How can the world’s poor obtain    the quality of health anddevelopment services they need if  most are provided through t...
Who pays for services in Low and   Middle Income Countries?• In India less than 25% of rural health services are provided ...
Are the poor getting what they are         trying to pay for?
Tackling inequality of information       on quality of services• The poor have more knowledge about the  quality of the se...
Why is it hard to recognise qualityprofessional services in markets?• Qualityof a service is made up both of  competence (...
Can user payments to individuals   help improve the quality of      professional services?• Payments to individuals increa...
Avoiding a ‘race to the bottom’ in         professional services:     Payments to organisations.• Organisations have a gre...
Finding or creating appropriate           organisationsPath dependence• Christian missions in Africa• BRAC in Bangladesh• ...
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How can the world's poor obtain the quality of health and development services they need if most are provided through the 'market'?

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Prof David Leonard of the Institute of Development Studies presents findings on the role of private sector institutions in providing health services to the world's poor. Presented at the 'Synthesising evidence across health and development' event jointly held by LSHTM, LIDC and IDS at Woburn House on 19 September 2012.

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  • Much energy is spent on debating whether services such as health, education and veterinary medicine, should be provided by the public or private sectors. But the answer to this question turns out to be irrelevant for most of the globe’s poorest.
  • Most of the severely disadvantaged people in the world live in poorly governed states in South Asia, China and Africa. In these and many other Low and Middle Income Countries (LMICs) formal and informal user-fees are pervasive in the public as well as the private sectors.  True, there are countries in Latin America, South-east Asia, and elsewhere that have established effective government-run systems for health and other services that are not reliant on market relations, but these are not the places where most of the ‘poorest of the poor’ live. Generally, someone who needs curative medical treatment, education, or veterinary care in most other LMICs will have to pay someone for it. For example:  In India less than 25% of rural health services are provided by government (and even the latter usually involves informal payments). Likewise the non-state sector provides the overwhelming majority of curative services in Bangladesh.  Animal health services in tropical Africa moved from overwhelmingly free government provision before 1980 to almost universally compensated services by 1990, as is also true in most parts of India.  Even when ‘free’ primary education is found in these countries, most often it involves payments for uniforms, supplies, and instructor tutoring. So the distinction between ‘public’ and ‘private’ is more one of ownership and supervision, not of whether money is being exchanged. A market is present in both the ‘government’ and ‘private’ service sectors in these countries. It is more useful to look at variations in the market than in the formal attributes of the providers.
  • None of this is to say, that the poor don’t deserve subsidised services; they do. But sometimes subsidies benefit civil servants, rather than the poor. For example, government veterinary staff in India actually charge informally the same prices as private practitioners.  And even when the subsidies do reduce the costs to the poor, almost always payments by the recipients are not eliminated. Given this continuing reality, it is important to ask if the poor are getting what they are trying to pay for. The poor living in poorly governed LMICs can and do invest modestly in the purchase of needed services and can be seen buying from higher cost providers. This is particularly true in the face of catastrophic events, especially if they have land or some other collateral asset. Nonetheless the quality of services offered to the poor in poorly governed LMICs is frequently seriously deficient.
  • The poor have more knowledge about the quality of the services on which they rely than is generally recognised. But in the purchase of professional services, those who are selling their expertise know more than their customers. When institutions are available to help overcome this information inequality, people are able to get better value from their purchases and are willing to buy more. This is called solving the problem of ‘information asymmetry’. In poorly governed societies a development priority is to build a set of institutions that enable quality in competence, effort and accountability to be rewarded in providers and signalled to consumers. In societies with high levels of governance, the state usually plays a central role in providing institutional solutions to the problems of information asymmetry.  In most countries with low levels of governance and poorly developed paths for public sector improvement it is unrealistic and counter-productive to expect government to be the sole provider to the poor of health and development services that are individualisable (i.e., are ‘private’ goods).  Granted, even in these settings the state will often want to play a role in planning institutional solutions by non-governmental actors to ensure the provision of services that have important ‘externalities’ (such as disease prevention, surveillance and control) which provide collective benefits.  But what might those solutions to the ‘information asymmetry’ problem in the delivery of essential individualisable services be? Our examination of the literature suggests that reconfiguring institutions can overcome the ‘information asymmetry problem’ and can benefit both parties.
  • In order to look at potential institutional solutions, we need to recognise that purchasers are interested not only in the quantity of professional services they receive but in their quality as well. With preventive human and animal health the big challenge is to reach large numbers and remote locations. Such quantity problems are much easier to manage, which is one reason that even poorly governed countries usually do an adequate job of providing them. (And this is all the better because people are more willing to buy cures than immunisations.) But quality matters in curative medicine and education.  The quality of a service is made up both of competence (capacity to meet a need) and the effortmade to apply that competence well. The problem is that clients will not pay for competence and effort if they do not know they exist. Before they are willing to pay appropriately clients need reliable signals so they know the quality they are being offered. Some signals of competence can be observed. You can look for a diploma on the wall of your doctor’s office. Competence tends to be regulated moderately well even in countries with poor governance. And once obtained, competence tends to persist. But competence alone isn’t enough. Good quality services depend on effort as well. There is often a substantial gap between what practitioners are capable of doing and what they do in practice. Effort is transitory, hard to observe and difficult to regulate, so this is the dimension on which it is hardest for consumers to know what they are getting. When professional services are acquired through markets, it can have a long-term effect on competence. But it has an immediate impact on effort. 
  • Sometimes governments or donors make direct payments to professionals for the quantity of services delivered to individual clients. The literature investigates what happens when such payments are made for immunisations, maternities, pupils and exam passes, for example.  At other times, service recipients themselves provide payments to providers. Even when these payments only supplement much larger investments by governments or donors, they still provide incentives for service providers to apply effort.  Individual user fees create greater effort only if they add to the income of the professional or contribute to the budget of the organisation. If they are transmitted into the national budget or substitute for it they are not inducements. And this is the way most user fees in governmentfacilities have been used in practice.  Even when fees go directly to individual providers, however, they may not lead to better quality services. They may stimulate quantity of effort, but not better quality. For example, we have evidence that physicians provide a greater quantity of primary care under fee-for-service payments compared with capitation or salary. Financial incentives also can stimulate delivery of services for which demand is insufficient, such as the delivery of immunizations or screening tests. But when they are used widely, financial incentives can have unintended effects. They can induce corruption and make consumers wary of the motives of service providers. By stimulating quantity alone they contribute to the ‘race to the bottom’ among most service providers; they incentivize them to take activity at the margin that is of limited or no value, rather than stimulating higher quality.
  • We’ve seen that payments to individual service providers have strong limitations. Except in a limited set of circumstances, they don’t overcome the unequal information problem.  Payments to organisations.Incentives (in the form of jobs, salaries, bonuses and spoken appreciation) that are mediated through organisations are more likely than payments to individuals to have a positive effect on quality but only if the values of quality and service are institutionalised in the organisation. There are several components to this proposition: Organisations have a greater ability to signal a commitment to quality than practitioners do as individuals. Because facilities have a physical and continuous presence they are much more visible to the public and more subject to public discussion than individual practitioners within them.Organisations have a greater ability to observe and reward the performance of their staff than individual users of the service do. Because of information asymmetry individual users do not always know when they are being badly serviced. This is particularly the case in human and animal health because of the variable effectiveness of treatment, where bad care might nonetheless result in recovery and a ‘state-of-the-art’ intervention could still end in death. A similar, even if somewhat smaller, imprecision in user judgments about quality of service is also evident in education. Students and parents often do not know the real value of the teaching they have received until they see their national school-leaving exam results. And even then they cannot be certain which teachers are responsible. Particularly if the organisation decentralises personnel management to the facility level, it is possible to make formal or informal observations there of the quality of the processes in which employees are engaged and a wide array of rewards and punishments applied relatively quickly. Organisations that directly manage individual practitioners are more likely (but still are not assured) to provide effective oversight and associated incentives, for they are more likely than individuals to be able to signal their character and thus to benefit from extra custom and increased income through the provision of quality. Explicit incentive payments may be paid to individual practitioners but it is important that they be mediated by the group or organisation in its collective interest, not made directly by the client. These organisations also are likely to perform best if their local professional staff have decentralised control of their personnel and financial management (deconcentration), under the eye of client participation. Nonetheless, the costs to an organisation of establishing a reputation for institutional quality are significant. From the empirical evidence it appears thatthe returns to a reputation in additional or higher paying custom are sufficient to maintain quality effort but in themselves are not enough to induce most organisations to create it. Thus the organisations that have invested in the creation and maintenance of quality are more likely to have had pre-existing ‘other-regarding’/ altruistic values.
  • In otherwise difficult environments value-led organisations are exemplified by the services of many Christian missions in parts of Africa and the Bangladesh Rehabilitation Assistance Committee (BRAC) in South Asia. And in China the values and citizen accountability created in the ‘barefoot doctor’ era of the Cultural Revolution has been sufficient to maintain quality in fee-charging organisation. The presence or absence of such value-driven organisations is a part of a country’s deep institutional context, which is an aspect of path dependence. Countries have different institutional repertories and thus will have different tools available with which to overcome their problems with information asymmetry. But that inventory also might be changed by donors or political initiatives that subsidise the long-term, initially-costly investments in new needed institutions.
  • How can the world's poor obtain the quality of health and development services they need if most are provided through the 'market'?

    1. 1. How can the world’s poor obtain the quality of health anddevelopment services they need if most are provided through the ‘market’? by David Leonard, Gerry Bloom, Kara Hanson, Juan O’Farrell and Neil Spicer
    2. 2. Who pays for services in Low and Middle Income Countries?• In India less than 25% of rural health services are provided by government (and even the latter usually involves informal payments).• Likewise the non-state sector provides the overwhelming majority of curative services in Bangladesh.• Animal health services in tropical Africa moved from overwhelmingly free government provision before 1980 to almost universally compensated services by 1990, as is also true in most parts of India.
    3. 3. Are the poor getting what they are trying to pay for?
    4. 4. Tackling inequality of information on quality of services• The poor have more knowledge about the quality of the services on which they rely than is generally recognised.• But in the purchase of professional services, those who are selling their expertise know more than their customers.
    5. 5. Why is it hard to recognise qualityprofessional services in markets?• Qualityof a service is made up both of competence (capacity to meet a need) and the effortmade to apply that competence well.• The problem is that clients will not pay for competence and effort if they do not know they exist. Before they are willing to pay appropriately clients need reliable signals.
    6. 6. Can user payments to individuals help improve the quality of professional services?• Payments to individuals increase quantity• But on quality they can lead to a ‘race for the bottom’
    7. 7. Avoiding a ‘race to the bottom’ in professional services: Payments to organisations.• Organisations have a greater ability to signal• Organisations have a greater ability to observe and reward• Organisations that directly manage individual practitioners are more likelyto provide effective oversight and associated incentives• Nonetheless, the costs to an organisation of establishing a reputation for institutional quality are significant.
    8. 8. Finding or creating appropriate organisationsPath dependence• Christian missions in Africa• BRAC in Bangladesh• PR China

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