The Changing Role of the State

Simon Blair15 May 2001

Huge Variability in Degree of Private “Invasion”

40%* of countries have > 50% of health costs met by non-government sources

0.9% 99.3% 5 < 10% ; 10 > 90% The ‘ironic antithesis of expectation’ Historical legacy, ideology, affordability,

relative strengths of governments and markets, and consumer expectation as influencing factors

An observable, evolutionary path

The Economic Arguments

For government involvement:Public goods / externalitiesMarket failures re info asymmetry

Against government involvement:‘Neo-classical’- private ownership,

competition & efficiencyInstitutional – property rights & provider incentives

And in real life …… Overall a declining % of

expenditure is state funded

Public Share of Total Health Expenditure

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10000 20000 30000 40000 50000

GNP per capita

Pu

blic

as

% t

ota

l HE

1977

1987

1997

And in real life…… Declining/flattening government %s Emotion > evidence ; correlations not as

many envisage Both economic and empirical evidence

suggest optimal results are derived from mixed systems

Policy issues vis a vis the role of the state are critical for low and middle income countries

‘Externalities’ argument valid for public health, medical education, and R & D

Vocal critics are becoming evermore ‘aggressive’…

“political considerations not only strengthen the case for privatization, but actually are the crucial reason for it in the first place”

Shleifer

“government enterprises are far more likely to engage in wasteful, anti-competitive pricing than private ones”

Lott

Role ‘recalibration’ now has wider support

“Active government involvement in providing universal health care has contributed to the great gains – but many governments have overextended themselves. Efforts to provide all services to all people have led to arbitrary rationing, inequities, non-responsiveness and inadequate finance for essential services.”

WHO 1999

Support for ‘recalibration’ (2)

“Unfortunately weak institutional capacity to deal effectively with regulatory problems in the private sector often causes governments to become excessively involved in the direct provision of health services. Such over-involvement is typically associated with insufficient government involvement in: regulating the private sector; financing essential services and securing access to public goods with large externalities for the whole population.”

WB 1998

Support for ‘recalibration’ (3)

All State systems examined in a recent “Economist” report showed one or more of the following symptoms : Shortages of funds Inefficiency / lack of cost containment Hospital overcapacity Access inequities Inappropriate hospitalization

From “classical” to “new” universalism

“The values of WHO when combined with the evidence …cannot lead to a form of public intervention that has governments attempting to provide and finance everything for everybody. This ‘classical’ universalism … fails to recognize both resource limits and the limits of government.” (1999)

Government and Market Involvementin Health Systems

Rev

enu

e C

oll

ecti

on

Pu

rch

asin

g/

Co

ntr

acti

ng

Ser

vice

Del

ive r

y

Government

Market Forces

?

?

P

C SD

R

Unbalanced - Government excessively involved in “Rowing Function” and not sufficiently involved in “Steering Functions”

Balanced - Government activities concentrated on “Steering Functions”

Role Of Government

ComplianceServiceDelivery

Policy

C SD

RegulationsContractsSubsidies

Steering

Rowing

Distorted Roles

More Balanced Roles

I InformationR RegulationC ContractingF FinancingP Provision

P

R

I

C

I

Government Roles in HNP Sector

R

F

C

P

F

HOW ESSENTIAL IS PUBLIC SECTOR INVOLVEMENT IN HEALTH CARE?

Stewardship

Revenue collection

Fund pooling

Least essential Most essential

PurchasingPurchasing

ProvisionProvision

High Contestibility Low Contestibility

Hig

hM

easu

rabi

lity

Low

Mea

sura

bilit

y

Asy

mm

etry

N

o A

sym

met

ry

Type I Type III

• Retail of• Drugs • Medical Supplies• Other Goods

• Production• Pharmaceuticals • High Technology

• Routine Diagnostics• Hospital Support Services

Type IV - A Type VI-A

Type IV-B Type VI-B

• High Tech Diagnostics• Research

• Policymaking• Monitoring/Evaluation

• Ambulatory Clinical Care• Medical• Nursing• Dental

The Nature of Health Care GoodsBased on Neo-Institutional Economics

Medium Contestibility

Type II

• Wholesale• Drugs• Medical Supplies• Other Goods

• Management Services• Training

Type V-A

Type V-B

• General Hospitals• Public Health Services• Health Insurance

High Contestibility Low Contestibility

Hig

hM

easu

rabi

lity

Low

Mea

sura

bilit

y

Asy

mm

etry

N

o A

sym

met

ry

Dealing with Low Contestibility and Information Asymmetry

Medium Contestibility

Info

rmatio

n Disclo

sure

Regulations and C

ontractin

g

Public Financing

Productio

n

HighContestibility

LowContestibility

Hig

hM

easu

rabi

lity

Low

Mea

sura

bilit

y

Asy

mm

N

o A

sym

m

Shifting the Grid and Boundaries of Public Interventions

MediumContestibility

Public Financing

Productio

nRegulations and C

ontractin

g

Informatio

n Disclosure

High Contestibility Low Contestibility

Hig

hM

easu

rabi

lity

Low

Mea

sura

bilit

y

Asy

mm

etry

N

o A

sym

met

ry

Type I Type III

Type IV - A Type VI-A

Type IV-B Type VI-B

The Dynamic Nature ofHealth Care Goods and Services

Medium Contestibility

Type II

Type V-A

Type V-B

Univers

ity H

ospitals

Exp

ensi

veE

qu

ipm

ent

and

Dru

gs

Ambulatory Care

Why Private Sector Participation: Pragmatism

Affordability - efficiency, access to capital, cost-transfer (off balance sheet)

Lack of government ‘skill-superiority’- i.e. not all areas are ‘core-skill’ areas

Increases role clarity & specificity of deliverables

Risk transfer e.g. financial, industrial relations, facility,technological obsolescence and service delivery risk

Hospital Privatization : the evidence

Limited, but passionate, non-evidence based articulation

Overall international findings: not for profit = for profitprivate > publiccompetition = a positive

Kaiser: preservation of ‘public goods’

Purchasing: Increasingly tomorrow’s focus

The arguable nature of government purchaser’s ‘market power’

The political discomfort of service and/or access rationing

Product heterogeneity vis a vis government skill and knowledge deficiencies

Consumerism & choice

Conclusions : From ‘Bevanite’ to role for

government to targeted role focus on information provision,

regulation and financing; on provision

Incremental > programmed privatization

Private sector = broad church & there is no single solution

“The only reliable way to arrive at an appropriate solution is to rely on what has worked in the past and adjust it to meet the specifics of each new or changing situation.”

Van der Gaag

“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

Charles Darwin

The changing role of the state