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Moving towards strategic

purchasing for health in Asia

Health Financing Policy bi-regional workshop 19-22 June 2017, Delhi
Gerard Servais, Kirthi Ramesh
Introduction to strategic purchasing
Strategic purchasing and Public Financial Management
Strategic purchasing for integrated care
What is strategic purchasing?
Purchasing is the process of paying for services:
• Benefit package design: WHAT services and drugs will
be purchased (to be offered), and at what copayment
• Selection of providers: WHO will provide? At which
• Resource allocation criteria and provider payment
methods: HOW are providers paid and at what rates?

→ Strategic Purchasing: Moving towards evidence-

based, active engagement in defining above
Source: WHO
Moving from passive to strategic purchasing
is a continuum

“Passive” Strategic
• resource allocation using norms • payment systems that create
• little/no selectivity of providers deliberate incentives
• little/no quality monitoring • selective contracting
• price and quality taker • quality improvement and rewards
• price and quality maker

→ Increasingly, allocation of funds to health is moving from passive to active

Source: Cashin 2014
What is strategic purchasing?
→ Align funding and incentives with promised services

• choose payment methods and payment rates that create incentives for
providers to provide needed services
• link the transfer of funds to providers, at least in part, to information on
aspects of their performance or the health needs of the population they

→Critical to enhance efficiency, equity in access, quality as well as

financial protection.

Source: WHO
The “Traditional” Provider Payment
• Each provider payment
• has strengths and weaknesses
• differs in administrative complexity,
nature of provider incentives, and
implications for improving quality,
efficiency, responsiveness, and
• Rarely do providers receive only
one form: co-existence of a
multiple and hybrid payment
mechanisms, adding to
Source: Chu & Tandon: How to Purchase?
Key challenges to moving towards
strategic purchasing

Source: WHO
Introduction to strategic purchasing
Strategic purchasing and PFM
Strategic purchasing for integrated care
PFM plays a critical role in supporting (or not)
reforms aimed at strategic purchasing
• Public funds are the cornerstone of
sustainable financing
• Many health financing reforms have PFM
implications or need support of PFM
• Rules and regulations stipulated by PFM
impact health financing reforms
• Oftentimes, dialogue and understanding
between the health sector and ministry of
finance is insufficient

→A strong PFM system can ensure higher

and more predictable budget
allocations, reduced fragmentation in
revenue streams and funding flows, timely
budget execution, and better financial
accountability and transparency.
PFM and Health Financing have shared goals but are
often misaligned and designed and operated in parallel

PFM: “institutions,
policies and processes
that govern the use of
public funds”
Source: Cashin et al 2017
Unique characteristics of the health sector
can create tension with the PFM system

→ Education sector - Need/ demand can be predicted more easily (number of students
per years, inputs needed)
Source: World Bank
PFM challenges for health financing and
strategic purchasing
Revenue raising Pooling Purchasing
- Unpredictable health sector budget ceilings - Fragmented input budgets - Budgeting by health facility and inputs
(e.g., salaries/ commodities/ rather than by services
- Fragmented revenue sources for the capital); donors
health sector (not reflected in - Different purchasing arrangements and
consolidated health budget) - Fragmented revenue accounting for different revenue
streams (e.g., insurance streams
- Budget allocations that are separate schemes)
from policy objectives and planning - Lack of provider autonomy to respond to
- Provider-based budgets incentives created by strategic purchasing
- In-year budget adjustments by the ministry
of finance that take place outside of the - Fiscal decentralization - Obstacles to contracting the private sector
formal priority-setting process
- Pooling across time (carry- - Government procurement rules that limit
- Budget classification by inputs rather over budgets) flexibility
than by programs or services
- Delays in release of funds
- Diverging budget classification
- Poor information systems and
Source: Cashin et al 2017
monitoring capacity
Line-item budgets
• No flexibility in how to use funds to respond to patient/population needs
• Prioritizes accounting for money spent over actual health outcomes
• Encourage risk aversion – providers may be penalized for using funds in
innovative ways
• Ultimately they may lead to under-execution of funds
Misalignments through fragmentation

in pooling

in revenue

Misalignment in
purchasing Source: WHO
Reality can be far more complex
Mixed signals to providers

Strategic Purchasing is about creating incentives for providers!

Solutions to find the right balance

Source: World Bank

PFM reforms to enable strategic
Policy-based budget • Comprehensive spending plan with sectoral budget ceilings
formulation / Medium- • Links policy priorities to macro and revenue forecasts over 3+ years
• Can offer better planning, management and predictability
term expenditure • Ensures fiscal discipline but mixed records in improving allocative efficiency across sectors

• Allows for organizing budgets around health services (e.g. essential services package; primary health care) instead
individual spending units (e.g. health facilities) or narrow vertical programs (e.g. HIV/AIDS)
Program- • Performance-based budgeting builds on PBB by incorporating explicit goals/targets, creating opportunity to link
budget allocations with measurable results
based • More flexibility by setting spending levels and controls at program level without compromising financial controls
budgeting • Program managers empowered to reallocate funds as needs change → efficiency gains can be re-invested in the
program instead of being lost to budget cuts the next year
• Movement towards PBB is widespread, but country experience has been mixed across sectors

Resource allocation • Shift from input-based (norm-based) to needs-based mechanism for

allocating budget across geographic areas/subnational governments
formulas for inter-fiscal • Some countries use performance indicators to determine inter-fiscal
transfers transfers (e.g., Argentina, Brazil)
Source: Cashin et al 2017,
World Bank
Other reforms to overcome PFM
• Output-based provider payment
• Capitation, case-based, fee-for-service, etc.
• Provider autonomy
• Improved information systems and M&E/analytical capacity
• Extra-budgetary funds (e.g., social insurance agencies)
• Multi-year framework contracts for pharmaceuticals
• Donor-supported results-based financing
• Consolidate all funding flows

→ Some reforms for SP through PFM others need larger scale reforms
→ Key is to make incremental changes
Introduction to strategic purchasing
Strategic purchasing and PFM
Strategic purchasing for integrated care
• Rising prevalence of NCDs and other chronic

• Addressing NCDs and other chronic conditions:

organizing health systems to provide integrated care

• Strategic purchasing for integrated care: concepts,

options, issues, and challenges

Source for subsequent slides: Vinyals

Torres & Tandon.
Trends in global
burden of disease:
rising prevalence of
NCDs and other
chronic conditions

Chronic conditions (WHO)

as requiring “ongoing management over a period of years or decades” and
cover a wide range of NCDs such as heart disease, diabetes, and asthma.
They also include mental disorders such as depression and schizophrenia;
disabilities and impairments not defined as diseases -- such as blindness and musculoskeletal
disorders; -- and also include cancer.
Risk factors and ageing in Asia
Addressing NCDs and other chronic
conditions: organizing health systems to
provide integrated care
Example: Diabetes
Key Elements of People-Centered Integrated Care
Strategic purchasing for
integrated care:
concepts, options,
issues, and challenges
Innovations to Provider Payment Mechanisms
Add-On Payments
✓ Adjustments made to traditional provider
✓ payment mechanisms to incentivize integration.
✓ Designed to complement, not replace, traditional provider payment
✓ Can be made to single provider or network of multiple providers; also to
Add-on payments: examples
Source: OECD, 2016
Bundled payments

• Single payment made to

multiple providers for all
services associated with an
acute or chronic episode of care
such as “knee replacement” or
“diabetes care” over a specified
time period.

• Providers constituting a
“delivery group” assume
financial risk for the cost of
services for defined episode as
well as costs associated with
preventable complications.
Source: OECD, 2016

• Single payment made to

multiple providers for all
services that may be needed for
a covered individual over a
specified time period; also
known as “global capitation”.

• Providers constituting a
“delivery group” assume all
financial risk for provision of
• Makes payments completely
people-centric as opposed to
being provider- centric.
Population-Based Payments:
Accountable Care Organizations (ACOs)
➢ACOs are voluntary network of multiple providers, including
primary health care, hospitals, and sometimes specialists and
➢ACOs bear financial risk for provision of all or the vast majority
of health care services needed by a defined population.
➢ACOs are rewarded or penalized on how much their total costs
per patient compare with historical references and, hence, are
incentivized in effect like that of a population-based payment
➢They are permitted to keep part of the savings they generate
relative to historical references provided they meet specific
quality criteria.
Conclusion: There is No Single “Best”
Way to Pay for Integrated Care