Getting Health Reform Right A Guide to Improving

Performance and Equity

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Preface

In recent decades many governments have undertaken efforts to reform and reor-
ganize their health-care systems. They have created new insurance systems,
changed how primary care is delivered, restructured hospital governance, decen-
tralized the government's health-delivery system—all in pursuit of better perfor-
mance and equity. Yet many of these reform efforts have yielded disappointing
results. Patients still complain about poor service, doctors about low salaries, and
budget-makers about the costs of the health sector. Some countries have enacted
successive rounds of reform, while others have struggled to implement the plans
they adopted. Still others wonder what to do next.
This book is intended to help those who find themselves caught up in health-
sector reform. As our title suggests, it is a guide book designed to provide practical
advice that will help reformers improve the performance of their health systems,
with special attention to the equity of those results. While we make extensive use
of the academic literature, we have not pursued this project as an academic exer-
cise. Instead, the book emerges from many years of courses and seminars for
health-sector decision-makers around the world and from our extensive involve-
ment in consulting and advisory relationships with various governments.
There are four critical features in our approach to health-sector reform. The first
is that we see the health sector as a means to an end. We urge reformers to judge
their systems by the consequences, to define problems in terms of performance

v
VI PREFACE

deficiencies, and to assess proposed solutions by whether they promise to remedy

those deficiencies. This approach leads to an analytically rigorous method for
problem definition, causal diagnosis, and policy development. This kind of
method has often been lacking in health reform efforts, and its lack is partially re-
sponsible for the disappointing results.
A second major feature of our approach is a commitment to combining inter-
national experience with deep sensitivity to local circumstances. In this book we
do not tell reformers what we think is the one "right answer." Instead, we offer
methods and tools they can use to develop answers that will fit the economic re-
sources, political circumstances, and administrative capacities of their own na-
tional situations. We do offer guidance for those choices, based on reform
experience around the world, but it should always be conditioned by the local
context. Again, we believe many recent disappointments can be traced to the un-
critical advocacy of some favored policy solution by international experts or
agencies—without an adequate understanding of local conditions.
Our third major commitment is to a multidisciplinary approach to the problems
of health-sector reform. Admittedly, the range of relevant concepts and methods is
dauntingly wide. But narrow analyses, which ignore important features of the situ-
ation, only invite failure from unanticipated consequences or unforeseen difficul-
ties. Because money flows and incentives are so important in understanding any
health system, we make extensive use of economic analysis. But we also believe
that incentives alone do not explain everything, therefore we rely heavily on organi-
zational theory and social psychology to explain the behavior of doctors, hospitals,
patients, and other actors. In addition, we argue that attention to technical issues
alone will never allow a reformer to fully understand and be effective in real situa-
tions. Hence, we devote much attention to understanding the political context for
health-sector reform and to developing political strategies that can move reform
forward. Finally, we argue that health-sector policy inevitably involves ethical
choices. Thus, a grounding in basic political and moral philosophy is essential for
reformers to understand and make those choices in a reasoned way.
This point about ethics leads to the final critical feature of our approach. The
equity aspects of health-sector reform efforts are a continuing theme in this book,
reflecting both our own personal values and the concerns expressed in the Millen-
nium Development Goals adopted by the international community. We explicitly
acknowledge and discuss how views about equity vary around the world. At the
same time, we offer our own ethical views and indicate how equity in health sys-
tem performance is influenced by various kinds of reform efforts.
While we believe that more systematic analysis can make a difference in
health-sector reform efforts, we are not naive about the difficulties. Health sys-
tems are extremely complex, and they often react in unanticipated ways to policy
initiatives. Those who benefit from the status quo will continue to resist change.
Advocates for reform often ignore local realities, and international agencies
PREFACE Vll

respond to their own internal dynamics and incentives. Still, we believe that an in-
crease in both the breadth and the depth of thinking about reform can lead to bet-
ter performance outcomes, and that is what we seek to facilitate in this book.
Producing a work aimed at these objectives has required six years of intense col-
laboration—the product of innumerable meetings, memos, conversations, and con-
frontations. Chapters have been drafted and critiqued, edited and revised, often many
times. Some did more writing, others more critiquing. Some focused on crafting our
concepts, while others contributed wisdom from years of hard-won experience. No
two or three of us could have produced what the four of us have produced together.
The credit for initiating the project goes to Paul Shaw at the World Bank Insti-
tute, who, in 1996, began organizing a major teaching program that became
known as the "Flagship Course on Health Sector Reform and Sustainable Financ-
ing." Shaw asked Hsiao to take responsibility for an introductory module on
health systems assessment and diagnosis. Hsiao then recruited erman, Reich,
and Roberts, and our collaboration began.
In the summer of 1997, we produced a six-chapter set of background notes and
teaching materials for the first offering of the course, which took place that fall in
Washington, D.C., with 90 participants from many countries. Those background
papers became the first draft of this book. In the summer of 1998, the World Bank
retained Roberts to rewrite and expand those materials for the following year's
course. After that offering, the four of us agreed to collaborate in turning the
background papers into a book. We used subsequent versions of the manuscript
each year in various Flagship courses—both in Washington and abroad. During
the latter half of 2002 and the winter of 2003, Roberts and Reich, with critical in-
put from Hsiao and Berman, revised the manuscript to highlight key themes, inte-
grate various parts, ensure consistency, and give the text a common style.
The book relies on six key conceptual contributions, as identified in Chapter 1.
Here we note the initial source for each of these.
The policy cycle formulation comes from work that Roberts did with a col-
league, Christian Koeck, for a course they taught on health policy.
The ethical framework was developed by Roberts and Reich, together with a
colleague, Karl Lauterbach, for a course they have taught on public-health ethics
for more than a decade.
The political analysis we use was developed by Reich, along with software he
has produced, called Policymaker (with David Cooper).
The concept that health systems are means to ends and the performance goal
formulation were developed by Hsiao from his research and advisory role to
many countries. Roberts and Berman elaborated these and their relationship to the
ethical framework.
The control knob conceptualization was developed by Hsiao—with three of the
specific "knobs" (organization, regulation, and behavior) extensively deepened
and expanded from our conversations.
 viii PREFACE

cumstances, a careful exploration of beliefs and values, family relationships,

and social supports is essential so a potentially life-changing decision may be
as appropriate as possible for the individual. Yet, whether the attention to psy-
chosocial issues is brief or extensive, the genetic counselor must be well
grounded in the principles and practice of psychosocial assessment and inter-
vention and in the broader social-cultural contexts within which genetic coun-
seling functions and counselees live their lives. Only when this is the case can
the relevant issues be appropriately and sensitively addressed in a manner con-
sistent with the often limited time available in genetic counseling. This book
is devoted to an understanding of these issues.
The book is intended for all those who practice or study genetic counseling:
students in master's degree training programs as well as all practitioners who
define themselves professionally as genetic counselors—graduates of master's
degree programs, medical geneticists, genetic nurse specialists, and Ph.D. ge-
neticists involved in genetic counseling. The book is also intended to address
the needs of the growing number of individuals in other professions who find
themselves confronted with genetic issues, as genetics becomes increasingly
relevant to broad areas of medicine and public health. These include physi-
cians in many specialties, nurses, social workers, psychologists, and individual
and family therapists.
For students and those who teach them, the book will serve as a text in
courses covering psychosocial and ethnocultural topics as well as counseling
techniques and clinical case review. Case vignettes and examples of clinical di-
alogue provide opportunities for discussion and suggestions for clinical inter-
ventions. For practicing genetic counselors, the book provides a comprehen-
sive approach to addressing psychosocial issues, including an entree to the
relevant literature, and focused discussions on decision making, prenatal diag-
nosis counseling, cancer risk counseling, and genetic counseling with children
and adolescents. The complex issue of nondirective genetic counseling is ap-
proached from a broad, historical perspective and there is detailed considera-
tion of the still emerging areas of cross-cultural counseling and ethnocultural
competence. For individuals in other professions, the book provides an
overview of issues and techniques they may encounter in interactions with ge-
netic counseling and genetic counselors, as well as the opportunity for detailed
study in areas in which they are directly involved.
With this breadth of potential readers in mind, the book is designed to be
usable at three somewhat distinct levels. First, a general reading provides an
overview of the multiple topics relevant to genetic counseling. Second, the var-
ious sections, although relatively succinct, present in some detail the complex-
ities of theoretical material and the subtleties of clinical interventions. Thus, a
careful reading of any section will support a more expanded understanding of
the topic. Finally, insofar as possible, cited references provide more thorough
PREFACE IX

lengthy hand-scrawled edits. We also wish to recognize the special contributions

of one co-author (Reich), who facilitated the group process at critical junctions
and pushed the project (and his co-authors) forward with grace and persistence.
Without his efforts, who knows when, or if, this book would have been finished.
Finally, we want to thank the literally hundreds of participants in Flagship
courses in Washington, at Harvard, and around the world. Their energy, ideas,
suggestions, and responses were invaluable, as they (and we) struggled with the
evolving versions of this book. We hope that our efforts will help them with the
vital work they do every day, seeking to improve the performance and equity of
health-care systems around the world.

Boston Marc J. Roberts

Cambridge William C. Hsiao
Boston Peter Berman
Cambridge Michael R. Reich
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Contents

I HEALTH SYSTEM ANALYSIS

1. Introduction, 3
2. The Health-Reform Cycle, 21
3. Judging Health-Sector Performance: Ethical Theory, 40
4. Political Analysis and Strategies, 61
5. Goals for Evaluating Health Systems, 90
6. Assessing Health-System Performance, 110
7. From Diagnosis to Health-Sector Reform, 126

II THE CONTROL KNOBS

8. Financing, 153
9. Payment, 190
10. Organization, 212
11. Regulation, 247
12. Behavior, 281
13. Conclusions, 308
Index, 321

XI
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I
HEALTH SYSTEM ANALYSIS
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I
Introduction

Setting the Scene

Throughout the world, governments are engaged in health-sector reform (Mills
et al. 2001, OECD 1996, Berman 1995). The transitional economies of Eastern
Europe are full of new social insurance schemes. Nations in South America are
experimenting with ways to extend health insurance coverage to both the rural
and urban poor. In Africa experiments with fiscal decentralization have produced
additional revenues for hospitals, but also more inequality between rich and poor
regions. To improve efficiency, many nations have also experimented with both
new payment systems and new ways to organize health-care delivery.
Too often, however, conflicting political calculations, economic implications,
and ethical concerns have led 16 a confused national debate: How should we deal
with doctors' demands for more money? What strategies exist to reduce costs for
medical care while expanding social insurance to cover the poor? Should we
expand the system of publicly provided health centers, or move more to private-
practice family physicians? Should we ask patients to pay more out of pocket, or
make more use of general tax revenues? Is the answer more new technology or
less? More doctors or fewer medical schools? Building new hospitals or spending
more on anti-smoking campaigns?

3
4 HEALTH SYSTEM ANALYSIS

Our approach to such questions is based on looking at the health-care system as

a means to an end. In order to know whether the health-care system is working
well or badly, and to identify promising reforms, it is crucial to keep this perspec-
tive in mind. Our method focuses on the need to identify goals explicitly, diagnose
causes of poor performance systematically, and devise reforms that will produce
real changes in performance. We will argue that reform must be strategic, based
on honest means-ends analyses of what is likely to happen in a particular national
context. Reforms need to be judged, not on reformers' intentions, but by the
changes they actually produce.
Advocates of particular health-sector reform ideas do not always offer arguments
that meet this standard. Instead, they sometimes urge adoption of their favorite idea,
be it decentralization or family medicine, primary care or private insurance, without
critical analysis or reflection (Sen and Koivusalo 1998, Hearst and Bias 2001). Too
often, reform advocates do not identify the performance problems they want to im-
prove, or say how the reform they propose will lead to that improvement.
We know from experience that health-sector reform is a difficult process
(Herman 1995, Wilsford 1995). As we discuss below (Chapter 4), existing institu-
tions and interest groups often have both the reasons and the resources to vigorously
oppose change. As a result, it often takes some sort of political or economic shock
to begin the health-sector reform process: a budget crisis, a change in the govern-
ment coalition, a public scandal, a strike by providers or some combination of these
and other similar events. This means that major changes in a country's health sector
are infrequent. Hence, reformers have to be prepared to energetically seize the
opportunity for major change when the time arises.
We are not so naive, however, as to believe that a crisis always produces unity
about what needs to be done. Differences in values, interests, political philosophy,
and institutional responsibility will all make themselves felt. The Ministry of
Finance is not likely to agree with the Ministry of Health. The doctors will not
necessarily see eye to eye with the hospital administrators; nor will local govern-
ment leaders agree with pharmaceutical company executives. For this reason we
stress the importance of being clear about underlying values—and the ways these
values lead to different goals and different reform priorities. Only by clarifying
goals and values is it possible to devise a policy that has a hope of achieving the
changes that reformers desire.
Experience has also taught us that, because of its complexity, the behavior of a
health-care system is not easy to control. Change payment schemes, and doctors
and hospitals are likely to modify their behavior to defend their incomes (Oilman
2000, Dowling 1977). Impose regulations on hospitals, and reports may be ad-
justed to show more compliance than actually occurs. Create new payroll taxes,
and some businesses will seek to avoid them (Ron et al. 1990). Furthermore, the
causal relationships in the system are complex. Change incentives to hospitals to
foster efficiency, but not the authority of hospital managers, and the new scheme
INTRODUCTION 5

may produce little change. Institute competitive bidding in situations where there
are few competitors, and the hoped-for decline in prices and costs may not occur.
These characteristics of the health system—its complexity, its resistance to
change, and the diversity of perspectives within it—give health-sector reform an
episodic and cyclical character. When some internal or external shock does focus
national attention on health-sector reform, a specific feature of the system is often
identified as critical, and this then becomes a target for major reform efforts. But the
initial reform steps often lead to further, unanticipated problems. And additional
rounds of reform (often less dramatic) can be expected. As a result, the initial
changes are adapted, perfected, and modified (or even dismantled) by subsequent
actions. We discuss the health-reform cycle in detail in Chapter 2.
Moreover, because we focus on consequences, we will insist throughout this
book that matters of practicality and implementation be kept in mind. While inter-
national experience is a valuable source of ideas and guidance, we urge the reader
to remember that policies that have worked well in other countries always need to
be evaluated in your particular context. Every nation is different, and simple imi-
tation is seldom advisable. Reformers have many questions to ask themselves:
How good are our data systems? How respected are our courts? How energetic
are our administrators? As we noted above, policy needs to be developed
in a realistic and self-critical manner. Such skepticism and self-examination can
help lead to plans that have a reasonable prospect of success in a reformer's own
national context.

The Evolving Context for Health-Sector Reform

When we began work on this book several years ago, health-sector reform was
promoted as a way to solve the problems of the health systems of countries in
widely diverging circumstances. In the interim, international discussions about
development have come to place even greater emphasis on health—both as a cen-
tral goal of development and as an instrument to enhance other welfare outcomes
(Commission on Macroeconomics and Health 2001). From a philosophical per-
spective, Amartya Sen has argued that health is an essential element of the human
capabilities needed for development (Sen 1999). From an economic perspective,
population health has been identified as a cause of economic growth at the na-
tional level (Bloom and Canning 2000). In addition, poor health has been con-
nected to household poverty, by studies showing that acute episodes of avoidable
illness are a major cause of households falling into poverty and distress (Liu et al.
2003). In sum, a consensus has emerged that health care is important both to
improved health status and to general development goals.
Historically, public health scientists have attributed the major gains in popula-
tion health to such improvements as better nutrition, sanitation, housing, and
the healthier behaviors stemming from education (Preston 1975). More recent
6 HEALTH SYSTEM ANALYSIS

evidence indicates that health care also accounts for a significant share of health
improvements in poor countries (WHO 1999) and that delivering the right pack-
age of basic health-care services can achieve important reductions in mortality
and morbidity (World Bank 1993, Gwatkin et al. 1980). These causal connec-
tions suggest that health-sector reform has a crucial role to play in health and
development.
In 2003, as this book goes to press, international development policy debates
are focused on achieving the Millennium Development Goals (MDGs), which are
specific targets for poverty reduction, including a number of particular health out-
comes such as controlling infectious diseases and managing childhood illnesses
(IMF et al. 2000). With prompting from international agencies, countries are de-
veloping Poverty Reduction Strategy Papers (PRSPs) as comprehensive guides to
development investments, including for the health sector (World Bank 2001). In
addition, the Global Fund to Fight AIDS, Tuberculosis, and Malaria has been
established to mobilize new financial resources for these three diseases. Because
these new campaigns focus on poverty reduction and disease control, however,
the language of health-sector reform and the perspective of health system analysis
have received less attention—an unfortunate development.
While the policy debate has evolved, the underlying problems remain. Address-
ing the urgent health problems that now are the focus of international concern will
generally require effective health-care systems of the sort that do not yet exist in
many countries. For example, the prevention and treatment of HIV/AIDS or the
integrated management of care for sick and malnourished children will require
health-care systems that can provide accessible high-quality services, especially
to the poor and disadvantaged. It is broadly agreed that the health sector in many
developing countries cannot meet these challenges today without substantial
reform. Even huge increases in funding will not suffice, unless and until nations
have in place the institutions and infrastructure to use such funds effectively. In
short, the subject matter of this book remains both timely and urgent.

Concepts and Perspectives

Our approach to the health-sector reform process brings together six important
elements that we consider systematically in the chapters that follow. The first five
points are discussed in Chapters 2 to 7, with a focus on methods. The sixth set of
concepts provides a framework for analyzing health-care systems and reform op-
tions in Chapters 8 to 12. These six elements are as follows:
• A description of the policy cycle and an identification of the key tasks a reformer
should be prepared to tackle at each stage of the process (Chapter 2).
• A guide to ethical theory to help think through the moral bases for the policy
goals and priorities that help define the reform agenda (Chapter 3).