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An

active approach to purchasing of services is fundamental to achieving


efficiency and thereby expanding access to healthcare. Critically assess this claim
with reference to a country or region of your choice.

Albert Francis E. Domingo, MD1



Introduction
Health systems will have to be designed, funded, and operated within the strengths and limitations
of a particular sociopolitical and economic context. Managers have commonly sought to improve
efficiency in order to expand access by beneficiaries to essential goods and services that can be
used to maintain or improve health status. That resources are limited and contested by other social
services needed by the population can either constrain or enable the attainment of health goals,
depending on whether or not and how purchasing is to be used as leverage.

This essay shall critically assess the claim that an active approach to purchasing of services is
fundamental to achieving efficiency and thereby expanding access to healthcare in the Philippines.
It shall begin by specifying the term efficiency as to what it means in health systems parlance,
followed by a discussion of what access to healthcare is. A discussion on an active or strategic
approach to the purchase of health services shall follow, with attention to provider payment
mechanisms.

Then, the context of the Philippines shall be explained according to the purchaser-provider split,
with a programme to achieve universal health care (UHC) as the countrys current reform direction.
The fundamental need for strategic purchasing in the context of the Philippines national health
insurance program will finally be described, particularly on how the national health insurance firm
should take a lead active purchasing role to help the Philippines achieve UHC.

Achieving efficiency to expand access to healthcare
Murray and Frenk (2000)s framework for assessing the performance of health systems is a good
starting point to focus our discussion on strategic purchasing, efficiency, and access. They discuss
the concept of composite goal performance as the efficiency of a health system: its ability to
achieve overall the three intrinsic goals of improving health, being responsive to legitimate
demands of people, and being fair in terms of financial contribution, given limited resources.

Palmer and Torgerson (1999, p.1136) give a more nuanced definition: [e]fficiency is concerned
with the relation between resource inputs (costs, in the form of labour, capital, or equipment) and
either intermediate outputs (numbers treated, waiting time, etc) or final health outcomes (lives
saved, life years gained, quality adjusted life years (QALYs)). They further specify three kinds of

The author submitted this essay to The University of Edinburgh for assessment in the course Health Systems Analysis. He was a
student in the MSc Health Systems and Public Policy programme of the university in the 2014/15 academic year. The views
expressed herein are the authors own, and do not necessarily represent those of the university or its faculty.

Suggested citation: Domingo, A.F.E. (n.d.) An active approach to purchasing of services is fundamental to achieving efficiency and
thereby expanding access to healthcare. Critically assess this claim with reference to a country or region of your choice.
[Unpublished].
1

Domingo, A.F.E. (n.d.)

efficiency: technical, attained by maximising improvements in health outcomes given a fixed set of
resource inputs; productive, attained by maximising improvements also in health outcomes, but
this time based on a given cost; and allocative, attained by maximising the overall health of the
community based on explicit decisions of resource allocation across various health programmes.

Meanwhile, Murray and Frenk consider access to healthcare to be an instrumental goal that helps
attain intrinsic goals. Gulliford et al. (2002) described three means of access, in terms of service
utilisation: personal, or individuals recognising and accepting their healthcare needs and consenting
to be a client within the system of provision; financial, or the impact of user charges and other
indirect costs, with respect to their magnitude and the users willingness and ability to pay; and
organisational, or institutions abilities to design and use client-oriented services.

For this essay, we assume that strategic purchasing is fundamental to maximising resource inputs
(technical efficiency), minimising cost (productive efficiency), and optimising health programmes
for the benefit of most of the community (allocative efficiency). It is further assumed that all of
these as a composite shall help improve health awareness (personal access), ability and willingness
to pay (financial access), and institutional capabilities to provide goods and services (organisational
access).

The active approach to purchasing healthcare, or strategic purchasing
Murray and Frenk (2000) define purchasing as how pooled revenues are allocated to various
providers who are to deliver interventions, with strategic design involving decisions on what to buy,
how those are bought, and from whom. Kutzin (2012, pp.867-868) has argued that [c]ountries
cannot simply spend their way to universal health coverage The main health financing instrument
for promoting efficiency in the use of funds is purchasing, and more specifically, strategic
purchasing.


Ellis and Miller (2007) discuss strategic purchasing in the context of provider payment methods and
incentives. It answers the question on how healthcare is to be bought. They have argued that the
prevalent market structure or environment does affect the incentives to which providers are
expected to respond. Furthermore, Langenbrunner et al. (2009) have described provider payment
methods according to three parameters: how payment rates are set, when the payments are made,
and whether payments are related to inputs or outputs. As far as efficiency is concerned, these
three parameters are expected to affect both technical and productive efficiencies. Rate setting will
determine who between the purchaser and the provider shall bear financial risk; in this sense,
prospective rate setting will encourage efficiency because some risk is borne by the provider. The
prospective release of payments can encourage front-loaded procurement of goods and
commodities according to estimated health needs. Output-based payment is expected to increase
productive efficiency in particular, because providers are forecast to reduce costs via their input
mix so as to increase net revenues after the costs of care have been accounted for.

Strategic purchasing can also be restated as quality-based purchasing for which Waters et al.
(2004, pp.365-366) have sought to provide a unifying conceptual framework. The authors describe
this as meant to improve healthcare quality, where purchasers must either: (1) use levers within
the purchaser-provider relationship to motivate providers to improve quality; or (2) provide
information to healthcare consumers so that consumers themselves will motivate providers to
promote higher quality standards. Nevertheless, some authors like Green (2014) doubt the above

Domingo, A.F.E. (n.d.)

analyses as to extrinsic incentives affecting the behavior of providers. She argues that intrinsic
motivators were still able to improve healthcare quality so long as payment incentives did not
crowd them out. However, she concedes that more research is needed, as her own study design
was only exploratory.

The Philippine health systems market structure/environment
The Philippine state is constitutionally mandated to protect and promote the right to health of the
people and instill health consciousness among them (Anon 1987). The national Department of
Health (DOH) has technical oversight and authority on health, subject to the devolution of basic
service provision to local governments (Romualdez et al. 2011). Given the dual delivery systems of
public and private service provision (Anon 2012), governance can be distinguished as close to the
NHS model for the public sector, and more of the free market for the private sector (Stevens and
van der Zee 2008). Health care financing is a hybrid of taxation and social health insurance
schemes, but still with high out-of-pocket payments borne by households (Anon 2014a).
Meanwhile, health information systems and research, while existing and established, still has an
uncontrolled growth of data and information that are not integrated and harmonized (Anon 2007,
p.52).

Healthcare services in the Philippines are delivered via both public and private infrastructure (clinics
and hospitals), with private facilities outnumbering those that are government-owned.
Nevertheless, approval from the DOH must be secured before any new hospital (whether public or
private) is built. Capital outlay for government-owned health facilities is provided for by a
combination of national government budget, local government budgets, social health insurance
reimbursements, and user fees (Romualdez et al. 2011). Overseas migration of the health
workforce (particularly nurses) has become a persistent trend over the past few decades in the
Philippines (Institute of Health Policy and Development Studies 2005). There is also a
maldistribution of health workers (hospital-based doctors, nurses, and other paramedics) among
those who have chosen to remain in-country, with more being in private sector practice than being
in government institutions (Romualdez et al. 2011).

The availability and distribution of medical products is supplier-induced, with access to essential
drugs being impaired (Romualdez et al. 2011). Picazo (2011) has observed that drug prices in the
Philippines are high because of dependence on importation, dominance of branded products,
information asymmetry, heavy marketing and promotion, as well as strong representation and
incentives to providers, apart from the lack of supply of alternative generics. While the safety and
efficacy of food and drugs are regulated by the Food and Drug Administration, other units within
the DOH oversee the regulation of healthcare technologies (Romualdez et al. 2011).

Strategic purchasing and contracting to achieve UHC in the Philippines
Universal health coverage, domestically known as kalusugan pangkalahatan or universal health
care (KP/UHC) is the most recent articulation of health systems reform in the Philippines (Anon
2010a). Its approach is to strengthen the Philippines national health insurance program (known as
PhilHealth) in order to improve the provision of public health services, increase financial risk
protection, and generate resources to modernize and sustain health service delivery all so that
the health-related 2015 millennium development goals (MDGs) can be achieved. These three

Domingo, A.F.E. (n.d.)

strategic thrusts of KP/UHC are more or less equivalent to the intrinsic goals of health systems
mentioned earlier: improved health, fair financing, and a responsive system.

PhilHealth has a hybrid design that is funded by fully tax-based premium subsidies for indigents as
well as contributions by both public sector and private firm employees (Anon 2014b). This allows
for the integration of strategic purchasing within the Philippine implementation framework for
KP/UHC. Government instructions have thus been: (1) on the supply side, for government-owned
hospitals and clinics to be upgraded and stocked with commodities using tax-funded line-item
budgets; and (2) on the demand side, for PhilHealth to cover indigents using full tax-based subsidies
for their premiums (GPH-DOH 2011).

PhilHealth as the purchaser organisation backed by the regulatory power of the State has the
greatest potential to harness the prevalent market structure to affect incentives for providers
(Anon 2014b; Ellis and Miller 2007). A shift to new provider payment mechanisms has been part of
the countrys medium- to long-term health care financing strategy (Anon 2010b). The most recent
amendment to the PhilHealth law recognised fee-for-service, capitation, case-based payment, and
global budgets plus other payment mechanisms that may be henceforth designed (Anon 2013).
Outpatient payment schemes based on capitation and inpatient payment schemes based on case
payments have also been instituted, and are starting implementation.

Similar to the three dimensions which the WHO proposes to consider for health systems to move
towards universal coverage, Filipino health systems researchers have used a composite metric
known as the benefit delivery rate (BDR) to measure the impact of PhilHealth (Anon 2014c; Quimbo
et al. 2013). The BDR as a summary measure reflects the capacity of social health insurance to
cover its target population (coverage rate), how accessible its benefits are to the users of
healthcare (claim rate), and how much of the healthcare expenditures are supported
(reimbursement rate).

Quimbo et al. (2013) estimated PhilHealths weighted BDR for 2011 to be 9 percent, which means
that on average, only 9 out of 100 Filipinos are protected by PhilHealth from the financial risks of
healthcare expenditure. Even with official reports cited by the authors declaring PhilHealth
coverage of the Filipino population to be above 85 percent, the composite BDR measure is still low
because claim and reimbursement rates are low. While it appears that PhilHealths current impact
is negligible (and to some extent that observation is supported by persistently high out-of-pocket
expenditures by households), this also shows that there is still a broad space for reform to
strengthen PhilHealths role as a single payer social health insurance system.

In his extensive discussion of South Koreas consolidation of multiple small social health insurance
societies into one national firm, Kwon (2003) described a system that was originally modelled after
Germany, but after the merger now looks more like the British NHS because of its monopsonistic,
single-payer system that has universal coverage and uniform benefits. Just like the Philippines,
South Korea was quick to declare universal coverage of its population by its social health
insurance system but at a trade-off: contributions were low, benefits were limited, and patients still
had high out-of-pocket (OOP) expenditures.

Kwon (2003, p.83) noted that [t]he single payer will have greater bargaining power as a monopoly
purchaser (monopsony) relative to healthcare providers, and that [t]he financial solvency and

Domingo, A.F.E. (n.d.)

efficiency of the unified health insurance system will hinge on its capability and willingness to use
its bargaining power over providers, so that it plays the role of a prudent purchaser of medical care
and implements effective payment systems". These potentials and their required actions can also
apply to PhilHealth.

Rovner (1987) has discussed the economic and legal theories in the United States behind a
healthcare purchasers use of monopsony power, analysing extensive case law in that jurisdiction
where providers have historically attacked prepaid purchasers on grounds such as unreasonable
restraint of trade. He observed that court rulings have found legitimacy in a buyers use of market
power to negotiate or bargain hard for lower prices that ultimately benefit the healthcare
consumer. Rovner thus argued that [h]ard bargaining to extract low prices, even by a
monopsonist, is conduct that facially appears to increase economic efficiency and render markets
more competitive (Rovner 1987, p.882). Exchanges between Staten et al. (1988) and Pauly (1987,
1988) dwell on the importance of market share in terms of the volume of patients vouched for by
insurance firms as a proxy for its market power. But these authors debated in the context of the
United States, where there may be many monopsonistic private insurance firms but definitely not a
single national health insurance firm.

In the Philippines where PhilHealth is by force of law the sole national health insurance program
(with a government-owned and controlled corporation as its administrator), the potential for
monopsony to improve provider quality in a public-private mixed setting has been already
demonstrated, on a small scale but with robust methodology (Shimkhada et al. 2008). Backed by
empirical evidence, the authors of the Quality Improvement Demonstration Study (QIDS) assert
that the careful measurement of quality combined with a provider bonus and system-level
incentives may have a larger impact on healthcare quality than previously recognised (Peabody et
al. 2011). They piloted a performance-based system (also known as pay-for-performance or P4P)
that has overcome limitations identified by Ellis and Miller (2007) on physician ratings being based
on claims data, because they used a robust measure of healthcare quality closest to the point of
healthcare use (Solon 2009). Most importantly, QIDS demonstrated that expanded PhilHealth
coverage resulted in newly insured patients seeking healthcare more at PhilHealth-accredited
public providers, causing private doctors to improve their quality in order to compete for losses in
case volume (Quimbo et al. 2011).

The way forward
All of the above considered, the policy environment of the Philippines demonstrates the
fundamental need for an active approach to the purchasing of health services in order to improve
efficiency and therefore expand access.

PhilHealths market share, once made significant for monopsony to work for its advantage, will
allow for the hard bargaining described by Rovner to take place. That will increase technical and
productive efficiencies, ultimately for the welfare of patients who are the consumers of healthcare.
As an initial step PhilHealth may have to increase its benefit payouts first to successfully crowd out
other provider payment sources; once this has been achieved, further reform of the purchasing
environment will follow. The fact that there is still high out-of-pocket expenditures by households
registered in the national health accounts means that not enough is being done to capture those
funds into the PhilHealth risk pool. Better risk pooling brings with it improvements in financial
access.

Domingo, A.F.E. (n.d.)


Providers, especially from the private sector, are expected to respond to incentives offered through
the various payment mechanisms outlined by Langenbrunner et al. and which are explicitly
authorised in the PhilHealth law. Again, QIDS research has shown initial results for the specific
mechanism of pay-for-performance. This push towards quality may even involve interventions to
promote health awareness and thus increase personal access, because providers also have an
incentive to increase volume. Towards that end, the next frontier will be strategic contracting,
because [c]ontracts are the main vehicle by which purchasers translate their populations health
needs and desires into the provision of health services (Busse et al. 2007, p.68).

It may be expected that the broader provision environment will easily reform to increase
organisational access once PhilHealth is able to establish itself as a credible single purchaser. To
achieve this, actors within the health system will also have to improve allocative efficiency. Service
delivery programs, networks, and referral systems that have been fragmented (or partitioned as
public versus private) will integrate, because a singular financing mechanism will serve as the focal
point for coordination. Increases in benefit payments or reimbursement will most likely include
better compensation packages for health workers, hence lessening outward migration and
improving distribution in-country. Finally, the procurement of medicines and other health products
will be able to harness economies of scale more so that it will be demand-driven and not supplier-
induced.

Conclusion
In this essay, we have evaluated the claim that an active approach to purchasing of services is
fundamental to achieving efficiency and thereby expanding access to healthcare in the Philippines.
We described efficiency in terms of its technical, productive, and allocative aspects. Access to
healthcare was also outlined, in terms of its personal, financial, and organisational dimensions.

In discussing an active or strategic approach to the purchase of health services, we focused on
provider payment mechanisms. We reviewed the literature to support a logical framework that
outlines a stepwise linkage from strategic purchasing to improved efficiency and then increased
access. We then demonstrated this logical framework in the context of the Philippines own market
structure highlighting the purchaser-provider split. The fundamental need for strategic purchasing
in the Philippine context of a monopsonistic single purchaser was finally described, emphasizing
how the national health insurance firm PhilHealth can and should take a lead active purchasing role
to help the Philippines achieve universal health care.

#

Domingo, A.F.E. (n.d.)

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