Part 2: Which Purchaser-Provider Models Are Best for India?
(Part 1 provides background on the issues.)
By Robert Hecht, Khizer Husain, Stephanie Sealy, and David de Ferranti
In recent years, countries globally have re-examined and revamped the relationship between purchasers and providers of health care. Some, like Sri Lanka and Cuba, have chosen to maintain direct government control rather than opt for a purchaser-provider split (PPS). Most others, including nearly all OECD nations and many countries in East Asia, Latin America, and increasingly in Africa, have elected to design and implement a provider-purchaser split (PPS) as part of their health financing system reforms.
Building on the work of Xu and van de Ven, we see four types of PPS models available to India as shown in Table 2.
By using public insurance funds to purchase exclusively from government health care providers (Model 1), as in the U.K., India could create positive health results by requiring public hospitals and health centers to deliver specified volumes and certain quality standards of care. A disadvantage of Model 1 for India is the country's relatively low utilization of the public sector, which delivers just one-fifth of all outpatient care and less than half of hospital services.
In this regard, Model 2 (public insurance and mixed private and government delivery of care), as in countries like Canada, is better suited to India's conditions today. This model, exemplified by the long-standing but small Central Government Health Insurance Scheme for civil servants and more recently by RSBY, aligns with India's current mixed public-private health care delivery system. By including both qualified government and private health providers, consumers will have wider choice, and providers will face competitive pressures to perform better.
The rationale for adopting this model is bolstered by recent studies of India's public insurance schemes, which find a high patient satisfaction rate, effective coverage for tens of millions of India's poorest, and increasing financial protection. The studies also suggest that stronger monitoring and regulatory oversight are needed to enhance the impact of these schemes, reducing fraud and price escalation.
For India to successfully adopt this model, states will need to strengthen their public health insurance funds with skilled staff and additional purchasing know-how. Currently, private intermediaries are contracted by the states to enroll members, empanel hospitals, process claims, and reimburse hospitals. If Model 2 is to be fully implemented, parastatal institutions (trusts and societies, and state nodal agencies) will need to play a progressively stronger role as active purchasers.
An alternative might be for the newer government tax-financed schemes to rely on private insurance companies for purchasing functions (Model 3), as in Germany. Most of India's new public insurance schemes, including RSBY and more ambitious programs in Andhra Pradesh, Karnataka, and Tamil Nadu have contracted with private insurance companies and third-party administrators, which set payment rates and process claims.
A key modification would be to insist that the private intermediaries managing the purchasing function be not-for-profit entities, as with the "sickness funds" in Germany and Japan, and that these intermediaries work collaboratively with the government, providers, and civil society organizations to set mutually agreed payment rates for a standard package of benefits.
Model 4, entailing competition among private entities purchasing on behalf of a public insurance scheme, as in Colombia and the Netherlands, is not well suited to prevailing conditions in India. It would require developing risk equalization mechanisms in each state and further regulating competing private insurance companies, to ensure that they do not try to avoid high risk patients and select only the healthiest customers (cream-skimming). This would place excessive demands on public regulatory agencies at a time when they are still nascent in India.
The Way Forward
We therefore suggest that India pursue a PPS approach along the lines of Models 2 and 3, in which non-competing tax-financed public insurance agencies purchase care from a mix of public and private providers. These agencies could be public sector or parastatal agencies (Model 2) or regulated non-profit private entities (Model 3).
On the provision side, states like Tamil Nadu and Kerala, which have strong government health systems, could purchase health care from public hospitals and clinics, while in other states with weaker government health services and predominantly private providers, the major share of the purchasing might be from private sector.
Such a purchaser-provider split would allow Indian consumers to access the providers they prefer, while giving purchasers leverage to demand better quality, lower cost services. We see this as the best way for India to use its growing public purse to improve the health of its population.
The main arguments against a PPS in India are that private providers would exploit patients' ignorance and purchasing institutions' weakness to order costly medically unnecessary services; or, even worse, that the purchasers (especially where they are government-contracted private companies) would collude with private hospitals and doctors to bankrupt the system. While we acknowledge these as risks, we believe that through increasing public sector control and professionalization of purchasing, and stronger regulation of all providers, these risks can be effectively managed in India.
Whatever form of PPS Indian states decide to implement, they will need to take further steps to make their public insurance schemes truly universal. This means expanding the pool of eligible beneficiaries beyond families below the poverty line, to include all households. RSBY is beginning to do this, by incorporating other lower-income groups such as street vendors, taxi drivers, and sanitation workers.
Reaching universal coverage for the Indian public insurance schemes will also require broadening the benefits package to include a wider range of services. At present, RSBY and most state-sponsored schemes are limited to hospital services. Given India's high rates of maternal and child illness and the significant burden of infectious disease, it is important that expanded government purchasing focus on primary and outpatient services.
The Modi government is at a crossroads. Either it can endorse a bold structural shift towards a purchaser-provider split or it can stay with the largely failing status quo by making modest supply-side adjustments. We would encourage the former. The time to act is now.