Healthcare sector needs to explore different pricing structures to incentivise prevention rather than cure
Thursday, 20 September 2012: As pricing of healthcare takes centre stage in the healthcare industry, Professor Andrew Street, director of the Economics of Social and Health Care Research Unit in the UK talking about universal cover says Diagnosis Related Groups (DRGs) could ensure fair reimbursement of healthcare providers in the public sector.
Speaking at the Hospital Association of South Africa (HASA) conference in Cape Town, he said the main aims of pricing in a universal healthcare system were to control overall expenditure, incentivise efficiency and improve quality. “But payment must ensure fair reimbursement, with equal pay for equal work.”
South Africa is looking at introducing DRGs as part of the proposed National Health Insurance (NHI) system reforms for publicly funded healthcare. He added that differentiated prices were sometimes appropriate to encourage entry and participation in public health delivery and because providers delivered different services and faced various unavoidable costs.
“Hospitals face different unavoidable cost constraints including regulatory factors; tax regimes; monitoring and performance management regimes; as well as contractual arrangements,” said Street. “They will also have different costs of capital, including the cost of borrowing and cost of labour. In addition, there are geographical differences in input prices.”
It was also important to get a true assessment of the capital (such as buildings) used in the provision of care, where depreciated accounting costs may not reflect the true costs of capital utilisation.
He said hospitals needed to be compensated to recognise the specific unavoidable costs they faced and commercial information could be kept confidential.
Street said DRG-based funding could ensure fair reimbursement as long as the quantity was described accurately and prices reflected the true cost of production. Street confirmed that this regulatory process related to publicly funded health but delivered by any willing provider. In the UK privately funded, privately provided care is not subject to price regulation and tends not to apply DRG, with the exception of NHS patients treated in the private sector through the Any Willing Provider programme.
Also addressing the conference, Senior Health Specialist for the Africa Region at the World Bank, Gyorgy Fritsche said pay-for-performance or results-based financing could be a powerful instrument to work towards universal health coverage.
He said the rising burden of chronic diseases and increased health spending meant traditional payment models were proving inadequate. “Many countries are experimenting with new purchasing strategies to improve the quality of healthcare and coverage of priority services and reduce costs.” Instead of paying providers based on inputs or on outputs, a “pay for performance” model rewards the delivery of good health outcomes. Fritsche said rewards could include monetary incentives for governments to improve health coverage; programmes that pay beneficiaries money if they use a preventative service; or paying doctors extra for every vaccination they performed. Even non-monetary rewards, such as medals or tokens for patients, could be used to encourage them to use a particular service.
“In some cases performance-based schemes can increase a doctor’s salary three or four times,” he added. “In some countries in Africa, these programmes have proved successful in attracting healthcare workers to remote areas and to focus on preventative health.”
Although Fritsche noted that these pay-for-performance programmes on average are a small contribution to doctors’ overall earnings, he said the model allowed countries to move away from passive purchasing where output and prices were defined by providers towards a more active payment model rewarding quality.