This document discusses different concepts related to purchasing healthcare and provider payment mechanisms. It begins by explaining the rationale for separating the roles of healthcare financing and provision. It then outlines various provider payment methods like fee-for-service, capitation, case-based payments, and DRGs, describing the incentives created by each. Finally, it discusses defining benefit packages to achieve universal healthcare coverage and some policy challenges for implementing these concepts in Bangladesh.

1. Purchasing healthcare
and provider-payment
mechanisms
Rumana Huque, Ph.D.
Department of Economics
University of Dhaka

2. At the end of the session, participants will understand
the basic concepts of purchaser-provider split, and
different modalities of provider payment and their
relative strengths and weaknesses.
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3. Presentation overview
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Purchaser-provider split: concept, rationale and
evolution
Defining a benefit package for achieving UHC
Provider payment mechanisms including fee-forservice, per episode, DRG, capitation: concept,
strengths and weaknesses
Country experiences
Policy options: challenges for Bangladesh
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4. Purchaser-provider split: concept, rationale and
evolution
 Decreased productivity between 1960 and 1980 in
terms of increased costs per physician visit, treatment
and bed-day was supported by poor responsiveness to
public expectations, long waiting-lists and ineffective
use of available resources.
 As a response, the thrust of the reforms consisted in
separating the roles of financing and provision,
introducing contracts and per-case payments instead
of traditional global budgets
 At the same time, possibilities for patients to choose
their health-care provider increased, and funding
followed patient choice.
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5. Defining a benefit package for achieving
UHC
Packages are defined as ‘groups of priorities that
can be standardized to ensure that equivalent
interventions are delivered wherever the package is
made operational. Within the package all
interventions have equal status, and the package as
a whole has been costed’ (Sikosana et al, 1997 p 51)

6. The purpose of providing a benefit package
 To strengthen the financial risk protection, and extend
health services and population coverage with the aim
to achieve universal coverage.
 Sometimes a cluster of diseases shares diagnostic
procedures or treatment protocols, or the same drugs,
and therefore can be treated together (such as
maternal and childcare).
 It minimises the total cost of the package, and reduces
the cost to patients of obtaining services.

7.  The cost effective interventions can be delivered
together as a package with the same level of
technological sophistications and by extension
through the same mode of delivery or facility
 Focusing the attention on a package makes it easier to
estimate the need for external assistance, and to use
donor resources well.
 If the package is established considering the burden of
diseases and spending prioritised by burden, it will
also promote equity

8.  the World Development Report (1993) identifies five
groups of clinical interventions that should be
included in every country’s essential package. These
are:
 Pre-natal and delivery care
 Family planning services
 Management of sick child
 Treatment of tuberculosis
 Case management of STDs
After covering that minimum package to every one, a
country may include a much broader range of
interventions into their essential package.

9. Essential service package
The ESP included five broad components:
 Reproductive health (family planning, maternal health
and other),
 Child health,
 Limited curative care (LCC),
 Behavioural change communication (BCC) and
 Control of communicable diseases (CCD).

10.  Shasthyo Shurokhsha Karmasuchi (SSK) will include
the following services (HEU, 2012):
 In-patient care which is manageable at Upazila and
District level
 Free Physician’s consultation
 Free drugs and diagnostic facilities
 Structured referral to the secondary and tertiary level
hospitals
 Transportation cost for referral cases

11. Provider payment mechanisms
 Provider payment mechanisms are defined as the way money is
distributed from the government, insurance company, or other
fund-holder to a health care provider.
 It is a type of contract among two or more players—patients,
providers, and payers—that creates specific incentives for the
provision of health care and minimizes the risk of opportunistic
behaviour.
Different types of provider payment mechanism include:
 Fee for service
 Per episode,
 DRG
 Capitation

12. Four main actors are affected by provider
payment reforms:
 health care facilities (e.g., hospitals),
 health professionals (e.g., physicians and nurses),
 patients, and
 insurers/payers.

13. Payment
Method
Unit of
Service
Main Incentives Created
Line Item
Budget
Functional
budget
categories
Little flexibility in resource use, cost
control of total costs, poor incentives
to improve productivity, sometimes
results in rationing
Capitation
Per person to
a health care
provider who
acts
as fundholder
Incentives to undersupply, strong
incentives to improve efficiency that
may cause providers to sacrifice
quality, rationing may occur

14. Case-based
Payment
Per case or
episode
Incentives to reduce services
per case but increase number
of cases (if per case rate is
above marginal costs),
incentives to improve
efficiency per case
Diagnosis
Treatment cases to
related
clinically defined
group (DRG) groups (i.e., DRGs)
that are
distinguished by
comparable
treatment costs
Omission of some therapeutic
services causes no change in
remuneration, creating an
economic disincentive for
their delivery.
Fee-forService
Incentives to increase units of
service
Per unit of service

15. Policy options: challenges for Bangladesh
 The coverage of mandatory health insurance schemes
in the formal sector for both the public and private
service holders is negligible compared to the total
population employed in the formal sector.
 Contribution through private health insurance
schemes is less than one percent of the total health
care expenditure in Bangladesh.
 Heterogeneous and unregulated private sector