The Epidemiological Transition Policy and Planning Implications for Developing Countries (1993) / Chapter Skim
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HEALTH, GOVERNMENT, AND THE POOR: THE CASE FOR THE PRIVATE SECTOR
HEALTH, GOVERNMENT, AND THE POOR: THE CASE FOR THE PRIVATE SECTOR
Pages 229-251
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From page 229... ...
The second is an equity argument: that because of their reliance on ability to pay as a rationing criterion, user charges for public services and privatization will have negative distributional effects that are likely to outweigh any efficiency gains (e.g., see Gertler et al., 1987, and Gertler and van der Gaag, 1990, on user charges for health care in Peru and Cole d'Ivoire)
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approach to government behavior, and argues that the pessimistic conclusions of the latter are most applicable to developing countries. The following section extends public choice theory to the health sector in developing countries and shows how it implies a deteriorating effectiveness of government spending and a need to place greater reliance on private spending, in order to improve both efficiency and equity.
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We use the term "equity" as a shortened form of Robin Hood redistribution in this paper. A second, more recent, and less benevolent view of government activities stems from public choice theory, which gives us a positive model of what the government will do, under the presumption that the chief agents act to maximize individual utility rather than social welfare.
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High Costs of Public Sector Provision The real costs of publicly produced private goods may be above minimal levels because government imposes bureaucratic rules and red tape (in
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Because producer groups are likely to be more concentrated and better organized than consumer groups, because upper- and middle-income groups are generally more articulate and politically active than poorer groups, and because lines of communications and mobility often are strong among government agencies, their bureaucratic chiefs, and the private industries or professions they supposedly regulate, public choice theory predicts that producer and upper-income groups 3Program costs may exceed minimal levels even when politicians and bureaucrats wish to choose an efficient product and factor mix. The non-price rationing that often exists for distributional reasons under public funding, and the civil service procedures governing wages, hiring, and firing procedures that substitute for managerial discretion under public production mean that prices do not serve as a measure of the real benefits and costs of a program, as they do in the private market.
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In short, in many situations, perverse distributional rather than efficiency or equity criteria determine the allocation of government funds, and these criteria imply large benefits to powerful upper-income groups, combined with small redistributions to the poor (Behrman and Birdsall, 19881. We believe that these pessimistic predictions of public choice theory are consistent with the observed actions of developing countries in health today.
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However, future gains will require additional expenditures targeted toward the poor, behavioral changes among the poor, and indeed, the elimination of some aspects of poverty. But, for the reasons given above, governments are unlikely to spend dispro TABLE 1 Crude Death Rate and Life Expectancy at Birth, by Region, 1950- 1985 Crude Death Rate (deaths per 1,000 persons per year)
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As the population ages, its disease profile changes; the prevalence of cancer, heart disease, and other diseases of adulthood and old age increases (Feachem et al., 19921. These are expensive diseases to treat, requiring hospitalization and modern technology, in comparison to the relatively low cost of inoculating children against measles and polio.5 This fact alone would tend to reduce the rate of return to public health expenditures, unless these continue to be spent on preventing diseases of the young and are not heavily siphoned off for treating diseases of the old.
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(1990:350) note the difficulty in Africa of reducing mortality, where reduction of mortality "from diarrhea and acute respiratory infections will require increased food production, environmental improvements, and behavioral changes, along with improvements in the efficiency and effectiveness of the health system."
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Such behavioral change will occur only if the time and money costs of health services to the poor decline and/or if the poor receive information that changes their underlying tastes and choices. The time and money costs will decline only if government targets its health spending to the poor, making basic health services easily accessible in the rural areas and urban neighborhoods where the poor are concentrated.
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. Increases in age-specific death rates from some of these chronic diseases will further change epidemiological patterns.
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, and the treatment of patients with heart disease accounted for an estimated 25 percent of all inpatient costs. Per capita health expenditures on persons over 60 were 3.5 times greater than the average for the population.8 Unfortunately, continuing increases in spending on hospital services for the care of chronic disease, although very expensive, will have little effect on the high death rates in developing countries among the poor.9 The estimated cost (per discounted healthy life years gained)
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As a result, the developing countries, which utilize the new products and methods that emerge from this process, are faced with expensive medical technologies aimed at prolonging the life of the old rather than preventing illness among the young, and also with political pressures from the influential older groups in society for public spending to make these technologies accessible to them. Other Reasons for Pessimism Other reasons for pessimism include increased fiscal pressures on the government, leading it to divert expenditures from health care; political pressures from workers that often cause these cuts to be made in inefficient ways; and cost escalations in health care that diminish the productivity of the remaining expenditures, ceteris paribus.
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From page 242... ...
Finally, these problems have been exacerbated by the extension of health insurance without adequate cost containment measures in some developing countries. For example, in Latin America, the system of automatic reimbursement by the public sector insurer to charges of private providers has fueled the rapid growth of prices and spending on curative care, leaving fewer resources to be spent on more productive basic health services that are not covered by insurance.
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(For the distinction and connections between these issues, see Birdsall, 1992; James, 1990.) Below, the focus is on the benefits of shifting some of the financing of quasi-public services to the private sector, irrespective of whether the private or the public sector manages and provides the service.l° Examples of Inefficient and Inequitable Public Health Spending As discussed earlier, efficiency criteria would dictate government ex 1OThis focus also abstracts from the possible links between financing and provision that can arise in the real world for institutional or political economy reasons (e.g., the amount raised via user charges may be greater if the provider retains control over the resources; private provision with partial public subsidy may be more sustainable politically than public provision with partial user charges; and public regulations may accompany public subsidies)
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More specifically, in Bangladesh in 1986 hospitals consumed more than 80 percent of recurrent public health spending. In Brazil in 1982, 70 percent of public health funds was spent on reimbursement for physician and hospital care, including expensive high-technology procedures (kidney dialysis, coronary bypass, caesarean section)
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Examples of countries with such experiments are Zambia, where the university hospital at Lusaka is being turned into a parastatal that charges clients for services, with public funds thereby released to finance new maternal, child health, and family-planning services; Zimbabwe, where a fee has been introduced for patients who bypass lower levels of the health system and those who want a private hospital room; and The Gambia, where fees charged for drugs are turned over to village development councils for further health improvement (Akin et al., 19871. In Jamaica, costs declined when housekeeping and food services at public hospitals were contracted to private firms (Griffin, 1989~.
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Nevertheless, most of the public health funds are spent on hospital procedures with a large private benefit component (including public reimbursement of private hospitals) for upper-income groups (World Bank, 1988a)
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In the absence of political change, however, this shift will not be easy to accomplish, since the current "misbehavior" of government (inefficiently producing private health and other services that benefit influential groups) has come about precisely because people with political power gain therefrom and will resist relinquishing this source of real income.
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On the other hand, a temporary change in power can sometimes be multiplied and become permanent if it is used to alter the long-run rules of the game via constitutional change, precedent-setting judicial interpretations, irreversible extensions of voting rights, reapportionment, etc. 12Fnr PY~mnlP the firm origin in MP.Y.;C~.n ~nnP.ars to have contributed to the deterioration of the public university system and the evolution of financially autonomous elite private institutions; these now cater to the rich and reduce public spending on high-income university stu dents.
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1992 The Health of Adults in the Developing World. New York: Oxford University Press.
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Over, M 1988 Testimony to the United States Presidential Commission on the human imunodeficiency virus epidemic.
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Schneider 1978 Fiscal illusions, political institutions, and local public spending. Kyllos 31:381408.
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