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Strategic Purchasing (2): the central role of stewards

6/19/2017

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Bruno Meessen

On 25-27 April, WHO Geneva organized a global meeting entitled “Strategic purchasing for UHC: unlocking the potential". In the follow-up of this event, I published a first blog post focusing on what a purchaser should do to act as a strategic purchaser (SP). In this second post, I focus on the responsibility of the stewards of the health system. Most of the hyperlinks refer to power points presented in Geneva.

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Recently, an expert wrote to me: “many people remain confused about what strategic purchasing is and we need to think carefully about how to communicate it to different audiences”. I cannot agree more. As I was reorganizing my notes after the Geneva meeting, I felt myself the need to better map where SP takes place in a health system.

I wonder whether it would not help us to conceive SP conceptually around two main poles: the purchasers and the stewards. In a first blog, I sketched what a purchaser has to do to purchase strategically: it has to use information optimally (i.e. learn) while engaging in four complementary sets of actions: identification of best value, selection of the right providers, design of smart contracts and efficient enforcement of these contracts. I also explained that these sets of action and the related cross-cutting learning processes consume resources. Only some purchasers have the means (resources and a large pool of beneficiaries) to invest significantly in strategic purchasing.

This limits the number of ‘potential’ strategic purchasers. Still, in many health systems, especially in LICs, there is a plethora of purchasers, strategic or not. This profusion harms the performance of the health system and affects progress towards UHC. At the Geneva meeting, it became clear that this is actually the main challenge.

Why fragmentation is also an issue for SP

It is well-known that fragmentation hampers risk pooling. But too much fragmentation also undermines the purchasing function.

A few years ago, we organized an online brainstorming in two communities of practice: “If we were to do a multi-country research project to enhance the UHC agenda, what should be the top priority?” Votes by our members were unambiguous: according to them, we had to document the high fragmentation of health financing in their countries. With CoP experts, we later conducted this study in 12 Francophone African countries. We counted on average 23 health financing schemes per country (still an underestimate, actually, as for practical reasons, we decided not to count each individual mutuelle). (1)

This abundance of schemes is a problem for purchasing for several reasons. Again, it helps to use the 4+1 sets of action to understand why this is the case: (1) purchasers will duplicate efforts in terms of value identification (or more probably: they will under-invest in it, as the intelligence effort requires advanced technical skills in public health, health economics and consultation); (2) all the purchasers may also prefer to work only with the same providers (those easy to contract), and overlook the providers costly to screen and engage with; (3) some purchasers may try to design smart provider payment contracts, but an uncoordinated set of provider payment mechanisms will often be very “unsmart” and actually establish contradictory incentives; (4) each purchaser, anxious to enforce its own contract, will also set up a specific accountability system, which will create a heavy administrative burden upon health facilities. So a situation of too many agencies, programs, schemes leads to duplication, gaps and information request saturation.

In Geneva, several sessions focused on the consequences of fragmentation on SP and the importance to address this issue. We heard about the cases of Burkina Faso and Morocco. We also learned a lot about how the stewards of the health system can contribute to SP.

The contribution of stewards to SP

The concept of stewardship was introduced in the WHO Report 2000. Nowadays, stewardship of a national health system is probably best conceived as a collective effort, with of course still a pivotal role for the Ministry of Health. Stewardship is about developing leadership, establishing coordination mechanisms, aligning collective action on the common vision, enforcing rules and aiming for coherence, among things, by promoting collective intelligence. Effective stewardship is key for the performance of the whole health system, but also for the performance of its sub-components, like the financing system and its purchasing function. This was also discussed during one half-day session in Geneva.

Stewards can contribute to SP in several ways. Again, to review them, the easiest is to take our 4+1 sets of SP actions (for an introduction to these 4+1 sets of action, see my previous blog).

Identification of best value: The stewards can take the lead on “value identification”, at least for the large part of it which is not specific to any scheme. Centralization of the task of quantifying population needs makes sense as the stewards anyway need this information for steering the whole system. Centralizing within one single agency the capacity for Health Technology Assessment (HTA) - i.e. the assessment of which medicines, diagnostics, clinical interventions or programs have to be part of the benefit packages provided by the different purchasers - makes a lot of sense as well. This is the model taken by the United Kingdom (NICE) or Belgium (KCE). It is not only a matter of returns to scale in terms of HTA expertise, it is also fully in line with the new WHO proposition to clearly distinguish between the three key steps of priority setting ( i.e. data, dialogue, decision – you can check out a recent CoP webinar by Agnès Soucat introducing this new vision here).

Selection of providers/purchasers: In my first blog, I explained how the purchaser could be strategic via the selection of providers to have a contract with. Actually, the stewards also have an important role to play in the selection of providers. First, it is up to the regulator to fix general rules upon entry on the health market and practice: what are the legal requirements to open a medical practice, a pharmacy; are there any specific fiscal regimes... These are important instruments to structure the health care market. Purchasers would also benefit from pooling efforts as for certification / accreditation of providers. The stewards have one extra function: they should also set the entry rules applying to purchasers themselves. For instance, what are the capital requirements and other legal obligations upon a privately-owned voluntary health insurance fund?      

Design of smart contracts: as mentioned above, a combination of smart contracts is not necessarily smart from the overall perspective of UHC – the main goal of the stewards. Indeed, each purchaser is accountable to a specific set of stakeholders; it will design incentives to align the health facilities on the needs and objectives of these stakeholders – and they may differ from the overall public interest. Think of vertical programs whose operations and incentives sometimes undermine general health services! In Geneva, we discussed the importance of building a coherent and efficient provider payment mix extensively. This is clearly a responsibility for the stewards.  Furthermore, the stewards have an important role to play in terms of making sure that the ‘smart contracts’ do not undermine interventions relying on other theories of change. This is particularly key for quality of care – how to balance strategies relying on high powered incentives (like Performance Based Financing) with, let’s say, the practice of quality circle?

Efficient enforcement of contracts: Verifying the performance of providers is costly. Many health systems are plagued with parallel accountability mechanisms. Again, it makes a lot of sense that purchasers look for synergies and also apply common rules to themselves with respect to their own accountability to the whole society. Again, the stewards can discipline purchasers and ensure that they contribute to one common system; that they consolidate the whole compact of institutional arrangements, and not just ‘their’ contract.

Data intelligence and learning: In Geneva, we thoroughly discussed the importance of a strong unified information system. Again, the stewards have an important role to play in this respect. In fact, the unification of the information system could be one of the best entry points for the stewards, both to advance the SP agenda and secure their own capacity to govern, regulate and enable. Beyond optimization of data, there is a broader need for leadership with an eye for collective intelligence. Today, in many countries, because of the fragmentation, no one has a good overview and no one encourages various purchasers to co-produce this overview. Actually, the observation of the very fragmented nature of financing in Francophone African countries, led CoP experts to investigate, in a second phase, how learning for UHC was taking place at country level. The subsequent study in six countries revealed that no country had a UHC learning agenda and most were quite weak on tasks required for SP.

Ways forward

SP will be key for making progress towards UHC. If we want to consolidate SP we can work on the following two fronts: at the level of (1) each purchaser, and at the level of (2) the stewards governing the whole health system. Here are a few things countries can do.

At purchaser level: Personally, I believe a lot in ‘learning by doing’. To really appreciate the power of SP, one has to practice it. So the first step a country should take is to kick off some real SP, even at the level of (just) one specific scheme.

In my opinion, one of the  merits of Performance Based Financing consists in the fact that, for many countries, this was also the first SP experience. But there are probably other options – the introduction of a Social Health Insurance seems a nice opportunity as well for SP.  

At the level of a specific scheme, our list of 4+1 sets of actions can also guide the consolidation of SP: the list helps to identify areas for improvement:. Use existing international evidence to update the package of services you pay for. Develop experience by contracting the public providers and then move to private-for-profit providers. Once your provider payment system is in place, update your contract to incentivize facilities to better address more challenging determinants of quality of care. Reduce the costs of verification with the adoption of risk-based verification. Consolidate learning loops in your whole program, as SP is a never ending improvement process.

At steward level: A lot can also be done at this level. I will highlight four aspects/actions, among many more.

First, let’s not forget that stewardship is a collective endeavor: each purchaser can, through active collaboration, contribute to better stewardship – ultimately, it will be about harmonizing mechanisms. Donors should acknowledge that they have been important creators of new schemes, programs. They should be much more committed to bringing coherence. It is sad to observe agencies – i.e. purchasers – that are reluctant to harmonize or even fighting each other (“my scheme is better than yours”), not recognizing that their own projects contribute to fragmentation.

A second possible area for action is data intelligence. In his presentation, Joe Kutzin framed the unification of information systems as a key step towards SP. This agenda seems less contentious. In Geneva, we heard that huge steps are already being set in this direction. We could even go one step further and build a national platform for knowledge sharing and collective learning (a recommendation which emerged from our multi-country study on learning systems for UHC).

A third possible action concerns the level of oversight. In each country, it would greatly help to have a governmental unit / taskforce / group in charge of coordinating all those in a position to act as a strategic purchaser – this will be particularly key for UHC. One of the key arguments for backing the CoP multi-country study was the realization that for all these countries, the existing “web” of schemes was the real starting point of their journey towards UHC. One should never forget that the cube is not empty: a mix (mess?) of schemes are already present in the cube!

A fourth area for action, the most difficult one, will be the merger of schemes. It is unclear what the ideal number of purchasers is (2). One could be tempted to answer one – for securing control over health facilities. Yet, such a monopsony also creates inefficiencies (an uncontested bureaucracy with no incentive to innovate at the level of the purchaser). Actually each market configuration creates its own problems – on this issue, I found the typology developed by Lorraine Hawkins really helpful.

Still, for sure, having too many purchasers in a country is not good. So streamlining schemes and eventually merging some should be on the agenda of the stewards of many countries. However, this is clearly not an easy endeavor: behind each scheme, there are strong and potentially reluctant stakeholders. In Geneva, we talked a lot about these political economy constraints. Path dependency matters – the choice made by many East European countries when they transitioned out of socialism, for a single (para-)public purchasing agency, was probably a wise one. In Geneva, we also heard about the important advocacy role for WHO.

For sure, SP is a long-term agenda. Things will progress slowly, at times, in an incremental way. But there will also be phases when SP is really speeding up. Our job is to find these highways.

Note:
In this study focusing on “schemes”, we didn’t count “aid projects operated by external actors” – which according to the definition we proposed in our first blog, are purchasers as well.

I do also believe that too many purchasers opting for SP could be an issue. Today, most NGOs provide their support in kind. I am not a great fan of support in kind, but in some situations (e.g.  when the project has a short time span and delivers a modest contribution), it is probably a lesser evil than trying to radically transform institutional arrangements. Similarly, if each vertical program started its own Performance Based Financing, it would not help. Today, many of these actors do not radically question their input based model. But as time goes by and data becomes even more the pivotal resource of the health systems, more of them will probably be tempted to purchase more strategically. This will substantially increase the stakes at the level of the stewards of the health system.

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The ReBUILD project: what have we learned so far?

6/12/2017

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An interview by Anna Boisgillot

We continue our series of interviews to present knowledge management activities led by health financing experts worldwide.

We interviewed Dr Sophie Witter,
an associate with Oxford Policy Management, and a Professor of International Health Systems at Queen Margaret University, Edinburgh, UK. She is also the Research co-Director of ReBUILD, a research consortium focussing on health system reconstruction post-conflict. Sophie is interested in health financing in low- and middle-income countries, financial barriers to access, human resources for health, and performance-based funding mechanisms. She agreed to share her work within the ReBUILD project with the CoPs.
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In 2016, you published seven articles about human resources for health remuneration issues in post conflict countries and fragile states. What sparked off your interest in this specific subject?

I started working in this topic on 2011 when we got a grant for the ReBUILD programme from DFID. There has been a big increase in conflict globally and a change in the kind of conflicts - for example, there are now more unresolved crises which carry on for a long time and have very serious consequences for civilians. Health needs are now very focused in fragile and conflict affected countries. We have also seen increased migrant and refugee flows. At the same time, there did not seem to be very much research going on in relation to these issues in terms of health systems, which is my field of expertise. So, we were interested in trying to understand the implications of these kinds of shocks and conflicts on health systems. Quite a lot has been done in terms of the immediate effects, and a lot of practical guidance around managing humanitarian crises has been published. But our focus was to try to understand the long term view and look at concepts like path dependency that we thought were practically relevant but also very academically interesting.

My focus on human resources is really linked to three things: first, if you have to think of one single area within the health system that really make things happen or stop things from happening, it would be human resources. They have a lot of agency and thus a lot of ability to adapt, adopt and block change, depending on their degree of engagement with health policies. Secondly, health workers are the biggest item by far in terms of expenditure in most health systems, so how effective human resources are is absolutely critical for effectiveness of the system. And thirdly, this area is interesting as it is quite a politicized domain: a lot of governments are concerned with public employment, and of course there is often a lot of interest from unions and other stakeholder groups.


You, with others, are leading the ReBUILD consortium, a research programme for health system development in countries that have been affected by political and social conflict. What are the topics and main learning agendas you are working on within this project?

We used more historical and longitudinal methods - especially life histories with health workers and households - to understand how policies have changed and what effects they had. For example, we focused on households that have access to health care and how it changed with different health financing policies in Cambodia, Northern Uganda, Sierra Leone and Zimbabwe. Each of these countries gave us a different perspective because of their different histories and length of time since conflict or crisis. We were interested in understanding how the health system responds to different types of shocks, and in one of the projects used group modelling building with health managers and staff to establish channels of resilience. In Sierra Leone, after the Ebola crisis, we used our research to look at the resilience of the health system and how epidemiological shocks had affected health workers. Others in the group looked at the pattern of health aid through social networks analysis to understand the relationships between different players at districts level and how these affected services. We also include gender analysis in all of our projects. Another area to highlight is that we have tried to be very active in terms of research uptake, engaging with other players. For example, we facilitate a thematic working group on health systems in fragile and conflict affected states to engage with organizations and individuals who were active in this field.

The first phase of this project is coming to its end. What lessons can be drawn from this? And what will you do with the new phase of this project?

We are trying to draw together some of the lessons from the first phase, looking for patterns, though we have to emphasize the context-specificity of findings. We will be launching a set of briefs which pull together evidence from ReBUILD and from the wider literature on some important themes within crisis-affected settings, such as resilience and health systems.

I will take the example of Sierra Leone to talk about some of the lessons learned, because it would be difficult to generalize from very different contexts. The work we did in Sierra Leone illustrates some very interesting things around the organic nature of health systems - the way in which health systems have really to be understood as social institutions and the importance of elements like trust. It is understood by some people but not by everybody that health systems are not just about outcomes or producing better health. What we saw in the case of Ebola was another shock to the health system, when it was only just starting to recover from civil war. We documented the way in which the health system was redeveloped and started to pick up after conflict. This is a two-sided story - on one side, a very positive tale of resilience (e.g. health workers were very stigmatized, they were at risk and many health workers lost their lives and yet they continued to provide services), so it is a very strong story, both at community and health workforce levels, of resilience. On another hand many of the key institutions, such as the Ministry of Health, were weak and then further undermined by internal and external factors during this crisis. So I think one of the lessons there is the importance of focusing not just the immediate results, but always having an eye on building institutions, which is a long term job.

We have a two-year extension for this project. In the health worker incentives area, we will look at performance-based-financing (PBF), and we will focus particularly on what is specific about this kind of disrupted context that facilitates or blocks the use of PBF. This is important as there is a lot of interest both in PBF and in these contexts. For example, the current UK Aid strategy puts a lot of emphasis on fragile and conflict affected settings, while the UK government continues to emphasise a results-orientation in aid and public policy generally. We are also planning further research on human resources management, on the role of community health workers, on gender equitable health systems and on the demographic impact of conflict and its implications for health systems, all in fragile and conflict-affected settings. We would like to widen the scope of the countries that we have been looking at. While in the first phase we focused on a post-conflict story, we now want to study wider contexts – e.g. countries suffering from protracted crisis or complex emergencies. Another area where we really see a need for a lot of new work is in capacity development. For most of the fragile post-conflict countries health system research is a very new field, and while we have been able to build up some partnerships, it really needs a very long term engagement. So these are some areas that we hope to take forward.


To your mind, what have been the impacts on health workers and the health system in Sierra Leone? And how do you (and ReBUILD) envisage the future health system reconstruction in the country?

The research group and the team in Sierra Leone have been very involved in the development of the reconstruction plan. Findings from the research in the first phase (e.g. on health workers) has very much fed into the identification of needs. There is a window of opportunity now, with a lot of interest and resources coming into the country. ReBUILD will continue to try to ensure that evidence is used to inform how those funds are invested. But at the same time, we really are emphasizing the need to develop and not bypass national institutions, which is a big risk at this stage. We will also follow up with other areas of work, for example researching the role of community health workers, which we didn’t have a chance to look at in the first phase.

Any conclusion or comment you would like to make?

Fragile and conflicted-affected states research is an area that deserves a lot more attention and interest by different research communities and practitioners. It is also one which lends itself to interesting cross-disciplinary work (e.g. collaborations with political scientists, historians, economist, public administration experts, as well as, of course, public health and health system experts). We recently published a research agenda setting exercise in Health Research and Policy Systems. As far as ReBUILD is concerned, we really welcome collaboration with anybody who is interested in working on any of the topics which it raised. So, do get in touch!


(1) Sophie’s publications can be retrieved here.
(2)
 Aniek Woodward and others, ‘Health Systems Research in Fragile and Conflict-Affected States: A Research Agenda-Setting Exercise’, Health Research Policy and Systems, 14 (2016), 51.


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Strategic Purchasing (1): expectations upon purchasers

6/6/2017

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Bruno Meessen
No country will make substantial progress towards Universal Health Coverage without a strong capacity to strategically purchase health services. As illustrated with our 2016 meeting in Rabat, the Communities of Practice want to contribute to the development of these capacities in Africa. One lesson which emerged from Rabat was the need to help countries and experts better understand what Strategic Purchasing (SP) is about. In a pair of blogposts, I suggest that mapping SP around two poles of responsibility could be helpful. In this first post, I focus on the responsibility of the purchasers. Most  hyperlinks refer to power point presentations from a recent meeting in Geneva, organized by WHO.
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As an economist, I have no doubt that Strategic Purchasing (SP) will be a “passage oblige” for every country aiming to make sustainable progress towards UHC. As nicely put by Joe Kutzin a while ago, “countries cannot simply spend their way to UHC”. Still, till recently, I was a bit struggling with the exact scope of SP. Thanks to a recent global meeting in Geneva, “Strategic purchasing for UHC: unlocking the potential”,  I now have a much better view on all related issues.

Purchasing: one of the three functions of health financing

We all know Joe Kutzin’s conceptualization of health financing as a three-component venture: resource mobilization, pooling and purchasing. If the key quality of the ‘resource mobilisation’ component is to gather as many financial resources as possible in an equitable way, without  burdening people and the economy unnecessarily, and the key quality of ‘pooling’ consists in as little fragmentation as possible (everyone equal within the same pool), the key quality of purchasing is to aim for an efficient allocation of resources to producers of (equitable) good health. While purchasing occurs in every health system, efficiency and equity don’t come naturally. Actually, from a technical perspective, this is probably the most complex and sophisticated area of health financing. It is a domain of measurement, intelligence and smart design (henceforth the word ‘strategic’), with no blueprint. It is certainly not the easiest area to explain to citizens or even to ministries. Consequently, it is often off the radar of many stakeholders. Yet, as you can tell from its label, it is a strategic issue.

Securing the efficient and equity-enhancing purchasing of health services mainly falls on the shoulders of two specific actors of the health system: those in charge of designing and steering the whole health system (the stewards – traditionally the Ministry of Health, but increasingly, this is done in partnership with other actors) and those who allocate resources to health service providers, the purchasers (which can be the Ministry of Health, but will also include the health insurance agencies, the national PBF unit… and many more as explained here below). In this first blogpost, I review the responsibilities of the latter.

What is purchasing? Who is a purchaser?

One issue with purchasing is that many actors do not recognize themselves as purchasers – as we shall see in the second blog, this lack of (self)-acknowledgment is actually one of the main causes of the messy situation prevailing in many health systems. No doubt, some conceptual clarifications may help.

Purchasing can be defined as the act by an economic agent of providing resources to another economic agent in order to obtain some specific value from the latter; in the health sector this value will be linked, directly or indirectly, to a contribution to good health. Any economic agent which provides resources with the intention to obtain some health value in exchange can be considered as a purchaser.

Let’s make four remarks on the scope of this – intentionally broad – definition of purchasing. 

First, I have deliberately opted for the broad concept of ‘economic agent’, which can apply both to individuals and organizations. We propose not to have a too restrictive/legal understanding of the boundaries of the ‘organization’ category. In the health sector of some countries, the State tends to be everywhere; in our understanding, the central department of the Ministry of Health and the public health center are two distinctive economic agents. What matters is that there is some de facto autonomy of action on both sides. Henceforth, a vertical program providing drugs, equipment, training and a per diem to health districts and health centers in order to organize the response to a specific disease is a purchaser. An NGO running a long-term project providing resources to health centers and asking them to report on the use of these resources is, wittingly or not, a purchaser. A patient who pays for a consultation is also a purchaser.

Second, our definition is also broad in terms of the generic formula of ‘resources’ it uses. Purchasing does not require payment in cash.  Paying the salaries of staff working in the health center, providing drugs to the health center or paying a fee are all just different modalities of purchasing.  

Third, we also propose a broad understanding of the notion of transaction between the two parties. We acknowledge that there is a whole spectrum there, from a not-requested anonymous gift to a negotiated business deal, but any interaction which creates some obligation for the producer of good health equates to a purchasing situation, according to our definition.

Fourth, our definition goes beyond just purchasing from health facilities. One can purchase from taxi drivers (for instance in a voucher program) and even from users (when a conditional cash transfer program pays them to quit smoking). What matters is their plausible capacity to (co-) produce (some) good health.

So, in this view, most health systems are actually full of purchasers. But not all of them are “strategic” purchasers.

How can an actor's purchasing be more strategic?


Any purchaser enters the relationship with the provider in order to generate some value, either for its own sponsors, a beneficiary group or for itself. Being strategic about one’s purchasing requires (we’re exaggerating a bit, clearly) being “obsessed” with this issue of value creation: you optimally use the different instruments under your control to ensure that the providers generate maximum value.

The purchaser’s main concern is to align providers on delivering the desired value. The purchaser will achieve this, by transferring, intelligently, resources under its control to those able to deliver this value; ideally, the intelligent transfer occurs through 4 + 1 sets of actions: (1) the identification  of the best value for the resources available; (2) the selection of the right providers; (3) the design of smart contracts; (4) the efficient enforcement of the contracts. Each of these four sets of action is enabled by a fifth one: the  capacity to gather data, and convert it, through learning, into meaningful information, knowledge and decision.

It is one’s ability to perform these five sets of action in the best way which determines the strategic degree of one’s purchasing. Let’s review each of them.

1. Identification of the best value: A purchaser can be more strategic by investing in better assessing the needs and demands of its beneficiaries – what is really valuable for them? This requires a good knowledge of population’s needs (burden of diseases) and preferences (through consultation); in Geneva, we heard about the practice in Thailand. The clarification of the value one can create goes also via what is called today Health Technology Assessment (HTA): the review of the existing solutions (drugs, diagnostics, technology, interventions…), the assessment of their acceptability, cost-effectiveness and affordability, given the available resources. This information is vital to determine the content of the benefit package, i.e. the set of goods and services, including the conditions to access them, to be provided to the beneficiary group. In Geneva, a whole session was dedicated to this area.

2. Selection of the right providers: The benefit package will be delivered by specific providers;  issues such as their profile, technical capacity, their location, etc. matter a lot for any purchaser aiming for effectiveness, efficiency and equity. For some needs, being strategic is about being creative and opting for a whole chain of providers, including some contributing to ancillary functions (ex. a voucher scheme may purchase from community workers, taxi drivers and health facilities).  Within each category, a selection still has to be made – some health facilities may not have the standards of care required to deliver the value expected. A purchaser acting strategically collects enough information on providers to enlighten its own choice on enrollment of providers, accreditation of providers, etc… It also establishes some competition between providers, in order to push quality upward and cost downward.

3. Design of smart contracts: Most of the time, a purchaser has some range of maneuver to define the contractual arrangement with the providers. Being strategic is about collecting information to define the best contract. The purchaser has to answer questions such as: How much should providers be paid to deliver a specific service? Which provider payment system, and more generally, set of incentives is most fit to obtain the appropriate behaviors by the provider (in terms of dedication, innovation, cost control…)? Contracts are quite flexible institutional arrangements. A purchaser can also be strategic in using information emerging from previous contractual cycles (see next point) to revise the next contract. It can capitalize on new technologies to measure performance with even more granularity and invent new contract terms.

4. Efficient enforcement of contracts:  A purchaser can strive for the due execution of the contracts. Did providers deliver? How did they adapt to incentives in previous contracts? Have they gamed the system? Should a sanction (including non-renewal of the contract) be taken? Answering these questions requires investment in a routine information system, monitoring and evaluation, auditing provider claims, etc. This information is key for the purchaser’s own action: actually, its own contractual obligations towards the provider (e.g. payment) depend on whether the provider fulfilled his part of the contract. A purchaser can also be strategic in applying to itself the rules it enforces upon others, for instance, through reporting on its performance to various stakeholders. This accountability indeed builds collective trust in the purchasing system and the capacity of the purchaser (1).

+1. Learning: We see that treatment of information is really at the heart of the SP relationship: nothing is given – learning should be permanent and the purchasing is adapted accordingly. We have tried to capture this cross-cutting role in our illustration (see above).

Being strategic is costly

All purchasers are of course free to pursue more strategic purchasing, i.e. to invest in these 4+1 sets of action. Yet, performing these sets of action also requires resources. Efficiency will therefore impose a variable investment in SP capacity.

For individuals, the investment in the 4+1 sets of action will be very limited. First, health care is what economists call an experience good and sometimes even a credence good. Acquiring knowledge on the good or service (or the provider of those) comes from accumulating experiences. A person with a chronic illness may develop enough experience to judge one’s provider, but he will experience only once an appendectomy (if any). Second, the information needed is very technical – this is why we consult medical doctors, sometimes with very specialized degrees. So people will gather some information on their health  problem, possible therapeutic solutions (for instance on the internet) and  possible providers (from relatives, internet…). But their effort will most of the time stop there.

The perspective of a health insurance agency or a vertical program is quite different. The larger the pool of patients of the insurance, the larger the set of documentable illness experiences. There are also obvious returns to scale for collecting information on burden of diseases and developing  technical capacity in cost-effectiveness analysis. This is also the case for selecting providers, designing smart contracts and implementing routine monitoring. So the question of the extent to which one needs to be strategic mainly applies to organizations such as the ministry of health (and its various programs), health insurance funds and aid agencies (if any).

Being more strategic is now possible

Are these programs and agencies living up to their potential? Are they really purchasing in a strategic manner? To answer this question, one has to check, case by case, how far they go with their intelligence effort across the 4+1 sets of action. The actors promoting the SP agenda such as  the WHO and the CoPs obviously believe that many purchasers could be much more strategic in their purchasing.

In my opinion, this understanding does not just stem from a sudden realization that in our (global and national) advocacy of UHC, we have overlooked the third function of health financing and hence it’s more than time to make up for it. It is also inspired by far deeper trends, which relate to accumulated theoretical knowledge from contract theory, some recent experiences with new provider payment methods, new insights from behavioral economics and more fundamentally, the huge changes our health systems are going through in terms of data and information technologies.    The latter is perhaps even the main reason why purchasers with sufficient critical mass (ministries of health, health insurance funds…) should invest in the 4+1 sets of action: thanks to the digital revolution, there are huge new opportunities for efficiency gains.

Conclusion

In this first blog, we have tried to identify what each purchaser could and should do in order to engage in more  “strategic” purchasing. We have proposed a view of SP as making progress on a set of 4+1 sets of actions, by each purchaser. However, the concurrent effort of all purchasers can also destroy some value. Each health system needs a general direction and strong coherence. This requires us to look at the overall governance of SP. We leave this issue for another blogpost, though. Stay tuned!

(1) In this blog, we have focused on the relationship between the purchaser and the provider. It is important to keep in mind that a purchaser does not operate in isolation. First, a strategic purchaser usually acts as the agent of some principals (investors, members, tax payers…): it will also have to be able to report on its own performance. Second, the strategic purchaser must also be accountable to the larger array of stakeholders constituting the health system (this will be developed in our second blog). Third, most probably, the performance of the whole contractual arrangement which the purchaser sets up will also depend on the behaviors of the users – communicating clearly with them on their entitlements and obligations will also be key.


Credits: The illustration of the blog is based on a movie presenting the Open RBF software. I am also grateful to Inke Mathauer and Fahdi Dkhimi for their comments on a draft version of this blogpost.
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