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Improving the health status analysis and demand analysis to help forecast the demand for
services
Defining the basic health package at an affordable level and in a way that can be contracted
for. Align entitlements to services to this package
Improving health information on provider activity/services
Specifying services into purchase units that can be used in service agreements/contracts with
prices based on costs for an efficient provider (there are methods for doing this that permit
gradual increases in sophistication over time starting from a simple approach tailored to the
available information and skills). Costs should cover the full costs of the services otherwise
this creates distortions in behaviours that can lead to inefficiencies.
Designing contracts and contracting approaches to create good incentives for performance
and mitigate risks such as cost shifting, cream skimming, and driving down quality to increase
profits. This includes using incentive based contracting approaches and using competition
where feasible. Contracting strategies have to be carefully designed as only a portion of
elective services can be removed from a hospital before making its services expensive due to
problems in managing the relationship between acute/elective services. Clinical viability also
has to be considered. The government has to manage its ownership interests in public
hospitals by not unnecessarily undermining their ability to be clinically and financially viable
while also taking advantage of the gains from competition.
Monitoring many aspects of performance including performance on service contracts and
acting on performance issues.
Encouraging improvements in the provider market. This will include changing the
configuration of government owned providers to lift efficiency and effectiveness; making
improvements in governance and accountability arrangements for government service
providers; and market development including encouraging the development of an effective
private sector
The view has been expressed that contracts or service agreements are not required in the health
sector with publicly owned providers, but this overlooks the considerable gains that these agreements
can deliver through clarifying performance expectations linked to funding, setting out service volume
and quality requirements, and creating incentives for performance through their design and
application. They can be a critical part of improving information and incentives. They are also going
to be essential as tools to manage the various flows of funding and performance expectations related
to each of those flows, if the insurance model is implemented and if public health providers supply
services to fee paying patients and groups. Service agreements are also a critical tool for the Minister
of Health and MOH to ensure that providers are being required to deliver appropriate services,
allowing the Minister and MOH to use these agreements (and the annual plan with the statement of
service performance) and formal performance reports as strategic management tools.
The MOH could make progress in all these areas which could bring improvements to the health
services whether or not the system evolved into a model with a central Health Insurance Fund. The
MOH can have the role of contracting for the basic health package that can be financed from the
government budget, through contracting with a mix of government and private providers, using the
health budget provided by the government. It can develop many of the capabilities required for a
health insurer noted above, but tailored to its role as a government funder/purchaser of health
services rather than a full blown health insurer processing claims and managing revenues from a
variety of sources.
The changes recommended in this review for the MOH structure could be implemented to strengthen
the overall capability of the MOH. This would increase its ability to perform the functions set out
above. The Health Sector Strategy and the operational plan, MTEF and budget bid could all be
adjusted to accommodate the development of the work set out above. There will be consequences
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