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July 2011

Lessons for HospitalAutonomy Implementation in Vietnam from InternationalExperience

Policy Note

Issues identified from International Studies and a Public Hospital Survey in Vietnam

Ministry of HealthDepartment of Planning and FinanceHealth Strategy and Policy Institute

The World Bank Vietnam Office

iiiLESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEFOREWORD

FOREWORD

The Government of Vietnam sees hospital autonomy policy as important and consistent with current development trends in Vietnam. It is based on Government policies as laid out in Government Decree 10/2002/ND-CP on financial autonomy of revenue-generating public service entities; and to 2006, it is replaced by Decree 43/2006/ND-CP on professional, organizational, human resource management and financial autonomy of revenue-generating and state budget-financed public service entities. These policies apply to public service entities in all sectors, including the health sector and hospitals. This policy is an important element of public administration reform in Vietnam, helping service entities survive and develop under the socialist-oriented market mechanism. It aims to help hospitals in fulfilling assigned professional tasks by allowing them to restructure their organization and staffing. The government has also allowed public service entities to mobilize private capital and joint ventures to organize activities and services responding to social and people’s needs. Joint ventures can promote dynamism, creativity and autonomy in the effective use of physical facilities, professional capacities and human resources and to expand the range of services, mobilize additional revenues from society, and improve service quality. Hospitals are given financial autonomy, including autonomy in using current budget and revenues for service related activities. They are allowed to develop their own internal spending regulations stipulating spending levels/items that are appropriate with their own contexts, thus increasing the efficiency of financial resources. If a hospital performs well with additional revenues, staff can be rewarded with additional income on the basis of their performance. This is expected to encourage hospital staff to improve their productivity and work efficiency. In addition, various funds can be established, including welfare funds for the staff as well as for the expansion of business activities for re-investment.

This study will show that since the implementation of Decrees 10/2002/NĐ-CP and Decree 43/2006/NĐ-CP, a number of improvements have been demonstrated within hospitals with respect to physical facilities, service provision, medical techniques, service quality and staff incomes, thus creating stability and satisfaction among hospital workers. But it also describes the international evidence that implementation of hospital autonomy comes with a risk of unintended outcomes driven by powerful financial incentives from the market place to increase revenue. These include supply induced demand, cost escalation, inappropriate care. There are some indications that such risks may be emerging in Vietnam as well, although these would need further research. Fortunately, there is also international evidence about policies that can mitigate such risks, and these are also described in this report. We hope that this report will inspire further studies and encourage policymakers to think about continuous improvement of policies.

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEBACKGROUNDiv vLESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCE

ACKNOWLEDGEMENTSLESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEACKNOWLEDGEMENTS

This report has been prepared by the Vietnam Ministry of Health’s (MOH) Department of Planning and Finance (DPF), in collaboration with the Health Strategy and Policy Institute (HSPI), World Bank (WB) and World Health Organization (WHO). The report is based on the work of Loraine Hawkins, a consultant supported by the World Bank, on the international experience relevant to Vietnam; a survey and analysis conducted by HSPI and supported by the Ministry of Health and WHO, on the implementation of Decree 43 in the public hospital system. The initial findings of the report were discussed at the workshop “Hospital Autonomy: Distilling Lessons for Vietnam from International Experience” on June 3, 2010 in Hanoi. Contributions by the following people is acknowledged: Nguyen Thi Kim Tien, Minister of Health; Pham Le Tuan, Director, DPF, MOH; Nguyen Hoang Long, Deputy Director, DPF, MOH; Le Quang Cuong, Director, HSPI; Tran Thi Mai Oanh, HSPI; Graham Harrison, Health Systems Advisor, WHO Vietnam; Nguyen Thi Kim Phuong, National Professional Officer, WHO Vietnam; Toomas Palu, Lead Health Specialist, WB in Vietnam; Dao Lan Huong, Health Specialist, WB in Vietnam; Jack Langenbrunner, Lead Economist, Health, WB; Gerard Martin La Forgia, Lead Health Specialist, WB; Nguyen Quynh Nga, Program Assistant, WB in Vietnam.

The report also acknowledges the research team who conducted the public hospital survey, including Prof. Dr. Pham Le Tuan; Mr.Nguyen Nam Lien, MSc; Mr. Le Van Quan, MSc; Ms. Pham Minh Nga, MSc; Ms. Hoang Thi Bich Ngoc, MSc – all from the Department of Planning and Finance, MOH; and Prof. Dr. Le Quang Cuong, Director; Dr. Tran Thi Mai Oanh, Vice Director; Dr. Tran Van Tien; Ms. Nguyễn Khanh Phương, MSc; Dr. Khương Anh Tuan; Dr. Duong Huy Luong; Dr. Hoang Thi Phuong; Mr. Trinh Ngoc Thanh, MSc; Vuong Lan Mai, MSc – all from the Health Strategy and Policy Institute.

ACKNOWLEDGEMENTSWe welcome the study and strongly recommend it to policy makers, hospital managers, and researchers. We look forward to a fruitful collaboration with the World Bank on health system development in Vietnam.

Prof. Nguyen Thi Kim Tien Minister Ministry of Health, Vietnam

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEBACKGROUNDvi LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCE

CONTENTS

CONTENTS

A. Background 5

B. Overview of international experience with hospital reform 5 and hospital autonomy 1980-2009

A Framework for Understanding Hospital Organizational Reform 6Governance and Supervision of Autonomous Hospitals 8Reviews of International Evidence on the Impact of Hospital Reform 9Characteristics of Successful Hospital Reforms 9Less Successful Hospital Reform Experiences: Imbalanced Incentives in Public Hospitals 10with Mixed Budget and Private Revenues Common Implementation Challenges: Factors That May Disable Reform 11Enabling Conditions for Successful Hospital Reforms 12Conclusion: Key Lessons from International Experience 12Challenges in evaluating and review of hospital autonomy 15

C. Vietnam’s initial experience with hospital autonomy: survey of 18 hospitals following 17 implementation of Decree 43

D. Policy options for managing risks from the unintended effects of hospital autonomy 19 Using multiple policy instruments to achieve balance among hospital policy objectives 19

Harnessing hospital managers as partners in achieving hospital policy objectives 20Linking and integrating autonomous hospitals to improve the efficiency of the health system 21Regulating the public-private interface in autonomous hospitals 21Mobilizing and regulating investment in autonomous hospitals 23Public financing of capital expenditure in public hospitals 23Private financing of capital expenditure in public hospitals 24

D. Conclusions and Recommendations 25

References 26

Background

A

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEBACKGROUND 3

The Government of Vietnam granted autonomy to public hospitals as part of a wider public administrative reform, with the aim of improving performance

of these entities and reducing the burden on the Government budget. The 2002 Decree 10/2002/ND-CP gave hospitals and revenue-generating entities in other sectors the rights of autonomy over how they used their non-budget revenues, subject to some regulations. Some hospitals implemented Decree 10 – particularly urban hospitals with greater potential to attract private paying patients. In 2006, the Government promulgated Decree 43/2006/ND-CP to replace Decree 10. Decree 43 applied to all public hospitals. At the same time, the Government encouraged hospitals to implement “social mobilization of capital” to mobilize non-government finance for investment from private organizations and individuals, including current and former hospital staff. Social mobilization is a form of joint venture between public hospitals, investors and private companies to establish revenue-earning business units within public hospitals. These units are able to set their own fees for providing higher quality patient services. In cases when these fees are higher than prices that are reimbursed by Social Health Insurance, public hospitals can bill the patients for the difference. Staff investing in these services may also work in them and share profits with the joint venture partners and the hospital.

Recognizing that public hospitals have specific public welfare characteristics that distinguish them from commercial revenue-generating enterprises, the Government has recently developed a new draft decree and is currently consulting and reviewing this draft.

Hospital autonomy and social mobilization joint ventures have already resulted in significant changes in hospital financing, performance and management areas. However, as in most countries that have initiated this type of reform, there are some concerns with unexpected and unintended effects in the hospital sector - such as overuse of fee-generating services, increase in service prices, and increase in the health care expenditure burden on the people and the social insurance system (VSS). Recently, the Communist Party of Vietnam Politburo indicated that it is necessary to conduct an assessment on this issue. Taking all these facts into consideration, the Ministry of Health (MOH) commissioned the Health Strategy and Policy Institute (HSPI) in collaboration with the Department of Planning and Finance (DPF) to conduct an assessment on the implementation of Decree 43 with a special focus on the investment in medical equipment through "social mobilization" in public hospitals. The purpose of this report is to analyze emerging Vietnam experience in the light of international public hospital autonomy conceptual frameworks and experience.

Overview of international experience with hospital reform and hospital autonomy 1980-2009

B

7LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEOVERVIEW OF INTERNATIONAL EXPERIENCE WITH HOSPITAL REFORM AND HOSPITAL AUTONOMY 1980-2009

Reforms of organization and management of public hospitals have occurred in every region of the world in the past 30 years. Reform has taken place in response to

some common problems in public hospitals: inefficiency, waste, user dissatisfaction, a “brain-drain” of qualified personnel to the private sector or through emigration, run-down assets and failure to serve the poor.

In many countries, as in Vietnam, hospital reform introduced greater managerial and fiscal autonomy. Hospital autonomy was seen as a solution to the “problem diagnosis” about some (but not all) of the causes of poor hospital performance. Traditional public hospitals, operating as budgetary units of the MOH or local government, faced multiple constraints on performance:

hospital staff were paid and their jobs were protected regardless of their productivity and quality of service;

hospital staff salaries were often set based on rigid relativity to other civil service salaries (based on level of qualifications and years of experience). As private health systems developed, this resulted in a wide gap between public hospital salaries and private medical staff earnings, particularly in urban areas;

hospitals were given budgets for specific inputs – salaries, utilities, drugs, other operating costs, capital expenditure, etc.; (slow) procedures for MOH and MOF approval were necessary in many countries to re-allocate and execute budgets;

if hospitals made efficiency gains, any unused

budget was returned to the MOF/Treasury; any reduction of excessive staff positions resulted in lower hospital budgets, so that there was no incentive to make efficiency gains;

capital expenditure from the budget was seen as a “free good” – so every hospital had incentives to lobby for high levels of new capital expenditure, but little incentive to maintain the existing assets of the hospital, and make better use of existing assets.

Studies of international experience with hospital autonomy have highlighted that autonomy alone does not lead hospitals to improve their performance towards all of the public policy objectives of higher quality, greater efficiency and access to hospital services for the poor. A critical mass of complementary reforms is needed to drive hospital performance towards all of these objectives, using multiple policy levers. Comprehensive hospital reforms usually include a number of the following elements:

Management capacity and systems strengthening, including management information systems strengthening, was emphasised in countries with successful reforms.

Financing and provider payment reform, often social health insurance or “purchaser-provider separation” was introduced in parallel to hospital reform; new payment methods such as case-based payment or global budget contracts were introduced.

Quality improvement reforms: hospital licensing and accreditation systems were introduced. Hospital performance

8 9LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEOVERVIEW OF INTERNATIONAL EXPERIENCE WITH HOSPITAL REFORM AND HOSPITAL AUTONOMY 1980-2009

responsible for its own deficits and debts;

Accountability of hospitals should change from following directions and seeking “permission” from the government hierarchy, to ex post accountability for performance to arms-length bodies – including compliance with contracts, regulations, and accountability to its board, owners and the public;

Social functions of hospitals (such as the costs of free or subsidized care for the poor or uninsured, compliance with ethical codes of conduct, meeting public health priorities, teaching and research) – should be explicitly contracted and fully funded, rather than being an implicit expectation or “unfunded mandate”.

A summary schematic is provided in Figure 1. 1

Figure 1. Dimensions of Hospital Management Reform

1 The terms used in Figure 1 for describing different levels of autonomy for hospitals are defined here:• BudgetaryUnit–thehospitalisasubordinateunitoftheMOHorlocalgovernment,financedfromthebudget,subjectto

the same rules and controls as government ministries; • Autonomous Unit – the hospital becomes a semi-autonomous or autonomous government-owned body; hospital

directors are appointed by government; the hospital may have an external supervisory board;• CorporatizedUnit – the hospital becomes a government-owned enterprise or corporationwith a legal and financial

structure and regulations that simulate those of private sector hospitals; but it remains in government ownership; corporatized hospitals have a board of external directors, usually appointed by the owner (government) or an appointments commission for state enterprises;

• PrivateProvider--ownershipofthehospitalanddecision-makingtransferredtoprivate,non-state,legalentitiesorprivateshareholders. The private entity may be a non-profit foundation or trust.

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEOVERVIEW OF INTERNATIONAL EXPERIENCE WITH HOSPITAL REFORM AND HOSPITAL AUTONOMY 1980-2009

monitoring methods were strengthened. Health technology assessment and evidence-based clinical guidelines were developed.

Modernizing infrastructure: some countries faced a need to rationalize outdated, excessive hospital capacity to increase efficiency. Fast growing countries faced a need to build new hospitals, and modernize their existing hospital capacity. Countries experimented with a range of mechanisms to encourage the private sector to invest in the public hospital sector, using a variety of models of public private partnerships.

Organizational and governance reform: various models of hospital autonomy were implemented in different countries. Some countries converted hospitals into autonomous non-profit foundations or trusts. Some converted public hospitals into state-owned enterprises (“corporatization”). Some countries merged hospitals into autonomous networks, rather than giving autonomy to individual hospitals. Sometimes these networks were subordinate to a hospital authority. Some countries used public private partnerships to manage hospitals more efficiently; some contracted private management to run public hospitals – another form of public private partnership; some leased public hospitals to private hospital organizations under contract to operate the public hospital.

A Framework for Understanding Hospital Organizational Reform

Hospital reform was expected to address the problems facing public hospitals by reforming some of the key drivers of performance: the

incentives facing the hospitals’ managers and staff, the authority given to managers, the capacity of managers and staff to respond to these incentives, the intrinsic motivation or professionalism of staff, and the accountability mechanisms (Roberts, Hsiao, Berman and Reich 2001). Preker and Harding (2003) developed a framework to analyze how hospital reform changes the key drivers of hospital performance. The framework looks at five dimensions of hospital reform that affect how the hospital functions. Note that management autonomy is only one of the five dimensions: the other four dimensions are key contributing factors needed to make autonomous hospitals responsive to the public policy objectives of quality, efficiency and equity. The five dimensions are:

Management autonomy: In autonomous or corporatized hospitals, decision-making authority is delegated from the Ministry of Health or local government to the hospital’s own management or board;

Financial incentives created by the provider payment mechanism: hospitals obtain their revenue from payment for services, and patients may have some choice of hospital – exposing the hospital to competition. By contrast, traditional public hospitals obtain most or all of their revenue through budget allocations for input costs (salaries, other operating costs, capital expenditure);

Autonomous or corporatized hospitals retain part or all of the financial surpluses they earn from reducing costs or increasing revenue; the reformed hospitals also face a “hard budget constraint” - the hospital is


major capital investment and also for appointing an external board of the hospital (the governance body) if it has a board. The board usually appoints the hospital director. For autonomous public hospitals, often the Ministry of Health carries out the responsibilities of the owner in conjunction with the Ministry of Finance and Cabinet. Governance functions for autonomous hospitals require specialized, high level expertise and good hospital performance data and data analysis. These functions require new capacity and skills in

the MOH. Some countries have created a special semi-autonomous hospital authority to carry out the governance functions of the government with respect to public hospitals, including Hong Kong SAR, and a number of provinces and cities in China. These specialized authorities have high-level expert capacity to monitor the performance of hospitals, and oversee the appointment and development of hospital management. Figure 3 summarizes the main elements of good governance for autonomous hospitals.

Figure 3. Governance of Autonomous Hospitals

HOSPITAL

ObjectivesClear

Consistent

Performance Targets

Oversight

Clear role & duties

Vai trò và nhiệm vụ rõ ràng

Professional, technical capacity

External Accountability

Ex -post, performance-oriented , arms-lengthPublished �nancial & annual reports

Reviews of International Evidence on the Impact of Hospital Reform

Some cross-country reviews and syntheses of the evidence on the impact of hospital autonomy have been carried out. These reviews have attempted to find correlations between key characteristics of reform design and implementation and the results

of reform using the type of framework described above. Most of the countries studied had high levels of health spending and universal or near universal health insurance coverage. The findings are often specific to particular country contexts and cannot always be readily transferred that needs to be taken into account when interpreting the lessons learned. (Figueras, Jakubowski and


When international experience of hospital reform is analyzed using this framework, it has been found that two of these five dimensions – provider payment incentives and surplus retention - are particularly important in giving hospitals incentives for efficiency. If provider payment mechanisms use consumer choice and competition, this can also drive improvement in

aspects of quality that are visible to consumers – such as polite service, clean and modern facilities, new equipment. Two of these dimensions - reforms to accountability and social functions - are particularly important in giving hospitals incentives for clinical quality, rational use of health resources and for equity. These incentives are illustrated in Figure 2.

Figure 2. Organizational Dimensions and Incentives for Performance

• Management

autonomy

• Provider payment incentives, choice

• Surplus retention

• Accountability

• Social functions

E�ciency, visible quality Equity, clinical quality, rational use of services

Source: Adapted from World Bank, Preker, et al., 2003

Governance and Supervision of Autonomous Hospitals

The supervision and control functions carried out by the owner of the hospital are sometimes termed governance. In a traditional public hospital, the owner – usually the national or local government - exercises direct control over the hospital manager, and has the authority to approve many operational management decisions. The government as owner (represented by the Ministry of Finance or Treasury) also takes any non-

government revenue or surpluses earned by the hospital. When hospitals become autonomous, the owner steps back from involvement in daily operational decisions, and instead focuses on policy and strategy – setting objectives for the hospital, agreeing on strategic plans, and putting in place effective checks and balances and supervision. The owner becomes more focused on performance – assessed ex post – and less focused on prior control through permissions and approvals. The owner of the autonomous hospital is usually responsible for approving and financing


There are few successful examples of hospital autonomization in countries that introduced this type of partial public hospital autonomy. In this type of partial hospital autonomy, public hospitals often operate under two different sets of rules – traditional “budget unit” rules for the subsidies they continue to receive from the budget, and another more autonomous set of rules for the non-budget payments they receive from patients and insurance funds. The hospital functions as a hybrid of a traditional public hospital and a private hospital. These “hybrid” organizational settings are illustrated in Figure 4.

Countries who adopted this flawed approach to reform encountered problems with profit-driven excessive intervention rates for paying patients.

Unregulated, unaccountable autonomoushospitals engaged in wasteful, duplicative investment in profitable high-technology services (e.g. Lebanon, Armenia).

When hospitals operate under the hybrid mix of rules illustrated in Figure 4, as budget revenue falls and private revenue grows, the budget subsidy becomes ineffective as a mechanism to ensure care for the poor, or other social functions of the hospital. In many countries, budget revenue falls to the level where it covers little more than low basic salaries for staff. The budget allocation and salaries are not affected by the output of the hospital or other dimensions of hospital performance, and so do not create incentives for the hospital to improve its performance.


Robinson 2005; Preker and Langenbrunner 2005; Harvard School of Public Health 1996; Preker and Harding 2003; La Forgia and Couttolenc 2008; McKee and Healey 2001).

Characteristics of Successful Hospital Reforms

There is evidence from hospital reform in upper and middle income countries that hospital reform has led to improved efficiency when the organizational reforms were accompanied by the following policies:

a credible budget constraint for the hospital (for example, either a global budget contract with some performance-based-payment, or contracts that controlled both prices and volume of services);

merit-based hiring and promotion of managers based on their managerial qualifications and management track record;

hospital management training;

good information systems for clinical and financial management and reporting;

complementary reform to strengthen accountability of managers for the performance of the organization (often through creation of a board of external directors or trustees or a hospital authority to supervise the manager), particularly in relation to the objectives of equity and cost-effectiveness; and,

increased managerial authority to shape

workers’ incentives (e.g. through freedom to hire, promote, set tasks and hours of work, decide on performance rewards and sanctions).

Less Successful Hospital Reform Experiences: Imbalanced Incentives in Public Hospitals with Mixed Budget and Private Revenues

Hospital autonomy can reduce equity, reduce the less visible dimensions of clinical quality, and contribute to irrational excessive medical intervention in profitable areas of treatment – unless there is balanced, complementary reform and institutional capacity building to strengthen accountability for equity and cost-effectiveness, and financing and provider payment reform to create incentives for hospitals to carry out their social functions and contain costs.

Many low income and low-middle income countries have had less positive results from hospital autonomy. Many countries introduced partial, limited reform focused only on fiscal autonomy - enabling hospitals to increase their non-budget revenues by giving hospitals freedom to charge fees and retain fee income, to sell medicines at a profit, and to sell higher-quality services to private patients. Many countries gave hospitals fiscal and managerial autonomy over use of their private revenues without reforming how budget funds were managed. For example, studies of Indonesia’s Swadana Hospital reform found that this limited approach to hospital reform – focused only on fiscal autonomy - reduced equity, and did not reduce the need for budget finance for hospital care. The first phase of China’s hospital reforms also took this approach and led to similar problems (see China Case Study in Box 2).

Figure 4: Hybrid public-private hospital rules for budget funds and private revenue

Note: Budget revenue settings indicated in yellow; private revenue settings indicated in red.

Management Authority

Accountability

Surplus retentionincentives

Provider paymentincentives

Socialfunctions

TraditionalMOH hospital

Autonomous hospital

Private hospital

Corporatizedhospital


planned in the design stage. Some common implementation challenges arose because of the concerns of stakeholders about reform – leading decision-makers to abandon controversial elements of reform or negotiate changes to policy. Hospital clinicians in many countries felt alienated by or excluded from the reforms; in some countries there was a perception that management energy was too focused on structural and organizational change, leading to a relative loss of focus on clinical qualityandclinicalhealthcareoutcomes(e.g.UK,New Zealand). Other implementation challenges arose because of a lack of capacity in hospitals for the new and more complex challenges of management under autonomy, and a lack of capacity in MOH and other central government agencies for new supervision and regulation tasks. Weak and unreliable hospital information systems for management and accountability acted as a constraint on effective implementation in many countries. Successful reforms invested substantially in management training, health information systems development, and development of institutions for supervision and regulation of autonomous hospitals.

A common cause of problems in the implementation of hospital reforms has been the failure to increase hospital management authority over personnel. In many countries, it has not been possible to transfer public hospital staff from civil service status to employment by the hospital under more flexible labour rules. Fear of loss of civil service job security, pension security and career mobility has led to blocking of reform by staff and unions in a number of countries (e.g. Pakistan). In some countries, the MOH leadership has also been reluctant to transfer staff to autonomous hospitals because reduction in the size of the MOH affects civil service seniority and influence

of senior management in the MOH (e.g. Thailand). Some countries were able to negotiate an acceptable package of conditions for the transfer of staff to autonomous hospitals with staff unions. TheUK,forexample,adoptedpoliciestoprotectthe employment rights of transferring staff, and provided a package of protection and support for any staff made redundant during re-organization. TheUKalsokeptitsnationalpayagreementsandcreated a single, portable pension scheme for all medical staff in autonomous hospitals. This addressed staff concerns about loss of career mobility.

Enabling Conditions for Successful Hospital Reforms

Conversely, some aspects of the political or government context and institutional capacity were found to be important enablers of successful reform:

consistent and coordinated approach to the complex, interacting elements of hospital reform, sustained over time. Coordination between the different institutions involved in hospital-related policies becomes more challenging but more important when hospitals are autonomous; coordination is needed among the Ministry of Health, social health insurance agency (or “purchaser” organizations), and other Ministries or agencies responsible for hospital planning and capital investment in hospitals;

strong government leadership, accompanied by effective communication, to explain and defend essential elements of the reform policies that may be controversial;


Bureaucratic controls make it difficult for managers to spend budget revenue efficiently. The incentives facing the public hospital in these cases are dominated by their private revenues. Private revenues create more powerful incentives because they are linked to service delivery, and they are easier to spend: the public hospital has a high degree of autonomy over private revenue, and the ability to retain profits on chargeable services. So the hospital behaves like an unregulated private hospital in many respects.

There are some examples of good practice in mitigating the problems of partial public sector autonomy with a mix of public and private organizational rules for controlling budget and non-budget revenues. Turkey, for example, introduced tighter control, accounting and reporting for non-budget revenues of hospitals. It regulated prices. Turkey also regulated how revenues and surpluses were used to pay staff performance bonuses. Rather than paying staff bonuses based on the individual performance in earning fee-for-service income for the hospital, bonuses were redistributed, under a scheme that applied to all staff and paid them fairly on the basis of their contribution to the hospitals’ objectives including its non-revenue earning functions and social objectives.

Many countries introduced hospital autonomy with too little attention to putting in place new mechanisms for supervision and accountability, and before health information systems were good enough to generate data for effective accountability. Where external monitoring of autonomous healthcare providers is weak, some case studies have found evidence of abuse of resources by autonomous providers (Harding and Alvarado, 2005). In smaller rural hospitals where internal financial capacity may be weak,

health care providers may be unable to cope with the increased accounting and reporting requirements associated with financial autonomy.

In some countries where there was a lack of credible “hard” budget constraints on autonomous providers, hospital autonomy was followed by weaker cost containment. Autonomous hospitals in some countries ran unsustainable operating deficits until more stringent mechanisms for supervision were put in place, combined with stronger coordination between the social insurance agency or “purchaser” on the one hand, and the financial supervisionofthehospital(e.g.NewZealand,UK).In some countries with fee-for-service provider payment systems or open-ended case-based-payment systems, autonomous hospitals rapidly expanded output, leading to unsustainable cost pressure on the social health insurance system (e.g. Hungary, Slovakia). In Indonesia and China, allowing hospitals to operate joint ventures with for-profit pharmacies was found to result in irrational and inappropriate prescribing and uncontrolled expenditure on medicines.

Some countries introduced autonomy before they had put in place effective mechanisms for motivating public hospitals to treat poor and uninsured patients. In the worst cases (e.g. Armenia) hospitals found themselves in a low-utilization, low-revenue trap because high user charges and informal fees deterred patients from using hospitals.

Common Implementation Challenges: Factors That May Disable Reform

Many countries found themselves unable to implement hospital autonomy reforms as


Challenges in evaluating and review of hospital autonomy

High quality evaluation evidence of the impact of hospital organizational reforms is rather sparse.

Most reviews are case studies or comparisons of performance before and after reform. The best quality studiesare fromtheUK,but thecontextof reform in theUKwasverydifferent fromthatfacing low and middle income countries and

Box 1. China Case Study: Adjustment of Hospital Reform Based on Review of Experience

China introduced partial autonomy in its public hospitals after 1980, with the goal of reducing the Government financial burden and expanding and upgrading hospital infrastructure. Most public hospitals still have a government-ministry model of governance and management, e.g. there is continuous direct intervention via the government hierarchy, even though hospitals are autonomous, Central personnel controls - staffing structure and grades – are still imposed by government. Typically, most public hospitals are a form of hybrid public-private hospital (similar to Figure 3 above). Hospitals are paid for on a fee-for-service basis by social insurance funds and patients. There are few viable private hospitals, and a lack of real competition among hospitals. Across China’s many provinces and cities, a variety of different models of hospital reform have been carried out. Alongside hospital reform there has been development of social health insurance, which has generated new mechanisms for financing and paying hospitals. The Government has also implemented changes to mechanisms for setting and regulating prices, including drug prices. Based on studies and lessons from earlier experiences, China has been seeking to identify what works best and move to more unified models of public hospital management.

First Phase of Hospital Reform: 1980 - 2005

Social mobilization of capital & financing from private capital markets: a common form is “project cooperation” – a sub-hospital within a hospital, operated by investors, or by a joint venture that leases hospital space and supplies equipment, with profit-sharing between investors and the hospital;

Hospitals allowed to charge higher prices for higher quality services;

Hospitals allowed to pay incentives to staff and retain surpluses to develop facilities;

Regulated fee schedule sets prices below cost for basic services, while drug sales and high tech services earned profits;

Hospitals continued to receive budget subsidy to cover basic salaries, but over time, this became a small share of hospital revenue (as low as 10 percent).

Policy Achievements Identified in Reviews

Increased number of hospitals and volume of hospital care;

Multiple experiments with alternative models of governance and management, including: trustee-models of hospitals, corporatized hospitals, contracting, leasing, shareholding, outsourcing of support functions;

Development of new provider payment methods, mirroring international models.

Unintended Effects of Policies Identified in Reviews

Hospitals pursued economic benefits and expanded infrastructure and equipment in a chaotic way: the growth and distribution of hospitals has been inequitable: strong growth of higher level hospitals, at the expense of primary care and outpatient care;


a capable, trained cadre of hospital managers;

strong, expert institutions to supervise, regulate and audit autonomous hospitals;

health information systems and hospital management information systems in place that generate timely, reliable data for measuring hospital performance, and for providing the basis for more sophisticated systems to pay hospitals; and

participation and support from hospital clinical staff in the reform process and in leadership of reformed hospitals.

Conclusion: Key Lessons from International Experience

Detailed design of organizational reform needs to be adapted to the local context. These are complex reforms, requiring policy consistency, stability, strong government institutions with good implementation capacity, and government credibility. If the reforms take an incomplete or inconsistent approach - implementing some, but not all, of the five key dimensions of organizational reform listed in Figure 1 above (management autonomy, provider payment incentives, surplus retention, accountability and social obligations), disappointing or unintended results are likely to occur. Organizational reform requires close coordination between policy design and implementation. Most countries have had to go through several rounds of review and revision to address all of the dimensions of reform and to adjust reforms to changing circumstances and priorities; willingness to review the impact of reform and adjust policy should be seen as a

strength, not an admission of failure (see China Case Study in Box 1, page 14).

There have been few successes with hospital organizational reform in countries that have lacked levers for creating firm budget constraints for their hospitals. This does not necessarily mean a rigid limit on annual expenditure – but it does require control of “cost-plus” pricing, a move away from fee-for-service payments, and some limits or levers of influence over the volume of services provided. There have been very few successes with hospital organizational reform in countries or local governments with weak capacity for governance and stewardship (regulation, performance monitoring, and institutions of accountability for public service providers), and in hospitals with limited management capacity and unreliable health information systems. Management systems and management skills strengthening are a prerequisite for successful hospital autonomy.

The more successful implementation strategies have involved:

Identifying the pre-conditions for reform success – including management systems and capacity, contracting capacity and supervision capacity;

Assessing hospitals (and local health administrations in decentralized countries) to assess whether these pre-conditions are in place;

Piloting in hospitals/localities where these conditions are in place; and

Building these conditions where they are not yet in place before rolling out reform.


cases (Chawla et al. from Harvard School of Public Health, 1996). Preker and Harding (2003) has a set of case studies of upper and middle income and transition countries and includes an evaluation based on a synthesis of evidence from these case studies. The European Health Reform Observatory in 2001 published a set of studies from transition economies and EU member states. These andother studies are listed in the References section of this paper.

There are many reasons why evaluation of hospital autonomy is difficult methodologically:

Reform models are diverse within and across countries, making it hard to characterize the reforms.

It is difficult to control for the external environment – typically other reforms and public finance changes occurred in parallel with hospital reform, often implemented simultaneously. Few countries implemented reform in a way that permitted evaluation with a control group. No countries adopted a randomized approach to hospital autonomy as a policy intervention.

It is hard to control for differences across hospitals when measuring performance, particularly in countries where there is no reliable data for adjusting for case-mix.

In many countries, medical records, coding and costing data before reform were incomplete and unreliable, but improved with reform. It is difficult to deal with systematic changes in data completeness.

It is hard to distinguish effects of reform design from effects of implementation.

It is hard to measure all the dimensions of hospital performance anyway, and there are trade-offs between different dimensions of performance (e.g. between cost-containment and incentives for responsiveness). It is particularly difficult to measure clinical quality and rational and appropriate use of services, except in countries with established standards and protocols for care.

As a result of these difficulties, most countries set realistic expectations for evaluation, and have been prepared to use qualitative evaluation methods (e.g. from expert stakeholder interviews) and to rely on limited, but best available, data for policy review and identifying lessons for improving policy design and implementation.

The methodology used in Preker and Harding (2003) – whose findings were discussed in Section II – is practicable in many countries. Cross-country case studies were used to derive testable hypotheses and construct a plausible counterfactual, using the framework for analysing hospital reform described in Section II. The evaluation methodology then identified indicators of four dimensions of hospital performance: efficiency, quality, equity and allocative efficiency (which captures the rational use of resources and services). The study looked at performance indicators of inputs, processes and final results in these four domains. (See Table 1 below for examples. A fuller list of indicators is given in Preker and Harding, Chapter 3.)

The analysis then reviewed seven country case studies, to identify evidence of whether hospitals demonstrated improvement after reform by looking at the differences before and after reform in as many of these performance


transition economies. However, some cross-country syntheses of case study evidence have been carried out, and attempts have been made to look for correlations between key characteristics of reform design and implementation and the results of reform using the type of frameworks

discussed above.

The Harvard School of Public Health published a series of case studies of hospital autonomy experiences in developing countries and developed guidelines based on analysis of these

Rapid growth of hospital expenditure, exceeds growth rate in financing sources for social insurance and budget finance;

Self-financing incentives did not promote efficiency: hospital efficiency has declined;

Social mobilization of capital weakened management control and led to non-standard operations forbidden by government;

Price setting & insurance did not protect the social responsibility of hospitals to provide quality services for the poor;

Irrational over-provision of drugs and high-tech services and private facilities for more affluent patients;

Conflict and mistrust between hospitals and patients, as costs to patients continuously increase.

Continuing Implementation Challenges

Inconsistent approach to reforms;

Lack of evaluation of reforms and study of transferability of alternative models;

Slow pace of development of health information systems;

Slow pace of development of an adequate cadre of well-trained hospital managers.

New phase of adjustment to hospital reform: 2006 – 2010: “Constructing a Socialistic Harmonious Society”

China’s new direction is based on strengthening the welfare function of public hospitals and health services. The new direction will be piloted in 16 hospitals, beginning in 2010. The main elements of the new direction are:

Strengthening the role of public revenues;

Strengthening government input in planning and supervision;

Improving management and quality of services;

Promoting efficiency;

Reducing patient expenses;

Separating ownership and management, and strengthening governance bodies;

Separating non-profit and for-profit activities of hospitals and other health service providers;

Reforming the payment method and price level to eliminate incentives for irrational over-provision of some services.

Compensation & incentives policies for staff improved to motivate staff in line with the new directions.


Table 1. Examples of a Balanced Set of Hospital Performance Indicators

Indicators

Indicators of Rational ResourceUse(allocative efficiency)

Quality Indicators

Equity Indicators

Input

Monetary and physical inputs per patient and per bed

Availability rates of functional essential equipment

Physical input mix (share of resources allocated to personnel, drugs, other operating costs, capital)

Input price ratios (e.g. prices of drugs and consumables, salaries as ratio of national or international benchmarks)

Number and mix of qualified medical staff

Availability of functional medical equipment and essential drugs

Public expenditure per patient by socioeconomic category or insurance status

Share of patients covered by fee-waiver, social insurance or low-cost beds

Waiting time for non-urgent surgery by patient socioeconomic category or insurance status

Process

Average length of stay

Bed occupancy or bed turnover rate; equipment utilization rate

Compliance with mechanisms for priority-setting and evidence-based practice

Compliance with evidence-based hospital drug formulary

Percentage of treatment according to defined protocol; compliance with safety and quality checklists

Availability of complete patient medical records

Utilizationrateofhospitalcareor specific services by patient socioeconomic category

Mean out of pocket expenditure per visit or admission by patient socioeconomic category

Intermediate or Final Outcome

Unitcostperpatientadmitted,adjusted for case-mix

Financial balance (revenue minus expenses) per patient or per bed day

Incentives in place for provider to improve quality of care and provide social functions

Number of patients bypassing primary care

Adverse outcome rates adjusted by case-mix/severity (mortality, hospital infection, re-admission, repeat surgery)

Patient satisfaction

Health outcome for conditions amenable to treatment by patient socioeconomic category

Ratio of out-of-pocket health expenditure to food expenditure by patient socioeconomic category

Poverty gap before and after out-of-pocket health expenditure by socioeconomic category


indicators as were available. Looking at final results indicators, for example, the study found evidence of efficiency improvement after hospital autonomy in six out of seven countries, and of quality improvement in four of the countries, but equity was protected or improved in only three countries and rational resource and service use was maintained or improved in only one of the seven countries. More than half of the countries experienced deterioration in equity and rational use of services after hospital autonomy.

Although causation cannot be inferred from this type of study, qualitative information may shed light on causal mechanisms. It may be useful to identify typical cases and elaborate qualitative case studies of what changes took place after reform and what drove these changes, based on in-depth anonymous interviews with MOH/PPC2 officials responsible for hospital governance, hospital managers, staff, and well-informed patients. These qualitative methods can bring out lessons and recommendations for adjustment and refinement of hospital autonomy policies and implementation.

2 PPC – Provincial Peoples Committee


Vietnam’s initial experience with hospital autonomy: survey of 18 hospitals following implementation of Decree 433

C

25LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEVIETNAM’S INITIAL EXPERIENCE WITH HOSPITAL AUTONOMY: SURVEY OF 18 HOSPITALS FOLLOWING IMPLEMENTATION OF DECREE 43

The Vietnam MOH’s HSPI and DPF conducted a survey of a purposive sample of 18 hospitals including a sample of fully autonomous hospitals

generating enough non-budget revenue to cover their operational costs and investments, partially autonomous central and provincial hospitals with varying levels of non-budget revenue, district hospitals and a specialized mental hospital with limited scope to generate non-budget revenue. The hospitals spanned some cities and six provinces with a range of geography and poverty rates. The survey attempted to identify how performance changed in response to the level of autonomy granted under Decree 43, using available performance data before and after implementation of the Decree. (Baseline data are from 2005 and post-reform data are from 2008.)

The survey finds indicative evidence that the effects of hospital autonomy in Vietnam are similar to China and other fast-growing transition countries where private out-of-pocket spending is the largest source of health financing. Positive changes since implementation of Decree 43 include:

Significant growth in total hospital revenues, including Government budget, health insurance payments, user charges. Comparing between 2005 and 2008, the hospital revenues increased by 1.8 times in fully autonomous hospitals, 3 times in centrally managed hospitals, 2.9 times in provincial level hospitals, and 2.5 times in district level hospitals. Most growth came from increase of social health insurance payments, as the share of Government budget for recurrent expenditures decreased by 2.7 times in fully autonomous hospitals, 2.5 times in centrally managed

hospitals, and 1.3 times in both provincial and district level hospitals; and, the share of revenues from direct user fees declined by 1.2 times in fully autonomous hospitals, 1.3 times in centrally managed and provincial level hospitals and 1.16 times in district level hospitals, although the revenues from both the latter sources still increased in absolute terms;

Increased capital investment in hospitals, particularly in medical equipment;

Expansion of the range of healthcare services and an increase in hospital utilization between 2005 and 2008of 25% in fully autonomous hospitals, 17% in centrally managed hospitals, 14% in provincial level hospitals, and 16% in district level hospitals, comparing. During the same time period the number of hospital consultations and admissions increased by 1.3 – 1.5 times, and 1.2 – 1.4 times, respectively. Number of operations in provincial and district level hospitals increased by 1.5 – 2 times;

Substantial growth in incomes of public hospital medical staff. The average additional income per one hospital staff is higher than monthly salary in most hospitals, but varies by hospitals: 2.3 times of monthly salary in fully autonomous hospitals, 1.3 times in centrally managed hospitals, 1.4 times in provincial level hospitals, and 0.5 times in district level hospitals. The additional income for staff in 2008 is higher than that in 2005: it increased by 1.2 times in fully autonomous hospitals, 1.7 times in centrally managed hospitals, 3 times in provincial level hospitals, and 3.5 times in district level hospitals.

3 This section of the report presents the Ministry of Health and HSPI own analysis of the results of the 18-hospital public hospital survey without international or World Bank input.

26 27LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEVIETNAM’S INITIAL EXPERIENCE WITH HOSPITAL AUTONOMY: SURVEY OF 18 HOSPITALS FOLLOWING IMPLEMENTATION OF DECREE 43

per bed are substantially below the MOH’s standards. However, the lack of any clinical quality standards such as clinical practice guidelines made it difficult for the survey to make a rigorous assessment of clinical quality and rational service use. No data was available on patient satisfaction.

Some important implementation issues were identified by the survey that need to be addressed:

Most hospital leaders had only had limited and informal training in hospital management; hospitals with limited management capacity (e.g. district hospitals) were less able to benefit from autonomy.

Only four out of 18 hospitals had hospital-wide electronic, networked management information systems. Clinical records and coding need improvement and validation or audit.

The monitoring, inspection and enforcement of hospital regulations needs enhancing.

There are some aspects of the regulations governing autonomous hospitals that need review in order to make them more consistent and appropriate for the health system, including: application of corporate taxation, guidance on investment appraisal criteria and methods for equipment investment through joint ventures with the private sector, classification of partly autonomous hospitals (which includes a very wide range in terms of share of non-budget revenues), regulation of income top-ups with staff to reduce the income inequality across different specialties and hospital levels and avoid profit-motivation of staff, and regulation of social mobilization to avoid profit-motivation of staff.

Some critical gaps in the regulatory framework need to be filled, including: evidence-based treatment guidelines to control utilization, health technology assessment and master planning for hospital capacity and high-cost equipment.

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEVIETNAM’S INITIAL EXPERIENCE WITH HOSPITAL AUTONOMY: SURVEY OF 18 HOSPITALS FOLLOWING IMPLEMENTATION OF DECREE 43

Qualitative evidence of management actions directed at reducing costs and making more effective use of human resources, such as outsourcing of some non-medical functions, greater use of contract staff, and internal rearrangement of departments and wards.

However, the survey identifies that these benefits did not occur equally: central hospitals and hospitals in large cities benefited from Decree 43 because they were able to tap a large population of patients with financial means to pay for higher quality health care, and they could more easily mobilize “social” capital investment. Fully autonomous hospitals had the highest non-budget revenues per bed or per admission and were able to pay the highest salaries and top-ups. District hospitals experienced much more limited benefit: they were able to pay staff income top-ups of only 0.6-0.8 times basic salary and similarly the central mental health hospital was scarcely able to benefit: it did not increase its total revenue, and was able to pay staff income top-ups of only 0.6 times basic salary.

Analysis of the survey findings points to possibility of emergence of unintended adverse effects:

Decline in Efficiency: the average length of stay increased in most hospitals from levels that are already high by international standards (between 2005 and 2008, length of stay increased from 9.4 to 10.1 days in centrally managed hospitals, 6.8 to 7.4 days in provincial levels hospitals, 5.8 to 6.0 days in district level hospitals); treatment costs invoiced to VSS have increased by up to 3 times per outpatient consultation and up to 2.2 times per inpatient admission. On one hand this can be viewed as a reflection of significantly improved access to technology,

but on the other, the sheer magnitude of the impact on the average cost per case raises some concerns about appropriate use of these technologies;

Impact on equity: there is evidence showing that the implementation of hospital autonomy has widened the gap between hospitals at different levels, especially between provincial and district levels hospitals. Centrally managed and provincial hospitals get more benefits than district level hospital do as they are more advance in financial resources and ability to mobilize investment. Personnel have moved from lower to higher level hospitals, from rural to urban areas and from unprofitable to profitable specialities (out of e.g. paediatrics and mental health, to services that use high-tech equipment) exacerbating the shortage of health workers in poorer areas, rural areas and in basic health services.

Increases in use of high tech laboratory tests and diagnostic imaging in some hospitals, however, the study could not systematically assess the irrationality or overuse of the tests since no appropriate assessment tool was available.

High cost of medicines: expenditure on medicines as a share of total expenditure on healthcare activities ranged from 56-65% - higher than international experience in countries with similar socio-economic development;

Some aspects of quality of care have declined: overcrowding has increased, with many hospitals reporting bed occupancy rates of over 100%; medical staff inputs


Policy options for managing risks from the unintended effects of hospital autonomy

D

31LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEPOLICY OPTIONS FOR MANAGING RISKS FROM THE UNINTENDED EFFECTS OF HOSPITAL AUTONOMY

Using multiple policy instruments to achieve balance among hospital policy objectives

Vietnam, like most countries, wants its public hospitals to achieve a number of different objectives which have to be balanced: efficiency, rational use

of resources, clinical quality, consumer quality, access for the poor, and cost containment. Autonomous hospitals are driven by financial incentives to a much greater extent than a traditional public hospital; hospitals that are permitted to charge fees and earn private revenue have strong financial incentives to focus on providing profitable services for richer patients. These financial incentives have to be counter-balanced by other mechanisms to reduce the risks of inequity, cost-escalation, irrational use of services, and wasteful investment.

The following kinds of mechanisms are needed to drive hospitals to achieve the goals of equity, clinical quality, rational use of health services, and rational investment:

Set prices for essential services in hospitals at a level that covers the full cost, especially services that are important for public health and for the poor;

Regulate the prices of private services, drug sales and diagnostic tests so that hospitals do not make profits from these services;

Fully fund the social obligations of the hospital. Ideally, social insurance or tax-finance should cover 100% of the population. Other social obligations such as teaching, research, and emergency response should also be fully funded;

Control the total budget for hospitals: e.g. through contracts between the social insurer and the hospital that set limits for volume of services as well as price, and consider setting limits on the share of private revenue a public hospital may earn;

Regulate high-cost technology through health technology assessment and planning: require hospitals to seek MOH approval for high-cost technology investments. Promulgate clinical practice guidelines for common conditions and high-cost cases;

Use strategic planning and regulation tocontrol investment in new hospitals, or major upgrades of hospital capacity and services; these planning and regulation mechanisms need to apply to privately financed investments in public hospitals and socially mobilized capital, not only public capital investment.

The following risk management strategies can counteract the tendency for autonomous hospitals to become profit-driven and inequitable:

Give hospitals non-profit status;

Set clear public health and welfare objectives for hospitals;

Regulate use of surpluses: prohibit revenue-linked or profit-linked incentive payments to staff; ensure that staff rewards are equitable across specialities and departments and are designed to encourage team-work and equal standards of clinical care for poor and rich patients;

32 33LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEPOLICY OPTIONS FOR MANAGING RISKS FROM THE UNINTENDED EFFECTS OF HOSPITAL AUTONOMY

Ensure merit-based selection and promotion of hospital managers – including the hospital director and other members of the senior management team;

Set clear performance objectives for hospital management (set by the governance body and monitored credibly); these objectives can include objectives of access for the poor and rational use of resources; ideally managers should receive recognition and reward for high performance and be subject to discipline for low performance;

Establish career paths for hospital managers that recognize high performance in achieving a balanced set of objectives for the hospitals, reward cooperation towards other parts of the health system and discourage individualistic competitive behavior.

Linking and integrating autonomous hospitals to improve the efficiency of the health system

Hospital autonomy can undermine cooperation and coordination between different parts of the health system in ways that reduce efficiency. For example, autonomous hospitals may prefer to compete to attract patients away from primary health care and encourage patients to by-pass lower level facilities in the referral chain. This can attract too many patients to tertiary level facilities, even though most patients’ health needs could be addressed efficiently in primary care or in a lower level hospital. To manage this risk, policies are needed to link autonomous hospitals to the rest of the health system. The following types of policies can help to do this:

Merge autonomous hospitals into networks

that include all levels of the hospital referral chain within a geographic area/catchment population;

Create regional hospital authorities to supervise and govern all the public hospitals within the catchment area of a tertiary hospital, and give the authority power to organize the referral relationships between hospitals;

Develop human resource policies to allow staff to move more easily between different autonomous hospitals, and develop rotation policies so that staff experience working at different levels in the health system;

Develop options to strengthen hospital relationships with primary health care and other services outside the hospital; these options can include management options, development of “patient pathways” for referral and treatment of common conditions, financial and provider payment incentives, communication and coordination initiatives.

Regulating the public-private interface in autonomous hospitals

The ideal way to ensure that autonomous hospitals provide equity in access to health services for the poor and sick is to put in place social health insurance or tax-financed coverage for 100% of the population, and fully fund the costs of all essential health services, as noted above. However, many countries cannot yet afford to do this and have to look for other options during the transition period until they can. Many low and low-middle income

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEPOLICY OPTIONS FOR MANAGING RISKS FROM THE UNINTENDED EFFECTS OF HOSPITAL AUTONOMY

Strengthen supervision, management and leadership: e.g. put in place external boards of expert directors or create expert hospital authorities to supervise hospitals; invest in information systems and data audit to generate better data for monitoring hospital performance;

Build the public health, welfare and ethical motivation of managers and staff through leadership, education and recognition of achievement in public service.

Autonomy often weakens traditional civil service safeguards and controls against abuse of funds, favouritism in appointments and promotions, and favouritism or even fraud and corruption in procurement. Managers of autonomous hospitals face a very difficult challenge in controlling their staff and the finances of the hospital if doctors are permitted to carry out dual public-private practice and/or if medical staff have shareholding or other business interests in private health care businesses that create a conflict of interest with the staff’s duties to the hospital. The following risk management strategies can help to prevent these problems:

Assess hospitals before they are given autonomy to ensure they have robust administrative policies and systems for management of finances, personnel, procurement and assets;

Mandate internal control and internal audit systems within the autonomous hospital and mandate independent external audits;

Develop transparent, competitive procurement and contracting procedures to cover any joint ventures or other forms of

partnership with the private sector, including competitive procurement requirements for leasing, service contracts, joint ventures, build-operate-transfer agreements, etc;

Mandate the core financial and activity reports that autonomous hospitals should provide to their governance body and owner; consider mandating publication of annual financial reports and annual reports on activity and other performance indicators.

Harnessing hospital managers as partners in achieving hospital policy objectives

Hospitals are very complex organizations. Their resource use is driven by doctors and other clinical staff on the “front line”. It is difficult for Ministries of Health and social insurance agencies to manage the performance of hospitals from the outside through regulations, guidelines, contracts and provider payment mechanisms – though these instruments are helpful. To manage the risks of autonomy, it is vital for the MOH and the social insurance system to harness and support hospital managers as their partners in achieving and balancing the government’s objectives for the hospital. The public hospital manager should not be permitted to behave like a shareholder in a private hospital, nor like a representative of hospital medical staff. The main tools for harnessing and supporting managers of autonomous public hospitals to achieve the government’s objectives are:

Develop professional hospital managers, well trained in hospital management, with continuing professional development;

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEBACKGROUND34 35LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCE

POLICY OPTIONS FOR MANAGING RISKS FROM THE UNINTENDED EFFECTS OF HOSPITAL AUTONOMY

Ensuring public display of information and education on user fees and benefits packages of essential services.

It is also important to ensure that the hospital charges the full costs for additional services for private paying patients – so that there is no subsidy for private services. In order to achieve this, it is desirable to have separate accounting for private services, including transparent methods for private services to pay their share of the costs of all infrastructure costs and overheads, as well as the direct costs of the private services. (For example, the charges for private services should include full charging of rent for land and buildings used, share of utilities, maintenance, security, cleaning, etc.)

Allowing medical staff to have part-time employment in the public hospital and part time employment in private practice (including private practice in the hospital’s private wards or clinics and joint venture clinics where medical staff have invested) can create conflicts of interest – leading medical staff to contribute less effort to public services. Creating a clear separation between public and private work can help to mitigate the risks of poor quality services for public or social insured patients. The policy options which countries have adopted to manage this risk include the following:

Regulate and manage part time private sector work through agreed job descriptions that clearly specifies hours of work and outputs expected in public practice and private practice, monitoring of compliance with job descriptions, and discipline procedures if medical staff break the rules;

Introduce a code of conduct for public

hospital doctors with private practices (e.g. ban on discussing private treatment during consultations with public patients; duty to provide accurate information about public services and social insurance entitlements);

Ban medical staff ownership or business interests in competing businesses such as private pharmacies or diagnostic facilities that they may refer public hospital patients to;

Reward the hospital director and senior management team for results in serving the poor and social insurance patients, rather than rewarding them for increasing hospital revenues and profits;

Reform provider payments: replace fee-for-service payments with prospective payments such as case-based payments and global budget contracts.

Mobilizing and regulating investment in autonomous hospitals

Autonomous hospitals can face incentives for wasteful, duplicative investment, as they compete to attract doctors and patients. Provincial hospitals compete to become the regional tertiary referral hospital. Autonomous or private hospitals engage in a “medical arms race” to compete by buying the most advanced medical equipment. Conversely, hospital autonomy may lead to insufficient investment in rural hospitals, mental hospitals, geriatric hospitals and other services that are unable to attract many paying patients or earn or attract funds for investment.

The MOH and central oversight Ministries of

countries have a large and growing affluent urban population which is willing and able to pay for non-essential health services and for a higher quality of service than the country can afford to finance for all citizens. In this situation, countries may want to look for policy options that allow public hospitals to benefit from providing non-essential private services to the affluent population, while protecting access to essential health services for the poor and near-poor.

Many countries that allow public hospitals to offer enhanced services to private paying patients (e.g. Australia, European Community countries, Thailand’s pilot autonomous hospitals) try to adopt the principle that there should be equity in clinical standards for essential services – public patients or social insurance patients should receive the same clinical quality of care as private paying patients. This means that hospitals should provide the same clinical interventions, drugs, diagnostic tests, etc. to all patients based on medical need – regardless of their ability to pay. There are several options for allowing public hospitals to generate private revenue, while maintaining equity in clinical standards for essential services:

Allow hospitals to charge modest user fees for essential services - set at a level that is affordable for most patients, with exemptions for the poor;

Charge for higher quality non-clinical services: e.g. higher charges for higher classes of hospital rooms, charges for additional services (e.g. meals, television, phone), charges for car parks and non-emergency transport;

Allow hospitals to charge patients for

choosing a particular doctor (so long as all doctors serving the poor are fully qualified);

Allow hospitals to charge patients full cost for non-essential services: e.g. massage, aesthetic procedures, travel medicine, sports medicine;

Lease hospital space for appropriate commercial activities, e.g. food-sellers, flower-sellers, book-sellers, banks, private retail pharmacies, opticians, etc.;

Make explicit clinical rationing for cost-ineffective procedures: e.g. limits on number of ultrasound tests for normal pregnancies; ban on use of MRI scans as a first line of diagnosis for lower back pain; some countries allow hospitals to charge patients for additional services outside these limits (e.g. additional ultrasounds during pregnancy).

When hospitals are allowed to offer additional chargeable services, it is important to make it clear to patients what services are covered by social insurance, and to make it clear to patients what they are expected to pay for. The boundary between public services and private services needs to be made very clear to patients. Policies used to make this boundary clear include:

Separating private wards and private clinics from those for public or socially insured patients;

Forbidding hospitals to combine public/socially insured care and private paying services in one hospital admission or outpatient visit;

36 37LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEPOLICY OPTIONS FOR MANAGING RISKS FROM THE UNINTENDED EFFECTS OF HOSPITAL AUTONOMY

introduced “capital charges” on publicly financed capital assets to encourage hospitals to use assets efficiently, and create a level playing field with privately financed capital. Some countries allow corporatized or foundation hospitals to borrow from commercial banks to finance capital. Borrowing is subject to prudent limits defined by central government. There is regulation and capacity building to ensure that hospitals carry out thorough investment appraisals and analyse sustainability and returns on investment. Major investments are subject to approval by the governance body of hospitals.

Private financing of capital expenditure in public hospitals

Most countries permit hospitals to lease medical and ICT equipment from the private sector or lease equipment services. This can be more efficient than owning and maintaining equipment with the hospitals’ own staff, given the specialized nature of biomedical engineering expertise. Hospitals should be trained to carry out analysis of “own versus buy” alternatives. It is also important to make sure that equipment and service leases are subject to competitive tendering – in the same way as conventional procurement of equipment. Ministries of Finance or Planning usually develop specific guidelines for this type of procurement and for evaluation of bids using discounted cash flow analysis.

Private capital finance can be used to expand or rehabilitate existing facilities through “lease-build-operate” or “lease-rehabilitate-operate” contracts. Private capital finance can be used to build new facilities through “build-operate-transfer” or “build-transfer-operate” contracts. These

options involve complex, costly transactions. For example, the bidding and contracting process for the UK’s private financing initiative to contractprivate companies to build-operate-transfer new hospitals typically costs tens of millions of US dollars per transaction in consultants’ feesand legal expenses. Because private investors usually have higher borrowing costs than the government, this is a more expensive form of capital financing than the public option. The private sector normally demands some form of guarantee of borrowing or a guarantee of payment under a very long-term contract (e.g. 20-30 years) before investing in major hospital infrastructure. These guarantees should normally require approval of the Ministry of Finance. If the guarantee is very comprehensive, it means that the public sector is taking most of the risk of the investment. In this case, the accounting standards authorities in many countries treat these private financing deals as public borrowing. Ensuring competition and transparency in the bidding process for these transactions is crucial.

A range of countries have allowed or encouraged public hospitals to contract or form joint ventures with the private sector to provide non-clinical, diagnostic and treatment services. The aim of this more limited reform initiative has often been to allow the private sector to finance the up-front capital cost of higher cost technology and to provide specialist technical staff that are difficult for the public sector to recruit and retain (e.g. IT specialists, medical equipment engineers, diagnostic imaging technicians). The public sector may contract with the private partner to diagnose or treat public patients, or alternatively may pay for the full annual recurrent cost (including depreciation and financing charges) of the private service. Failures in this type of


Finance and Planning need strong mechanisms for rational planning and control of investment by autonomous hospitals. To avoid waste and ensure access, hospital planning should be based on population catchments, which may differ from local government administrative boundaries. This means that hospital investment planning requires regional and national coordination.

The main tools that are used internationally to plan and regulate hospital investment in countries with autonomous, decentralized and/or private hospitals are:

Master Planning: develop national and regional plans for the types of hospitals – the level and specialty mix - required in each location to meet population health needs and avoid excess capacity. The plan should cover high-cost medical technologies within the hospital;

Ensure the master plan is followed. Where budget finance is used to build or expand hospitals, MOH/MOF approval for major capital investment should be based on the master plan. Social insurance financing and contracting with hospitals can be restricted to hospitals, services and major technologies that are in the master plan;

Merge hospitals into regional networks based on population catchments and referral pathways, so that the task of planning and rationalizing hospital investment is internalized within the network;

Create regional hospital authorities – based on the catchment population for a tertiary regional referral hospital, or around 1-2

million population – to oversee strategic planning for investment and development of all hospitals within the region.

Public financing of capital expenditure in public hospitals

Allocating funds from the state capital budget for major hospital infrastructure is the simplest method of financing capital expenditure, with the lowest financing costs. However, if the state simply provides these funds to hospitals as investment grants, they may treat capital as a “free good”, and will have no incentive to economize on the use of capital. To ensure that capital proposals and requests are efficient and sustainable, formal investment appraisal has to be mandated, and subject to independent expert scrutiny.

Permitting hospitals to sell or lease surplus assets and retain part of the proceeds creates a powerful incentive for hospitals to rationalize their assets, and generates financing for new investment. Countries such as the UK and Estonia haveencouraged rationalization and modernization of hospital infrastructure using this mechanism.

If prices for hospital services are set at a level that covers full costs, including depreciation and financing costs, hospitals will be able to accumulate retained earnings to replace capital – at least to replace equipment and repair and renovate infrastructure. However, there are risks of allowing hospitals to accumulate cash reserves – risks of misuse of funds, use of funds to cover shortfalls in operating costs, etc. So this mechanism is only appropriate if hospitals have strong financial control and financial supervision. Somecountries (e.g.UKandNewZealand)have

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEBACKGROUND38 3939

Conclusions and Recommendations

E


contracting out or joint venture with the private sector have occurred in cases where the quality specification in the contracts was poor, cases where contracts were poorly monitored, payment unreliable and delayed, and where there was a

lack of competition and/or conflict of interest in the procurement process. Another source of problems in contracting out has been conflict and coordination failures between contractor staff and public sector staff working in the hospital.

41LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCECONCLUSIONS AND RECOMMENDATIONS

Hospital autonomy in Vietnam has achieved a faster expansion of capacity than is usually possible under traditional public sector management.

It also increased staff incomes rapidly and in so doing, may have prevented loss of staff to the private health sector. However, like other countries with similar policies such as China, Vietnam has not been able to increase efficiency and has not improved some dimensions of quality through hospital autonomy. Autonomy appears to have had some unintended adverse effects: uncontrolled growth in utilization and costs per

patient, reduced equity, increased staff shortages in rural and poor areas and less profitable specialities, and irrational use of medicines and high-tech diagnostic tests. A balanced mix of multiple policy, governance and management mechanisms needs to be put in place to optimize the impact of hospital autonomy and mitigate the risks of unintended effects. Some of these actions can be taken quickly; others are medium to longer term measures that will need to be phased in. Concrete actions that could be considered in the short term and medium to longer term are summarized in Box 2.

Box 2. Short and Medium-Long Term Actions to Optimize Hospital Reforms

Short Term Actions

Short Term Actions

Revise the VSS price schedule based on studies of actual costs for essential health services;

Control utilization through contracts between VSS and hospitals that limit volume and/or total expenditure;

Set clear tasks and public policy objectives to public hospitals to counteract market driven objectives of maximizing revenue or maximizing surplus of revenue over costs;

Utilizeavailablepublicfinancingregulationstoensureincomeequityacrossdifferentlevelsofhospitalsand different specialties. Regulate salaries and salary top-ups to ensure equity across different levels of hospitals and different specialties, and within hospitals. This may require breaking the direct link between hospitals’ non-budget revenues or surpluses and individual staff incomes. In each hospital, there is a need for regulations on top-ups to ensure equity among departments and wards and to narrow income differences;

Conduct hospital management systems capacity assessments as one criterion for increasing the autonomy status of hospitals;

Improve regulations for social mobilization of capital and private capital finance in hospitals to prevent conflicts of interest, ensure transparent procurement processes and provide guidelines for project investment appraisal;

Mandate a clear separation of private-paying services from essential services covered by social health insurance;

Mandate separate accounting for for-profit business units within the hospitals, and mandate a “no subsidy” policy to ensure these units fully cover joint costs and overheads.

Medium to Long Term Actions

Develop prospective payment methods and performance-based incentives for VSS to use in paying hospitals;

42 43LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEREFERENCES

REFERENCES

Aaviksoo, A.; Balabanova D.; Habicht, T.; Jesse, M.; Koppel, A.; Reinap, M.; and, Tsolova, S. (2007). Hospital Reform in Bulgaria and Estonia: What is Rational and What is Not? Final Report. Praxis Center for Policy Studies and Index Foundation. Mimeograph. www.index-bg.org.

Bennett, S.; Mills A. (1998). “Government Capacity to Contract: Health Sector Experience and Lessons”, Public Administration and Development 18, pp. 307-336

Figueras, J.; Jakubowski, E.; Robinson, R. (2005). Purchasing to Improve Health System Performance. Open University Press,Buckingham,UK

Harvard School of Public Health (1996). Improving Hospital Performance through Policies to Increase Hospital Autonomy, Series of papers, including methodology, implementation framework, and five country case studies; produced by the Harvard School of Public Health for the Data for Decision Making Project; www.hsph.harvard.edu/ihsg/topic.html

La Forgia, G. M. (2005). Health System Innovations in Central America: Lessons and Impact of New Approaches, Washington, DC: The World Bank

La Forgia, G. M.; Couttolenc, B.F. (2008). Hospital Performance in Brazil: The Search for Excellence. Washington, DC: The World Bank

Leonard, K. L.; Masatu, M. C.; Vialou, A. (2006). “Getting Doctors to Do Their Best: the Roles of Ability and Motivation in Health Care Quality”, Journal of Human Resources 42(3), pp. 682-700.

McCourt, W. (2002). “New Public Management in Developing Countries” in McLaughlin K.; Osborne, S.; Ferlie, E. “New Public Management: Current Trends and Future Prospects,” Routledge

McKee, M.; Healey J. (2001). Hospitals in a Changing Europe, European Health Reform Observatory, Copenhagen

Matzuda, Y.; Rinne J.; Shepherd G.; Wenceslau, J. (2008). “Brazil: Enhancing performance in Brazil’s health sector: Lessons from innovations in the state of São Paulo and the city of Curitiba.” En Breve No. 116 (February). Washington, DC: World Bank.

Ministry of Health, Vietnam, HSPI and DPF, (2010). Report on Findings from Surveys of Enforcement of Decree No.43/2006/ND-CP in Public Hospital System. Hanoi 4/1/2010

LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCECONCLUSIONS AND RECOMMENDATIONS

Develop and promote use of evidence-based clinical practice guidelines;

Introduce health technology assessment and strategic planning of public hospital capacity and high-cost equipment to avoid wasteful investment and irrational over-provision;

Strengthen the monitoring, inspection and enforcement of regulations of the autonomous hospitals; consider putting external supervisory boards or expert hospital authorities in place to carry out this role;

Strengthen management capacity through professional training of managers;

Improve information for management and supervision by upgrading health information systems and validating or auditing data;

Enhance codes of ethical conduct for medical staff to address the new issues of conflict of interest and profit-motivation that have arisen as a result of hospital autonomy and social mobilization;

Consider hospital certification and accreditation policies to ensure that essential management and clinical capabilities are in place.

44 LESSONS FOR HOSPITAL AUTONOMY IMPLEMENTATION IN VIETNAM FROM INTERNATIONAL EXPERIENCEREFERENCES

Preker, A.S.; Harding A. (2003). Innovations in Health Service Delivery, World Bank, Washington DC

Preker, A.S.; Langenbrunner J. (2005). Spending Wisely: Buying Health Services for the Poor. World Bank, Washington DC

Westcott, C. (2008). World Bank Support for Public Financial Management: Conceptual Roots and Evidence of Impact, Independent Evaluations Group Working Paper; World Bank, Washington DC

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