Paying for Health and Development Services for the Poor: Taking an Agnostic View

Who should pay for health and development services in poor countries, especially for the poorest of the poor? Let’s just take that question for granted and look at the major views. Essentially this comes down to a battle of: Free Services vs. Cost-Recovery.

The “free services” logic goes like this: Poor people are, well, poor and they can’t really afford expensive health and development services. Human rights exist demanding that these services are provided, and therefore someone else has gotta pay. It’s an appealing argument. After all, many people believe that everyone is entitled to high quality health and education at the very least and these services are sure to cost more than the fewer than $2 a day that so many millions of people live on. But several questions can be raised. Who delivers this care? Because the care is provided free, what is the delivery organization’s incentive to provide quality care, to innovate, to be efficient? How can we transfer such large amounts of money (likely from outside poor people’s country) without resulting in corruption?


 
The “cost-recovery” logic goes like this: Poor people are poor, for sure, but health and development services need not be expensive. Just as markets have been used to improve computers and make them orders of magnitudes cheaper, so can the power of the markets be brought to bear on issues facing those at the bottom of the economic pyramid. And the only reason these markets don’t already exist is because we are only now beginning to recognize the vast fortune that could be made by businesses offering services to the poor. And this, of course would mean that we have to charge for our services (AKA have a business model that recovers costs through fees or insurance, not through external donations). This, also, is an appealing argument. After all, we have seen many governments and non-profits without a business model find themselves unable to pay for services, and worse, irresponsibly dealing with the money they do have because of perverse incentives. But again, several questions can be raised. If the service only goes to those who can pay, then how will the poorest within a country actually receive services? For services like healthcare, there are strong economic arguments against a system of fee-for-service at the point of service because the economics of healthcare are different as compared to most products. But despite these questions, there is success on both sides.

Most notably on the free care side is Partners in Health. Working with approximately $90 million a year to serve approximately 3 million people worldwide, PIH by most accounts is providing high quality, relatively comprehensive services for less than $30 a person per year while responsibly handling donations. Importantly, they have been able to use their success and human rights-based philosophy to leverage more donations. Some say PIH is unique (and with about 50% of their budget from individual, mostly unrestricted donations they are). But PIH isn’t just using their celebrity status to get their own funding. PIH is an advocacy organization in addition to a service delivery organization, and they are using this advocacy to create pots of money for other NGOs and governments to use for diseases like cancer and diabetes and for building underlying health systems, including surgical capacity.

Some of the most inspiring examples of organizations using cost-recovery are non-profits like BRAC, Aravind Eye Care Hospitals (see the TED talk), and Narayana Hospitals. These organizations have reached gigantic scale, at low-cost and high quality. Furthermore, they do serve the poorest of the poor by cross-subsidizing (charging the poorest of the poor less or nothing and getting away with it by charging more for those who can pay). While cross-subsidizing is a great model for these non-profits, it does speak to the fact that a for-profit offering these services would likely miss the truly poorest.

What do you think about this? Who should pay for these services, and how? Personally, I am agnostic. I added the word “should” to my questions because for many people this is a normative question. But for me, the only funding and delivery mechanisms that should be done are whatever funding and delivery mechanisms that actually work and in different places, that may well mean different things. We should be distrusting of any view that espouses a one-size-fits-all mentality.

Empirically speaking, some governments, some donors, some non-profits, and some business are extremely well-run, can find funds from someone (the poor, a government, an insurance program, donors), and offer a good product. Others are not capable of this. So in some places, one payment and delivery model will work great, in another place it would fail. Likely this is due to local ecologies of money, power, culture, and people. For health and development, my ideology is simple: having a bottom line that is impact for the poorest billions. When researchers look at interventions, they investigate for marked improvements to an individual or a community, but they are (or rather, should be) relatively agnostic to what the intervention is. When we look at organizations or systems, we should look to see if at scale it is offering a high quality, low cost product to the poor and that it has the capacity for adaptability, for innovation, and to be well-governed, but we can be agnostic to how it is funded and by whom. In that light, PIH, BRAC, Aravind Eye Hospitals, and Narayana Hospitals all make the cut (Who else do you know that makes it, and how have they worked on the funding issue?). So let’s stop focusing on ideologies of who should pay and how. These dialogues force us into simplistic and nonconstructive debates. We need to look at the nuances of local contexts and the nuances of various mechanisms, see what might work best, and if it fails, try try again.

But while I am ultimately agnostic, and I don’t believe in a one-size-fits-all approach, I admit that I have a bias for one approach that would seem to work in many place, and is worth a try. Here’s my personal view for making healthcare for the poor happen taking what I consider the best parts of PIH + the Global Fund + Single payer systems + Michael Porter’s value-based healthcare:
  1. The PIH Step: PIH and other advocates focus their efforts on creating funds dedicated to ensuring equity in global healthcare delivery (and outside of delivery directly, these funds could be used for public goods key to health like healthcare worker training, water and sanitation, electricity, and roads).
  2. The Global Fund/Single Payer Step: Donor funds are channeled to funding pools which no longer go directly to budgets for government or non-profit healthcare delivery, but instead go to government-administered (or in the case of weak governments, NGO delivered) national health insurance programs that ensure that the poor have coverage. It’s like single payer healthcare systems in poor countries, except instead of being entirely internal taxes, large contributions come from donors.
  3. The Michael Porter Step: These programs reimburse any institution (be it government, non-profit, or for-profit) that provides certain standardized care that is proven to be effective. This funding environment would be fertile ground for organizations like Narayana Hospitals, Aravind Eye Care Hospitals, and other organizations that have found better business models through high volume, low cost, high quality standardized care.
This way of doing things is appealing to me because it disaggregates funding, payment, and delivery to parties that can do each well. Donors and advocates are typically better at building movements and securing funds. Governments are typically pretty good at pooling funds and reallocating them. Businesses (and some well-managed, cost-recovering non-profits) can typically achieve low-cost, high quality service delivery. And most importantly, as to our original debate, it’s a system I think human rights and market based folks can BOTH get behind because care can be free for the poor, but a market is created for service delivery. What do you think?
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One Response to Paying for Health and Development Services for the Poor: Taking an Agnostic View

  1. Manpreet says:

    I've been thinking about this a lot recently as well (not just because I'm writing part of a paper on it.)
    Anyway, I agree when you say PiH is unique.

    I still think that free at the point of service health care is a crucial principle, especially when thinking of providing care for the poorest. Governments can provide low cost high quality primary care (see Kerala for a great example). I'm haven't seen great businesses working in the primary care. (Although the examples you've given are great examples of businesses providing fantastic secondary care, and improving access to secondary care for the poorest).

    2) The global fund / single payer model is great. A similar model being trialled in some places – the International Health Partnership Plus programme is attempting to put aid money from bilateral agencies into general government health programs. I've not seen much data on outcomes from it yet.

    One step I think you missed is ways that the government can increase general funds available for government administered health care. General taxation and earmarked social insurance work, but don't raise much money in countries with a large informal sector.

    There's some really exciting work being done on innovative financing mechanisms for health. Gabon imposed a small levy on all mobile phone calls and texts, which was earmarked for health. They raised $30m through that (I've not yet seen any data about the impact on health outcomes).

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