“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  

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  
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  country’s  current  reform  direction.  
The   fundamental   need   for   strategic   purchasing   in   the   context   of   the   Philippine’s   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 author’s 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.

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   user’s   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  
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  
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  system’s  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,  
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  country’s  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  PhilHealth’s  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  PhilHealth’s  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  PhilHealth’s  role  as  a  single  payer  social  health  insurance  system.    
In  his  extensive  discussion  of  South  Korea’s  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  purchaser’s  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  buyer’s  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.  
PhilHealth’s   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  


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-­‐
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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