Competitive And Organisational Constraints On Innovation Investment And Quality

competitive and organisational constraints on innovation, investment and quality of care in a liberalised low-income health system: evidence

Competitive and organisational constraints on innovation, investment
and quality of care in a liberalised low-income health system:
evidence from Tanzania
Maureen Mackintosh* and Paula Tibandebage**
* Professor of Economics
Department of Economics,
Faculty of Social Sciences,
The Open University,
Walton Hall,
Milton Keynes MK7 6AA,
UK
[email protected]
** Training co-ordinator
Research on Poverty Alleviation (REPOA),
P.O. Box 33223
Dar es Salaam,
Tanzania
[email protected]
Word length 8103
Acknowledgements
Research for this paper was funded by the UK Department for
International Development (DFID) and by the Open University. We thank:
participants in workshops in Dar es Salaam, London, Cambridge and
Johannesburg; Lucy Gilson, Gavin Mooney, Samuel Wangwe and Marc Wuyts;
also the following researchers and consultants on the project: A.D.
Kiwara, P. Mujinja, P. Ngowi, G. Nyange, V. Mushi, J. Andrew and F.
Meena. We are grateful to everyone in the fieldwork districts who gave
their time to facilitate our research. The opinions expressed here are
solely those of the authors, and do not represent the policies and
practices of the DFID.
Competitive and organisational constraints on innovation, investment
and quality of care in a liberalised low-income health system :
Tanzanian evidence
Maureen Mackintosh and Paula Tibandebage
International health policy proposals increasingly emphasise health
system strengthening and innovation. In a context of liberalised
provision, the scope for innovative health system rebuilding depends
on the viability, effectiveness and capabilities of the
non-governmental providers. Yet the research literature examining the
market behaviour of private health care firms in developing countries,
and the incentive structures and constraints they face, remains
limited. We demonstrate here the extent of perverse health care market
dynamics found in Tanzania in the late 1990s, in relation to patients’
need for reliable health care, and show that the financial and
operating fragility of the firms constrained investment and
innovation. We aim to focus attention on the challenge for innovative
approaches to poverty reduction represented by the current market and
business structure of health care in low income countries and to
discuss some policy implications.
INTRODUCTION
There is now international recognition, in the policy literature on
poverty alleviation and the problems of attaining the Millennium
Goals, of the importance of health system strengthening in developing
countries and notably in Sub-Saharan Africa (Pearson 2004; Freedman et
al 2005). Associated with this theme is an emerging emphasis on the
relevance of innovation in health system organisation and behaviour to
achieving health improvement (Janovsky and Peters 2006). Given the now
widespread recognition of the scale of private funding and provision
in health care in low and middle income countries, innovative health
system rebuilding necessarily involves an important role for
non-governmental providers (Bloom 2004; Bennett et al 2005).
The range of current policies towards private sector innovation in
African health systems is large. It includes promotion of private
corporate investment in African health systems, as in the 2006
International Finance Corporation initiative1; supportive and
regulatory initiatives to change small providers’ behaviour, such as a
Tanzanian Food and Drugs Authority initiative to train staff, accredit
and locally monitor a network of rural drug shops; and numerous small
scale insurance initiatives. All such initiatives require robust
information about market and business structure in order to be
effective; however the field research-based and analytical literature
on the operation of the private health sector in developing countries
remains thin (Bloom 2004, Bloom and Standing 2001; Mackintosh and
Koivusalo 2005a, Leonard 2000; Söderlund et al 2003; Bennett et al
1997).
We do know however that in low income Africa as in a number of other
low income countries, two key features of the current liberalised
health care markets interact in ways that may be damaging. First,
health care is dominated in all sectors by formal and informal fee-for
service provision. Exceptions include the removal of primary care fees
in the public sector in Uganda and a national health insurance system
designed to end ‘cash and carry’ in the Ghana Health Service. But in
general, the poorer a country, the larger the expected share of health
funding represented by out-of-pocket spending (Mackintosh and
Koivusalo 2005b). In Tanzania an estimated 45% of all health care
spending is private expenditure, largely out of pocket2.
Second, liberalisation of clinical provision has been associated with
the expansion of informalised private provision on which large numbers
of poor people depend. By ‘informalisation’, we mean a lack of
enforcement of basic regulatory constraint including registration
requirements; very poor clinical oversight and supervision; absence of
quality assurance in provision and medicine sales; and at worst, a
shift of health care into an informal sector of unlicensed, unstable
and abusive services and drug sales (Bloom and Standing 2002; Asiimwe
2003; Mujinja et al 2003). The implications for care appear to be
worst, as economic theory would lead us to expect, at the
lowest-charging, lowest-income end of provision: employment of often
under-skilled or almost unskilled staff, use of medicines of doubtful
quality, over-charging and patterns of abuse (Tibandebage and
Mackintosh 2002, 2005) 3.
This combination of charging system and provider behaviour has
resulted in a crisis of access and quality of health care that was
severe even before the recent wave of out-migration of health
professionals from low income countries (Freedman et al 2005; Save the
Children 2005; Mensah et al 2005). In this paper, we draw on case
studies of the financial situation and business strategies of
non-governmental health facilities in Tanzania in response to market
incentives to argue the following.
We show that quality of care was a major casualty of price-focused
competition at the lower end of the health care market. Provision by
skilled professionals tended to be squeezed out, as did the scope
within private and non-profit providers for cross-subsidy of public
health activity from fee income. In association with health
businesses’ very precarious financial status, these market pressures
were severely undermining the scope for innovative provision and
investment by committed staff and investors. Only facilities serving
the small upper end of the market, or those receiving substantial
subsidy and using it effectively, could withstand some of these
pressures: commitment alone was not enough. Policies that aim for
innovative practice, for effective collaboration and system
integration, and for sustainable private investment that can promote
inclusiveness, quality and effective response to crisis can therefore
only work if the worst of these perverse market dynamics can be
contained and constrained. In this light, the interactions we sketch
here between market structure and incentives and business behaviour –
we label this interaction ‘market dynamics’ – merit further
policy-oriented research.
Methods
The evidence reported here derives from fieldwork in 1998-9 in
Tanzania. The price data are 1998 and the financial data 1997. Two
distinct urban health care markets were studied plus part of the rural
hinterland of each: a district of Dar es Salaam (the largest city) and
a contiguous district of predominantly rural Coast region; and Mbeya
in the Southern Highlands, a smaller town with sufficient income to
attract support some private providers, and the adjoining district of
Mbeya Rural. Interviewees in 10 hospitals and 36 health centres and
dispensaries included facilities’ staff and patients on exit from
facilities; members of 108 households in the facilities’ catchment
areas were also interviewed.
The facility interviews included discussion of pricing and business
strategy and facility finances. As agreed with respondents, some of
whom were extremely frank, we have somewhat anonymised the financial
data by rounding and simplifying, and in some stated instances by
combining more than one facility’s data to create ‘representative’
accounts. The case studies presented are of non-governmental
facilities: private for-profit ( ‘private’ for simplicitly), and
religious-owned and secular NGO (‘religious/NGO’ or ‘non-profit’).
price competition and market structure in Tanzanian health care
markets
Tanzania relies substantially on non-governmental health care, though
less than some African countries. Just under 40% of registered
dispensaries in Tanzania in 2001 were in the private and non-profit
sectors (URT 2002). The 2001 Household Budget Survey suggested that
about one in five visits to health facilities were to the
non-governmental sectors in all wealth quintiles; furthermore the
urban poor rely particularly heavily on non-governmental primary
providers (Kida and Mackintosh 2005). The Tanzanian Demographic and
Health Survey of 1996 showed that of children taken for treatment for
two common childhood illnesses, over 50% on average were seen by
non-governmental providers, with higher percentages in lower quintiles4.
Two key features of the local market structure in health care in
Tanzania in the late 1990s shaped very strongly the observed business
behaviour of non-governmental facilities. These features were market
segmentation in pricing – that is, the existence of distinct higher
and lower charging segments of the market – and strong price-based
competition for patients in the lower income, lower charging market
segment.
Dar es Salaam city has a high income segment of its population that
supports some high-charging non-government, mostly non-profit
hospitals. These charged very substantially more than the small Mbeya
private hospitals. In primary care however the situation was reversed.
In Dar es Salaam, which has limited government and faith-based primary
provision, many very low income people rely on private primary care,
and prices were correspondingly low. In Mbeya, non-governmental
providers were charging on average more (Mackintosh and Tibandebage
2002).
In each local market, mean and median prices for a bundle of services
supplied by all primary providers did not differ greatly between the
private and non-profit providers, and this was also true of observed
payments by patients on exit from facilities. However, the pattern of
pricing within the private and non-profit sectors was very different.
The private facilities were notably price-conscious, reporting that
they observed and responded to the prices of competitors. The price
data support this qualitative evidence: the spread of private
facilities’ reported prices was narrow as compared to the much wider
spread of prices reported at religious-owned and NGO facilities
(Tibandebage and Mackintosh 2002). (Figure 1 also includes government
primary facilities imposing formal charges).
Figure 1 Dotplot: primary facilities’ reported prices: robust mean of
reported prices for a standard set of services, Tanzanian shillings,
1998

Each local market displayed an emerging pattern of market segmentation
(Figures 2 and 3). Each had a low-charging segment, including some
large facilities all government and religious-owned. Each also had a
more scattered higher charging group of private and non-profit
facilities including several larger facilities. Figures 2 and 3 show,
by region, scatter plots of median observed charges (on exit) against
the robust mean5 of list prices for a standard set of services. The
size of each circle is proportional to the size of facility as
measured by out-patient visits. The observed charges are generally
consistent with list prices except for a few Mbeya observations where
high charges relative to prices suggest informal charging in these
non-profit facilities (Mackintosh and Tibandebage 2004).
Figure 2 Dar es Salaam health centres and dispensaries, median charges
plotted against robust mean of prices, Tanzanian shillings, 1998

Figure 3 Mbeya health centres and dispensaries, median charges plotted
against robust mean of prices, Tanzanian shillings, 1998

Business strategies within market constraints in the Tanzanian health
care markets
Market structure and incentives influence business growth and
behaviour; business responses feed back into changing market
structure, influencing opportunities and constraints. Using case
studies, we examine in this section several key aspects of such
cumulative path-dependent change in the relatively young
non-governmental health care businesses in Tanzania in the late 1990s.
Private clinical practice had been liberalised only in 1991; before
that, only a few religious-owned independent facilities had been
licensed. All the private dispensaries and health centres and two
private hospitals studies had been established between 1993 and 1997;
two Dar es Salaam private hospitals had started earlier than 1991
under a religious ‘umbrella’.
A private dispensary or health centre had by law to be owned by a
medical doctor, though this was not always in fact the case. The
private hospitals studied were all owned by one or more doctors. This
private individual ownership had implications for investment and
innovation analysed below. The religious and other non-profit
facilities varied greatly in effective ownership and control. Some
religious facilities were long established and were experiencing
falling activity as a result of competition from new non-profit and
private providers.
The private facilities tended to be small: the median number of
outpatient visits per year to the private primary facilities was
3,358, and only one had over 10,000 out-patients. No private hospital
studied had over 2000 inpatients. Religious and other NGO facilities
were on average larger, but only one health centre had over 20,000
outpatient visits in the year; two religious-owned hospitals had
between 5000 and 7000. Government facilities were generally larger and
government hospitals very busy especially in Dar es Salaam.
The emptying middle: the consequences of price competition and bad
debt at a Dar es Salaam private health centre
One of the most problematic market dynamics observed was the severe
pressure on credible facilities in the ‘middle’ of the market. These
were facilities seeking to provide quite a wide range of services,
using skilled staff, to a local population with incomes well above the
lowest but well below the very expensive non-profit hospitals and
specialist private clinics in Dar es Salaam.
The market pressures tending to ‘squeeze out’ of the Dar es Salaam
market such reputable providers are illustrated by a case study based
on a single private facility6. The health centre was run by full time
medical personnel, not as was more usual by doctors ‘moonlighting’
from the government sector (Tibandebage et al 2001). Operating in a
medium density residential area, it served a mixture of firms’
employees, paid for by employers, and paying individuals.
The health centre provided curative and preventative care, took
short-stay in-patients, and ran dental and eye clinics. The ownership
was, like many Dar es Salaam facilities, joint between a businessman
and a medical doctor, the businessman having put up funds from the
profits of other businesses. Without such as arrangement, it was
almost impossible for medical doctors to raise capital. The two owners
estimated that they had put Tshs 30 million ($US 43,000 at the then
rate of exchange) of capital investment into the business in less than
five years; their building was rented.
Recurrent running costs were substantial (Table 1). Rounded
expenditure is recorded before depreciation and before owners’
remuneration. The staffing bill includes three clinical officers,
nursing staff and a laboratory assistant; the medical
officer-in-charge, one of the owners, worked there full time. This was
therefore an attempt to build up a substantial business.
Table 1: Activity and recurrent expenditure estimates, main headings,
for a private health centre, Dar es Salaam, 1997
Activity
Numbers
OPD numbers
30,000
In-patient numbers
1,000
Total activity = OPD + (inpatients x3)
33,000
Expenditure
Tanzanian Shillings (Tshs)
$US equivalent
Total recurrent expenditure:
of which:
110,000,000
157,143
Salaries and wages, including NPF*, allowances, and staff medical
treatment
26,000,000
37,143
Drugs and other medical supplies
65,000,000
92,857
Total expenditure/ OPD patient
3,667
5
Salaries and wages/ total activity
788
1
Drugs and supplies bill/ total activity
1,970
3
Recurrent expenditure/ total activity
3,333
5
* National Provident Fund contributions for staff
This facility faced a number of threats to its viability. To cover
recurrent expenditure at these patient numbers it had to charge above
median observed Dar es Salaam charges; profitability required charges
of about US$6 per outpatient. In a country where an estimated 57% of
the population live below the international dollar-a-day poverty line
(URT 2005: 114), these charges are not easily affordable for each
illness episode. One of the owners stated that they had been losing
patients to competing lower-charging dispensaries, and now had perhaps
60% of the activity of their early years.
All recurrent income was from fees and charges. Most patients (about
75%) were paid for by their employers, who were billed monthly;
charges were somewhat higher for employers than for individual
patients, reflecting the fact that employees were treated on credit.
The owners stated that while the facility was viable in 1998 in terms
of the balance between invoiced income and costs, it had severe cash
flow problems because of bad debts. Many company clients did not pay
their bills on time, and the National Insurance Corporation was also a
bad payer to the health centre for patients from companies entered
with it.
The owners employed a number of strategies to keep recurrent costs
down. The doctor owner ran the facility. Staff were well qualified but
numbers were low compared with a Dar es Salaam religious dispensary
studied. From the owners' point of view the salary bill was an
overhead cost that had to be recouped from sale of services and
medicines. Income sharing with part time service providers was also
used to keep down salary costs: for example, an assistant dental
officer worked at the facility using his own equipment and shared the
income 65/35 with the owners.
Facilities such as this faced market pressures to move towards
hospital status and away from primary care because of competition from
low charging dispensaries and drug shops. This competition reduced
income from the sale of medicines – a key element of profit - by
forcing down prices. Furthermore, the doctor owner saw the health
centre as at a market disadvantage because it was paying higher
salaries to qualified personnel while some other local facilities
employed Red Cross or nursing assistants. Given the poor economic
situation and lack of money in individual patients’ hands, and given
that patients generally did not distinguish between the qualifications
of staff in different facilities, individuals tended to go to a
cheapest place first, arriving at the health centre only when
seriously ill.
Hence the owners said that the most profitable areas of activity were
laboratory tests and in-patients, where there was less competition.
Furthermore, employers looked to facilities with which they contracted
to provide a wide range of services. These pressures were pushing the
owners towards trying to raise money to move the facility to hospital
status. These pressures tend to leave basic primary care to the less
well qualified while generating over time surplus in-patient capacity
in the private sector, hence raising costs. We asked one owner
whether, knowing what he does now, he would start the facility now,
and he replied, no; the large sunk investment was clearly at risk.
Financial instability and high turnover in the private sector: two
routes to bankruptcy
The private dispensary sector displayed high rates of turnover,
frequent bankruptcy and repeated closure and reopening (Tibandebage et
al 2001). Most private dispensaries studied were indeed in financial
trouble, and two case studies presented here identify the major
reasons.
The first source of problems was size: many dispensaries were too
small for viability. Table 2 shows the (rounded) accounts of a
dispensary in Mbeya owned and run by an Assistant Medical Officer7 who
could not pay staff because the dispensary could not attract
sufficient numbers of paying patients8.
Table 2: Sources of financial stress: an Mbeya dispensary, income and
expenditure estimates, 1997 (Tshs)
Activity
Numbers
OPD visits
2,500
MCH visits
500
Expenditure and income
Tshs
$US equivalent
Total expenditure:
of which:
5,500,000
7,857
Salaries and wages
2,500,000
3,571
Drugs and medical supplies
2,000,000
2,857
Expenditure/OPD visit
2,200
3
Salaries and wages/OPD visit
1,000
1
Drugs/ OPD visit
800
1
Estimated charged income/ OPD visit
3,000
4
The facility saw only around ten patients a day. Its cash flow was
further undermined by slow-paying company clients, as well debts of
low income individuals unable to pay on the spot and allowed to defer
payment. Many private providers attracted patients by providing such
credit, but then suffered bad debts. In these circumstances, this
facility could use qualified staff only because they were family
members working for less than the market wage. The owner attempted to
find 1000/- ($US1.4) for each person each day. ‘It is very difficult
to pay in full … we divide what we get each day.’ He prioritised
restocking with drugs, knowing that this was what brought in profit.
The qualified staff attracted company clients whose staff were treated
on credit; all paid very slowly. One parastatal had sent around 500
patients over a seven month period, for whom they had not yet paid one
shilling. The dispensary was therefore in a weak negotiating position:
the company was now sending few people, and if the dispensary sent
those away the company would probably never pay. So they went on
treating them, creating a huge hole in their cash flow.
The other outpatients were mainly very low income, so prices also had
to be kept down to the lowest private facilities’ prices found in
Mbeya, The exit interviews support the owner's statements:
interviewees divided between billed clients from a parastatal and
individual patients each of whom had had difficulty paying and were
allowed to defer part of the payment. Patients described the facility
as friendly, cheaper than others (but not cheap), and they
particularly approved of the availability of diagnostic tests.
The income estimate in Table 2 includes payments company clients
should have made. The struggling dispensary owner estimated that to
pay the staff a salary for their work, given some inevitable bad
debts, he needed considerably more patients than he was getting. A
strategy of reducing prices further in order to expand custom was not
working as hoped and had reduced income. There were too many private
facilities chasing too few private patients in Mbeya.
That was also true in Dar es Salaam, and a number of private
dispensaries in both towns were trying much less hard than those just
described to provide a reputable service. The liberalisation of
private clinical practice had drawn a number of businessmen into
investment in dispensaries. As one interviewee put it:
People's decisions to open businesses go in phases here. Once it was
chickens, everyone invested in those; then it was daladalas [minibuses
for public transport], that has stopped now; then it was kiosks, they
were everywhere... now it is groceries and dispensaries.
He was hoping fashions would move on, leaving some dispensaries as
sustainable businesses, but said it was too soon to tell.
A typical and often problematic business structure was for a
businessman to own the dispensary, the licence being held by a doctor
also employed at a government facility who visited the dispensary on a
(sometimes rare) part time basis. The businessman focused on making a
return on investment, and there were repeated reports of purchases of
'cheap' drugs (of dubious quality), of high charges to desperate
patients, and of staff with very low qualifications. One
owner/investor regretted that he had reinvested pharmacy profits in a
dispensary. The overheads he said, including the salary bill, were too
high, 'you need 10 staff to start a dispensary', and he had begun
laying off staff. Competition thus generated market pressure to drive
down quality and created incentives for over-charging.
Bankruptcies were common, and we observed one. This Dar es Salaam
dispensary was clearly struggling when first visited in August 1998,
and closed a month later. The rapidity of the bankruptcy and the money
lost in the final six months illustrate some of the pressures on these
small businesses, not only competition but also vulnerability to loss
of reputation and to (rational) short-termist behaviour on the part of
salaried staff.
The dispensary, in a peri-urban area, was quite long standing, dating
from 1993. Its original owner was a doctor. The building was suitable,
and in the first couple of years the dispensary seems to have done
quite well. Then other facilities opened and the general economic
situation of people worsened. By 1997 the doctor was seeking a
business partner; he persuaded a neighbour in the construction
business to put up some money and become part-owner. By 1998 the
business was being run by a clinical officer, with, it appears, little
involvement of the doctor.
The businessman owner said he lost over Tshs 3 million ($US 4285) in
six months. As he saw it, there were three related problems. First the
staff knew, but he did not, just how shaky the business was. He
thought the business could be turned around, that it just needed some
investment to ensure a good supply of drugs and sufficient staff. The
staff knew they were not getting enough patients.
Second, his management of the facility was poor, indeed he failed to
realise he had to manage it. He tried instead to persuade the staff it
was 'their' business and told them to manage the money, arguing that
they would not otherwise feel it was theirs. He found out later that
before his arrival the 3 prescribing staff had been working part time,
and the nursing staff were only taking about 100,000/- ($143) a month
in salaries. On his arrival they 'inflated' the salaries and
allowances and said they would come back full time; the businessman
still thought the salaries low for doctors, he had no idea of market
rates. They were, he said, 'cheating themselves', but they clearly
thought the business had no future. He saw this as a 'parastatal
mentality' of short term personal gain.
The third problem was a loss of confidence by local people in the
dispensary. A critically ill child was brought to the dispensary and
died an hour later of pneumonia. Reports in the papers implied the
child had been mishandled. 'It was enough to chase people out of the
place'.
The investor took over in January 1998. Monthly recurrent expenditure
- rent, utilities, salaries, drugs - was running at about 750,000/-
($1700) a month, 500,000/- ($714) of that being salaries. Income was a
respectable 650,000/- ($929) a month but that was not covering
expenditure. About 1.5 million shillings ($2143) was spent on
renovation and new equipment.
Prices seem also to have been inflated in early 1998, as at least one
member of staff attempted to increase short-term income. Dispensary
activity and income fell. Meanwhile, the new owner renegotiated
salaries downwards, but by that time income was falling and never
covered expenditure. The child died in March. Figure 4 shows the
downward track. In August the dispensary still had a stock of drugs,
but few patients and few staff. By late September the staff were
selling the remaining drugs on their own account. The owner had gone
into the leisure business.
Figure 4: a Dar es Salaam dispensary: income and expenditure flows
leading towards bankruptcy.
The key role of subsidy: private and non-profit examples
The facilities described so far were operating largely without
subsidy, and all were struggling. Across the private and non-profit
sectors, some primary facilities were doing better and all were being
supported by clearly identifiable subsidy: that is, a source of funds
in addition to charges. We examine here the sources and uses of
subsidy.
The most common source of subsidy to private facilities was
‘moonlighting’: the use of skilled staff trained and employed in the
public or non-profit sectors. Effective use of this subsidy to support
a business is illustrated by an Mbeya private dispensary, located in
quite densely populated area. It was owned by a medical officer
working mainly at a hospital, while his wife, a nurse, managed the
facility: another common ownership and management structure. They
provided primary curative care, ante-natal care, under-5s clinics and
family planning. There were three beds for 12 hour observation, and
the dispensary assisted with normal childbirth. The staff included a
clinical officer, other nursing staff and a laboratory assistant.
The facility derived all its income from fees and charges, used some
of it to support free MCH provision. The nurse saw MCH services in
part as a ‘marketing’ investment: women who came for ante-natal care
might pay to deliver at the facility; they might also return and pay
for curative care for their families. However, MCH required two full
time MCH aides costing the dispensary about 700,000/- (US$1000) a year
that had to be recouped from outpatient charges. Vaccines were
supplied by the municipality.
Most patients were of low and medium income and paid for themselves;
very few were assisted by employers. The wage bill in Table 39 does
not include any payments to the owner and his wife. In addition to the
expenditure shown in the table there were taxes to pay, though the
accounts include the licence fee.
Table 3: Illustrative accounts constructed from data for two Mbeya
private dispensaries, 1997/8 (Tshs)
Activity
Numbers
Activity (OPD visits)
5,000
Activity (MCH visits)
4,000
Expenditure and income
Tshs
$US equivalent
Total current expenditure:
14,000,000
20,000
of which:
Salaries and wages
4,500,000
6,429
Drugs and other medical supplies
6,500,000
9,286
Expenditure/OPD visit
2,800
4
Salaries and wages/ OPD visit
900
1
Drugs/OPD visit
1,300
2
Estimated income/ OPD visit
3,600
5
Estimated gross income for 1997/8 was about 3600/- per outpatient, a
level consistent with the statements of exit patients (recollect that
prices were higher in Mbeya than in Dar es Salaam). Of this, less than
500/- per patient was from fees for registration and consultation;
most of the income came from charges for procedures and drugs.
Profitable areas of activity were thought to be laboratory tests and
drugs, and also assistance with normal childbirth.
The nurse-owner estimated that the facility’s activity levels were
sufficient for profitability over recurrent costs, but she felt that
the financial situation of the dispensary remained precarious. She saw
the dispensary’s strengths as capable staff and owners with good
reputations. The main weakness was the lack of a medical officer
present at the facility. The doctor-owner could not afford to spend
much time there. Their plans included trying to expand their
diagnostic facilities, and to do simple minor surgery (that is, again,
to go up-market); they also aimed to expand post-natal care free of
charge to bring more people into the facility. This was a viable local
dispensary, and was cross-subsidising public health activity from
fee-income, but it would need much higher activity before it could pay
a medical officer for a substantial element of his or her time.
In adapting to private competition, the non-profit facilities all
relied on donations for survival. Their access to donations, plus
religious facilities’ reputation for good practice (not by any means
always deserved), formed their competitive advantages against the
private sector. By using subsidy to sustain decent quality and to keep
prices accessible, some religious facilities were maintaining patient
numbers or expanding against the wider trend. Table 4 shows two
distinct but comparable cases: a Christian dispensary in rural Mbeya
region and a Muslim dispensary in Dar es Salaam. Both also used
donations to support some charitable exemptions from fees. Both
operated in low income areas, and were large for their area, providing
outpatient and MCH services. The financial data have been rounded and
summarised, but represent quite closely the financial situation of the
dispensaries as explained to us.
Table 4: Two faith-based dispensaries, 1997
Mbeya
Dar es Salaam
Activity
Number
Number
OPD visits
18,000
50,000
MCH visits
35,000
not available
Income and
expenditure
Tshs
$US
Tshs
$US
Fee income
15,000,000
21,429
165,000,000
235,714
Total expenditure :
17,000,000*
24,286
160,000,000**
228,571
Salaries and wages
4,000,000***
5,714
58,000,000
82,857
Drugs, medical sup. Supplies
9,000,000*
12,857
82,000,000**
117,143
Expenditure/ OPD visit
944*
1
3,200**
5
Salaries/ OPD visit
222***
0
1,160
2
Drugs /OPD visit
500*
1
1,640**
2
Fee income/ OPD visit
833
1
3,300
5
Notes * includes expenditure of donated supplies, services and funds
** does not include expenditure of donated inputs in kind
*** not including an externally paid salary
The Mbeya clinic kept prices very low by modest staffing levels and
through subsidy. Initially an MCH clinic, the facility had expanded
into outpatients. It was run by an expatriate sister who was a
nurse-midwife and a clinical officer, supervised by a part time
medical officer, plus nursing staff and a laboratory assistant.
Consultation charges included drugs: no patient had been sent away
with a prescription to purchase drugs elsewhere. The sister in charge
was a successful fund-raiser: over half of drugs and medical supplies
and most of the office supplies were supported by overseas donations.
The local religious organisation also supported the dispensary,
providing premises, vehicles and salary for the sister in charge. The
dispensary was very busy, with a high MCH workload; when new
facilities opened locally their numbers had fallen but by 1998 they
were rising again. The low prices were unsustainable without
donations.
In the Dar es Salaam dispensary much of the original investment had
been financed by donations, both local and (particularly) overseas, to
a total of about Tshs 22.5 million ($US 32,000). The dispensary
continued to receive donations and local subsidy, mainly in kind, in
the form of drugs, equipment such as a pressure machine and beds, and
rent free premises. The dispensary was very busy, and numbers had
increased 15% over the previous year. In addition to general OPD
services, the dispensary had MCH clinics and clinics for dental care
and for managing chronic complaints such as cardiac problems and
hypertension. It also provided acupuncture.
This dispensary charged substantially more than the Mbeya dispensary.
The higher running costs and income per patient shown in Table 4 also
reflect a higher level of staffing (including three medical officers
with MO or AMO training) and a larger range of services. The
remuneration of doctors and nurses included a proportion of the
consultation and procedure fees (but not prescribing charges; there
appeared to be no incentive in the payment structure to
over-prescribe). The dispensary was reinvesting in expansion. It also
maintained a charitable account to assist people who were elderly or
destitute, some recommended by religious leaders. The dispensary was
overseen by a Board of Trustees who, among other things, approved all
major purchases and set the facility's prices.
These were two cases where subsidy was being used for broad public
benefit. A number of other religious facilities behaved differently,
aiming to charge more and to serve the better off: these were trading
on the reputation of religious facilities for good quality in order to
raise prices. The case in Table 5 is representative of several,
Christian and Muslim. Income came 80% from drugs sales, and prices for
primary care were the highest in the Mbeya study; furthermore the
internal accounting system gave clinical officers an incentive and
opportunity to over-prescribe and over-charge. The facility received
substantial donations but was covering running costs from fee income:
donations did not subsidise fees. It was well staffed, with a full
time medical officer and nursing staff and had a small laboratory.
However activity was falling, in part because charges were as high as
local private hospitals.
Table 5: A higher-charging religious facility in Mbeya
Activity
Number
OPD visits
15,000
Income and expenditure
Tshs
$US
Fee income
60,000,000
85,714
Total operating expenditure, of which:
56,000,000
80,000
Salaries and wages
17,000,000
24,286
Drugs and medical supplies
21,500,000
30,714
Operating surplus
4,000,000
5,714
Expenditure/ OPD visit
3,733
5
Salaries/ OPD visit
1,133
2
Drugs /OPD visit
1,433
2
Income/ OPD visit
4,000
6
Binding constraints and their consequences
We have identified price competition and small size as key constraints
and sources of bankruptcy and poor quality. Other financial
constraints included difficulties in accessing capital and problems of
managerial control. Private facilities not financed from other
businesses faced severe problems of working and investment capital.
The financial constraint on scaling-up was exacerbated by problems of
trust and control. This interaction can be illustrated by a small
private hospital in Mbeya, owned and run full time by a specialist
doctor and surgeon. When visited, it was half constructed: funds were
being ploughed back as earned, building the hospital gradually using
many local materials including timber from family land. The doctor
also owned the building, so he could obtain some bank loans for
building materials, but this was very costly. The hospital had pit
latrines and water delivered by tanker when we saw it first, and had
improved on our return a year later.
The most profitable areas of activity were, the owner said, surgery
and sale of drugs, and the hospital was covering its costs. Premises
for government-run TB and leprosy clinics were provided free of
charge: these he said were "raising the profile of the hospital".
However there were problems of financial control. Family members were
cashiers and managed sales, drugs procurement and stores; a relative
had however embezzled funds. The owner was therefore doing his own
accounts, audited by an outside accountant, and was eloquent about the
difficulty of finding an administrator he could trust. Discussing the
difficulties of such single handed management by a sole doctor, the
owner said that it was difficult for professional partnerships to work
between doctors for business purposes in Tanzania. Instead, to expand
turnover and keep staff costs down, he too engaged in revenue-sharing
and rental arrangements: letting out the theatre to other surgeons and
sharing revenue with them and with a part time dental assistant. This
very personal business structure was a major constraint on stability
and growth.
Among non-profit facilities, a lack of subsidy was observed to be
lethal. A small but long standing religious dispensary in Dar es
Salaam illustrated a typical pattern. A loss of support from overseas
had forced the facility to increase prices in the 1980s, leading to
complaints from patients and falling activity that worsened when
competition increased in the 1990s. In response they cut prices, which
reduced revenue further, making it impossible to fund the staffing to
resume MCH services. An attempt to introduce prepayment insurance
based in the religious organisation had attracted insufficient numbers
and the facility was on the verge of closure.
A deregulated and scale-constrained health care market: implications
for innovation, quality and ACCESS TO CARE
We now draw together the lessons from these cases. This is a
deregulated health market dominated by small precarious businesses: a
fragmented mini-entrepreneurship also familiar in other Tanzanian
productive sectors10. Can such a sector achieve sustained improvements
in health care? Can it provide an environment for policy within which
it is possible to encourage innovation in health delivery to the poor,
including higher quality, better access and lower impact of illness on
impoverishment? The evidence presented above identifies a number of
key problems.
First, good primary health care needs to be routinely available,
physically and financially accessible, reliable and stable; it also
needs to be trusted in terms of basic quality indicators such as
cleanliness and use of reputable medicines and trained staff, and to
do effective preventative care. However, there were no market
incentives driving this health system in this direction. Rather, the
dominant market incentives tended to shift the non-governmental
facilities away from these objectives. The competitive pressures to
attract sufficient patients with very low incomes were tending to
drive private and non-government facilities in two directions, both
problematic: towards lower priced/ lower quality care, or towards
higher priced, more complex and more exclusionary provision. We called
this trend the ‘emptying middle’.
This trend implies, second, that only non-governmental facilities that
aim to resist these dominant market incentives, and that do so
successfully, can build up the needed primary care. Such facilities
existed, as we have shown, in both private and non-profit sectors.
Their preconditions for survival appeared to be professional
commitment (that may be reinforced by religious principles) and a
source of financial subsidy in addition to fee income. Commitment
alone is insufficient. The decent, viable and reasonably accessible
private dispensaries were supported by medical staff salaries earned
elsewhere; the ‘charitable’ religious facilities by donations.
Third, the non-governmental facilities were very financially
constrained. Many were simply not financially viable, and those that
survived relied systematically on resources from outside the business.
They displayed many of the characteristic problems of small business
in other sectors, cumulated by characteristic health market problems.
Overheads and risk are both high, asset ownership low and formal loan
finance rare. Investment funds came from donations (religious
facilities), businesses in other sectors (most private facilities),
and internally generated revenues. All three sources posed problems.
Donations could be fickle and had strings attached; businessmen looked
for short term returns; the internally generated revenues were sparse
and required a move up-market that raised costs or were sustained by
lowering quality. Investment funds to raise quality or innovate were
very hard to find.
Fourth, the organisational constraints on business development and
innovation were also severe. They include problems of hiring and
motivating staff who may take a ‘short-termist’ view of their
prospects in small precarious businesses. Informalisation in
non-governmental facilities included informal charging by staff above
listed prices and the pocketing of revenues: these are not just
government sector problems. Facility owners responded by keeping the
staffing in the family, which reduced costs but constrained growth.
Family members may be paid less or not at all: another ‘informal’
business characteristic unlikely to improve staff motivation over time
and observed to be associated with lack of control. Successful
facilities expended a good deal of effort on motivating staff, and
this might include benefits in kind such as housing: another item
dependent on subsidy or financial viability. There were few
information sharing-processes, for professional development or patient
management, even among facilities owned by the same religious
denomination. Creating larger, more formal businesses, or networks of
facilities, in these conditions is very difficult indeed.
Conclusion: a major policy challenge
The market and business structure just examined creates a hugely
challenging environment for health system strengthening and
innovation. If a ‘health system’ is defined as an integrated set of
organisations and processes with an objective of population health
improvement (Mackintosh and Koivusalo 2005b), this market does not
qualify. Larger scale operation, stability, accessibility, decent
return on investment and reliable quality are essential to delivering
comprehensive and effective primary care; yet the incentives here were
for high turnover, segmentation, the loss of innovations such as free
private MCH provision, and declining quality for the poor majority.
The market dynamics were creating pressure for under-used provision at
the higher end of the market, within unstable private businesses and
subsidised non-profit facilities, side by side with an acute
insufficiency of basic, accessible, quality-assured primary care.
To do better requires learning from those businesses that were
managing to combine commitment to standards with good use of subsidy,
in both private and non-profit sectors. Subsidies to the
non-governmental sectors are rising, some expressly directed at
innovation, including public/private partnerships, private sector
support programmes, and experiments in social marketing and social
franchising. Support for good quality non-governmental provision will
however face constant undermining from the perverse market incentives,
driven by extreme poverty, analysed above.
It follows that policy advisers and policy makers seeking to expand
the role of private provision in these conditions will have to find
ways to change the market incentives. A number of tentative
conclusions can be drawn about how that might be done. First, a way
needs to found to put a ‘floor’ under quality deterioration while
sustaining access by the very poor: highly subsidised, low price or
free, governmental and non-profit provision potentially could ‘compete
out’ the worst quality private providers, especially if associated
with more effective punitive regulation of illegal provision. Second,
effective non-governmental providers need support if they resist the
perverse market incentives. Governments and donors will have to move
away from the regulatory model of the ‘level playing field’ towards
selective support of successful and innovative provision (Mackintosh
and Tibandebage 2002).
This might imply subsidising networks of closely regulated low-priced
non-governmental facilities with the deliberate intention of
undercutting poor quality and abusive private provision. Active support
for health system integration and organisational sustainability and
probity is essential for poverty-focused care and innovation, and will
require major investment and deliberate structural change after many
years of deregulation and fee-based finance. Policy should aim to
constrain perverse market dynamics and move towards system
integration. Whether or not this implies a move away from
fee-for-service payment in primary care is currently a focus of active
debate in Tanzania and many other African countries.
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1 The IFC announced in September 2006 a $2.6 million programme, funded
by the Bill and Melinda Gates Foundation, to explore private
investment opportunities in African health care, citing the size of
the market and the need for private sector improvement to meet
Millennium Goals (Guardian 13.09.06 Dar es Salaam) www.ifc.org
accessed 25 September 2006.
2 WHO country estimates 2003/4 www.who.int/whosis accessed August 2006
3 This generalisation is supported by early findings of current
research in Dar es Salaam by Tausi Mbaga Kida.
4 Demographic and Health Survey for Tanzania, accessed online at
www.worldbank.org March 2005.
5 Robust mean = (twice the median plus the two quartiles)/4
6 Detail disguised for anonymity within this small business world
7 Three years of medical training
8 We are particularly grateful to the owner of this dispensary, since
the financial difficulties were very personally painful.
9 The accounts are constructed – for the purpose of confidentiality –
from accounts of two rather similar dispensaries studied; the data are
rounded, but represent well the financial situation in each case.
10 For example in agriculture (URT 2005 Chapter 3)
24
EJDR TibaMack Final 19.11.06