Download Accountability

Organizational Reform In
Public Hospitals
Dr. Shahram Yazdani

Governments in developing countries have
traditionally been major providers of health
services, in addition to financing health care
delivery.
Dr. Shahram Yazdani
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Dr. Shahram Yazdani
Public hospitals are an important part of
health systems in developing countries, and
depending on their capacity, act as first
referral, secondary or last referral facilities.
These hospitals are generally responsible for
50 to 80 percent of recurrent government
health sector expenditure in most developing
countries, and utilize nearly half of the total
national health expenditure in many of these
countries.
Problems with The Public Delivery of
Healthcare Services
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Technical Inefficiency
Allocative Inefficiency
Failure to Reach Poverty Groups
Poor Responsiveness to User Expectations
Dr. Shahram Yazdani
Technical Inefficiency

Resources within public facilities are often
used poorly, and resource scarcity and waste
often coexist. Some of problems that affect
technical efficiency adversely are:
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Dr. Shahram Yazdani
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Low throughput
Low morale of public health care workers
Low motivation of public health care workers
Lack of necessary drugs and equipments
Outdated treatment routines and protocols
Allocative Inefficiency
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Dr. Shahram Yazdani
Public delivery of services obscures the cost
of services and ignores their effectiveness
This minimize the ability to identify and
deliver cost-effective interventions
In developing countries resources often
flowing disproportionately to urban, curative,
and hospital-based facilities
Major hospitals consume large amount of
scarce resources, and many have low
occupancy rates
Failure to Reach Poverty Groups

Although equity is a key motivation for public
delivery of hospital services, distribution of
resources in public system is rarely focused
on the most needy.
Dr. Shahram Yazdani
Poor Responsiveness to User Expectations

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Social services delivered by public providers are
notably unresponsive and unaccountable to users
To prepare the World Development report 2000, the
World Bank conducted interviews with more than
60,000 poor people in 47 countries.
According to these interviews following problems
discouraged the poor from using public services
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Dr. Shahram Yazdani
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The complexity of bureaucratic procedures
Rude and unresponsive officials
Withheld information

To understand the causes of poor
performance in public hospitals and ways
organizational reforms are expected to
address them, we should first answer the
following question:

What factors determine the behavior and
performance of hospitals in general?
Dr. Shahram Yazdani
Hospital’s Incentive Regime
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Pressures originating from the external
environment
Pressures originating from the hospital’s
organizational structure
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Organizational Reform
Private Sector
Broader Public Sector
Core Public Sector
B
Dr. Shahram Yazdani
B - Budgetary Units
A - Autonomous Units
C - Corporatized Units
P - Privatized Units
A
C
P
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Organizational reforms move public hospitals
out of the core public bureaucracy and
transform them into more independent
entities responsible for performance, and
they also keep ownership in the public sector
Dr. Shahram Yazdani
“Marketizing” reforms
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These organizational reforms rely on market
mechanisms to carry out functions that used
to be carried out by central planning
authorities
Other kinds of organizational reforms such as
decentralization change organizational
structures but do not incorporate a greater
use of market mechanisms
Dr. Shahram Yazdani
Pressures originating from
the hospital’s
organizational structure
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Autonomy
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Dr. Shahram Yazdani
Government bureaucrats who make the
decisions are far removed from hospitals and
thus often lack critical information to make
appropriate decisions.
At the same time, the people who have the
information -hospital-based physicians and
managers- do not have decision rights.
This mismatch between information and
decision rights is at the heart of poor
performance of public sector hospitals.
Autonomy

Autonomy is the right to make decisions over
various aspects of production, including
inputs, outputs, and process..
Dr. Shahram Yazdani
Autonomy
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When designing organizational reform, the
important question is:
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How much autonomy should hospitals have?
Which decision rights should be allocated to the
hospital?
Which decision rights should the government
bureaucracy retain?
Dr. Shahram Yazdani
Autonomy
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Key decision rights to be allocated
Inputs
Outputs
Labor (hiring, firing,
remuneration
Level of
throughput
Capital (investment in and
sale of assets including land,
buildings, equipments
Mix of services
Procurement (consumables,
drugs and supplies and
small equipments
Outcomes
Targets for
specific health
outcomes
Process
Strategic management
Financial management
including setting user
charges
Clinical Management
Administrative Processes
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Market Exposure
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Dr. Shahram Yazdani
Market exposure refers to subjecting
hospitals to competition in the product and
factor markets.
In the product market, market exposure
means that hospital revenues are linked to
performance.
On the factor market, market exposure
means that hospitals compete for inputs,
including physicians and capital.
Market Exposure

Product market

Increasing market exposure on the product market
means that the hospital’s revenues become more
dependent on its performance and ability to attract
and keep patients.
In budgetary units, treating more patients or
providing better quality services has no implications
for the hospital’s revenues.
Conversely, public sector problems such as
absenteeism of public doctors (due to private
practice) and waste have no negative implications
for hospital revenues.
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Dr. Shahram Yazdani
Market Exposure
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Factor market.

The two most significant input factors where
public hospitals do not compete are the labor
market and the capital market.
Regarding the labor market , eliminating or
reducing civil service constraints on personnel
policies and removing central planning of human
resource capacity are the instruments adopted
in several countries.
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Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Residual Claimant Status

An organization’s residual claimant status
reflects the degree of enforced financial
responsibility -both the ability to keep savings
and responsibility for financial loses (debt).
Dr. Shahram Yazdani
Residual Claimant Status
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In government-operated hospitals paid
through line-item budgets, the public purse is
often the residual claimant:
If hospitals generate extra revenues, save, or
cannot spend their budgeted allocation, the
funds are withdrawn from hospitals and
reallocated within the health sector budget.
Dr. Shahram Yazdani
Residual Claimant Status
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Dr. Shahram Yazdani
In budgetary units, budgets are soft –it lack enforced
financial responsibility. The public purse steps in and
bails out the loss-making organization.
Such conditions are hardly conducive to generating
savings and efficiency gains because soft budgets
reward poor performance through additional
resources and penalize those who save.
Thus, the third element of organizational reforms is
to clarify who the residual claimant on revenue flows
is: the hospital or the public purse.
Residual Claimant Status
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Dr. Shahram Yazdani
Autonomous hospitals established as notfor-profit entities retain all of their surpluses.
Corporatized hospitals usually have to pay
dividends or other forms of capital charges
to owners.
Thus, residual claimant incentives appear
stronger for the not-for-profit autonomous
hospitals -but at the price of weaker
incentives to optimize assets and liabilities
and exercise greater managerial discretion.
Residual Claimant Status

Enforcing hard budgets is a challenge for many
governments.
1. First of all, it requires political commitment that often
wanes under popular pressure to keep hospitals open and
increase their funding.
2. Second, financially unviable hospitals may be strategically
important service providers in a given catchment area, and
their closure may not be desirable. Thus, in the public
hospital sector, enforcement of hard budgets is not taken
seriously, unlike in the private sector, where loss-making
enterprises are exposed to bankruptcy and closure.
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Accountability

Accountability refers to holding hospitals
responsible and answerable for their behavior
and performance.
Dr. Shahram Yazdani
Accountability
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Dr. Shahram Yazdani
As the autonomy of providers increases, the ability
of the Ministry of Health to assert direct
accountability through the hierarchy diminishes.
Direct hierarchical accountability is typically
manifested as control over employees.
With organizational reform, alternative accountability
instruments are put in place through indirect
mechanisms such as boards, contracts, and
regulations and their consistent monitoring and
enforcement.
This requires the health ministry, purchasers, and
other regulatory agencies in the health sector to
take on new functions and roles.
Accountability

Key accountability instruments
Between hospital
and patients
Between hospital
and payers
Between hospital
and owners
Effective and
accessible patient
grievance
procedures
Published
independent audits
Hospital boards
representing
community and
business leaders
Community
Representation on
Hospital boards
Contracts with
explicit performance
Business plans
objectives
Dr. Shahram Yazdani
Monitoring and
disseminating
comparative
provider
performance
information
Between hospital
and regulator
Minimum standards
Outcome measures
Accountability
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Boards
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A key challenge for many countries is to
design functional boards that provide
mechanisms to hold hospitals accountable.
Dr. Shahram Yazdani
Accountability
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Boards

The Board of Directors can be a representative body
ensuring that the different, often conflicting interests
of stakeholders are represented and heard.
This includes functions such as providing voice to
community views and preferences; seeking
donations and volunteers from the community,
lobbying for political support; and advising hospital
management on business issues.
Boards of this nature tend to be larger and
participate little in the decision-making process.
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Dr. Shahram Yazdani
Accountability
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Boards

The other function a board can play is closer
to that of a strategic body that makes
strategic decisions for the hospital and holds
the management of the hospitable
accountable for their performance.
These boards are usually smaller, and their
members are selected for their skill in making
strategic and funding decisions for the
organization.
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Dr. Shahram Yazdani
Accountability
Dr. Shahram Yazdani
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Boards

One possible constitution of the board would include the
following members:
 Representatives of the community
 Representative of the Ministry of Health
 Representative of the Ministry of Finance
 Representative of the Ministry of Planning
 Representative of the private sector (e.g., the CEO of a private
hospital)
 Representative of a nongovernmental organization
 Representative of the medical school
 An expert in financial management, accounting, and evaluation
 An expert in health economics
 An expert in community medicine and public health
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Social functions

Social functions refers to the responsibility to
cover services and populations where
revenues do not cover costs.
Dr. Shahram Yazdani
Social functions

A hospital organizational reform should
distinguish hospital services that are pure
private goods from services that fulfill a social
function and to define and subsidize the
social functions of the hospital.
Dr. Shahram Yazdani
Organizational Modalities and Structure
Budgetary
Units
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Autonomous
Units
Corporatized
Units
Privatized
Units
Decision Rights
Market Exposure
Residual Claimant
Accountability
Social Function
Dr. Shahram Yazdani
Accountability
Hospitals
The
publichave
purse
little
isisenforced
the
autonomy
residual
through
over
claimant
direct
key decisions
hierarchical
of these such
hospitals.
control
as staff
through
mix and
a chain
size,
services
The
of
government
government
offered,
bureaucrats.
determines
technology
However,
used,
the revenue
financial
governments’
of management,
the
hospital
objectives
through
salaries,
inarunning
direct
and
sothe
on.
Market
exposure
is low or nonexistent
with
centralized
procurement
and
The social functions performed by the hospital are not distinguished from
The
budget
hospitals
manager
allocation,
are
of
such
which
unrecorded
a hospital
is commonly
and
is essentially
unmonitorable.
set
on aan
historical
administrator.
Any revenues
distribution
ofoften
drugs
and
other
medical
supplies,
and
lackbasis.
of competition
their other activities nor are they funded separately.
The savings
and
Bureaucrats
government’s
belong
responsible
hierarchy
to thefor
public
monitoring
of officials
sector and
hospital
and rules
must
and
control
be managerial
returned
all strategic
to performance
the public
issues
among
providers.
and determine
purse
tend
tofor
focus
reallocation.
onmost
inputs
day-to-day
Losses
especially
are
decisions
on
covered
monitoring
by thespending
public purse.
Organizational Modalities and Structure
Budgetary
Units
Autonomous
Units
Corporatized
Units
Privatized
Units
Decision Rights
Market Exposure
Residual Claimant
 Accountability
Social Function
Dr. Shahram Yazdani
Accountability
Autonomization
The
hospital or clinic
focuses
arrangements
becomes
on shifting
still
a partial
generally
many
residual
day-to-day
comeclaimant
from
decision
hierarchical
on certain
rights savings
from
the hierarchy
Shift
generated
supervision.
from input-based,
through
However,
to thecost
organization.
objectives
historically
savings orare
The
set
other
more
amount
budget,
improvements.
clearly
of
to autonomy
have
specified.
moreactually
freedom
given
to to
Responsibilities for performing social functions may be specified in the
The management
execute
This
Usually
may
the
the
bescope
budget
achieved
has
ofwith
the
by
varied
aobjectives
performance-related
significant
considerably.
isdegree
narrowed,
Most
ofpayments,
autonomy,
and
governments
focusor
result
onbyeconomic
have
co-payments.
in more
beenand
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unwillingorientation
market
Moving
financial
from
performance
or unable
a line-item
to transfer
increases.
to a global
control
Anbudget,
agreement
over labor,
whereby
between
recruitment,
savings
the government
in
salaries,
one service
staff
and
or
mix,hospital
budget
the
andarea
themay
can
like be
andshifted
concluded
have instead
to another.
withleft
monitorable
employeesperformance
in the civil service.
targets.
Organizational Modalities and Structure
Budgetary
Units
Autonomous
Units
Corporatized
Units
Privatized
Units

Market Exposure

Residual Claimant

Accountability
Social Function
Decision Rights
Dr. Shahram Yazdani
Under
The
Accountability
corporatized
corporatization,
mechanisms
hospital
managerial
social
is much
are
functions
exerted
more
autonomy
aare
through
residual
usually
are agenerally
claimant
Board
pursued
ofmuch
Directors
through
than stronger
is theand a
In corporatized hospitals market incentives stem from the combination of an
Than under
autonomized
corporate
purchasing,
plan,
autonomization,
insurance
hospital.
which is
It
regulation,
a
can
binding
retain
givingdemand-side
agreement
excess
managers
revenues
between
virtually
financing,
although
complete
theor
hospital
mandates
it may
control
(and
bethat
over
the
increased portion of revenue coming from sales (rather than budget allocation)
all inputs,
required
board)
apply
toand
all
tooutputs,
pay
organizations,
the relevant
dividends
and processes.
supervisory
or
notcapital
just public
The
charges
agency
organization
facilities.
that
to itscarries
owner
Rather
is legally
out
but
than
the
isestablished
force
also
role of
hospitals
owner
as
and increased possibilities for keeping and using extra revenue, as well as
andeliver
responsible
or
to
shareholder
independent
services
for of
losses.
entity
abelow
private
and
thecost
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company.
to athe
poor
transfer
citizen,
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for
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example,
is more
for
anits
appropriate
durable
financial
than
from the hard budget constraint.
undercorporate
performance,
This
subsidy
autonomization.
may be
including
plan
delivered
contains
management
to either
financial
theof
performance
patient
assetsorand
thetargets
liabilities,
hospital.
Organizational Modalities and Structure
Budgetary
Units
Autonomous
Units
Corporatized
Units
Decision Rights
Market Exposure
Residual Claimant
Accountability
Social Function
Privatized
Units





Dr. Shahram Yazdani
Privatization naturally removes the hospital from all direct control of the
hierarchy
All
Private
Social
incentives
functions
owners
of government
come
or through
shareholders
from officials
opportunities
funded
are
and
mandates
the
public
toresidual
earn
sector
with
revenue,
claimants
anrules.
explicit
and
Thecross-subsidy
on
the
organization
extra
incentives
revenues,
for
is
are
Accountability is enforced through indirect regulations
thus called
relatively
now
services
fullyand
independent
strong.
profits.
populations
of the
where
hierarchy,
revenues
although
do not the
cover
management
costs.
is likely
quite constrained by the new owners.
The right decision depends on:
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Central regulatory capacity
Reform priorities
Managerial capacity of hospitals
Customer sophistication
Professional self-discipline
Dr. Shahram Yazdani
Structure of Dysfunctional Hospitals
Few at the
Hospital
Decision Rights
None
Market Exposure
Public
Purse
Residual Claimant
Direct:
Hierarchy
Accountability
Implicit
Unfunded
Social Function
Many at the
Hospital
Full
Hospital
Indirect:
Regulations
Explicit
Funded
Dr. Shahram Yazdani
Structure of Dysfunctional Hospitals
Type A
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


Few at the
Hospital
None
Public
Purse
Decision Rights

Market Exposure
Residual Claimant
Direct:
Hierarchy
Accountability
Implicit
Unfunded
Social Function
Dr. Shahram Yazdani
In some countries, organizational reform has been limited to granting
increased autonomy to hospitals.
In such cases, neglecting accountability structures results in loss of
government control over the organization’s behavior, in particular, over
meeting non-market-based objectives.
Many at the
Hospital
Full
Hospital
Indirect:
Regulations
Explicit
Funded
Structure of Dysfunctional Hospitals
Type B





Few at the
Hospital
None
Public
Purse
Decision Rights
Market Exposure
Residual Claimant
Direct:
Hierarchy
Accountability
Implicit
Unfunded
Social Function



Many at the
Hospital
Full
Hospital
Indirect:
Regulations
Explicit
Funded
Dr. Shahram Yazdani
Market incentives (market exposure and residual claimant status) are pursued
aggressively, but explicit definition of social functions is forgotten.
Such situations invariably reduce access for the poor. Training, research,
and public health services may also be neglected unless these are explicitly
purchased or subsidized.
Structure of Dysfunctional Hospitals
Type C





Few at the
Hospital
None
Public
Purse
Decision Rights
Market Exposure
Residual Claimant
Direct:
Hierarchy
Accountability
Implicit
Unfunded
Social Function
Many at the
Hospital


Full
Hospital
Indirect:
Regulations
Explicit
Funded
Dr. Shahram Yazdani
Exposure on the product market is increased by collecting user fees and
making hospitals residual claimants, but rigidities over staffing issues, lack of
overall managerial independence, and impact on the poor are left unaddressed.
Weaknesses in implementing regulations to protect access for the poor cut the
number of subsidized beds for the poor.
Structure of Dysfunctional Hospitals
Type D





Few at the
Hospital
None
Public
Purse
Decision Rights

Many at the
Hospital
Market Exposure
Full
Residual Claimant
Direct:
Hierarchy
Accountability
Implicit
Unfunded
Social Function
Hospital

Indirect:
Regulations
Explicit
Funded
Dr. Shahram Yazdani
When autonomy is transferred to the organization and new accountability
instruments (e.g., contracts) are put in place, but no emphasis is placed on
market incentives (market exposure, residual claimant status). In such cases,
although hospitals could improve their performance, they have no reason to
because performance is not responded by rewards or penalties.
Improving Hospital
Performance Through
External Pressures
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Strengthening government oversight

Developing a policy framework
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Regulatory challenges
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Dr. Shahram Yazdani

Setting well-defined objectives.
Ensuring internal consistency and coherence.
Matching scale and pace of reform design with
institutional capacity.
Licensing
Certification
Accreditation
Gathering intelligence
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Creating strategic purchasing


Dr. Shahram Yazdani
By purchasing we mean the health system
function whereby collective (pooled)
resources are allocated to providers who
deliver health services to the population on
whose behalf resources have been collected.
Globally, between 50 percent and 60 percent
of total health spending -US$2,830 billion in
1998- is channeled through such collective
purchasing arrangements.
Creating strategic purchasing

The core policy feature of purchasing is whether it is
passive or strategic.


Dr. Shahram Yazdani
Passive purchasers act as “cashiers” for providers. They
pay providers without evaluating the efficiency or
effectiveness of their product, without exercising selectivity
in the interventions they fund or in the providers they buy
from.
In contrast, strategic purchasing involves a continuous
search for the best ways to maximize health system
performance by operationally deciding which interventions
should be purchased, how, and from whom. (World Health
Report 2000).
Creating strategic purchasing
Strategic purchasing involves identification
of

1.
2.
3.
4.
The beneficiary group covered by collective
resources;
The service package to be funded from collective
resources;
The providers to purchase services from; and
The mechanism by which providers are
reimbursed for their services.
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Increasing market pressures
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
Dr. Shahram Yazdani
According tot economic theory, competitive markets
yield efficient allocation off resources based on the
well -informed individual decisions of many sellers
and many buyers without any coercion or
intervention of a government body.
In other words, in a competitive market, consumers
demand goods and services until they reach the
point where the marginal value of that good or
service is equal to the price. Providers adjust their
price until the marginal cost is equal to the price.
Increasing market pressures
Dr. Shahram Yazdani
Increasing market pressures

A number of assumptions have to be met for
markets to be competitive and really lead to
efficient outcome:


Dr. Shahram Yazdani

There are so many buyers and many sellers of a
commodity or good that none can individually
affect the price.
Sellers and buyers are well informed about the
quality of the product and about each others’
prices.
The commodity or service is standardized.
Increasing market pressures
Dr. Shahram Yazdani
Determinants of Hospital Behavior
Owners
External Pressure
Governance
Government
Stewardship
Organizational
Structure
Managerial
Instruments
Policy-driven
Purchasing
Dr. Shahram Yazdani
Purchasers
Residual
Claimant Status
Market-driven
Purchasing
Consumers
Encouraging good governance


Governance is commonly defined as the
relationship between the owner and
management of an organization.
“Good governance” is said to exist when
managers closely pursue the owners’
objectives or when the “principal-agent”
problems have been minimized.
Dr. Shahram Yazdani
Encouraging good governance

From observing successful large private
organizations, experts have identified these
key ingredients for good governance:



Objectives.
Supervisory structure.
Competition and motivation of management.
Dr. Shahram Yazdani
Thank You!
Any Question?
Dr. Shahram Yazdani