is anticipated because this scenario does not assume any change in any existing economic incentives for inpatient treatment modalities. As in the base case scenario, inpatient bed need requirements within the public sector remain negative, but do not take into consideration either geographic dispersion, quality of existing infrastructure or the need for technology upgrading and replacement activities.

Exhibit C.3 indicates an outpatient demand profile identical to the base case scenario. A n examination of the sumnary table for a base case and scenario 2 indicates that while aggregate expenditures for the Jamaican society for the year 2000 for the base case scenario would be $662 million, in scenario 2, with improved operating efficiencies through private sector management actions, aggregate societal expenditures for health care would be $585.9 million, or a savings of $76 million. This

EXHIBIT 8 : S U W R Y OF SCENARIO 2 ECONOMIC PROFILE

1 - -__________:~~~:..==~==D=Z=~E===~I====Z======5I=====ZZ=5=E=====~==I===::~=E====~==IE~===E~~~=========i=O=iE:=::===E~~~EI - - - - - - - - - - - ! 1

SUmlRRV Of FINRNCIRL IIPLICRTIONS 1 TOR RLTERNRTIUE FUTURE SCENRRIOS I

I I

,------------------------------------------------------------------------------------------------------------------------- I T I

! ECONmIZ FACTORS: 1980 1983 1985 1990 1995 :OO[! : 1 I I=-----------------------------------------------------------=------------------------------------------------------------ ........................................................... ............................................................ I

l i TOTAL POPULRTION: 2,186,100 2,309,900 2,402,296 2,64! , I 48 2,880,000 2,096,000 I I I I------------------------------------------------------------------------------------------------------------------------- I I I

I OPERRTING I i EXPENOITURES: I

i MDUNT: J240,000,000 S300,000,0D0 1360,000,DOO S420,792,868 $406,891,706 $585,860,219 I T I I PER CAPITR: $1 09.78 1129.10 $1 49.06 $1 59.32 t169.06 5189,23 I I------------------------------------------------------------------------------------------------------------------------- I 1 I

I CRPITRL IHUfSTnEHTS: I I I I W1OUNT: $1 3,600,000 S17,000,000 S20,400,000 S47,520,146 $27,950,200 $204,172,026 1 i I 1 PER CRPITA: $6.22 $7.36 $6.49 $11.99 $9.10 $66.1: I I-------------------------------------------------------------------------..----------------------------------------------- I

I I I TOTRL EXPENOITURES: I

I I I FUIOUHT : $253,600,000 $31:,000,00D $310,400,000 $468,313,015 $51 4,041,986 5790,732,295 I T I I PER CRPITR: $116.01 $137.24 $1 51.35 $177.31 $118.76 $255,40 I ~ ~ ~ i ~ ~ ~ ~ ~ . S . S ~ ~ ~ ~ S ~ D I i ~ E E ~ 5 ~ ~ I ~ : ~ ~ ~ ~ E ~ 5 5 5 5 5 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ , ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ E , ~ 5 ~ E ~ ~ ~ ~ 5 ~ ~ ~ 5 ~ ~ 5 5 - - ---- --------- ------- 5 ---==========----------=,-==---- ---------- - ----I

I I I 6.N.P. !in nilllons) $4,011 $6,428 $6,685 $7,354 $8,089 $8,898 I I I

I HERLTH RS i I PERCENT UT G.N.P. 6.31 4 - 9 1 5 - 1 1 6.4: 6.4; 8.9; I I I ~ :=====Z IS= : I~~~C======E:E====~EZ:==~ := := :Z~=~~= : :D~=E=S===~~ :~= :~~=E~===~= I=~=E=~== :=~=E I====~ :==~== :~~ :=== :=~~E:==L~ :==~ I

SOURCE: HERLTH CENlRAL IHTERHATIOHRL

represents an approximate societal savings of 7% by the year 2000 and approximately 3% savings in the year 1990. These forecasts of operating efficiencies suggest the preliminary attractiveness of studying more carefully opportunities for private sector administrative support within the delivery responsibilities now overseen by the Uinistry of Health Services.

Scenario 3: Privatized Uanaffement of UOH Infrastructure With correspond in^ Infusion of New Funds From National Health Insurance Pro~ram

a) Description of Scenario: Scenario 3 encompasses not only a generic policy shift to enable private sector manager support within the Uinistry of Health facilities, but also assumes the addition of a new national health insurance program. This national health insurance program is forecasted to bring a new infusion of dollars into the Jamaican Health Services sector. For the purposes of this exploratory research, it has been assumed that this new national health insurance scheme would parallel the parameters previously identified in such consulting studies as Westinghouse, Project Hope and recent discussions by the private health insurance coordinating committee. Such an insurance program would generate revenues through a new tax on employed per'sons. While the exact features of such a new national health insurance scheme are not currently known, it is assumed that this plan would distribute monies to both public and private sector providers. Funds would be made available on both fee-for-service and prepaid capitated arrangements. The availability of these funds would enable more people to seek and use health services, particularly within the private sector. As with the introduction of national health insurance schemes in most other countries, an inflationary effect would be anticipated during the fifth through tenth years.

Exhibit 9 provides the aggregate set of quantitative forecast assumptions for Scenario 3. While these forecasts change, in variables influencing demand for services, the variance on the original base case forecasts, they are similar to Scenario 2. The economies in operating efficiency are forecasted within the inpatient hospital area in both Scenarios 3 and 2 due to privatization of management activities within the Uinistry of Health. The significant change in Scenario 3 is that the infusion of approximately $91 million is forecast for 1985. The effect of this infusion is carried forward in subsequent years as identified in the following section.

b) Economic assessment of Scenario 3: Exhibit 10 provides a summary of the expenditure profile under Scenario 3. This scenario shows a substantial increase in the amount the Jamaican society invests in health care from 7.1% of GNP in 1985 growing steadily to 11.5% in the year 2000. This infusion of funds will have the potential not only to increase negligent societal investment in health, but will also serve to moderate the source of funding away from general tax-based funding within the UOH to the new tax for health insurance activities. Aggregate expenditures for operating costs are shown to increase from $451

EXHIBIT 9

TORECASTINS VORKSHEEI HEfiiTh SECiOL AN9LYSIS RND TIHAHCING

RGGREGRTE SET Or RSSIRIPTIONS OF FUTURE

1 PERCENT CHRNGE I : FORECASTIHG RCIUR: RATIOS: [IURING FOREtilST PERIOD I i URRIRBLES: PERCENT I 7 1380 1 9 B j RMHURL 1905-90 1990-95 1995-2000 I I CHAN5E I r I

I z HUERRGE S T R Y 7.9 7.9 -0.31 - 5 , o i - 1 a . o ~ . o.ox I

............................................................................................ I I 7 BEDS/1000 2.0 2.2 3.0% 0.OX 0. OX 0.OX I ............................................................................................ I ! 8 LOSTSiBED 390000 950000 5.12 15,OX 15.01 15.0% I ------.------------------------------------------------------------------------------------- I I 9 USTSmOH CLINIC 9,000 9,000 0.01 0. OX 0.0% 0.0X I ............................................................................................ I I 1 0 COSTS/CLINIC 1900000 1540000 2.31 5. 0% 5. 0% 5.0% I I I = = = = i . = i i = = = = i = = S D = = = D = = ~ 5 = I : : z ~ C = i D : = = i * - - ----- --------- - ~ - - - - - S ~ S E * l i . . . C i = r i r = i ~ ~ ~ = ~ i : I

SOURCE: HERLTH CENTRAL IHTERHRTIOHRL

EXHIBIT 10

S W A R Y Or rINRNCIRL IflPLICRTIOHS fOR RLTERHRIIUE FUTURE SCENARIOS

i I

1 TOIRL POPCLRTIOH: 2,186,100 2,309,900 2,402,296 2,641,148 2,880,000 3,096,000 i I

I I I OPERRTIHG I i EXPENDITURES: I I RTOUHT: $240,000,000 3300,000,000 $451,000,000 $527,153,954 $609,967,103 $733,952,663 I I I I PER CRPITR: $1 09.70 $129.88 $1 07.74 $1 99.60 $211.79 $237.06 I T------------------------------------------------------------------------------------------------------------------------- I I I ! CAPITA1 IHUESIVEHTS: I T I

I RiOUHT: $13,600,000 $ l i , 0 0 0 , 0 0 0 ~ S20,400,000 $67,942,264 928,720,374 $?9?,452,093 I I I I PER CRPITR: $6.22 17.36 $8.49 525.72 $9.97 $94.46 I I-------------------------------------------------------------------------.---------------------------------------------- I T I I I TOTAL EXPEHDITURES: I I I I RHOUHT : $?53,600,000 $31 7,000,000 $471,400,000 $595.1 02,218 $638,667,484 $1,026,404,756 I I I I PER CRPITR: $116.01 51 37.24 $1 96.23 $225.32 5221.77 5331.53 I I = . ~ ~ ~ ~ = . I . = = i S I ~ i E = I i = i 5 i = = i i = ~ ~ = ~ = = ~ = 5 = i = = = 5 ~ : : i : ~ 1 = = = = = ~ 5 = i = ~ ~ 5 = = ~ ~ = i ~ = a = a i 5 = = = = i i = i ~ = ~ ~ = : = = : = : ~ = = = i % = = = = = = = : = 5 5 i = = : = = = I

1 I I 6.N.P. ( i n nillions) $4,017 56,128 $6,685 $7,354 58,089 SE,898 I I I I-------------------------------------------------------------------------------------------------------------------------T

I HEALTH RS I I PERCLNT Of G.N, P. 6 .31 4.91 7.1X 8.1X 7.9; 11 .SI I I I I i - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _------ -------------- ------------=r==------------------ ------------------.--'------ -------- I

SOURCE: HEALTH CEHTRAl IHTERHRTIOHRL

million in 1985 to $734 million in the year 2000. The introduction of a national health insurance scheme is therefore expected to dramatically increase Jamaican's spending on health care as follows:

Base case expenditure for health in the year 2000 - $662 million, Scenario 3 expenditure for health in the year 2000 -$734 million, an increase of approximately $72 million.

During this period of time per capita expenditures under Scenario 3 increased from $138 per person in the year 1985 to $237 in the year 2000. In Scenario 3, while operating expenditures are higher than in the base case forecast, capital expenditures are actually forecast to be somewhat lower because outpatient health facility development is not expected to increase at the same rate that operating expenditures do. Infusion of substantial new funds under Scenario 3 illustrates the inflationary effect of higher prices for approximately similar demand profiles. Prices increase beyond actual unit consumed for capital i11ves tment . Supporting exhibits enclosed within Appendix D provide additional insights into the demand profile anticipated within Scenario 3. In Exhibit D.l operating costs on a per day basis are forecasted to be $243.74 in 1990, while in Scenario 2 the average aggregate expenditure per patient day is only $198 in 1990. Outpatient per visit costs are approximately the same in both scenarios for 1990 with Scenario 3 illustrating a steady increase in cost-per-visit as the inflationary effects of the new funds become more evident.

Exhibit D.2 indicates shifts in demand within Scenario 3. The availability of new funds within the private sector and increasing attention on outpatient diagnostic treatment activities is forecast to decrease the average length of stay in the private sector from 5.6 days in 1985 to 4.8 days in the year 2000. This is in contrast to Scenario 2's forecast of 5.9 days in 1985, decreasing less rapidly to 5.1 days in the year 2000. The forecasting model assumes therefore a relative shift of expenditures for the outpatient sector slightly higher in Scenario 3 than Scenario 2. Public sector inpatient demand is shown as being similar in Scenario 3 and Scenario 2. This reflects an increase in the number of admissions in the private sector relative to public sector activity. As new insurance funds become available, an increasing number of people are anticipated to seek health services within private sector hospitals vis a vis the traditional public sector institutions. This shift could be expected to be larger if private sector management activities had not been also assumed to improve the cost-effectiveness and the attractiveness of public sector institutions under private management.

As a result of the forecast shown for Scenario 3, it appears that the infusion of new funds from a new tax for health insurance would expand access to health services for the employed population. The population would orient more to both outpatient activities and private sector hospitals more than to the traditional public hospital delivery system. The introduction of a new health insurance scheme is anticipated to contribute to some inflation in cost per unit to service consumed. Provider interest in this infusion of funds could be

anticipated, therefore political support could be anticipated from both the consuming public and provider comnities. Questions about the political feasibility of the new tax are beyond the scope of this section's analysis. Additional comments on the political and economic aspects of such a new tax are discussed in the analyses of Section 5 and 6.

Review of Generic Scenarios. The purpose of this section was to provide a general examination of possible economic consequences of fundamental, but general, policy shifts within the Jamaican Health Sector. The result of these preliminary studies suggests additional inquiries should be made into more specific strategy options. The following section provides such analyses within certain target alternative forms of privatization.

5.0 PROPOSALS FOR DEZIOUSTBATION PROJECTS TO TEST BENEFITS OF ALTEBlYATIVE FORMS OF PRIVATIZATION

The previous simulation models suggest the aggregate economic gains associated with two major policy changes in the Jamaican health sector. These studies, however, do not yield specific enough insights to accurately define the parameters of new policy initiatives toward privatization. While the scope of this small study does not permit exhaustive policy analysis or financial modeling, certain additional analysis can be performed around more detailed propositions of possible policy changes. This section presents workplans for further follow-up research and demonstration analysis within these areas. All three of these areas will require substantial investments of funds, currently not available within the Hinistry of Health.

Propositions for Further Analysis

Four major concepts were postulated by AID for study during this exploratory research project :

Option 1: Establishment of a new National Insurance Plan administered by a private entity. This option will be referred to as the "National Health Fund Option;"

Option 2: The GOJ allows a panel of citizens to "take" their per capita share of recurrent health expenditures and choose either a defined public or private sector service plan. This is called the "Voucher Option;"

Option 3: The GOJ contracts a private sector company to operate an entire region of the HOH system to generate savings for use to improve services to the region's lower income groups. This is called the "Regional Management Option;" and

Option 4: Establish a new "trust fund" from the savings of Option 3 so as to subsidize services for the poor in a "poor only HMO." This option has been referred to as the "Trust Fund Option."

During the analysis of these above four options, Health Central has identified an additional option for "privatizing" the Jamaican health sector. This Option 5 would call for the GOJ to negotiate island-wide contracts for private sector operation or "contract management" of selected administrative support departments in all HOH hospitals. This option will be called the "Departmental Contract Option." Specific departments to be considered would be :

* security

* dietary

* laundry

Method of Analysis for Options

Rigorous evaluation and econometric analysis of these expansive options 2s beyond the scope of this project. Current and accurate data on departmental and per capita unit costs within the MOH in aggregate, let alone on a region- by-region or parish-by parish-basis, is not readily available. Extrapolations and estimates from national averages will therefore be necessary.

Health Central's database for these studies has been developed by a team of hospital and HHO consultants who employed the following methods:

* onsite interviews with public and private sector health officials, administrators and medical practitioners;

* onsite assessments of public andpr'ivatehospitalfacilities;

* review of HOH service utilization and cost reports;

* interviews and data studies of private health insurance companies' statistical and expenditure files;

* an architectural assessment of selected hospital facilities;

* development of demand forecasting models derived from audits of private doctors' offices and hospital accounting records; and

* development of computer-assisted financial pro forma analysis of alternative per capita and fee-for-service payment scenarios.

A summary of the findings and conclusions of these several methods are presented in this section. hrrther studies during follow-up demonstration projects will now be needed.

OPtion 1: National Health Fund Options

a. Description of Options

GOJ passes legislation/regulation to authorize formation of a new National Health hrnd (MIF). This fund would secure revenues from a new tax paid by employees and employers. The fund would pay for services rendered in either public or private hospitals, and would require certain defined user fees.

This concept has been offered previously for consideration in varying forms by The Westinghouse Study, The Project Hope Study and the recently formed "Insurance Committee" which consists of representatives from the insurance and finance industries of Jamaica. The option attacks the fundamental problem in the Jamaican health sector, chronic underfunding of health services.

b. Economic Assumotions in Option*

Health Central consultants have not conducted original research into this option but rather have elected to integrate the previous analyses of those studies cited in Section 2. Key assumptions taken from these works are:

Population Covered: employed persons 98,022 covered persons 262,000 or 11% of the total population

5% tax (3% employee, 2% employer) would generate an estimated $91 million.

These funds would be used as shown in Exhibit 9 of these expenditures, and it is presumed that over 85% would be made within the private sector. This utilization would be expected to allow the MOH to use funds that otherwise would have been consumed by these persons within the public sector. The availability of these "new funds," however, will not result in a dollar-for-dollar savings to the UOH. A significant amount of the demand covered by these funds will be "new" demand, not replacement demand.

* Drawn from Project Hope Studies and Private Insurance Committee of MOH.

c. Feasibility Considerations

The political liability of a new tax would be difficult to assess, but is expected to be negative at this time. Employer's share of tax would be passed on eventually to the public within their price structures. Employee tax would be viewed as loss of expendable income. Little action is expected on this option during the immediate tern due to perceived obstacles of political constraints. Additional studies will be called for until 1986-87. Should this option be pressed forward by the GOJ, it is unlikely that control over such a fund would be delegated to the private sector. A statutory body with appointed board is judged a more realistic model. This option is therefore not judged appropriate as a major example of "privatization." It is an illustration of an alternative source of revenue needed to infuse into the Jamaican health sector.

EXHIBIT 11

Type of Cost

Estimated Distribution of Expenditures from National Health Fund

1983 Amount

(millions) Percent *

Plan Administration

Hospitals

Physicians

Dmgs

Other Providers

Total $91.0 100.0

* Source: Health Central International study of private insurance experience in Jamaica.

Oution 2: The "Voucher Option"

a. Description of Option

GOJ would allow a defined group of lower-income persons to "opt-out" of the public system to join a private health insurance or HUO system. Each person would receive a "voucher" which could be exchanged to pay for a premium in the HUO. Suitable GOJ controls over quality and individual rights would be safeguarded by periodic audits of the HUO performance against predetermined standards.

b. Economic llssumptions in Option

* Number of lower-income persons within the pilot group 5,000;

* Health screening to avoid unusual pre-existing conditions would be necessary during the pilot study;

* Persons would sign a contract with HUO to abide by use and payment policies. The scope and nature of the contract would be approved by the HOH;

* Persons would be expected to pay deductibles for hospital and phannaceuticals according to a sliding fee scale related to ability to pay; and

* HOH expenditures per person in 1985 are estimated to be $130 for all services (see Exhibit 6 ) . This is substantially below the private insurance premium rate estimated at approximately $375.

Exhibit 10 provides a summary of the forecasted experiences of a private health plan serving a panel of lower income persons in a defined geographic area of Kingston.

c. Feasibility Considerations

A special "health benefits plan" would need to be actuarially developed to fit within the HOH per capita expenditure profiles. These services would require substantial co-payment levels for the lower-income persons, which could be counter to the objectives of the demonstration. Health screening could select a pool of low- risk persons to help the private HnO reduce its utilization risk ratios. This would frustrate the test of an HMO to better manage each person's health for cost containment purposes.

Summary of HUO Economics for Special Panel of 5,000 Lower Income Persons

Enrollee Groups

Annual HOH Premium @ $130

Expected Utilization Profile:*

admit rate 60/1,000 average stay 5 average cost/day $250 visits/1000: 3,000 cost/visit: 30 costs for drugs @ 19% of premium administrative costs @ 25% of premium

Total Costs for 5,000 Persons

Cost per capita

admits: 300 days: 1,500 cost for hospitals $375,000 visits $ 15,000 outpatcent costs $450,000

$260,000 $340.000

* These assume aggressive utilization review and negotiated discounts with participating providers of 20%.

This cost per capita is less than the private indemnity premium of $356 found by Project Hope and the $390 forecasted by the new Life of Jamaica/Health Corporation of Jamaica prepaid health plan.

Option 2 as originally presented would appear to require that the private sector health plans assume an unwarranted risk. A special demonstration project should be initiated, however, to substantiate this conclusion, and to test the feasibility of the following alternatives:

a) HOH subsidizes a negotiated supplement to the per capita fee on a declining level over a three year period of investigation, e.g.

PER CAPITA FOR 5000 Year 1 HOH per capita fee $130 $650,000

Subsidy $155 $775.000 Total HOH $285 $1,425,000

Year 2 HOH subsidy $100 $500,000

Year 3 HOH subsidy $ 50 $250,000

Year 4 HOH subsidy 0

The HOH subsidy could occur in a number of forms during the demonstration project:

* costs paid in advance every quarter;

* access to public hospitals without charge;

* access to pharmaceuticals at GOJ costs; and

* favored tax treatment for overall plan revenues.

Option 2A

A n alternative demonstration project would be to have the HOH contract with the private sector plan on a per capita basis exclusively for outpatient diagnostic and treatment services. This ambulatory care plan would be priced at a discount to an established group of physicians interested in the marginal income. The follouing estimated costs would be offered:

HOH annual per capita premium: $140

Premium income to provider network $700,000 5000 @ copayment memo @ $5/visit $ 75.000

TOTAL INCOME $775,000

Provider expenses: Outpatient care 15,000 visits

@ marginal cost of $22 $330,000 Pharmacy costs $260,000 Administrative Costs $185.000

TOTAL COSTS $775,000

The positive experiences gained from this project could encourage more comprehensive benefit packages to be added over time.

Special grants to conduct longitudinal evaluations on the results of either of these two HMO contracting demonstration projects would also be necessary. At least J$500,000 per year would be needed if a rigorous analysis of the following variables were to occur:

* enrolleesatisfaction

* enrollee health status

* enrollee utilization profiles

* enrollee out-of-pocket expenditures

* provider satisfaction

* health plan financial position

* comparative use and cost rates of pilot group versus other HMO enrollees versus a matched-pairs sample of other MOH-covered persons not enrolled in the HMO.

Surmaary of HI40 Contracting Options

Financial Commitment Required:

Option 2A Comprehensive Plan Option 2B Outpatient Plan

Enrollees 5,000 5,000

NOH Annual/Capita Premium $ 285(l) Estimate of Existing MOH

per Capita Cost $ 130

MOH Subsidy Needed Over 3 years - For care $1,525,000(2) - For research

and evaluation $ 750,000(4)

Notes :

(1) Assumes copayment of $5 per outpatient visit.

(2) Assumes decreasing per capita subsidy over the three year period of $155, $100, $50, respectively.

(3) Assumes flat subsidy of $10 per person and that hospitalization needs still met in the public sector.

( 4 ) Special contract to study results, Option 2A is higher due to need to include evaluation of private hospital involvements.

Subsidy by MOH will need to be supported by foreign funding bodies, e.g., World Bank and/or U.S.A.I.D.

Option 3: The "Regional Management Option"

a. Description of Option:

The GOJ would negotiate a special three-year agreement with a private company to assume complete operational control over an entire district of the MOH, e.g. the Spanish Town District. This private firm would be expected to operate the system of inpatient and outpatient facilities within the prior MOH operating budget. Savings would be shared between the MOH and private firm. The MOH would use its share of savings to fund other needs of lower-income persons throughout its system.

Economic Assumptions in Option:

An analysis within the Spanish Town area provides the set of exhibits shown in Appendix E. This data was utilized to compare a forecast of MOH expenditures with private management versus expenditures within the traditional HOH systems.

Savings over a three-year period are expected within the private sector management as follows:

Better materials management of inventory and drug purchasing from U.S. based group purchasing system 10%

Improved billing and collection systems, increased collections 2 0%

Improved payment of middle managers, increase cost - 5% Installation of flexible staffing systems, same 8% Reduction of underutilized services 5% Energy savings measures 5%

The net impact of these estimates can be measured against a forecast of MOH expenditures if no change were made with past cost escalations, as follows:

Personnel Travel Supplies

Drugs Other

Public Utilities Other TOTAL Revenue

1984 /85 Budgeted Annual 1987/88

Expenditures Increase Impact* 000's

*Only compounded rate of increase 1983184 to 1984185 of Exhibit E.l in Appendix E.

If the net savings estimated above were applied to this situation, the following impact would be realized:

Forecasted Resu 1 ts Privatization Net UOH 87/88 Hanap ement Impact

000's

Personnel $ 15,570 Trave 1 313 Supplies 4,404

Drugs 2,840 Other 1,564

Public Utilities 912

TOTAL COSTS $ 25,853 -952 New Revenues 258* Net Impact $ 1.210

*Assumes 20% increase in prior collections, judged to be less than 5% of budget or 1% new revenues.

This improved operating margin of $1,210 is only 4.6% of the forecasted budget. Additional savings are not judged feasible because of past MOH underspending within the health sector. As a result, principal areas of economies are forecasted to occur in materials management areas (36% of improvement) and changes in employee staffing patterns (38% of improvement). New revenues from better billing collections are estimated to yield 21% of the improved financial condition. These improvements would be shared with the UOH and management company, with the external company expected to negotiate at least 50% of the savings as its incentive fee. The MOH could potentially generate approximately $600,000 savings over the three year period.

c . F e a s i b i l i t y Considerations:

This op t ion could y i e l d s u b s t a n t i a l savings i f appl ied throughout an e n t i r e region r a t h e r than j u s t within a s i n g l e i n s t i t u t i o n . It would be d i f f i c u l t , however, t o a t t r a c t ex t e rna l management companies a t t h e modest f e e income suggested i n t h e Spanish Town Hospi tal example. Addit ional incent ives f o r p r i v a t e s e c t o r companies may need t o include one o r more of t h e following:

* gran t s t o fund i n s t a l l a t i o n of new po l i cy and procedure manuals

* extens ive a u t h o r i t y t o over r ide c i v i l s e r v i c e systems

* r e s p o n s i b i l i t y f o r t o t a l reg iona l h e a l t h system a t a f i xed f e e and incent ive drawn from aud i t ab l e improved gross margins

* access t o import duty waivers

* access t o t a x concessions on f e e s earned

m t i o n 4: Establishment of "New Trus t Fund"

This opt ion has been found inappropr ia te a s a r e s u l t of t h e analyses of opt ions 1-3. While savings i n p r i v a t i z a t i o n of UOH f a c i l i t y management seem poss ib l e i n opt ion 3 , t h e amount of t hese cash flows does no t seem s u f f i c i e n t l y l a r g e t o e s t a b l i s h a s epa ra t e new "Trust Fund." The savings would seem b e s t used wi th in t h e UOH t o r e i n f o r c e i t s s c a r e resources f o r primary ca re and c m n i t y h e a l t h i n i t i a t i v e s .

6.0 EXECUTIVE SUEQ4ARY

Health Central International has been commissioned to assess the feasibility of alternative forms of "privatization" within the health services sector of Jamaica. This study was designed to identify major strategies which could help improve the financially troubled health sector. Four major strategic options were assessed in order to define follow-up demonstration projects designed to implement the findings of this study. The strategic options are:

OPTION 1: Establishment of a National Health Fund.

OPTION 2: Authorize HOH "voucher" for purchase of HNO policy by lower-income groups.

OPTION 3: Authorize private sector contract management of MOH health services region.

OPTION 4: Establish "trust fund" from savings by private sector management.

An assessment of these options with simulated utilization and expenditure data enables a sununary evaluation of (a) the relative likelihood of each option to achieve certain public policy goals (see below); and (b) the relative political and economic feasibility of each option. b j o r GOJ public policy goals expected to be achieved by these options are judged to be:

1. to improve allocative efficiency, i.e.. to suggest measures to ensure that resources are meeting the priority health needs and are allocated in accordance with such government objectives as equity of access among population groups and geographical areas; --

2. to improve operational efficiency, i.e., to suggest measures to provide the services in a more cost-effective manner;

3. to improve financin~ methods, i.e., to examine whether there are benefits in changing the present mix of financing methods by placing more emphasis on community resources, private health insurance, or user charges; and

4. to improve the balance of service provision, i.e., to examine whether the present distribution of responsibilities among both private and public institutions providing health services should be changed.

Exhibit 13 provides a graphic surcrmary of Health Central's assessment of how far each option realizes these four goals. This assessment indicates that all options face inherent difficulties within the financially burdened health sector in Jamaica.

EXHIBIT 13

S'PBATEGIC OPTIONS

ALLOCATIVE EFFICIENCY I

1 OPERATIONAL EFFICIENCY

- GENERIC GOALS

FINANCING METHODS

OPTION 1 National Health

Fund

OPTION 2 Voucher for

HMO

High impact as more funds wi 11 facilitate more access to needed health services.

Neutral impact. Nay increase costs as demand is stimulated within inefficient providers.

OPTION 3 Private Contract Management

High impact as poor given choice of where to seek service in public or private.

OPTION 4 Trust Fund

High impact if providers adopt new management within con- straints of capitation.

High impact as shift to private sector is encouraged.

Modest impact as private plans may be slow to accept reduced MOH capitation rates.

High impact as economic incen- tives move from fees to capita- tion format.

SERVICE PROVISION

Low impact as efficiencies would not influence use. New adminis- tration could enhance care if further funds come.

High impact as private providers expected to receive majority of proceeds.

High impact as modern admin. systems implemented.

Low impact as unit cost efficiencies not expected to shift major payment policies.

Modest impact as better man- aged facilities attract more patients into "privatized" environment.

Modest if savings sufficient to make meaningful contribution to expanded care to lower income.

Low impact. Fund wou 1 d receive benefits of efficiencies, but not neces- sarily cause them.

Low impact as savings potential is underfinanced. System not judged to be dramatic.

Modest impact as funds avail- able. Insignifi- cant to influence shifts in provide behavior.

I

O V E W L ATTRACTIVENESS

OVERALL FEASIBILITY

Option 1 is viewed as the most necessary and appropriate strategy. This option will require, however, significant political confidence by the GOJ to implement it within the current politico-economic climate. As indicated during the Situation Analysis Section of this report, the most pervasive problem of the Jamaican health sector is its chronic underfinancing. This underfunding has forced public sector providers and managers to operate within severe economic constraints. GOJ pressure to alleviate this via a new tax will require unusually farsighted leadership.

Option 2 provides, on balance, a positive appeal against the priority policy goals. Economic feasibility is constrained, however, because MOH per capita premiums for private sector HMO policies would not cover premium costs. MOH subsidies would be needed during a demonstration period of three years. New start-up HMO's may entertain this option only after their initial cash flows build to accommodate the added risk of coverage for lower-income, potentially higher-user population groups. MOH or foreign grants could help overcome these initial private sector anxieties. Exploration of such external support funds should be pursued as a follow-up to this assessment study. (See Appendix F for a proposal to initiate this option.)

Option 3 offers the potential for economic feasibility, contingent upon the following authorities being granted by the MOH and GOJ:

* decentralization of decision-making on personnel hiring and compensation policies and practices;

* access to waivers on import duties and taxes on medical supplies and pharmaceuticals;

* reasonable autonomy to implement changes in HIS and materials procurement systems; and

* pooling of all MOH expenditures for inpatient and outpatient expenditures for an entire HOH district, corresponding with full administrative authority over all facilities and employees within the district. (HOH oversight to protect the public interest, quality of care and financial integrity would, of course, be necessary via periodic audit functions by HOH and/or external parties. )

Interim advantages of private sector contracting could be addressed via selected contracting for targeted support departments in laundry, dietary, security and housekeeping. To make this alternative option attractive to the private sector, economies of scale will be desirable via contracting to serve several health facilities, rather than just one.

In all of the above private sector options, it is possible that the requisite expertise to effect needed cost-effectiveness may not reside within Jamaica. Any attempts to integrate foreign consulting or administrative resources, however, should be coupled with local Jamaican counterpart organizations. Such joint venture approaches would contribute to the establishment of long-term residual capabilities within Jamaica. Such initiatives would also help guard against the unnecessary loss of hard currency.

Option 4 is not expected to be a viable alternative because it is dependent upon the achievement of significant savings from one or more of the other three options. hrnding shortfalls in the public sector are expected to frustrate this probability. Little serious attention is expected for this option unless dramatic changes occur in either the overall Jamaican economy or in the short-term feasibility of the above options.

Review with Jamaican and AID Officials

The above conclusions should now be reviewed with AID and MOH leaders to assess the appropriateness and feasibility of meeting the cited prerequisites for success. The recommended chronological sequence of actions to move forward is proposed to be:

Step 1: review and clarify existing study conclusions (August 15, 1985 ;

Step 2: attempt to begin cautious privatization via departmental . contracting with funding support via A.I.D. or similar body (August-September 1985);

Step 3: pursue international funding support to implement the full service contract management option for a HOH district health system. This is expected to require at least US$500,000 each year for three years for the following contingencies:

- investments in new MIS for materials and financial management ;

- development of new, detailed departmental policy and procedure manuals ;

- middle management and MOH training;

- subsidy for initial operating losses due to refinement of staffing levels and compensation;

- funds for external evaluation of project's impact on the four cited policy goals;

- support of UOH staff dedicated to participate in the demonstration project start-up and evaluation;

Step 4: implement HOH vouchering for HMO following start-up of new private sector HMO-like entities. (See Appendix F.1

Step 5: attempt to move forward in establishment of a new National Health Fund along the parameters evolving from the Private Health Insurers Committee and Project Hope proposals;

Intersectoral cooperation in these several activities should help position the GOJ as it begins the slow and difficult movement toward more cost-effective and modern health care delivery and health sector financing capabilities. Health Central International is prepared to continue its interest in such public and private explorations.

OVEBVIEW OF *'HEALTH SECTOR MlbLYSIS

MID FORECASTIIG MODEL" (HSAFH)

A Proprietary Forecasting Tool 0 f

Health Central International, Inc.

EXHIBIT A: GWlEBdL FeATURES OF THE HEALTH CENTRAL "HEALTH SECTOR MlALYSIS AND FORECASTIMG MODEL"

As the Health Central organization expanded its exploration of innovative strategies for improving the cost-effectiveness of health sector financing mechanisms in both public and private sectors throughout the world, it became evident that a computer-assisted analysis and forecasting tool was needed. Examination of alternative health financing strategies has required the simrltaneous consideration of many political, demographic, utilization and financial considerations over extended periods of time. These considerations require extensive mathematical calculations as well as a structured chain of logic and analysis. Early in 1985, therefore, Health Central economic and financial personnel were commissioned to develop a set of analysis and forecasting tools within the following areas:

* unit cost finding in foreign health facilities and health sectors ;

* hospital budgeting packages;

* step-down cost allocation systems;

* demand forecasting;

* hospital bed need forecasting;

* expenditure analyses and health sector expenditure distribution studies.

In examining the important interrelationships of these several analytical and forecasting tools, as well as the study of the important input statistical and financial information, it became evident that a comprehensive model for both analysis and forecasting would be desirable.

Health Central has therefore developed a new computer forecasting model which operates on IBM microcomputers. This model, entitled "Health Sector Analysis and Forecasting Model," is now being used by Health Central personnel in their various consulting and operational assignments overseas. The model is particularly useful in that it is easy to use and understand. Key features of this model are summarized below:

* The model is population-based. Studies of population growth and demographic profiles are utilized to drive assumptions regarding the interaction of health status and demographics on service demand profiles.

* The model relies on historical utilization and expenditure data for a given health facility, region or country as a whole. Worksheets are available to guide the development of this important input data.

* One of the most intriguing parts of the model is its ability to enable user interaction. Ten variables may be manipulated by Health Central consulting and foreign country policy officials. Three scenarios andlor policy clusters can be considered simultaneously within each of these ten variables.

Outputs of the model are:

* aggregate demand in public and private sectors and between inpatient and outpatient areas;

* utilization rates for inpatient and outpatient services;

* aggregate health expenditures for operating costs;

* aggregate expenditures for capital costs of both inpatient and outpatient ;

* unit costs for inpatient and outpatient units of services; and

* aggregate societal or geographic area expenditures for health as a percent of gross national product.

The utilization of this new forecasting tool is available through consulting clients and partners of Health Central International in both developing and developed countries. For additional information regarding this forecasting system, inquiries can be directed to:

James A. Rice President Health Central International 2810 - 57th Avenue North Minneapolis, W1J 55430

Telephone: (612) 574-7809 Telex: 9105762444 HEALTH CTL KPLS

APPENDIX B

Supportive Exhibits for Base Case Scenario:

A forecast of future expenditures without consideration to inflation or

policy change.

NOTES ON APPENDIX B EXHIBITS:

Three exhibits are enclosed within Appendix B. Exhibit B.l provides a summary of forecasts of unit costs and aggregate expenditures for the Jamaican health care sector given the assumptions defined within section 3. These assumptions include the following important features:

1. Population is forecasted to grow at approximately 1.5% per year for the period 1990 to the year 2000.

2. Private sector expenditures are difficult to estimate. Analyses conducted by the project Hope Organization in 1985 estimate private sector expenditures in Jamaica were 125 million Jamaican dollars. This number was slightly higher than previous estimates made by the Health Central financial staff but was used in this forecast to demonstrate the important role private sector investments are playing within the Jamaican health economy. This suggests that approximately 42% of the Jamaican society's investments in health services was made within the private sector during 1983/84. This relative ratio, without any significant policy change, is expected to r q i n relatively constaht through the remaining years of this forecast.

3. Operating costs per day represent the total aggregate expenditure in both public and private sectors divided by the total number of patient days forecasted within both the public and private sectors. This cost per day should be slightly higher than the cost in an average hospital because it includes aggregate expenditures for the ministry of health, including its administrative costs and v a r i o u s t r a i n i n g e x p e n d i t u r e s . T h e a g g r e g a t e p u b l i c and p r i v a t e expenditures were assumed to be 70% inpatient and 30% outpatient. This represents the important expenditure pattern which has been occurring within the Ministry of Health for various outpatient hospital activities, community health centers, and various environmental and public health control measures. As a result of this ratio, the cost per visit is also somewhat inflated from actual cost in any given outpatient facility. These loaded costs per unit, however, are suitable for forecasting aggregate societal expenditures by setting of service delivery. Detailed unit costs finding activities within any given hospital or outpatient facility should generate unit costs less than these aggregate forecasting indicators.

4. Capital costs:

Detailed construction estimates for both hospital beds and outpatient clinics were not readily available to the Health Central project team. General estimates have therefore been identified for both cost per bed and cost per outpatient clinic.

The outpatient clinic is assumed to be of a standard size suitable to accommodate certain volumes of patient visits, as indicated in Exhibit E.3. If the volume of outpatient visits per clinic is defined to be higher, that is to say the centers are larger, it is possible that certain economies of this scale could result in modest reductions in these costs per outpatient facilities. These costs for capital expenditures are therefore expected to include significant margins of error in later years, and should therefore cause the reader to be cautious in the interpretation of aggregate societal expenditures for capital investments in the years 1995 and 2000. Capital investments for outpatient facilities, however, are expected to be understated in the sense that no estimates have been made for capital investments by the private sector for private physician offices or group practice medical clinics. Private sector health facilities are expected to become more evident after 1990.

Forecasting inpatient supply needs:

The Health Central forecasting model is designed to forecast bed need by subtracting the existing supply from forecasted supply requirements. It is assumed that a 70% target of occupancy efficiency is suitable for these forecasting purposes. Should public policy dictate that the health sector is willing to accept the inefficiencies of occupancy rates lower than 70%. it is possible that additional beds would be indicated. If, however, public policy requires that construction should not occur unless occupancy efficiencies are in excess of 80% were achieved, then less beds would be required. In any event, the existing supply of public sector beds far exceeds the reasonable forecast of need. This forecasting model, however, is not intended to comment on the relative need for beds in any particular geographic region of Jamaica. It utilizes aggregate nationwide statistics and does not consider geographic dispersion. These bed forecasts do not consider the quality of the existing supply of beds nor the ability to keep pace with technology. In this regard, these capital forecasts of investments for inpatient facilities will be dramatically understated beyond the year 1990. Substantial investments will be necessary for technology enhancements and replacement of antiquated facilities. Existing public hospitals are already rapidly deteriorating as a result of improper maintenance and of lack of funds for remedial remodeling and replacement activities.

EXHIBIT B-1

JMRICRH HLRLTH SCCTOR ,1995-2090 FORECRSTS Or UNiT COSTS and Eh'PEN3ITURES

i 1 ! TOTAL POPULRTION: 2,186,100 2,309,900 ?:402,?96 2,641,148 2,880,000 3,096,000 1

! I I OPERRTING tOSlS: I ! PUBLIC SE[T[IK 6140,000,000 5175,000,000 521 0,000,000 I

PRIUATE SECTOR 5100,000,000 51?5,000,000 S150,DOO,OOU I I TOTAL $240,000,000 9300,000,000 5360,000,000 5434,611 ,01 1 5525,217,889 9662,124,151 I I I

I I I OPCRAIING COSTS: I I PEP: ORi(a): $151.35 $164.38 51 08.64 9207.51 5228.26 9251.08 I I PER U!SIl!al: $1 6.79 51 E, 74 S:O. 99 $23.09 $26.63 $28.1: I

I PERCENT OVTPflIIENl: 30.0% 30.0% 30.01 31.51 33.11 39.7: I I i

I I I CAPITRL COSTS: I I PER 610: $390,000 5450,000 $475,000 $546,250 $628.188 9722,416 I I VCR CLIHIC(h): $1,900,000 $1,540,000 $1,699,000 81,778,700 51,867,635 51,961,017 I I I I I ,------------------------------------------------------------------------------------------------------------------------ i I EXPEHOITURES: I

I OPERRTING COSTS: 5?90,000,000 $300,000,000 $360,000,000 5434.61 1,011 $525,217,889 $66:,124,15? I I CRPITRL COSTS(b): $13,600,000 91 7,000,000 S20,4UU,000 $q7,520,146 $66,341,903 $353,066,091 I i TOTR! COSTS: 5253,600,000 $317,000,000 $380,400,000 9482,131,157 $591,559,792 51 ,01 5,190,248 I I I I==.-------------------------------.---- .............................. -----a-----.------.----------- ----- - - - - - - - - - - - - - - - - - - ~ - - - - - - - . . . - - l - - - - - - - - -----------,.---.------ - .---La-------- -------- I

Hatr (a): Inc ludes a l l p u b l l c and p r l v a t e aggregate expenditures, i l l u l ded by t o t a l denand i n p u b l i c and p r iua te .

b t r i b ~ : Only f o r p u b l ~ c sec to r , not p r l u a t e c l i n i c s / o f f i c e s

SOURCE: HEALTH CEHIRRL lHTCRNATIOHRL

EXHIBIT B-2 jllI:==----------------------------------------------------------=--------------------------------------------------------- .......................................................... ........................................................ I

1 JMRICRN HEALTH SECTOR I I fORECRSTS Or CEnR!/O ,1985-2000 I

INPAI IENT HUSPITRL SERUICES I

I , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ..................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -----------------=------------------------------------- I

! I i-ORECRS? URKiRBLES: 1900 1903 1985 1990 1995 2000 ! T I T----------------.-----------------------------------------------------------=-------------------------------------------- ,---------------------------------------------------------------------------- I T 1

1

1 TOlRL POPULflTIOH: 2,186,100 2,309,900 2,402,296 2,641,148 Z,080,000 3,096,000 I I I I------------------------------------------------------------------------------------------------------------------------- I

i I I AMISSIONS: I I PUBLIC SECTOR 130,000 148,800 159,000 183,549 210,156 230,436 I I PRIURIE SECTOR 9,700 13,271 14,500 161,739 19,165 21,015 I I I OT RL 133,700 162,U71 173,500 200,288 229,321 251,451 I 7 I I------------------------------------------------------------------------------------------------------------------------ I

I I I PRIIEHT DAYS: I I PUBLIC SECTOR 1,050,000 1,196,508 1,250,000 1 , 7 0 4 7 1,412,605 1,540,921 ! ! PRIURlE SECIOP 60,000 81,000 05,860 94,161 97,029 106,392 I I IOTRL 1,110,000 1,277,508 1,335,860 1,465,008 1,509,634 1,655,314 I I I I------------------------------------------------------------------------------------------------------------------------ I

I I I RUERRGE STAY: 1 I PUBLIC SECTOR 8.1 8.0 7.9 7.5 6.7 6 .7 I I PRIURlE SECTOR 6. Z 6.1 5.9 5.6 5.1 5.1 I I TOIRL 7.9 7 .9 7.7 7.3 6.6 6.6 I I I I------------------------------------------------------------------------------------------------------------------------ I I BED HEED: I I PUBLIC SECTOR: I I *DERRHO: 4,110 4,683 4,892 5,365 5,529 6,062 1 I *SUPPLY: 6,075 6,062 6,062 6,062 6,062 6,062 I I *HEE[l: (1,965) (1,319) (1,110; (697) (533) 0 I I PRIUAI[ SECTOR: I I *OMRHD: 235 31 7 336 369 300 416 I I *SUPPLY: 270 284 281 284 2114 204 I I *NEEO: (35) 33 52 85 96 132 I I TOIRL HEED: (a) i2,001) (1,346) (1,118) (612) (437) 133 I I------------------------------------------------------------------------------------------------------------------------- I

I I 1 UTILIZAII[ IH RRTES: I i R ~ I S S I O H S / 1 0 0 0 59 70 72 76 80 01 I I DRYS/1000 500 553 556 555 524 535 I I KG DMRND/1000 2.0 2.2 2 .2 2. i 2.1 2.1 I I i

-------------------------------------.---------------------------------=------- i - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------ZZ::=S=E:~::Z=~CC~=CI:E====~E~E:D:Z::=:Z===I

SOURCE: HEALTH CENTRAL INTERNATIONAL

NOTE : ( a ) Bed n e e d does n o t c o n s i d e r r e p l a c e m e n t u p g r a d e s f o r t e c h n o l o g y , g e o g r a p h i c d i s t r i b u t i o n , o r q u a l i t y o f e x i s t i n g b e d s u p p l y . T a r g e t Occupancy R a t e t o d e f i n e need : 70% 5q

SCEUARIO 2 SUPPORT KXHIBITS

Management Efficiencies But lo Change in Payment Schemes

EXHIBIT C-1

JRnRICRH H[R!TH SECTUP ,1905-2000 TORLCASTS Or UNIT COSTS and IXPLHDITURES

I 1

! fORECRST UARIRBLES: 1980 1983 1985 199C 1995 2000 1 I

! T

I TOTRL POPULRTION: 2,186,100 2,309,900 i,40i,?96 ?,641,148 2,080,000 3,036,000 I I

I I I OPERRTIHG COSTS: ! I PUBLIC SLCTOR $1 40,000,000 S175,000,000 $21 0,000,000 I I PRIURT[ SECTOR $100,000,000 ~125,000,000 $150,000,000 I T IOTRL S240,000,000 $300,000,000 $360,000,000 9420,792,868 5986,891,706 S505,060,:19 I

I I ! OPLRflTIHG COSTS: ! I PEP Dfii'(a!: $151.35 S169.38 91 80.64 $1 98.07 $211.94 OiSi.13 I I PER UIS I i (a ) : $16.74 $18.74 $20.99 $23.09 $25.78 $27.36 I I PERCEHI OUTPATIMI: 30, O! 30.01 30. 0% 31 -5% 33.11 34.7% I

? I I CRPITRL COSTS: I ! PER BED: $390,000 S450,000 $975,000 $546,250 9628,186 $722,416 I I PER CLINIC(b): 91,400,000 S1,540,000 $1,694,000 $1,778,700 $1,867,635 51,961,011 I I I I I

I [XPLHOITURLS: I I OPERRTIHG COSTS: S240,000,000 $300,000,000 S360.000,000 5420,792,860 $486,891,706 $505,060,219 I I CRPITAL CO51S(bi: $1 3,600,000 $1 7,000,000 S20,900,000 997,520,146 $27,950,280 S209,872,026 I I TOTAL COSTS: 5253,600,000 $31 7,000,000 $380,400,000 5968,313,015 $51 4,841,906 $790,732,245 I ! I

Hote (a): lnciuoes a l l public and private aggregate expenditures, dluided by total dmand In publ~c and priuate.

Hote ! b ~ : Only for pubi~c sector, not prluate cllnlcs/offlces

SOURCL: HERLTH CEHTRAL IHTfRHflIIOHflL

EXHIBIT C-2

I..S...~~:.:....~..==::==::=========I==~:~LE=~~::~~:::=~~E.:D~==E~~~I===I~EI===Z:=~I~~=I=~:==~:C:===~====:=I==:==::========~

I I

i JRnRICRH HERLTK SECTOP I I FDRECRSIS or OEHRND ,1985-2000 I i INPRTIEHi HOSPITAL SERUICES

I ~I~:~:....S.....Z.==:==E=~~====:~=~=:=I:===::==~=~~==~:=:~:~~:I=~==::E====:=~=:===:~~~=:~==:::=~=:~=~ZZ~=II=ZI=~=~~======= I 1 I ! FOPECRST URRIRBLES: 1980 1983 1985 1990 1995 2000 I I I I=----------------------------------------------====---------------------------------------------------------------------- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ----------------------------------------------------------------------!

I T

I IOTRL POPULHT!OH: :,186,100 2,309,900 2,402,296 2,691,148 2,880,000 3,096,000 I I I I------------------------------------------------------------------------------------------------------------------------- I T I

I ROHISSIDHS: I I PUBLIC StCTOP 130,000 148,800 159,000 103,549 210,156 230,436 I I PRIURTF SECTOP 9,710 13,271 11,500 16,733 19,165 21,015 I 1 TOTRL !3S,700 162,071 17j,50U 200,288 229,321 251,451 ! ! ? ]---------------------------------------------------------------------------.--------------------------------------------- I

I I I PATIENT DRYS: I I PUBLIC SEC'IOR '1,050,000 1,196,508 1,250,000 1,370,841 1,912,605 1,548,921 ! I PRIURTE SECTOP 60,000 81,000 85,860 94,161 91,029 106,392 ! I TOTAL i ,110,000 1,211,508 I ,335,860 1,465,008 1,509,639 1,655,319 1 I I T-----------.----.-------------------------------------------------------------------------------------------------------. I

I RUERRGE STAY: I I PUBLIC SECTOR 8.1 8.0 7.9 7.5 6.7 6.7 I I PRIURTE SECTOR 6.2 6.1 5.9 5 .6 5.1 5.1 I I TOTRL 7.9 7 .9 7,7 1.3 6.6 6.6 I I I I------------------------------------------------------------------------------------------------------------------------- 1

I BE0 NEEO: I I PUBLIC SECTOR: I I *DMRHD: 4,110 9,683 9,192 5,365 5,529 6,062 I I *SLIPPLY: 6,075 6,062 6,062 b,062 6,062 t,062 I I *HEED: (i ,965) (1,379) !I ,170) (697) (533) O ! I PRIURTi SECTOR: T

i *OMRHO: 235 31 7 336 369 300 916 I I *SUPPLY: 270 284 284 204 284 284 I I *HEED: (35) 33 52 85 96 132 I I TOTR! NEED: (a! (2,001 ) (1,346) (1,118) (612) (937) 133 I I------------------------------------------------------------------------------------------------------------------------- I

I I I UTILIZRTION RRTES: i

I R ~ I S S I O H S / l 000 69 7 0 12 16 80 81 I I ORIS/IOOO 508 553 556 555 524 535 I I 8EO OEHRHDi100C 2.0 2.2 2.2 2 . 2 2.1 2.1 1 I I I.- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - . - .................................... ------L------- - -------~-s----------.S--------~=i~~=,~zi=~:zz~~~~=:~==s=~==~=:==::=::==:==:== ------- I

SULIRC[: H E A L T H C E N T R A L I N T E R N A T I O N A L Note(a): B e d n e e d d o e s n o t c o n s i d e r r e p l a c e m e n t , u p g r a d e s f o r t e c h n o l o g y , g e o g r a p h i c

d i s t r i b u t i o n , o r u a l i t y o f e x i s t i n g b e d supply. T a r g e t O c c u p a n c y R a t e t o d e f i n e need: ?0%

EXHIBIT C-3

I.:=;..;::::SI:.:51==I=I~==I=I~Iii=:==~==~==:~::===:=:==~:::::=====~==~========~:~=:==~~======z=:===:========::========== I

1 ? JMRICHH HERLTH SECTOR I

fORECRSIS Of DMAND ,1985-2000 I 1 OUIPAT'[EHT SERUICES 1

I - - - - - - - - - - - - - - - - - . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - s - - - -a===- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ,----------------------------------------------------- ---- .......................................................... I !

I FORECAST URRIRBLES: 1980 1983 1985 1990 1995 2000 ! ! I

i I i TDTRL POPULRTIOH: 2,186,100 :,309,900 2,402,296 2,641,148 2,880,000 3,096,000 I I I !------------------------------------------------------------------------------------------------------------------------ I I I ! OUTPRTIENT UISITS: I I PUBLIC SECTOR 2,002,281 3,346,454 3,600,790 3,958,804 4,532,659 5,116,239 I I PRIURTE SECTOR 1,300,000 1,456,000 1,543,360 1,696,811 1,942,775 2,192,907 I i TOlRL 4,302,281 4,802,459 5.144,150 5,655,615 6,475,434 7,309,146 I i I I------------------------------------------------------------------------------------------------------------------------ I

UISITS PER 1000: I PUBLIt SECTOR 1373 1449 1499 1499 1574 1653 ! PRIURTE SECTnR 595 630 64 642 675 708 I TOTRL 1,968 2,079 2,141 2,141 2,248 2,361 I

I .-------------------------------------------------------------------------------------------------------------------- I

I I I UISITS PER CLINIC: 1 I PUBLIC SEClOR(a) 9000 9000 9500 9500 10500 10500 I I PRIURTE SECTOR 3500 3500 3500 3500 3500 3500 I I I ! I I--------------------------------------------------------------------------.--------------------------------------------- I

I I I OU'IPRTIEHT CLINIC NEED: I ? PUBLIC SECTOR: I 1 *OE!RNO: 334 372 379 41 7 432 487 I ! *SUPPLY: 380 390 390 390 41 7 432 I I *NEED: -46 -1 8 -1 1 27 IS 56 I I PRIURTE SECTOR: I 1 *OEtlRNO: 371 41 ir 44 1 485 555 627 I I *SUPPLY: 400 41 4 41 6 441 485 555 I i N E E : -29 2 25 44 70 71 I I I

I I TOTRL NEED: ta) -75 -1 6 14 71 85 127 I I I ! 1 I--------------------====------------==----- .................... ------------ -----=------- -------.----- - - - - - S - i - z S = - - - - - - ' - - - - - - 5 . - - - - - - - - ~ = - - - ~ - - -------------- ------ --- -------=------------------ ------------------ 1

SOURCE: HERLTH CENTRAL IHTERNRTIOHHL

Note(a): Outpatient demand in private s e c t o r difficult t o quantify. C a p i t a l cost f o r e c a s t s t h e r e f o r e only c o n s i d e r public sector.

SUPPORTING EXHIBIT TO ASSESS= OF SCENARIO 3

Combined Effect of Policy Change To Add New National Health Insurance Scheme

and Privatization of Management of Management of LIOH Facilities

EXHIBIT D-1

I.~:.:.......ii.iii=I======I=5==~i~:==~=~=i==5=====E::Diiiii===~:~I=f55E===~==i:=::=~I:Iz=~I=Z:i:::::~=:====iZi=====I===:== I

I I ! JRnRICAN HERLIH SECTOR ,1F8E;-2000 1

1 fORLCRSTS Or UHIT COSTS and LXPEH0:TURES I I I 1 I ,=- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------====--------------------------------------------------------------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -5- ..................................................................... I

i I iORECR5i IIRWIR0LES: 1980 1983 1905 1 q90 1995 20UO 1 I 1 , ; - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - .................... -----.---------------------------------------- ----------------------------------------------------=--------------------=---------------------------------------------- I ! I ! TOTRL POPULRTIOH: 2,186,100 2,309,900 2,902,296 2,641 ;I40 2,080,000 3,09b,OOO i I 1 I------------------------------------------------------------------------------------------------------------------------- I

I I I OPERRTINS COSTS: I I PUBLIr SECIOR 8190,000,000 t175,0DO,OOD S221,000,000 1 I PRIURTC SECTOR $100,D00,000 $1 25,000,000 ~230,000,000 !

TOIflL $240,000,000 t3U0,000,000 $451 ,OD0~000 $52:',159,959 $609,967,109 5733,952,663 I I I I------------------------------------------------------------------------------------------------------------------------- I

1 I I OPERRTIHG COSTS: I I PER DRl'(a): $151.35 $169.38 $232.13 $243.79 $260.80 $206.88 I I PER UISITia) : $16.74 $10.74 $23.95 $26.34 $29.91 $31.20 I I PERCENT OUIPRTIEHT: 30. OX 30. O X 30.0% 31.51 33.11 39 -11 I I 1 T------------------------------------------------------------------------------------------------------------------------- I I I I CRPITRL COSTS: I I PER 8EO: $390,000 $450,000 $475,000 $546,250 $628,180 $722,416 I I PER CLIHIC!b): $1,400,000 $1,540,000 51,699,000 ti ,778,700 81,867,635 51,961,017 I 1 I ! 1 I------------------------------------------------------------------------------------------------------------------------- I

I EXPEHOIIURES: I I OPERRTIHG COSTS: $240,000,000 t300,000,000 5451,000,000 S5Z7,1 59,959 5609,967,109 $733,95?,663 I I CRPITRLCOSIS(b): $13,600,000 S17,000,000 t20,400,000 $67,P92,264 $28,720,374 $29?,45?,093 I I TOTRL COSTS: $253,600,000 $317,000,000 S971,400,000 5595,102,218 S638,687,484 $1,026,904~756 I I I I . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ....................................... ----- ------ -----------sz:.z.---------------- ----------------==--------r-.-----iE=-------------- -------- - ---- -------------- I

hote (a ) : I nc ludes a l l p u b l i c and p r i u a t e aggregate expenditures, d i v ided by t o t a l d w n d i n p u b l i c and p r iua te .

Hote (b): Only f o r p u b l i c sec to r , n o t p r i u a t e c l i n ~ c s ! o f f i c e s

SOURC[: HEflLTH CENTRAL INTERNRTIONRL

EXHIBIT D-2

JRflRICR\ HERLTH SECTOR FORECASTS OF DEflAtiU ,I 985-2000

INPRTIENT HOSPIlRL SERUICES

T 1

I TDTRL PUPULRTION: 2,186,100 i,309,9UO 2:402,296 2,641,148 2,880,000 j,09t,000 I , i

I I I RMISSIOtiS: I I PUBLIC SKTOR 130,000 1481800 160,000 184,704 21 1,478 231,885 I I PRIURTE SECTOR 9,700 13,271 19,500 22,511 25,774 28,261 I I TOTRL 139,700 162,071 179,500 207,214 237,252 260,146 I I T

I I I PRTIEHT DAYS: I I PUBLIC SECTOR 1,050,000 1,196,508 1,250,000 1,370,847 1,412,605 1,548,921 I I PRIURIl SECTOR 60,000 81,000 110,000 120,635 124,309 136,305 I ! TDTRL 1 , I 10,000 1,277,508 1,360,000 1,491,482 1,536,914 1,685,226 I ! I

I I I RUERR6E STRY: I ! PUBLIi SECTOR 8.1 8.0 7. 8 7,4 6.7 6.1 I I PRIURTE SECTOR 6.2 6.1 5.6 5.4 4.8 4.8 I I TOTRL 7.9 7.9 7.6 7.2 6.5 6,5 I I I

I BED HEED: I PUBLIC SECTOR: I *OMRNO: I *SUPPLY: ! *HELD: 1 PRI(IRTE SECTOR: T *OWflH[I: 1 *SUPPLY:

I *HEEO: I TUTRL HELO:(a)

I I I UTILIZRTIOH RRTES: I I RDnISSIOHSil000 64 70 75 78 32 84 I T DRYS/l000 508 553 566 565 534 544 I 1 BED OEflRNO/l 000 2.0 2.2 ?. 2 &. 7 L 7 2 - 1 ?.I I i L I

SOLIRCE: HEALTH CENTRAL I N T E R N A T I O N A L N o t e ( a ) : B e d n e e d d o e s n o t c o n s i d e r r e p l a c e m e n t , u p g r a d e s f o r t e c h n o l o g y , g e o g r a p h i c

d i s t r i b u t i o n , o r q u a l i t y o f e x i s t i n g b e d s u p p l y T a r g e t O c c u p a n c y R a t e t o d e f i n e n e e d : 7 0 %

EXHIBIT D-3

I=;;;--------------------------------=----------------------------------------------------------------------------------- ................................ ................................................................................... I I 1 ! J M R I [ f l h HERLTH SECTPE T

FORECRSTS OF OBRHO ,1985-2000 I

T OUTPA'IIEHT SERUICES i i

~L:~::......:~~:~;:~=~:=======~=I~~====~~~=:D~Z:==E~~=~=~=Z~~=Z=:E:=~=DE~=I:::~===E~=~::=~~===~~~===C~I======~===~===~~==~:~

1 I 1 FORECRST l.lRRIHB!ES: 1980 1983 1985 1990 1995 2UK 1

I I = = = - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------___-______---___----------------------------=z~=*---------------------------------------------------------------- ................................................................ I I I I TOTRL PUPIJLRiION: :,1 86 ,I 00 2,301,900 2,402,296 2,641 ,I 48 2,880,000 3,096,000 I

1 I------------------------------------------------------------------------------------------------------------------------l

I I I OUTPRTIEHI UISITS: I 1 PUBLIC SECTOR 3,002,281 3,346,458 3,7U0,000 4,067,078 4,657,544 5,251,203 ! ! PRIURTE SECTOR ! ,300,OOU 1,456,000 1,950,000 1,143,882 2,454,652 2,770,688 I I TOTR! 4,302,201 4,002,459 5,650,000 5,211,760 7,112,196 8,02i,B91 I

! I I------------------------------------------------------------------------------------------------------------------------ I

i I I VISITS PER 1000: I 1 PUBLIC SECTOR 1373 1449 1540 1590 1617 1698 I r PRIURTE SECTOR 595 630 81 2 812 852 895 I

I TOTR! 1,968 2,079 2,352 2,352 2,470 :,593 1 i I i------------------------------------------------------------------------------------------------------------------------ I I I

I UISITS PER CLIHIC: I I PUBLIC SECTOR(a) 9000 9000 9500 9500 10500 ID500 I I PPIURTE SECTOR 3500 3500 3500 3500 3500 3500 I I I I I T--------.----------------------------------------------------------------------------------------------------------- I I I I OUTPRTIEHT CLINIC HEED: I I PUBLIC SECTOR: I I *DEflRHO: 334 372 30s 420 449 501 I I *SUPPLY: 380 390 390 390 428 444 I 1 *HEED: -46 -I 8 -1 38 15 5? I I PRIURTE SECTOR: I I *DEHRHD: 371 41 6 557 61 3 701 792 1 I *SUPPLY: 400 41 4 41 6 557 61 3 701 I I *HEED: -29 141 55 89 90 I 1

1 I 1 I I 1OTflL NEED:(aj -?5 -1 6 141 94 104 1 4 1 I I I I I I = = ~ i ~ i i i i = = = = ~ = = i l ~ i 5 s = = = E = = = = 5 . i z = I = = ~ = -------1=--------5--------5------- -------- -------- -------:-.=- - -E------------------------- ......................... 1

SOURCE: YEALTH tMTRRL IHTEPNRTIOHAL Hoteta): O u t p a t ~ e n t d w n d !I o r ~ v a t e s e c t o r d i f f i c u l t t g q u a n t i f v .

i ~ p l ' 3 1 :?3! 'or*-?qt: ~??-e:crf 071, c o n s i d e r p u b l i c s e c t a r .

BEST AVAILABLE COPY

EXHIBITS FOR ANALYSIS OF SPANISH T O W PRIVATE MAUAGEMElCC OPTION

Source of Data: Minietry of Health Health informstion Unit, 1983

EXHIBIT E.l: SPANISH TOWN MOH EXPENDITURE TRENDS

I PERSONNEL I 70.9 1 17.1 1

(000's)

1 TRAVEL 1 293 2.5 298 2.2 1.7 1

EXPENDITURE TYPE

SUPPLIES DRUGS OTHERS

I PUBLIC UTILITIES

PERCENT CHANGE

1983/84 $ %

CONCLUSIONS: 1. Costs increasing 16% per year

2. Fastest increases are drugs and personnel

3. Payroll is largest single cost

1984/85 $ %

OTHERS

TOTAL

264 2.2

11,831 100

253 1.8

13,709 100

(4.2)

15.9

EXHIBIT E . 2 : SPANISH TOWN BED OCCUPANCY

BED TYPES - BEDS

GENERAL llED 6 0

GENERAL SURGERY 1 2 0

PEDS WED 4 0

PEDS SURGERY 20

OBSTETRICS - 4 0

SUBTOTAL 280

CONCLUSION: S p a n i s h T o w n H o s p i t a l is experiencing m o d e s t occupancy rates in a l l i t s special t ies

EXHIBIT E.3: SPANISH TOWN DISCHARGE RATES/1,000, 1979 - 83

PERCENT 1979 1980 1981 1982 1983 CHANGE

ALL HOSPITALS 64 -0 66.6 63.2 64.3 65.1

ALL GEXERAL HOSPITALS 51.1 56.6 53.7 54.8 55.1

SPANISH TOWN 99.2 103.1 99.0 98.3 95.4

CORNWALL 49.9 60.8 64.5 68.2 71.4

SPANISH TOWN 2.5 2.5 2.4 2.5 2.4

CONCLUSION: People in Spanish Town are using significantly more hospital admission/lOOO than Jamaica average ( 70% more)

EXHIBIT E.4: DISCHARGES IN SPANISH T O W

DEATHS

DEATHS /DISC

AVEBAGE STAY

PATIENT DAYS

OUTPATIENT CASUALTY OTHER

PERCENT CHANGE

CONCLUSIONS: 1. Spanish Town Hospital quality of care needs to be improved.

2. Outpatient volume is growing slowly.

3. Average stay is declining.

EXHIBIT E.5: NURSING PERSONNEL PER 100 BEDS, 1983

COBNWALL BEGIONAL 104

KINGSTON PUBLIC 74

SPANISH TOWN 58

COSTS OF DRUGS PER SCRIPT:

SPANISH TOWN

KINGSTON PUBLIC

COBNWALL

CONCLUSIONS: 1. Wide variation in costs for use of drugs among hospitals.

PERCENT CHANGE

2 . Spanish Town had dramatic increase in cost per script issued.

EXHIBIT E.6: UOH HEALTH CENTER VISITS, 1983

TYPE OF VISIT

CUBATIVE

DENTAL

ANTENATAL

POSTNATAL 3,627

CHILD CARE 30,253

FAMILY P W I I G 17,415

TOTALS 134,018

CONCLUSIONS: 1 . V i s i t s / 1 0 0 0 o f 755.

PERCENT

47 .7

0 . 9

1 3 . 1

2 . 7

22 .6

13 .O -. - 100.0

2 . P r o f i l e paraLlels nat iona l experiences

PROPOSED ACTION PLAN TO IMPLKKENT AN HMO VOUCHER DELIOUSTBATIOU PROJECT

WITH HEALTH CORPOBhTIOU OF JAMAICA (HCJ)

1. PURPOSE OF DEMONSTRATION PROJECT

This demonstration project will provide an opportunity for the Ministry of Health to experiment with the privatization of its health financing mechanisms for a defined panel of lower income persons. The project is intended to test the applicability of prepaid HHO-like mechanisms for the poor as well as upper income population groups. Demonstration project would contract with a private prepaid health plan in Jamaica, the Health Corporation of Jamaica, in order to be responsible for the complete inpatient and outpatient health care needs of a group of 5,000 individuals within the Kingston area. Careful evaluation of quality and cost effectiveness of health services rendered to these individuals over a three year period would be studied by outside researchers. Lessons learned from this demonstration project could be used to expand the prepaid contracting by the public sector with the private sector for health services for the lower income groups throughout all of Kingston and Jamaica. Lessons from this demonstration project could also be incorporated with similar demonstration projects in other Caribbean and Latin American countries.

While this action plan is focused on immediately initiating a special demonstration project within Jamaica, it is also proposed that a parallel project be initiated within Cali, Colombia. This would enable comparative research to be conducted on the applicability of prepaid health programing for lower income groups into different cultures and socio-economic environments. A separate proposal for such comparative research in Colombia can be provided under separate cover at the request of AID officials.

2. DESCRIPTION OF HEALTH CORPORATION OF JAMAICA

Health Corporation of Jamaica is a for-profit prepaid health plan being organized within Jamaica. This prepaid health plan has been established to provide an innovative demonstration of how the private insurance and health provider sectors of Jamaica can come together and offer a comprehensive delivery and financing package for employed persons living throughout Jamaica. While the Health Corporation of Jamaica has been established as a proprietary initiative, it recognizes its opportunities to provide examples of new forms of enhanced quality, health service accessibility, and cost effectiveness for others to emulate in the future.

3. OWNERS OF HCS

Health Corporation of Jamaica (HCJ) is a joint venture initiative owned by Life of Jamaica, the largest insurance company in Jamaica, a group of local business and physician leaders and Health Central International. These owners have used their own funds to capitalize the corporation and have been working for over a year in the development of policies and procedures for HCJ to offer a full range of inpatient and outpatient services to employed persons living within Kingston, Mandeville and

Hontego Bay. These population centers of Jamaica will assure that a new form of prepaid health services delivery will be available to a majority of the Jamaican population.

4. SCOPE OF OPERATIONS OF HCJ

HCJ has been organized to provide a full range of inpatient and outpatient health care services. Outpatient services are provided through a specially organized network of primary and specialist physicians within Kingston, Wndeville and Hontego Bay. These physician groups have agreed to participate in a variety of risk sharing mechanisms which modifies their economic incentives away from the traditional retrospective fee for service payment methods to prospective and discount fee structures to encourage cost effectiveness and health prevention activities.

The outpatient delivery system is designed to encourage group practice medical activities at clinic locations which offer easy access to complete diagnostic and treatment services. The principle of "one stop shopping" is being applied to these delivery sights to encourage lab, x-ray, pharmacy and physician services to be made available in a coordinated and cost effective manner.

5. HOSPITAL SERVICES

Inpatient service requirements of people enrolled within the HCJ medical network are met through contractural arrangements with private hospitals in the communities covered. Discounted hospital charges are used to encourage cost effectiveness.

Targeted markets for the HCJ organization have been focused within the employed population groups. Individuals that already have traditional forms of indemnity health insurance are also being particularly targeted.

This orientation to middle income and above population groups can be expanded to include lower income groups under this demonstration project.

6. PROPOSED TFXHS OF DEHONSTBATION COUTRACT

A. Panel of 5.000 hrollees

It is the intent of this demonstration project that 5,000 individuals from lower income population groups would be allowed to purchase policies within the Health Corporation of Jamaica's prepaid health plan. These individuals would be screened by HCJ medical personnel to help avoid any unusual medical problems which might distort the ability of this demonstration project to assess the cost effectiveness of responding to "average population groups" within the lower income socio-economic range. While health screening would be utilized to avoid an unnecessary tisk within the enrollment pool, all efforts would be utilized to assure "open enrollment" for individuals desiring to participate in this demonstration project. The 5,000 individuals would need to individually enter into specially prepared

contracts approved by the Ministry of Health and HCJ. These 5,000 people would live within the Kingston area.

B. Enrollment and Identification Procedures

Following medical screening and initiation on individual enrollment contracts, HCJ would conduct special enrollee orientation and education activities. These education activities would be to address the following :

Scope and nature of HCJ operations How to use HCJ health services Discussion of copayment arrangements Discussion of health promotion and health prevention activities to avoid unhealthy behaviors and habits Grievance procedures within the HCJ network

HCJ will also be responsible for issuing special identification cards with photographs for each of these 5,000 enrollees. These identification cards will be essential to track ongoing utilization patterns and opinions of these enrollees.

The panel of 5,000 enrollees are expected to enter into an agreement that they will participate in this system for at least 12 months. This length of conunitment is necessary to assure that adequate time is allowed for health promotion and health education activities to be provided to the individual members. It is also quite likely that the initial months of these contracts will require extensive provider activities for diagnostic and treatment to resolve any remedial health problems that exist within the enrollee panel. Correcting these medical problems during the first 6 months only to have the individual leave would serve neither the interests of the administrative health nor HCJ during this demonstration project. Sufficient time to allow a fair test of the prepaid principles must be assured.

C. Premium Structure

Administrative Health and AID would establish a mutually agreeable premium structure with the officers of HCJ prior to entering into this demonstration project. The premium structure would be sufficient to enable HCJ to provide a complete range of inpatient and outpatient services to the panel of 5,000 enrollees. The premium structure would not only cover the direct costs of these care but enable HCJ to conduct structured research and comparative studies during the three year demonstration project. A fair return or "profit" for HCJ activities in this demonstration project would also be incorporated within the premium structure. The previous analytical report conducted by Health Central International provides a starting point for these negotiations on premium structures.

It is recognized that the current per capita expenditure for health care by the Ministry of Health in Jamaica would be inadequate to induce a private health plan to take on the potentially substantial health risks of a lower income population group. Substantial premium subsidies will therefore be necessary for this project to proceed. Subsidies has been suggested within the previous Health Central International analytical report. The source of these subsidized funds are expected to be partially provided from within the Ministry of Health but will probably require significant participation from an external funding body such as the World Bank or Agency for International Development.

In addition to the negotiated premium structure, it is anticipated that the enrollees will be expected to participate in the cost of their health care by paying a modest copayment for every provider encounter. The previous Health Central International report suggests that this would be approximately $5.00 per encounter.

D. Use of HCJ Doctors

The HCJ medical network encompasses not only physicians but dentists. If a prepaid dental component would be a part of this demonstration project additional premium structures would need to be negotiated. Access to participating physicians would be arranged within the delivery sites of Kingston.

Enrollees would be provided directories of participating physicians and physician clinics in the Kingston area. Individuals would be assigned to specific providers so that comprehensive medical records and continuity of care can be assured. These enrollees would be expected to select a physician of their choice, but once having made this selection, would not be expected to shift their physician for a period of 12 months.

Special medical records and enrollment files will be maintained on each of the 5.000 people participating in the demonstration project. These files will enable longitudinal studies of an epidemiological and evaluative nature.

E. Use of Hospitals

Private hospitals within the Kingston area will be contracted to provide routine coverage to members of this panel just as all other enrollees of the HCJ medical network will enjoy. Special orientation programs for the 5,000 enrollees will be conducted to assure that they utilize only hospitals contracted by the HCJ network. It is anticipated that during this demonstration project private hospitals would be utilized rather than public hospitals. Negotiation of this fact could occur, however, between the Ministry of Health, AID and the HCJ officers. Special orientation programs for hospital personnel will also be conducted by HCJ staff to assure the timely and appropriate handling of all encounters and questions regarding inpatient utilization patterns of the demonstration panel of enrollees.

F. utilization Review/Quality Assurance Programs

'She HCJ network has formal policies and procedures for utilization review and quality assurance. These physician developed programc aye designed to help not only assure the accessibility of enrollees to high quality health care, but to assure that cost effective delivery and utilization behaviors among the providers and enrollment groups are occurring. Monthly statistical reports on utilization patterns and cost profiles for all providers and enrollees are generated from these systems. Special attention to enrollee grievances and evaluation activities will be conducted at least four times during each year of this demonstration project. Focus group meetings with members of the demonstration enrollment panel will also occur to supplement the quantitative aspects of utilization review and quality assurance. The systems will also involve interviews of the providers for their interpretive insights into the demonstration projects, accomplishments, strengths and weaknesses.

G. Periodic Reports to Ministry of Health and AID

Throughout the course of this demonstration project, monthly reports will be provided to the Ministry of Health and the AID project officers. The purpose of these reports will be to document utilization cost experiences for the demonstration project, the enrollees and the providers. Periodic information regarding enrollee complaints or grievances will also be incorporated in these reports. Structured focus group and interviews with enrollees and providers will be conducted during the project by HCJ administrative personnel. Insights gathered from these research techniques will also be incorporated in these reports. Specific measurable objectives to be tested during this demonstration project must be mutually negotiated between the Ministry of Health, AID and HCJ officers prior to the initiation of the demonstration project. Periodic measurement of the degree to which these performance objectives are being met will also be addressed in these monthly quarterly reports.

H. Hajor Longitudinal Research Study

In addition to the analysis and research activities of HCJ staff during this demonstration project, it is recommended that an independent organization be cmissioned by the Ministry of Health and AID to evaluate the results of this demonstration project. A special longitudinal study should be conducted with attempts to evaluate before and after profiles on the following subjects:

health status of enrollee panel utilization patterns of enrollee panel enrollee knowledge about good health habits and how to most appropriately utilize the health delivery system cost effectiveness of health providers within the prepaid health system versus the traditional Ministry of Health program

explicit unit costs associated with a provision of health services to this enrollee group analysis of alternative strategies to most appropriately extend this demonstration project throughout Jamaica and to other developing countries identification of strategies to help improve the cost effectiveness of the sector public contracting with private prepaid health plans.

7. SUBSIDY NEEDED

In order to implement this demonstration project, analysis by Health Central International has indicated that the two principal types of financial support would be:

subsidy for health care services rendered to the enrollee panel funds for longitudinal research study

The exact scope and nature of these investments will need to be mutually defined between the Ministry of Health, Agency for International Development and officers of HCJ. The previous analytical report, however, suggests that funding will need to be made available during a three year period in the following manner:

subsidy for health services - $1,525,000. subsidy for research and evaluation - $750,000.

The previou's Health Central International report suggests that if a more focused demonstration project is launched only for outpatient services, that these subsidy amounts could be somewhat less. The fact, however, that public hospitals would still be utilized by this panel of 5,000 people indicates that cost efficiencies would not be fairly tested by an outpatient only demonstration project. Health Central International therefore recommends that the demonstration project be for a comprehensive inpatient and outpatient program.

The Hinistry of Health of Jamaica would also need to be prepared to make available monthly premium payments to HCJ to total $130 per person per year. The terms of payment for these premium amounts must be mutually negotiated. HCJ will expect that these premium payments be made in advance and probably on a quarterly prepaid basis. This will help avoid unnecessary delays of payment or confusion with administrative details inside the administrative health finance sections.

Next steps for implementation:

In order to launch this demonstration project, it is recommended that a special task force made up of representatives of the Ministry of Health, AID and HCJ immediately define the scope of work in terms for the demonstration contract and premium structure. Initiation of these meetings could occur during October and November of 1985. The project could be launched during the early months of 1986 and run for a period of 3 years.