The growth of non-state hospitals in Indonesia and Vietnam: market reforms and mixed commercialised health systems (WP17)

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The Nossal Institute

for Global Health

www.ni.unimelb.edu.au

KNOWLEDGE HUBS FOR HEALTHStrengthening health systems through evidence in Asia and the Pacic

HEALTH POLICY AND HEALTH FINANCEKNOWLEDGE HUB

WORKING PAPER SERIES NUMBER 17 | APRIL 2012

Krishna HortNossal Institute or Global Health, University o Melbourne

Peter Leslie AnnearNossal Institute or Global Health, University o Melbourne

The growth of non-state hospitals inIndonesia and Vietnam: market reforms

and mixed commercialised health

systems


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WORKING PAPER SERIES HEALTH POLICY AND HEALTH FINANCE KNOWLEDGE HUB

The growth o non-state hospitals in Indonesia and Vietnam: NUMBER 17 | APRIL 2012market reorms and mixed commercialised health systems

ABOUT THIS SERIESThis Working Paper is produced by the Nossal Institute or Global Health at the University o Melbourne,Australia.

The Australian Agency or International Development (AusAID) has established our Knowledge Hubs or

Health, each addressing dierent dimensions o the health system: Health Policy and Health Finance; HealthInormation Systems; Human Resources or Health; and Womens and Childrens Health.

Based at the Nossal Institute or Global Health, the Health Policy and Health Finance Knowledge Hub aims

to support regional, national and international partners to develop eective evidence-inormed policy making,particularly in the eld o health nance and health systems.

The Working Paper series is not a peer-reviewed journal; papers in this series are works-in-progress. The aim

is to stimulate discussion and comment among policy makers and researchers.

The Nossal Institute invites and encourages eedback. We would like to hear both where corrections

are needed to published papers and where additional work would be useul. We also would like to hear

suggestions or new papers or the investigation o any topics that health planners or policy makers would ndhelpul. To provide comment or obtain urther inormation about the Working Paper series please contact; [email protected] with Working Papers as the subject.

For updated Working Papers, the title page includes the date o the latest revision.

The growth o non-state hospitals in Indonesia and Vietnam: market reorms and mixed

commercialised health systems

First drat April 2012

Corresponding author: Krishna Hort

Address: The Nossal Institute or Global Health, University o Melbourne

[email protected]: Peter Leslie Annear, Nossal Institute or Global Health, University o Melbourne

This Working Paper represents the views o its author/s and does not represent any ocial position o the

University o Melbourne, AusAID or the Australian Government.

ACKOWLEDGEMENTSThis paper is the product o previous work on non-state hospitals in Indonesia and Vietnam to which manypeople contributed, including: Ahmer Akhtar (Nossal Institute or Global Health); Laksono Trisnantoro, Shita

Dewi and Andreasta Meliala (Centre or Health Service Management, University o Gadjah Mada, Indonesia);

Khuong Anh Tuan and Tran Thi Mai Oanh (Health Policy and Strategy Institute, Ministry o Health, Vietnam);

Kabir Sheik and Lakshmi Prasad (Public Health Foundation o India). All three papers were revised and editedby Peter Annear (Nossal Institute or Global Health).


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HEALTH POLICY AND HEALTH FINANCE KNOWLEDGE HUB WORKING PAPER SERIES

NUMBER 17 | APRIL 2012 The growth o non-state hospitals in Indonesia and Vietnam: 1market reorms and mixed commercialised health systems

SUMMARYThis paper is based on studies o the recent growth and the roles and unctions o non-state hospitals inVietnam and Indonesia undertaken by the Health Strategy and Policy Institute, Vietnam, the Centre or Health

Service Management, Universitas Gadjah Mada, Indonesia (Hort, Trisnantoro et al 2011; Hort, Tuan et al 2011)and the Nossal Institute or Global Health, Melbourne. It attempts to compare the ndings in the two countries,to describe key aspects o their health systems and to examine these developments in the light o literature on

similar countries in the region and internationally. The aim is to understand better the signicance o the growth

o non-state hospitals in the two countries and the implications or policy makers. An initial review o the literatureidentied a range o approaches to examining the role o the private sector and public sector engagement o

private providers, including health sector market reorms and commercialised mixed health systems. These

concepts were used in reviewing the ndings rom the studies in Indonesia and Vietnam.

The country studies demonstrated similarities in the growth o or-prot (FP) hospital providers and in the growingcommercialisation, high levels o private health nancing and mixed public-private nature o their health systems.

Many o these characteristics were consistent with the published literature on commercialised mixed health

systems. While there were dierences in some aspects o the historical and socio-political contexts behindthese developments in the two countries, other actors, such as the infuence o medical specialists, community

demand and capacity to pay and economic growth, were common between the countries.

The countries aced similar issues regarding the eects o these new developments in their health systems onthe achievement o objectives. While there was evidence o gains rom the public-private mix in the availability o

services and technical eciency, there were concerns about the impact on allocative eciency, quality o services

and equity. In particular, the growth o FP providers in urban and wealthier areas may be contributing to unequal

access to services or rural and poorer communities, despite government investments in social health insurance.

Assessing health service delivery rom the perspective o commercialised mixed health systems (rather than

purely public or private service delivery) shits the key policy question rom how to engage the private sector to

how to manage a mixed commercialised system o public and private actors to achieve national health goals.This will require new approaches and new capacity in the use o a number o dierent policy and regulatory

levers, combined and aligned with appropriate nancing and payment incentives and with a stronger partnership

between government, civil society and proessional organisations.


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2 The growth o non-state hospitals in Indonesia and Vietnam: NUMBER 17 | APRIL 2012market reorms and mixed commercialised health systems

INTRODUCTIONThis paper is the third in a series that reports the ndings and identies the policy implications o studies othe role o non-state sector hospitals in Indonesia and Vietnam. The rst two papers ocused on each country

(Hort, Trisnantoro et al 2011; Hort, Tuan et al 2011); this paper refects on the major themes emerging rom thecountry studies, how these relate to the literature on non-state providers (NSP) and the implications or policymakers and development partners o countries in the region.

The country studies were undertaken by the Centre or Health Services and Management at the Universitas

Gadjah Mada in Indonesia and by the Health Strategy and Policy Institute, Ministry o Health, in Vietnam. Thestudies were a response to the recent growth o non-state providers, particularly FP providers, in the hospital

sector. There is now a large body o evidence on NSP involvement in health systems o low and middle income

countries (LMICs), particularly in Asia. The signicance o non-state providers (NSP) is demonstrated by the

high proportion o total health expenditure contributed by private expenditure (typically 50 to 70 per cent), mosto which is in the orm o out-o-pocket (OOP) payments at the point o service. In addition to user ees and

co-payments or state-unded services, much o this OOP expenditure is or services rom non-state providers

(WHO 2009; WHO 2010).

Studies have demonstrated that the non-state sector contributes a large proportion o ambulatory or primary

health care services despite the existence o extensive networks o state-unded services and acilities in

LMICs. This is also the situation in Indonesia and Vietnam. In Indonesia, 30 per cent o all outpatient care isprovided privately, while in the more urbanised areas o Java and Bali the private sector provides more than 50

per cent o outpatient services (Rokx, Schieber et al 2009). In Vietnam, the private sector provides an estimated

35 per cent o outpatient care in urban communities and 23 per cent in rural communities (Trieu, Lieu et al

2008).

Less is known about the contribution o non-state hospitals (hospitals tend still to be dominated by state

providers) even though the sector consumes a large proportion o health system resources (Hanson, Archard

and McPake 2001). The role o non-state providers o hospital services is likely to increase, along with theevident rise in non-communicable diseases as a proportion o the total disease burden, the increasing demand

or high technology services rom consumers with the capacity to pay and the increased nance available rom

social health insurance schemes (WHO 2008).

The earlier Indonesia and Vietnam country studies ocused on examining the ollowing issues:

Whatroleinprovidingservicesandtreatingpatientsarenon-statehospitalsundertakingineachcountry?

Whatarethemainfactorsdeterminingthecurrentroleandfuturepotentialofnon-statehospitals?

Howdoesthenon-statesectorcontributetoorimpactonthehealthsystemobjectivesofefciency,quality,

equityandavailability?

Inrelationtotheseobjectives,whatarethegapsinthecurrentpolicyandregulatoryframework,andwhat

aretheoptionsforaddressingthem?

This paper identies and compare the ndings in the two countries, describes key aspects o their health

systems and examines these developments in the light o literature on similar countries in the region and

internationally. The aim is to understand more ully the signicance o the growth o non-state hospitals in thetwo countries and the implications or policy makers.

METHODSThe two country studies combined the analysis o routine quantitative data on non-state hospitals and

qualitative studies about the unction o and services provided by selected non-state hospitals (Hort,Trisnantoro et al 2011; Hort, Tuan et al 2011). The quantitative data were collected rom Ministry o Health

reports and databases, while the qualitative studies examined hospital perormance data and interview data

rom hospital managers and hospital sta. In Indonesia, the qualitative study ocused on not-or-prot (NFP)


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hospitals and medical specialists, while in Vietnam it ocused on state and non-state hospital managers and

sta.

Methods or cross-country comparison o health systems and health system perormance are still developing,

and there is not yet a common ramework or approach. A key issue is how to deal with dierences in contextbetween countries. McPake and Mills (2000) suggest that ndings rom country studies can be divided into

three categories: generalisable, specic (to contexts) and categorisable (applying to contexts with certainsimilarities). Studies by the World Bank (Gottret, Schieber and Waters 2008) and the European Observatory

on Health Systems (Kutzin, Cashin and Jakab 2010) that compare health nancing strategies across countries

recommend explicit consideration o context and the use o a clear conceptual ramework. We have appliedthese recommendations in this paper. We carried out a purposive search o the literature to identiy appropriate

and relevant theories and conceptual rameworks, looking at a variety o disciplines including economics,

political economy, sociology and politics, and used web-based search engines as well as searches o

documents on relevant websites.

The paper is arranged in the ollowing sections:

theoreticalandconceptualframeworksidentiedintheliterature;

ndings,includingdescriptionandcomparisonofhealthsystemcontexts;comparisonofndingsfrom

studies o the growth and role o non-state hospitals; policy and regulatory rameworks; and impacts on health

system objectives;

discussion,includingexaminationofthendingsinrelationtoconceptualframeworksandidenticationof

the implications or policy;

conclusionandsummary.

Review o the Theoretical LiteratureMuch o the recent international literature is based on distinguishing the roles o public and private providers

and ocuses on how to engage the private (non-state) sector in achieving national health goals. Amongcommentators, some have actively embraced the growth o the non-state sector and propose ways to engageit better (England 2009); some have recognised that the non-state sector is part o the health system and

needs to be appropriately managed (Lagomarsino, Nachuk and Kundra 2009); and others have been sceptical

o the role o the non-state sector and emphasise the need to invest primarily in state services (Mills, Brugha etal 2002).

Defning and Distinguishing State and Non-StateHanson, Gilson et al (2008) argue it is not the ownership o health acilities but the nature o the incentives and

the quality o management and oversight that determine how providers behave. They question whether the

prot incentive o the private sector could be problematic in achieving public-good goals. In the same article,

Smith, Feachem and colleagues argue that, in Asia-Pacic countries, the non-state sector already contributes

signicantlytohealthcaredelivery.Thequestion,theyclaim,isnotcantheprivatesectorhelp?butratherhowcanprivate-publicpartnershipsbemademoreeffectiveandequitable?

A series o papers unded by the Rockeeller Foundation in 2009 argued that many countries already had largeprivate markets or health care, and these markets were unlikely to go away in the short term. Consequently,

the summary paper o the series concentrated on the barriers to stewardship o the private sector and on the

options or reorm (Lagomarsino, Nachuk and Kundra 2009). This discussion continued through the work o theHigh Level Taskorce on Innovative International Funding or Health Systems (Fryatt, Mills and Nordstrom 2010).

This is a complex area, and there is a need or urther evidence. One o the complexities is in dening and

distinguishing state rom non-state providers. While denitions tend to ocus on ownership, the boundaries

between state and non-state are blurred by non-state investment in state acilities, by nancial autonomy ostate acilities and by state-employed medical sta who also work in non-state acilities (dual practice) (Bloom,

Champion et al 2009). In many cases, policies intended to reorm public sector administration have attempted


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to introduce a private sector culture and approach. This is urther complicated by reerence to public and

private sectors: in some cases public reers to government services and in others to population health

services; and in some cases private acilities may deliver services that are generally open to the public andpartly nanced by the state. We have chosen to use the terms state and non-state to avoid this conusion.

Market-Based ReormsJakab, Preker et al (2002) describe the rationale and recommended approach or market-based health-sector

organisational reorms. They argue that perormance issues related to public (i.e. state) provision o health

services include:

technicalinefciency:resourcewaste,poormorale,highstaffnumbers,equipmentnotused;

allocativeinefciency:highbudgetallocationtohospitalsservingurbanelitesandneglectofmoreefcient

interventions;

inequity:hospitalservicesnotaccessibletothepoor;

poorresponsivenesstoclients,especiallythepoor.They suggest that market organisational reorms can improve eciency and responsiveness but are unlikely

to reduce inequities in access or nancial protection. Such reorms need to address two aspects: internalorganisation o hospitals and external operating environments (Boxes 1 and 2).

Box 1: Health Sector Market-Based Reorms: Internal Hospital Reorms

Autonomy: Allow hospital management the right to make decisions on aspects o hospital unction, including inputs (labour as well ascapital and investment), outputs and process (user ees).

Market exposure: Ensure the hospital is subject to competition rom other suppliers, in both the product market (production o outputsand delivery o services) and actor markets (obtaining inputs such as physicians and capital).

Residual claimant status: An organisations residual claimant status refects the degree o enorced nancial responsibility, both theability to keep savings and responsibility or nancial losses (debt). Limit or remove any residual claimants external to the hospital.

Accountability: Hold the hospital responsible and answerable or perormance to patients, payers, owners or regulators.

Social unctions: Explicitly dene the services the hospital is required to provide or which the revenues earned do not cover costs, butthere are social benets to the community or public.

Source: Jakab, Preker et al 2002

Box 2: Health Sector Market Reorm: External to the Hospital Operating Environment

Government oversight: The government provides adequate oversight in the health sector in (1) ormulating health policy by deningvision and direction or the sector; (2) regulating the actors in the health system; and (3) collecting and using inormation.

Organised purchasing: Purchasing services through collective or organised purchaser(s) determines the nancial incentivesembedded in the payment mechanisms and the extent o competitive pressures on hospitals.

Market pressures: The hospitals relationship with its consumers (market-driven purchasing) determines the extent o competitivepressures the hospital is subject to rom unorganised individual consumers, exercised through choice and user ees.

Ownership and governance: Governance is commonly dened as the relationship between the owner and management o anorganisation; good governance is said to exist when managers closely pursue the owners objectives rather than their own.


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Commercialised Mixed Health SystemsA number o commentators have drawn attention to the mixed public-private nature o many health systemsin LMICs, and some have reerred to the increasing commercialisation o these systems (Mackintosh 2007;

Bloom, Champion et al 2009, Nishtar 2010). Mackintosh and Koivusalo (2005) dene commercialised mixedhealth systems as:

the provision o health care services through market relationships to those able to pay; investment in and

production o those services and o inputs to them, or cash income or prot, including private contracting and

supply o publicly nanced health care; and health care nance derived rom individual payments and private

insurance.

Key aspects include:

marketisation:theshiftfromprovisionandinputsupplywithoutfeetofee-for-serviceprovisionandcash

payment or inputs;

commoditisation:thespecicationofitemsofserviceprovisioninaformcapableofbeingsoldonamarket;

privatisation:theshiftofanassetfromgovernmentownershipintoprivatehands;and

liberalisation:removalofconstraintsonprivateprovisionofhealthcareservicesandpurchaseandsaleof

inputs; (Mackintosh 2007).

Nishtar (2010) identies similar characteristics in what he terms the mixed health systems syndrome:

insufcientstatefundingforhealth;

anenvironmentthatallowstheprivatesectortodeliversocialserviceswithoutanappropriateregulatory

ramework;

lackoftransparencyingovernance.

He suggests that this syndrome compromises the quality o public services and equity o access.

Bloom, Standing and Lloyd (2008) have drawn attention to some o the underlying social characteristics o

markets in LMICs countries that persist in commercialised mixed systems. They note that these markets aretypically unorganised, inormal and unregulated, with porous boundaries between public and private sectors,

and weak government regulatory capacity. They identiy the importance o trust in relationships between seller

and purchaser in all markets, noting that trust based on social norms impose[s] a sel enorced order on amarket, compelling agents to behave airly and constrain individual interest ... in exchange transactions.

However, they also note that LMICs, where such markets have developed only recently, lack a history o

the gradual development o institutional arrangements and accepted roles that govern behaviour in more

developed Western markets. They suggest that in these situations there is a need to oster trust-basedinstitutional arrangements that provide a reasonable guarantee o competence and eectiveness or market

transactions.

FINDINGS

Health System CharacteristicsBoth Indonesia and Vietnam have mixed health systems, with large networks o state-owned acilities as

well as signicant provision and use o private providers and private acilities. In primary care, the use o

private providers or ambulatory care through the ormal sector (Western or traditional medicine), the inormalsector (traditional healers) or direct purchase o medicine rom retailers may equal or exceed the use o state

providers.

Both countries have invested over the last ew decades in a state network o primary health care acilities(village and subdistrict community health centres), as well as district hospitals, now reaching most areas o

each country. However, at only 1.2 per cent o GDP in Indonesia, and 2.8 per cent in Vietnam, government


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expenditure on health is low in comparison to similar countries. Private, mainly OOP, expenditure is a major

source o expenditure on health care, accounting or 40 per cent o total health expenditure in Indonesia and 55

per cent in Vietnam.

The government in each country has invested in improving nancial protection against health costs, throughsocial health insurance or the ormally employed population and subsidised schemes covering the majority o

the poor. Socio-economic and health indicators are summarised in Table 1.

Health OutcomesHealth outcomes have improved in both countries. Lie expectancy has increased, and both are mostly on trackto achieve the health MDGs. Vietnam is likely to achieve both MDG 4 and 5; while Indonesia is making good

progress on reducing child mortality, it is not making as much progress on reducing maternal mortality and

may not achieve MDG 5. However, both countries ace challenges in three areas:

persistentinequalitiesinaccesstohealthservicesandhealthoutcomesbetweenruralandurbanareas,

and between rich and poor; in Vietnam, recent evidence suggests these inequalities are widening (Lieberman

and Wagsta 2009); arisingburdenofillnessandmortalityfromnon-communicablediseases;theneedtorefocushealth

systems to address chronic diseases; and the need or public policies to prevent them (Trieu, Tien et al 2009);

expandingnancialprotectionandmovingtowardsuniversalcoverage;differentschemesprovidesome

protection or the poor, and social health insurance covers ormal sector workers in public service or privateenterprises; the challenge is to provide coverage or the large inormal sector and to reduce OOP expenditure

at the point o service. In Vietnam, total health expenditure has grown rapidly, reaching 7.2 per cent o GDP in

2008 (Trieu, Tien et al 2009).

The Hospital SectorInteresting dierences between the two countries are evident in the hospital sector. Vietnam has a much

higher bed-to-population ratio (one o the highest in South-East Asia), much higher average bed occupancyrates (oten exceeding 100 per cent) and higher case-fow rates than Indonesia. The reerral system unctions

poorly, causing an overload o central and provincial hospitals while district and community level acilities

are bypassed. State hospitals are dominant, and hospital unding uses 79 per cent o government healthexpenditure (Rokx, Schieber et al 2009), while non-state hospitals comprise only 7 per cent o all hospitals

nationally.

Table 1. Socio-Economic and Health Indicators, Indonesia and Vietnam (2008-09)

Indonesia Vietnam

GDP/capita (US$PPP)(2008) 3600 2700

Poor as per cent o total population 17 16

Lie expectancy in years (2008) 67 73U5MR/1000 live births (2008) 41 14

Total health expenditure as per cent o GDP 2.4 7.2

Health expenditure/capita US$ER/PPP 55/99 80/213

Government health expenditure as % total health expenditure 51.8 38.7

Government health expenditure as % total government expenditure 6.9 8.9

Government contribution to SHI as % govt health expenditure 13.7 31.4

Out-o-pocket as per cent o private health expenditure 73.2 90.2

Per cent o population covered by government-unded SHI schemes 38 42

Source: NHA database, WHO(2011) ; World Bank at a glance (2011).

Notes: ER = exchange rate; PPP = purchasing power parity; SHI = social health insurance.


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Indonesia has a much higher proportion o non-state hospitals, around 50 per cent o hospital numbers in

2008, with the big majority (82 per cent) managed by NFP organisations. Indonesia also has much lower

hospital bed-to-population ratios and lower hospital utilisation, resulting in a much lower proportion ogovernment health expenditure being used in hospitals (38 per cent). Hospital indicators are summarised in

Tables 2 and 3.

Role o the Non-State SectorThe studies in Indonesia and Vietnam demonstrated signicant growth in the non-state hospital sector in both

countries over the last ve to ten years. This was particularly evident in the growth o FP hospitals. While still a

relatively small proportion o the total number o hospitals (4-7 per cent), the numbers nearly doubled in the lastve years in both countries. In Indonesia, the numbers increased rom 49 to 85 and in Vietnam rom 45 to 82.

However, a major dierence is in the contribution o NFP providers o hospital services, which are 85 per

cent o the non-state hospitals in Indonesia but are virtually non-existent in Vietnam. This is largely the resulto decisions made early in the political development o the two countries: colonial era charitable hospitals in

Vietnam were nationalised but in Indonesia were allowed to continue to operate.

Thus, consideration o the role o the non-state sector needs to dierentiate between FP and NFP providers.For-prot providers in both countries tend to ocus on the urban and wealthier segments o the population and

to provide higher technology services with improved amenities, targeting specic market segments. Each o

the non-state hospitals in the Vietnamese study specialised in particular areas, determined by demand andthe availability o the required medical workorce. Thus a large hospital in Ho Chi Minh City specialised in

haemodialysis and assisted reproductive technology, while a smaller hospital in a provincial centre specialised

in endoscopy, which was not available at the local state hospital. Similarly, in Indonesia many o the non-state

hospitals were ounded by specialist doctors and provided services in the area o their medical specialty.

On the other hand, as noted, NFP hospitals in Indonesia made up the majority o the non-state providers and

tended to provide more charitable services, with a signicant proportion (38 per cent) located in rural areas

outside the main islands o Java and Bali. However, it was clear that NFP hospitals in Indonesia were acing

signicant pressures to commercialise and were having diculty maintaining their social welare mission.These changes resulted rom the loss o subsidies previously provided by government and parent charitable

Table 3. Hospital Perormance, Indonesia and Vietnam (2008)

Indonesia Vietnam

Bed occupancy rate 60 per cent 95 per cent

Average length o stay (days) 5.5 6.3

Average no. o cases/bed/year 40 50

Hospital unding as per cent o government health expenditure 38 per cent 79 per cent

No. o doctors/100,000 population 21 65

Source: Rokx, Schieber et al (2009), Trieu, Tien et al 2009

Table 2. Hospital and Population Indicators, Indonesia and Vietnam (2008)

Indonesia Vietnam

Total population (million) 227 87.1

Total number o hospitals (2008) 1320 1163

No. o non-state hospitals and per cent o total hospitals 653 (50 per cent) 82 (7 per cent)

Total no. o hospital beds (2008) 142,884 144,102

Beds/10,000 population nationally 6.3 16.9

No. o non-state hospital beds and per cent o total hospital beds 53,288 (37 per cent) 6289 (4.4 per cent)Source: Data compiled rom Ministry o Health reports in Vietnam and Indonesia.


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organisations and the current lack o tax concessions. As a result, there had been little growth in NFP hospitals

over the last decade and some conversion to FP management.

Policy and Regulatory FrameworksThe regulation o the non-state sector diers historically between Indonesia and Vietnam. At the time o

independence, Indonesia recognised the colonial health providers, allowed them to unction and permitteddual practice to continue. Indonesia has not, however, developed a clear policy or regulatory ramework or

the non-state sector and uses the common legal entity o oundations (yayasan) to cover NFP providers.

Vietnam nationalised colonial non-state hospitals at independence, prohibited private sector providers or a

subsequent period and introduced a policy or the engagement o the private sector in the late 1990s; althoughnominally NFP, most non-state hospitals have been established as FP entities. The government provides

specic targets in national plans or non-state hospital bed provision but gives little guidance on the expected

role or contribution o non-state providers. In both countries the regulatory rameworks ocus on licensingprocedures, based on workorce and acility inputs, with little ongoing monitoring or measurement o the quality

or standards o care.

Despite recent developments in the licensing o hospitals and the medical proession, the studies identied anumber o gaps and weaknesses in the policy and regulatory rameworks, summarised in Table 4. For many

regulations, enorcement and compliance are weak. Each country passed laws or the health sector in 2009

and 2010 that introduced new requirements or the licensing o health proessionals, licensing o acilities,

accreditation o quality o services and rights o consumers. The provisions in these laws are being translatedinto regulations, but ull implementation will take some time.

Table 4. Policy and Regulatory Gaps: Non-State Hospitals in Indonesia and Vietnam

Policy or regulatory aspect Indonesia Vietnam

Policy direction Little mention o non-state sector in policy

directives.

Targets or hospital beds but little direction on role

or services.No structure or process or regulator dialoguewith non-state sector.

No structure or process or regular dialogue withnon-state sector.

Market entry Licensing requirements but weak enorcement.No control over location o new acilities orservices / technology provided.

Licensing requirements ocus on inputs. Nocontrols over location or services / technologyprovided.

Not-or-prot and or-prot providersdistinguished by legal entity but no incentives oreither. Role or social benet rom not-or-protnot dened.

Incentives in land and tax concessions to non-state. Requirement or not-or-prot operation is notenorced.

Qualit y standards Registration o providers operating in non-stateacilities. No ongoing review o competency.

Registration required only o director o non-stateacility. No ongoing review o competency.

Dual practice permitted. Limitation to three

practice sites largely not enorced.

Dual practice allowed with permission o state

hospital director, but rarely implemented.

Third party accreditation system established butew hospitals engaged.

No accreditation system. Quality standards basedonly on inputs.

Lack tools / instruments tomeasure quality.

No regulation.

Prices / Payment No regulation. Government standard charges, but non-state notrequired to comply.

May elect whether to receive social healthinsurance patients.

May elect whether to receive social healthinsurance patients.

Consumer voice No regulation o inormation to be provided toconsumers.

No regulation o inormation to be provided toconsumers.

No specic mechanism or consumer complaint. Local complaint mechanisms only.


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Contribution to Health System ObjectivesIn general, health systems should achieve objectives related to access, eciency, quality and equity in thedistribution o health services (WHO 2007).

Service utilisation and access

In Vietnam, given the limited size o the non-state sector, its contribution to services provided or patients

treated is obviously small. The Vietnamese study estimated that 7.2 per cent o outpatients and 3.4 per cent oinpatients across the country were treated in non-state acilities. In Indonesia, the much larger non-state sector

makes a larger contribution to patients treated (though the precise numbers and the proportion o total hospital

numbers are not available).

Notwithstanding this variation in the contribution o the non-state sector, the question is whether the services

provided address unsatised demand or provide or populations in need. In Vietnam, the FP providers

addressed a niche market, but were able to provide signicant contributions to services in certain areas,particularly those using high technology. For example, non-state providers contributed a much higher

proportion o the number o X-rays and CT scans (up to 20-30 per cent in some settings) than would be

expected rom their proportion o total hospital beds. However, their services were concentrated in urban andwealthier locations and may not have contributed to addressing the needs o rural or poorer populations.

The Indonesia study was unable to locate data on the proportion o services provided, but it is likely that

the extensive network o NFP providers makes a signicant contribution to services or the poor, particularly in

urban areas, but also in regional and rural areas.

Efciency

Evidence on eciency was limited, particularly in Indonesia. However, in Vietnam, there was evidence o

potential improvement in technical eciency through the more ecient use o resources, particularly in

reducing stang ratios (which by contrast are xed in state hospitals by Ministry o Health decree). Non-state hospitals demonstrated more fexibility in responding to dierent markets and adapting stang ratios to

dierent service mixes.In both countries, allocative eciency may be jeopardised by investment, particularly in high technology

hospital services that provide an incentive or over-servicing and thereore raise expenditure on curative care at

the expense o primary care and preventive or promotive health activities. One study o the use o ultrasound

examinations in pregnancy in Vietnam demonstrated over-use (Gammeltot and Nguyen 2007). Vietnam

experiences high demand or hospital services, which consume a large proportion o state health unding, andthis is likely to be a major contribution to rising total health care expenditure. However, demand or hospital

services and expenditure on hospital services have not risen as sharply in Indonesia, despite a similar policy,

suggesting that other actors, such as community willingness to pay, may infuence hospital utilisation andconsequently resource allocation.

Quality o care

While the country studies were unable to compare quality o care between state and non-state providers due tothe lack o common standards and data, there were some indications that FP providers ocused investment inthe more marketable aspects o quality than in the less visible but clinically signicant aspects, as suggested

in the literature (Deber 2002). In both countries, non-state hospitals ocused investment in high technology and

higher prot services, and in improving amenities rather than on increased workorce to bed ratios.

There was also some evidence o potential negative impacts on the quality o care in public hospitals due

to doctors practising in both public and private sectors (dual practice). In Indonesia, doctors in the study area

(particularly medical specialists) neglected their duties in the state hospital and spent more time in their non-

state practice; neither the hospital management nor the local health oce was willing and able to enorceregulations. While dual practice was generally less extensive in Vietnam, in urban areas 50-60 per cent o

doctors working in private hospitals were also working in public acilities.


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Equity in distribution o services

Achieving equity in access to services and in health status was identied as a key challenge or health systemsin both Vietnam and Indonesia. In both countries, despite progress in achieving improved average health

outcomes, there were signicant inequalities in outcomes and service access between urban and rural/remote

communities and between rich and poor. Studies in Vietnam have demonstrated a worsening o inequalities(Lieberman and Wagsta 2009).

Many actors contribute to these inequalities. Even so, because o their ocus on urban and wealthier clientele, it

does not appear that non-state providers are making much contribution to addressing inequalities. In act, theymay contribute to worsening inequalities by attracting health providers to urban areas.

On the other hand, some have argued that dual practice, by allowing doctors to supplement their income rom

private practice, enables them to continue to work in the state system and provide services to the poor, and that

orbidding dual practice may lead to doctors leaving the state system and opting to work only in the non-statesector (Eggleston and Bir 2006).

Recommendations or Policy and Regulation Identifed by CountryPartnersThe recommendations related to policy and regulation in each country study was determined by the in-country

study partners, based on the policy environment and opportunities to infuence policy.

In Indonesia, the country partner ocused on two specic policy issues rom the broad range o potential policy

implications o the studies. These were:

theroleofNFPhospitalsandtheopportunitytointroducetaxationreliefforNFPinthenewhospitallaw;

thebehaviourofmedicalprofessionalsandthepotentialroleofmedicalprofessionalassociationsinsetting

and applying standards o behaviour.

In both these cases, the study partner could engage with civil society organisations (the association o NFP

hospitals in the rst case, and medical proessional associations in the second) to pursue policy changes. Thishas already had some success in the rst case, with the NFP hospital associations lobbying or and obtainingprovisions allowing taxation relie in the hospital law o 2009.

In Vietnam, the study partner identied the denition o social responsibilities or non-state providers and the

development o regulatory tools or monitoring o quality o care as priorities or urther policy development. Thisis consistent with its role in supporting regulation within the Ministry o Health. The results o the studies have

inormed development o the next 10-year health sector strategic plan, but the results are not yet available.

These selected priorities and mechanisms o policy infuence refect the dierent roles o the study partnerorganisations (an academic group in Indonesia, and a research section o the Ministry o Health in Vietnam) in

policymaking and the dierent policy opportunities in the two countries.

DISCUSSIONIn this section we compare some o the ndings rom the studies with the conceptual rameworks identied in

the literature and identiy some o the policy implications rom this comparison.

Common Themes and Characteristics o Mixed Commercialised HealthSystemsA number o common themes emerged rom the comparison o the growth o non-state hospitals and recent

developments in health systems in Indonesia and Vietnam. These themes demonstrate some consistency withthe characteristics o mixed commercialised health systems identied in Mackintosh and Koivusalo (2005) as

well as by Nishtar (2010), Bloom, Standing and Lloyd (2008) and Bloom, Champion et al (2009).


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Porous boundaries between state and non-state sectors

The boundaries between state and non-state sectors are not clearly dened. Non-state or private serviceprovision occurs within state acilities, and state service providers operate in non-state acilities. In both

countries, state hospitals provide private wards, where, or additional charges, patients can enjoy improved

amenities and (possibly) a higher standard o service. In Vietnam, private investment has resulted in theinstallation o non-state equipment that is operated as a private business within state acilities. The boundaries

are urther eroded by doctors unregulated dual practice in state and non-state acilities, which is nearly

universal in Indonesia. While it is less common in Vietnam, the majority o doctors working in non-state

hospitals also work in state hospitals.

Private fnance a major contributor to health care expenditure

The high proportion o OOP payments in total health expenditure in both countries indicates a high level o

commercialisation. In Vietnam, OOP payments are made primarily or a user ee at state and non-state acilities,while about one-third is spent on sel-treatment (Trieu, Lieu et al 2008). In both countries, state hospitals collect

user ees and co-payments rom insured patients, except or the very poor. In Vietnam, user ees have become

the primary source o operating revenues or state hospitals, while state and non-state hospitals compete in the

market to provide services and to attract and retain sta.

Low levels o government investment and inequalities in distribution o services

Government expenditure on health services is relatively low in both countries, despite recent increases through

government contributions to social health insurance. While service delivery in urban and wealthier areas has

been maintained, government acilities in rural and poorer areas are acing increasing diculties in obtainingand retaining sta. The distribution o the health workorce (particularly doctors and specialists) is skewed

towards urban and wealthier areas. In Indonesia, there are reports o poor perormance in rural acilities,

high rates o absenteeism and lack o supplies and equipment. Vietnam too reports higher levels o budgetallocation to urban areas than to rural, and diculties in attracting sta to rural acilities.

Weak regulation, with many transactions taking place outside the ormal or regulated system

The studies identied a number o gaps in current policy and regulatory rameworks. These existed in thestrategic direction and expected roles and unctions o the institutions and acilities contributing to the mixedhealth system, as well as in the regulations that control the operation o the system. Weak or absent regulatory

rameworks included the quality and standards o care, the distribution o acilities and personnel and the

provision o inormation to consumers. Even where regulations were applicable, the studies ound thatmonitoring and enorcement were oten weak. For example, many doctors exceeded the number o practice

locations allowed by the regulations in Indonesia, while many hospitals, both public and private, did not satisy

the acility standards set by regulations in Vietnam.

Factors Involved in the Development o Mixed Commercialised HealthSystems

Whether the commercialisation o the health system in the two countries is the result o conscious policy or oactors extraneous to the health system remains an open question, but the two studies have identied some

actors that appear to be involved in this shit.

Political, economic and social context

Changes in the political, economic and social context in both countries have encouraged greater devolution o

authority rom central government, reorms to reduce government spending and greater openness to privateinvestment.

In Vietnam, in response to deteriorating economic conditions, market reorms were introduced in 1986, which

reduced government unding or health services and encouraged user ees and a greater market orientation.

This was ollowed by decentralisation reorms in the 1990s that reduced the control o the central government(Fritzen 2007). Similar reorms were undertaken in Indonesia in 2000 ollowing the nancial crisis o 1997


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and the 1998 all o the Soeharto regime. Here too signicant alls in government unding accompanied

decentralisation, but the introduction o a social saety net provided some protection or the poor (Kristiansen

and Santoso 2006).

At the same time, the dierent political situations in the two countries have infuenced policy and regulatorycapacity. The more ragmented political context in Indonesia has hindered the development o a strategic policy

ramework, while the more centralised context in Vietnam has led to a more directed reorm process.

Legal and fnancial environment

The regulatory and nancial environment has encouraged commercialisation. One example is the move to

hospital autonomy in the state sector ollowing the application o health market reorm concepts (proposed

originally, or example, by Jakab, Preker et al 2002). Vietnam provides greater authority and opportunity ornon-state investment in the state sector than does Indonesia. In Indonesia, the lack o government support

(either through subsidies or taxation concessions) and the reduced nancial capacity o NFP hospitals have

contributed to relative stagnation in the growth o NFP hospitals and a move to commercialised activities.Government incentives or private investment in Vietnam have contributed to the growth o non-state and

FP acilities. The relatively liberal regulatory environment in Indonesia enables doctors in state hospitals toengage reely in private practice; in Vietnam, restrictions on dual practice are tighter, but in both countries weak

enorcement has undermined regulations.

Role o the medical proession

In both countries, the medical proession, particularly specialist doctors, has played a signicant role in the

establishment and operation o non-state acilities. In Indonesia, individual doctors or groups o specialists

have established new acilities, both NFP and FP. Generally, through dual practice, doctors and particularlyspecialists play a key role in non-state medical acilities and requently take on the additional role o owner

or manager. In Vietnam, doctors and specialists are closely involved in all three areas, and the availability

o medical specialists is a major actor in determining the type o services provided. Despite the increasingnumbers o specialist doctors, high demand or specialists in both countries has created an internal market, in

which hospitals compete to attract and retain the specialist doctors. This is particularly so in rural and poorerareas, where specialist doctors have a strong competitive advantage and are able to command a high price ortheir services. In Indonesia, the regulatory authorities are reluctant to enorce limitations on private practice in

these circumstances or ear o driving specialist doctors to practise elsewhere.

Economic growth and increased community demand and capacity to pay or quality services

In both countries, non-state hospitals, particularly FP providers, are concentrated in urban and more afuentareas, where demand is greater and there is a clientele with the capacity to pay. The gradual expansion o

state-unded demand-side nancing, through social health insurance, has increased the ability o even poorer

segments o the population to demand hospital services. As the World Health Report 2008 commented, there

is a growing segment o the population with sucient income to aord these services, which is infuenced byglobal economic and social cultural values and expectations and which provides the demand or services that

non-state providers supply (WHO 2008).

Implications or Policy MakersOur country studies suggest that policy attention has been ocused on the provision o services by the state

sector and has tended to neglect a policy ramework and direction or the growth o the non-state sector.

International policy attention has also tended to view the issue as a question o engaging the non-state sectorin contributing to state health system goals. However, the lens o a mixed commercialised health system reveals

the need or a dierent approach to the non-state sector, one with a greater emphasis on stewardship and

regulation o a mixed system o state and non-state actors without distinct boundaries.

The proponents o health sector market reorms have also identied some o the management and regulatory

challenges that need to be addressed by policy makers (See Boxes 1 and 2 above). Our studies suggest that

particular attention is needed in a number o areas.


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Establish a clear policy ramework

Provide a clear policy ramework establishing expectations on outputs and objectives, directions or mixedhealth system development, denition o roles and contributions rom state and non-state providers and

mechanisms or dialogue, communication and coordination among state and non-state players in the health

sector. Such a policy ramework should be developed through a partnership between state and non-stateactors. Bloom, Champion et al (2009) point to the shared interest o government and health system actors in

achieving an eciently unctioning and growing health system.

Eective regulatory controls

Eective regulations are required to ensure protection o the public interest and ecient operation o markets,including the competence o providers, dened standards or saety and operation o health services,

protection o consumer rights, air competition among providers and prevention o unair advantage over

patients being taken by practitioners. A range o regulatory mechanisms will be required, ranging rom sel-regulation and co-regulation, involving third party and proessional associations, to rules and enorcement and

meta-regulation (Healy and Dugdale 2009).

Market and fnancial incentivesThese measures need to be complemented by more strategic use o market and nancial incentives to ensureconsistent alignment between the regulatory ramework and health policy goals. In particular, this requires a

shit away rom patient ee-or-service payments and towards collective purchasing through the use o pooled

unds. Payment mechanisms can then create appropriate incentives through contracts, subsidies, incentives

or case-mix payments that are more tightly linked to perormance (Jakab, Preker et al 2002). This, however,requires increased capacity in purchasing skills, monitoring and reporting systems (Ensor and Weinzierl 2007).

CONCLUSIONThe growth o the non-state sector and the increasing commercialisation within mixed health systems leads to

greater challenges in regulation in the LMICs o Asia. The shit to mixed health systems aects the achievement

o health system objectives and may lead to increasing availability o resources, responsiveness to consumerexpectations and eciency in the use o resources, but raises greater challenges or quality and equity.

Eective regulation and management o these systems will require a change in approach that:

acknowledgesthatthehealthsystemfunctionsasamixedcommercialisedsystem,withvaryingproportions

and contributions rom state and non-state providers, and the need to engage with all providers and

stakeholders, including consumers and community, in stewardship o these systems;

developspolicyandregulatoryframeworksthatareappropriatetodifferentcontexts,suchasthemore

ragmented and pluralistic context o Indonesia or the more centralised system in Vietnam;

usesabalancedmixofcommand-controlregulation,co-regulationwithnon-governmentpartnersand

market and nancial incentives to achieve a balance among the objectives o service availability, quality,

eciency and equity in usage and payment.

Proposed changes that will liberalise health markets among ASEAN countries rom 2010 will urther increase

market pressures on health systems and require careul management by policy makers (ASEAN-US Facility2007). Without appropriate regulation and greater attention to the inequitable distribution o services, demand-

side nancing reorms such as social health insurance may not improve equity and could result in unproductive

cost escalation (Ramesh and Wu 2008). Policy makers are now acing these challenges in the rapid transition to

mixed health systems; the careul implementation o regulatory approaches can be decisive in achieving healthgoals.


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KNOWLEDGE HUBS FOR HEALTHStrengthening health systems through evidence in Asia and the Pacic

A strategic par tnerships in itia tive funded by the Australian Agency for International Development

The Nossal Institutefor Global Health

Documents

The growth of non-state hospitals in Indonesia and Vietnam: market reforms and mixed commercialised health systems (WP17)