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The World Bank Institute in collaboration with OHanlon Health Consulting, Tropical Health LLP, and University of California at San Francisco JANUARY 2014

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MARKETS FOR HEALTH SESSION 2 Introduction to Markets for Health (1): Market Forces and Market Governance April Harding The World Bank Institute in collaboration with OHanlon Health Consulting, Tropical Health LLP, and University of California at San Francisco

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MARKETS FOR HEALTH Successful engagement? Source: Hetzel, et al 2006 "Decreased availability of antimalarials in the private sector following the policy change from chloroquine to sulphadoxine- pyrimethamine in the Kilombero Valley, Tanzania." Malar J 5: 109. Chuma, J., et al. (2010). "Towards achieving Abuja targets: identifying and addressing barriers to access and use of insecticides treated nets among the poorest populations in Kenya." BMC Public Health 10(1): 137.

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MARKETS FOR HEALTH RATIONALE FRAMEWORK INSIGHTS

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MARKETS FOR HEALTH From engagement to skillful engagement

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MARKETS FOR HEALTH Markets not actors Aim for better governance What do we know?

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MARKETS FOR HEALTH (Some) health policymakers Infrastructure policymakers Ikea customers Who uses schematics? And how? This regulation goes.where?

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MARKETS FOR HEALTH Explore implications of a market perspective Characterize health market governance using the Market Forces framework Apply the framework to compare governance of different markets in the health sector Session objectives

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MARKETS FOR HEALTH A market perspective Recognizes the impact of a policy depends on how others react, and, that you Cannot choose a good path with out adding up those reactions Emphasizes that health authorities are responsible for the whole sector, and need to pick policies with regard to influence on market operation

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MARKETS FOR HEALTH RATIONALE FRAMEWORK INSIGHTS

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MARKETS FOR HEALTH Why do we need an M4H approach? Integrate market and market governance analysis into health sector assessment and policymaking So policymakers can understand their own markets better So policymakers can learn from others experiences

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MARKETS FOR HEALTH Market analysis can help Price in Germany? 35 How much do you think their neighbors pay?

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MARKETS FOR HEALTH Identify and manage policy actions to nudge market operation as a means to achieve health goals Market analysis can help Why am I paying twice as much as those %#&!@ Germans?

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MARKETS FOR HEALTH MARKETS FOR HEALTH (M4H) APPROACH Health Market Systems (HMS) Framework Market Forces (MF) Framework Market for Health Approach (M4H)

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MARKETS FOR HEALTH Many countries have market forces operating in their health system, and widespread private sector activity, yet perform well. How does this work? What are the policymakers & agencies doing? How are problems contained? private sector harnessed? Steering market forces: how does it work?

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MARKETS FOR HEALTH Market Forces framework is a schematic for characterizing the magnitude and quality or "nature" of structuring forces present in a health market. made up of the six most common domains within which buyers and sellers behavior is constrained in a health market a snapshot" characterizing the structuring relative to market forces operating in a particular market at a particular point in time.

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MARKETS FOR HEALTH Operational autonomy This domain refers to the degree of constraint from factors other than market conditions (or market forces) on sellers day-to-day activities. It combines both the magnitude of constraint and the proportion of sellers which operate under the constraint. 100% 0%

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MARKETS FOR HEALTH Social funding This domain reflects the magnitude of subsidy or other socialized funding present for the product and/or services in the market. Socialized funding includes funds pooled through mandatory and voluntary insurance arrangements; it also includes implicit or explicit cross-subsidization implemented by providers under universal service obligations. It is a proxy reflecting the combined strength of a range of underlying structuring forces operating in a market. A market where there is no social funding for any goods and services will typically be less structured than a market where goods and services are subsidized. 100% 0%

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MARKETS FOR HEALTH Customer competition This domain characterizes the degree to which sellers or providers depend on customers choices for income; it combines the degree of dependence, and the proportion of providers in the market which manifest such dependence. 100% 0%

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MARKETS FOR HEALTH Price influence This domain refers to the nature of the underlying process generating prices in a health market. The process can derive from: Sellers freely determining what price they will charge - given their costs of operation and their experience with buyers responses. Prices emerge partly from sellers determination, but are also constrained by negotiations with sizable customers/ payers and or regulatory factors or regulators activity. Officials managing or administering services and the like, are setting prices. Sellers determination of "what makes sense" (e.g. at what price can they "afford" to sell) has little or no influence on prices.

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MARKETS FOR HEALTH Entry barriers The magnitude of barriers to entry operating in a health market, which may derive from natural (e.g. scale economies; high upfront cost) or regulatory sources. 0% Very high

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MARKETS FOR HEALTH Performance pressures from contracts - related to getting a contract or being included in a scheme or network - to perform under a contract. CategoryExamples of IndicatorsWeight Quality of Information Medical records contain secondary diagnoses Place of residence codes completed in patient records Reason for caesarian sections provided 0.10 Efficiency Also for specific services (without secondary diagnoses) remain within pre-defined ceilings 0.10 Quality Mortality, medical record and infection commissions are fully operational % of deaths analyzed by mortality commission % reduction in infection hospital rate 0.70 Patient Satisfaction % percent of patient complaints addressed Realization of patient satisfaction survey 0.10 Pressure on sellers

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MARKETS FOR HEALTH Performance pressures from contracts In a totally unstructured market, providers are not subject to performance pressures related to contracts (they may or may not have contracts; however, if they have contracts, they are not exerting pressure on the providers related to their performance (e.g. they are not pressuring them to cut costs; nor pressuring them to improve quality or meet other performance targets). No tension

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MARKETS FOR HEALTH Performance pressures from contracts A common strategy to structure markets is to use either a) eligibility for contracts; and/or b) contract design to generate performance pressure on providers. Adding some performance tension

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MARKETS FOR HEALTH Performance pressures from contracts The UK market for specialty services prior to ISTC contracting was a very unstructured market. NHS contracts with independent providers were spot market. Little pressure for performance (e.g. little pressure to keep prices down, or quality up.) Adding some performance tension The ISTC contracts increased the performance tension in the specialty services market in the UK.

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MARKETS FOR HEALTH Performance pressures from contracts No tension In administered settings, provider organizations are not contracted, they are directly administered. No contracts or contract-related tension

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MARKETS FOR HEALTH Performance pressures from contracts No performance tension Establish contracts (separation of provider from payer) A common strategy to generate performance pressure in administered settings, is to endow providers with autonomous or independent status, and establish a contract with them related to performance

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MARKETS FOR HEALTH Performance pressures from contracts When a large portion of sellers or providers in a market, experience performance pressure related to getting contracts, or related to performance criteria within contracts, then that market would be characterized as falling in the middle on this domain. High performance tension experienced

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MARKETS FOR HEALTH What are these market forces? Easier to define in application OPERATIONAL AUTONOMY CUSTOMER COMPETITION PRICE INFLUENCE ENTRY BARRIERS SOCIAL FUNDING PERFORMANCE TENSION FOR/UNDER CONTRACTS 0%100% AdministeredMarket Very High0 100%0 No contractsNo tension 100% 0%

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MARKETS FOR HEALTH Market forces: French drug retail services market CUSTOMER COMPETITION ENTRY BARRIERS AdministeredMarket Very High0 100%0 No contractsNo tension OPERATIONAL AUTONOMY 0%100% 0%100% PERFORMANCE TENSION FOR/UNDER CONTRACTS PRICE INFLUENCE SOCIAL FUNDING

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Market Forces India drug retail services market (private part) Natural (spontaneous) market OPERATIONAL AUTONOMY CUSTOMER COMPETITION PRICE INFLUENCE ENTRY BARRIERS SOCIAL FUNDING PERFORMANCE TENSION FOR/UNDER CONTRACTS 0%100% AdministeredMarket Very High0 100%0 No contractsNo 0%100%

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Market Forces India drug retail services market (public part) OPERATIONAL AUTONOMY CUSTOMER COMPETITION PRICE INFLUENCE ENTRY BARRIERS SOCIAL FUNDING PERFORMANCE TENSION FOR/UNDER CONTRACTS 100%0 AdministeredMarket Very High0 100%0 No contractsNo Administered service provision

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Market Forces in the entire market Indian drug retail services OPERATIONAL AUTONOMY CUSTOMER COMPETITION PRICE INFLUENCE ENTRY BARRIERS SOCIAL FUNDING PERFORMANCE TENSION FOR/UNDER CONTRACTS AdministeredMarket Very High0 100%0 No contractsNo tension 0%100% 0%100% User perspective: unfortunate choices

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MARKETS FOR HEALTH What is a market? the interaction between all the buyers seeking something and all the sellers from whom they may get it Buyers (patients; payers) Provider; sellers Demand Side Supply Side

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MARKETS FOR HEALTH What is a market? 1.99 miles Graphic: Jishnu Das, MAQARI Project Product market Geographic market The market

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MARKETS FOR HEALTH Points of clarification? Exercise

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MARKETS FOR HEALTH Market forces: French drug retail services market CUSTOMER COMPETITION ENTRY BARRIERS AdministeredMarket Very High0 100%0 No contractsNo tension OPERATIONAL AUTONOMY 0%100% 0%100% PERFORMANCE TENSION FOR/UNDER CONTRACTS PRICE INFLUENCE SOCIAL FUNDING

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Sub-sector governance (France): Aggregating market forces domains for retail pharmacy market Prescription Pharmaceutical More Market Forces More Structuring Forces

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Balance of Market vs Structuring Forces across Health Sub-sectors: French Health System Primary Care Services Prescription Pharmaceutical More Market Forces More Structuring Forces

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Balance of Market vs Structuring Forces across Health Sub-sectors: French Health System Surveillance, Policy, National Reference Lab Acute Inpatient Specialist Outpatient Services Primary Care Services Pharmaceutical Production Wholesale/ Distribution Pharmaceutical Prescription Pharmaceutical OTC Pharmaceutical More Market Forces More Structuring ForcesAdministered

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Balance of market vs structuring forces across health sub-sectors: OECD Health Systems MORE STRUCTURE MORE MARKET Acute Inpatient (Hospital) Diagnostics, Elective Surgery, Specialist Services Primary Care; Pharmacy Production & Distributio n Retail, OTC Pharmacy Source: Health Systems Characteristics, OECD (2010)

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MARKETS FOR HEALTH RATIONALE FRAMEWORK INSIGHTS

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Balance of Market vs Structuring Forces across Health Sub-sectors: OECD Health Systems MORE STRUCTURE MORE MARKET Acute Inpatient (Hospital) Diagnostics, Elective Surgery, Specialist Services Primary Care; Pharmacy Production & Distributio n Retail, OTC Pharmacy Why are market forces so widespread?

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MARKETS FOR HEALTH Insights from mixed health systems In health markets.. Policy arrangements consistently exert more structure in some markets than others: higher potential for harm? fewer benefits from market forces (monopoly; rare services; shoe leather costs)? Policy arrangements consistently exert less structure, allowing more market forces in some markets than others: lower potential for harm? higher benefits from market forces (no monopoly) ? frequently used services? customer or buyer choice generates performance pressure?.

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MARKETS FOR HEALTH Low-hanging fruit

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MARKETS FOR HEALTH More market vs. more structure Structuring & Market Forces Have Opposite Potential Strengths and Weaknesses MORE STRUCTURE Cost Containment Equitable Distribution Financial protection MORE MARKET Access Responsiveness Productivity/Efficiency Growth/ Investment

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MARKETS FOR HEALTH Characterizes distinct approaches to managing a market Can distinguish steering approach used in different markets (e.g. pharmacy vs primary care) Can shed light on direction of change Where steering approaches converge, may give a schematic of the key components of a workable governance mechanism and how they fit together May help identify low-hanging fruit Market forces framework