FINANCING OF HOSPITAL SERVICES

By: MA. CORAZON AZURIN PRECILLA Submitted to: DR. FELCEDA CABANOS

FINANCING OF HEALTH SERVICES

HEALTH CARE EXPENDITURES
Health care expenditures contributed 3.6% of the country s Gross Domestic Product (GDP) in 1995, below the 5% standard set by the World Health Organization (WHO) for developing countries. GDP refers to the market value of all final goods and services produced within country in a given period of time. It is often considered an indicator of a country s standard of living. While there exists a national insurance program, pension funds and private insurance plans, personal expense, or out of pocket (OOP) expenditures still accounted for about 47% of all health expenditures in 1997 and even rose to 54% in the year 2007. The annual health expenditure in the Philippines amounted from P87.1 Billion in 1997 to P234.3 Billion in 2007. The government s goal is to increase the share in expense of social insurance from 5%of the total health

expenditures to 30%. However, the social insurance s share as of the year 2007 has grown only by 4%, from 5% in 1997 to 9% in 2007, falling short of the government s goal by 21%. In 1995, Republic Act No. 7875, an act instituting a National Health Insurance Program (NHIP) for all Filipinos and establishing Philippine Health Insurance Corporation (PHIC), was passed in 1995. Since then, social insurance is the responsibility of the PHIC which assumed administration of the pension funds for both private and government employees since 1998. All Filipino citizens, whether self-employed, employed or indigents are required to become members before they can avail of the benefits or reimbursements for medical services. This is done through automatic salary deduction or direct payments to Philhealth. Aside from this, Filipinos have the choice to become members of life insurance companies of health management organizations (HMO s). In general, healthcare financing in the Philippines call for improvement. While the public health system was decentralized to local government units (LGU s), this only lead to inequitable distribution of health services.

MAJOR PROBLEMS IN HEALTH FINANCING Regardless of whether a hospital is owned by the government of a private entity, it still requires money to operate it. More often than not, finances become a major problem or set back in the operational system of a hospital. The following are the major problems in financing health services: 1. Lack of funds. This inadequacy may be absolute, in which case, it can be corrected only by the infusion of additional resources. This may be done any of the folllowing: For government run hospitals:  Additional funding from other government units.  Additional funding from donors (private entities, individual donors, foreign aid, etc.) For private hospitals:  Increase in capitalization.  Advances from stockholders (additional equity).  Obtaining loans from lending institutions like banks.

Another inadequacy is called relative. This inadequacy may be corrected by the following schemes:  Better use of existing resources.  Mobilizing previously untapped resources.  Redirecting funds from other sectors. In our hospital, we enjoin our consultants to tell their patients to have their laboratory and other diagnostic tests done in our hospital instead of the patients going to other diagnostic centers. This way, we maximize the use of our existing machines and equipment and manpower as well. Sadly, there are employees who are not very productive. Stricter measures, close monitoring and proper motivation can be done to tap these employees skills. In so doing, we maximize the use of our people and reduce cost by not having to hire additional personnel.

Redirecting of funds from other sectors such as from the national to the local government is another way to alleviate this inadequacy. Funding from other nongovernmental agencies like the Philippine Charity Sweepstakes Office (PCSO) or the Philippine Amusement and Gaming Corporation (PAGCOR) is a big help to our government hospitals. The Philippine General Hospital (PGH) does not rely solely on government funding. It has a foundation who solicits funding from philantrophists, companies or corporations or other foundations. It also engages in different fundraising events like golf tournaments, art auctions, fashion shows, concerts and the like.

2. Maldistribution of health care costs. Maldistribution of health care costs may be one of two things:
 Geographical maldistribution happens when most of the expenditures is on urban health services and only a small portion is alloted to rural or remote areas.

 Functional maldistribution could happen in a market economy where wealth determines the volume of care rather than the real health needs. This also happens in situations of compulsory social insurance schemes covering only a small minority of the population, where services are very good while for the rest are wanting.

3. Rising health care costs.

 Rising health care costs from rising public expectations, qualitative and quantitative concomitant with rapid technological developments in the health field require more investments on the part of the hospital. Obtaining licensures or accreditation is one good example. The benchmarking by the Department of Health (DOH) required our hospital to purchase some machines/equipment. This put a great cost in our hospital s finances.

Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can take place both inside a particular industry, and also in other industries. The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.
 Rising health care costs may be caused by the rising cost of living which inevitably raises the cost of health care. Basic needs like electricity and water are very expensive. Prudent use of these should be properly observed to help cut down costsT  Rapid technological developments in the health field not only in terms of machines, but also of highly skilled personnel, require more investments.

4.

Lack of coordination. In most countries, health care financing is derived from different resources. Within the government, problems of coordination may be observed between the national and local government units (LGU s). Coordination may also be a problem in the use of foreign aid wherein different instrumentalities of government are unable to provide the necessary participation in the actual execution and in putting up counterpart funds as may be required. In private hospitals, lack of coordination can happen between departments. Wastage and/or spoilage that can result from this will cost money for the hospital.

5. Inefficiencies in spending (mismanagement of

funds).
 Overstaffing and/or misuse of manpower.  Misuse of expensive health equipment.  Use of unnecessary or inappropriate technology.  Management and administrative deficiencies.

APPROACHES TO IMPROVE FINANCING It is important to know or recognize that health financing problems are not simply health sector problems. They often reflect economy-wide difficulties. They require national strategies to address them even where additional resources are to be recruited by actions within the health sector and that resources can be re-allocated within the sector to meet priority health needs, in order to justisy financing strategies. The World Health Organization (WHO) Technical Report Series 625 listed the following approaches.

1. Extending existing sources of funds.

 Through more efficient taxes/contributions.

collection

of

General tax revenue is used in almost every country to finance certain components of health care in developing countries. However, it is not the most reliable source of finance for the health sector. This results from factors such as the low political priority frequently given to the health sector in national budget decisions.
 Through increasing taxes and employee-employer share.

An increase in employee/employer share in compulsory health insurance is another approach. The following is the current table of contributions from Philhealth:

The premium paid by voluntary members was recently upped from P100.00/month to P200.00/month. 2. Devolping new sources of revenues such as introducing new tax laws and earmarking for health, portions of certain specific taxes already being enforced.
 Value added tax (VAT) imposed by the Bureau of Internal Revenue.  There are also the excise taxes otherwise known as sin taxes, imposed on cigarettes and liquor. The consumption of tobacco and alcohol contribute to health care costs for a number of diseases brought on by it which impose significant costs on health care systems.

3. Extending/introducing social security systems (health insurance).

 Private health insurance differs from social insurance in 2 main ways. First, private health insurances typically does not include pensions for invalidity or old age. Secondly, the price ( premium ) charged for private health insurance is not based on the pooled risks of a large population, but on personal risk characteristics and the likelihood of illness in the individual or group covered.  Social insurance can finance health care, as well as other needs such as invalidity and old age support, for either the whole population or a part of it. It is financed by imposing mandatory insurance payments on employed workers and a somewhat higher part from the employers.

4. Encouraging community contributions or in kind, organization of health cooperatives (self-help). Current primary health care initiatives in developing countries stress the importance of national self-reliance and community participation in health care delivery. By mobilizing under-utilized national and local resources (e.g. organizational skills manpower and cash) and by developing affordable and cutlturally appropriate delivery systems, it is hoped that basic health care will become universally acccessible. Consequently, some governments and many non-governmental agencies are turning to communities for organization, participation and financial support, and communal self-help is increasingly thought of as an important source of financial support for health services in developing countries. The challenge is to develop new types of local institution that can coordinate and systematically utilize the community resources. Self-help can take many froms such as labor, local insurance for volunteer health workers and drug cooperatives.

5. Increasing the efficiency in the allocation and actual use of resources. The hospital should give priority to its basic and essential needs and study how its activities can better be carried out.

SCHEMES OF HOSPITAL SERVICES FINANCING Hospital services are supported by one or a combination of schemes, namely: 1. Public subsidy. This is a form of financial assistance paid to a business or economic sector. In this scheme, the source of funds is from taxes. These may come from different levels of government-national, provincial/city and local, with agreements on how the cost of hospital services is to be shared.

2.

Private grants/endowments. Grants are funds disbursed by one party , often a government department, corporation, foundation or trust, to a recipient, often (but not always) a nonprofit entity. Endowments are transfers of money or property donated to an institution. Philantrophic individuals or organizations may provide grants/endowments to construct, expand or improve hospitals. Endowments may also be used to afford indigent patients prompt and necessary care in hospitals. The Philippine Charity Sweepstakes Office (PCSO) is one of the more known giver of endowments.

3.

Hospital receipts/income. The payment for professional and hospital services rendered to a patient may come directly from himself (out-of-pocket), from the employer, or from third party schemes.
 Out of pocket (OOP) payment.

The payment is generally referred to as user charges. This type of financing is suitable if the patient is willing and in a financial position to pay on a fee-forservice basis.

 Employer-provided health benefits.

Apart from the usual social security scheme and employee compensation scheme, employers may provide medical benefits including payment for professional services and cost of hospitalization as part of their collective bargaining agreement.

y Third party schemes.

Third party schemes may refer to employees compensation scheme, and health maintenance organizations (HMO s) and health insurance.
o Employees compensation scheme.

In certain countries, aside from the usual health insurance required by the country, another scheme is established for workrelated sickness, injury disability, or even death. The beneficiaries are the employees themselves and their dependents.

o Health (HMO s)

Maintenance

Organizations

This organization is a system of health care that guarantees to provide high quality physician services, emergency and preventive treatment, and hospital services to individuals who have agreed to obtain their medical care from the HMO for an extended period of time. In return, the individuals pay a fixed annual sum in advance. Note should be taken that the HMO is supposed to guarantee high quality service in contrast with health insurance which guarantees financial reimbursement or payment only.

o Health Insurance

Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-forprofit entity.

3 Elements Necessary to Develop and Sustain a Health Insurance:

 Population awareness of the need for health insurance, understanding of its purpose and general operation, and possessing the right attitude towards the insurance, having a sense of ownership for the scheme and therefore with motivation to protect it.

The National Health Insurance Act of 1995 Republic Act No. 7875 states the following objectives of PHIC as: a. provide all citizens of the Philippines with the mechanism to gain financial access to health services; b. establish the National Health Insurance Program (NHIP) to serve as the means to help the people pay for health care services; and c. prioritize and accelerate the provision of health services to all Filipinos, especially that segment of the population who cannot afford these services.

Availability and responsiveness of the health care

delivery system to adequately attend to the medical care needs of the members of the insurance scheme. Section 5 of Republic Act No. 7875 lists the following as eligible to be members: 1. Employed 1.1 Government Sector 1.2 Private Sector to include household help and sea-based OFWs 2. Individually-Paying 2.1 Self-Employed y All self-employed professionals y Partners and single proprietors of businesses y Actors and actresses, directors, scriptwriters and news correspondents who do not fall within the y definition of the term employee in Section 3n of this Rules y Professional athletes, coaches, trainers and jockeys, and Individual farmers and fisherfolks

2.2 Land-based OFWs 2.3 Privately sponsored/employed to include employers/employees of international organizations and foreign governments based in the Philippines 2.4 Others including but not limited to the following: Individuals who are separated from employment Parents who are not qualified as legal dependents, indigents or retirees/pensioners Children who are not qualified as legal dependents Unemployed persons who are not qualified as indigents Citizens of the Philippines residing in other countries Citizens of other countries residing and/or working in the Philippines

3. Enrolled Indigents 4. Retiree-Members 4.1 Old-age retirees and pensioners of the GSIS, including uniformed and non-uniformed personnel of the Armed Forces of the Philippines (AFP), Philippine National Police (PNP), Bureau of Fire Protection (BFP) and the Bureau of Jail Management and Penology (BJMP) who have reached the compulsory age of retirement before June 24, 1997, and retirees under Presidential Decree 408; 4.2 GSIS disability pensioners prior to March 4, 1995; 4.3 SSS pensioners prior to March 4, 1995: 4.3.1 SSS permanent total disability pensioners; 4.3.2 SSS death/survivorship pensioners; 4.4 SSS old-age retirees/pensioners; 4.5 Uniformed members of the AFP, PNP, BFP and BJMP who have reached the compulsory age of retirement on or after June 24, 1997, being the effectivity date of RA 8291 which excluded said individuals in the compulsory membership of the GSIS; 4.6 Retirees and pensioners who are members of the judiciary;

4.7 Retirees who are members of Constitutional Commissions and other constitutional offices; 4.8 Former employees of the government and/or private sectors who have accumulated/paid at least 120 monthly premium contributions as provided for by law but separated from employment before reaching sixty (60) years old and thereafter have reached age sixty (60); 4.9 Former employees of the government and/or private sectors who were separated from employment without completing 120 monthly premium contributions but continued to pay their premium PhilHealth IRR 2004 11 payment as individually-paying members (IPM) until completion of the required 120 monthly premium contributions and have reached age sixty (60) as provided for by law;

4.10 Individually-paying members (IPM), including SSS self-employed and voluntary members, who continued paying premium contributions to PhilHealth, have reached age sixty (60) and have met the required 120 monthly premium contributions as provided for by law; and 4.11 Retired underground mine workers who have reached the age of retirement as provided for by law and have met the minimum required premium contributions.

 Availability of organized administrative structure and system for efficient collection of premiums, the processing and payment of claims, and the facility to examine providers credentials and performance.

SECTION 55 of RA 7875 states the Specific Accreditation Requirements and Conditions for Hospitals: In addition to the general requirements and conditions prescribed in this Rules, hospitals shall comply with the following specific requirements and conditions for accreditation: a. It must be licensed by the DOH; b. It must comply at all times with the provisions of Republic Act 4226, otherwise known as The Hospital Licensure Act, and its prevailing Implementing Rules and Regulations as well as other applicable administrative issuances;

c. It must be a member in good standing of any national association of licensed hospitals in the Philippines duly recognized by the Corporation in accordance with its established standards and criteria; d. All secondary hospitals must establish a Therapeutic Committee and other committees that will ensure rational drug use; and e. All tertiary hospitals must establish Therapeutics and Infection Control Committees and other committees that will ensure rational drug use. SECTION 52. Health Care Providers The following health care providers shall be accredited before they can participate in the NHIP:

a. Institutional Health Care Providers Hospitals Out-Patient Clinics Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) Community-Based Health Care Organizations (CBHCOs) Other institutional health care providers licensed by the DOH a. Independent Health Care Professionals Physicians Dentists Nurses Midwives Pharmacists Other duly licensed health care professionals Health care professionals under the employment of accredited institutional health care providers must be accredited individually when receiving from the NHIP separate reimbursement for rendering health services, whether or not such services are rendered independent of their institutions.

ADVANTAGES OF HEALTH INSURANCE

 It protects against the catastrophic cost of illness through the principle of risk sharing. Risk sharing is a management method in which the cost of the consequences of a risk is distributed among several participants.  It makes health care cost affordable to a wider segment of the population. It collects small contributions (premium) from members on a regular basis which is an assurance of financial assistance if the time comes.  It is an effective means of generating resources for health services. The government, the private sector, and the citizenry are compelled to set aside money for health purposes. In some countries, the social security agencies may (a) construct and operate their own hospitals; (b) construct a hospital and let the government staff manage it; or (c) contract an existing hospital to provide services to its members.

WAYS BY WHICH HEALTH INSURANCE EFFECT PAYMENT FOR SERVICES

 Direct reimbursement to the member. This means that the member will have to spend his own money first and then claim for reimbursement later.  Payment to the hospital. Hospitals affiliated with the health plan bill directly the insurance company, and whatever is not within the company s responsibility is in turn shouldered by its member. Payment or reimbursements are computed according to the final diagnosis given to the member. An illness may be categorized as either ordinary, intensive or catastrophic. There are certain limits for each category.

WAYS OF SHARING EXPENSES BETWEEN THE SOCIAL SECURITY SCHEME AND THE MEMBER
 A ceiling for total hospital expenditures may be established within which the scheme pays for everything, and beyond which, the member pays. Ceilings may also be fixed for hospital acocommodation (number of days in the hospital, expenses for laboratory, x-ray, operations, professional fees, etc).  Employees compensation scheme. In certain countries, another scheme is established specifically for work-related sickness, injury, disability or even death. The beneficiaries are the employees and their dependents. The contribution to the scheme is given by the employer only.

 Health maintenance organizations (HMOs). This organization is a system of health care that guarantees to provide high quality physician services, emergency and preventive treatment, and hospital services to individuals who have agreed to obtain their medical care from the HMO for an extended period of time. In return, the individuals pay a fixed annual sum in advance. Note should be taken that the HMO is supposed to guarantee high quality service in contrast with the usual health insurance which guarantees financial reimbursement or payment only. It will be, observed that because of the nature of the guarantee, the HMO must maintain its own list of physicians, hospitals or clinics which can provide high quality care readily and must have come to an arrangement with them on the rates of charges or payment to be made by the HMO to them.

According to the organization of health care providers it maintians, HMOs may be classified into two, namely:
 Prepaid group practice, in which the HMO engages physicians working at a single site as a group and having some kind of working relationship with a hospital.  Individual practice association in which doctors continue to work out of their own offices and are enrolled with the HMO which pays them on a fee-for-service basis.

According to ownership, HMOs may be classified into three:

 Investor based. The HMOs in this category are private organizations offering their products to prospective clients at large. It may be owned by business investors or by groups of medical practitioners.  Community based. These are like investorbased HMOs, the services of which are offered to specific communities such as a corporate community or a geographical/political community, with members paying monthly fees for a specified set of benefits, which are usually of lower levels than those offered by the investor based.

A very good example of this is a 5th class town in San Isidro, Nueva Ecija. The local government of San Isidro tapped the potential of participative governance, integrated social and economic services and sustained gains of institutionalizing its health program into the local government. The local government allocated 16% of the municipal budget to health. 36% came from Philhealth payments and coshare of beneficiaries and 64% from the Internal Revenue allotment. This allowed them to address a barangay-based health care system while maintaining a clientcentered clinic with two doctors, two nurses, a dentist, two medical technicians, lab inspectors, five midwives/nutritionists, a data encoder and 170 barangay health workers. Residents of San Isidro contribute P200/month for health who in turn get additional benefits from Philhealth. By having a sense of ownership for the program through active participation, the community has managed to sustain the community s health care needs.

 Employer initiated. This type of HMO is set up/initiated by big organizations for the benefit of their employees and their dependents. Usually, these are nonprofit, and the membership fees are subsidized by the employer.

HOSPITAL MODES OF PAYMENT Hospital modes of payment determines the amount and the flow of money from a third party payer or patient, or both, to providers of care in exchange for services. This defines both the unit or combination of services for which a provider is paid and the price for the services provided.
 Fee-for-service. This means that per item of service such as individual acts of diagnosis, therapy, pharmaceutical services and treatment, a fee is paid. Professional fees may or may not be paid separately and this may differ according to specialization and category of room occupied in a hospital.

 Case payment. Under this method, payment is made for a package of services or an episode of care. Unlike the fee-for-service method, the payments are not itemized and added.  Capitation. In this system, physicians are paid for each patient on their list, usually with adjustments for factors such as age and gender. This system is used in countries like Italy, UK, Austria, Denmark, Ireland and Sweden.  Salary. A monthly income is provided regardless of the workload or cost of services provided. This method of of payment is the one usually implemented in government health care institutions. This also applies for residents working in private hospitals.  Daily Charge. A flat rate per day is charged for every patient case hospitalization.

 Bonus payment. Under this method, a direct payment of an agreed fee is made for a type of service provided. This is used in the United States.  Global budget. In this mode, hospitals are paid based on an all-inclusive operating budget set in advance but allowing for flexibility in the use of funds inside the overall limit or spending ceiling. Global budgets are intended to constrain both the level and rate of increase in health care cost by limiting them directly.

EVALUATION OF THE EFFICIENCY AND EFFECTIVENESS OF THE VARIOUS FINANCING SCHEMES FOR HOSPITALS Quality Patient Care Hospital s 2 main Goals Economic Viability Whether private of government these two main goals stand and whether a hospital is for profit or not economic viability remains to be an all important consideration if the hospital is to continue rendering service. This is because funds are getting scarcer and scarcer both for government and private hospitals. For government decentralization of responsibility for hospital services to the local government has resulted in inadequacy of funds for continuous operation of hospitals. For the private hospitals loans for investments have also been getting scarcer and expensive. Grants and donations have also been reduced.

 Efficiency

Within the health sector, the first priority must be to improve efficiency, making better use of available resources and enhancing the standing of the sector nationwide. Management can be strengthened through staff training and the development of appropriate tools, efforts can be made to understand the community s needs in order that health care better meets them, and resources can be allocated more appropriately. In terms of cost recovery, review of experiences show that wide variations exist in the amount of hospital recurrent costs recovered through user fees but most public facilities recover only a small amount.

 Effectiveness

Out-of-pocket (OOP) expenditures and health insurance with co-insurance or copayment schemes may be considered to be the most effective in achieving quality health care received. This is so because with the individual responsible or party responsible for the cost of health care, he may be on the look-out for the best services for the protection of his own welfare. This occurs despite the fact that he may not be thoroughly and adequately knowledgeable on the amount and type of health care he needs. Community financing may also have the aforementioned characteristics since the communities themselves are the ones managing their health services.

IMPLICATIONS OF THE VARIOUS FINANCING SCHEMES WITH THEIR RELATIVE EFFICIENCY AND EFFECTIVENESS:
 The need to minimize the average cost of treating a case.  The need to be more sensitive to the needs and preference of the patient.  The profit motive should not be the dominant force in a hospital.

PAYMENT HOSPITALS
 1. 2. 3. 4.

POLICIES-PUBLIC

AND

PRIVATE

Private Hospitals Advance payment ( as opposed to deposit ). Progressive billing. Itemized billing will be provided the patient. Where laboratory or other tests have to be done outside of the hospital, cost is charged to the patient, at times, with handling fee added. 5. All medicines and medical supplies are to be bought in the hospital. 6. Professional fees may be collected by the cashiers as a matter of courtesy to doctors. 7. Private hospitals has the obligation to administer emergency interventions to the extent of use of some of their consumable resources.
 1. 2. 3.

Government Hospitals Room and services are free. Professional fees are waived. Medicines, medical supplies and diagnostic tests are paid by the patient.

THANK YOU!