Managing the health care market in developing countries: prospects and problems

Abstract

There is increasing interest in the prospects for managed market reforms in developing countries, stimulated by current reforms and policy debates in developed countries, and by perceptions of widespread public sector inefficiency in many countries. This review examines the prospects for such reforms in a developing country context, primarily by drawing on the arguments and evidence emerging from developed countries, with a specific focus on the provision of hospital services. The paper begins with a discussion of the current policy context of these reforms, and their main features. It argues that while current and proposed reforms vary in detail, most have in common the introduction of competition in the provision of health care, with the retention of a public monopoly of financing, and that this structure emerges from the dual goals of addressing current public sector inefficiencies while retaining the known equity and efficiency advantages of public health systems. The paper then explores the theoretical arguments and empirical evidence for and against these reforms, and examines their relevance for developing countries. Managed markets are argued to enhance both efficiency and equity. These arguments are analysed in terms of three distinct claims made by their proponents: that managed markets will promote increased provider competition, and hence, provider efficiency; that contractual relationships are more efficient than direct management; and that the benefits of managed markets will outweigh their costs. The analysis suggests that on all three issues, the theoretical arguments and empirical evidence remain ambiguous, and that this ambiguity is attributable in part to poor understanding of the behaviour of health sector agents within the market, and to the limited experience with these reforms. In the context of developing countries, the paper argues that most of the conditions required for successful implementation of these reforms are absent in all but a few, richer developing countries, and that the costs of these reforms, particularly in equity terms, are likely to pose substantial problems. Extensive managed market reforms are therefore unlikely to succeed, although limited introduction of particular elements of these reforms may be more successful. Developed country experience is useful in defining the conditions under which such limited reforms may succeed. There is an urgent need to evaluate the existing experience of different forms of contracting in developing countries, as well as to interpret emerging evidence from developed country reforms in the light of conditions in developing countries.

PIP: Recent implementation of managed market reforms in some developed countries, the policy debate on these reforms, and perceptions of extensive public sector inefficiency are raising interest in the likelihood for managed market reforms in developing countries. Most current and proposed market reforms for hospital services differ, yet they all introduce competition while retaining public financing. The two goals of addressing current public sector inefficiencies while preserving the equity and efficiency advantages of public health systems gave birth to this structure. Based on developed countries' experience, a health policy specialist compares arguments and evidence for and against these reforms to reflect on the prospects for such reforms in a developing country framework by focusing on the provision of hospital services. The arguments are that managed markets improve both efficiency and equity. The specialist analyzes the arguments based on 3 different claims made by proponents of managed markets: managed markets encourage increased provider competition and thus provider efficiency, contractual relationships are more efficient than direct management, and the advantages of managed markets outweigh their costs. The analysis shows that the arguments and evidence are vague on all 3 claims. Inadequate understanding of the behavior of health sector agents within the market and the limited experience with these reforms contribute to this vagueness. Just a few, richer developing countries have the necessary conditions for successful implementation of these reforms. The costs of the managed market reforms will probably pose considerable problems, likely leading to failure of these reforms in developing countries. Limited introduction of some elements of these reforms could be successful, however. One must evaluate the present experience of various contracting methods in developing countries and interpret emerging evidence from reforms in developed countries while considering conditions in developing countries.