The success of the financing process for healthcare services depends on the performance of three important functions: revenue collection, pooling of resources, and purchasing of services and interventions.

Traditionally, the Ministry of Health and the Ministry of Finance in India have “purchased” health “passively”, i.e., allocated spending based online-item inputs (salaries, drugs, utilities linked to facilities) with little accountability or link between supply-side funds and the type of services, quality, or amount of health services delivered. 

Spending of precious resources passively is not generally seen as aligned to any vision for service delivery of population health management.  Strategic purchasing, under the National Health Authority, is an active (and often policy driven) decision that aims to use the full force of policy levers to reallocate resources to areas of greatest need, and to provide signals to the market in terms of lowest cost and highest quality.  That is, it uses these levers to promote value-based care.

These four core “policy levers”, related to the allocation of health financing funds, that the purchaser has at its disposal to achieve goals are the “benefits package” (the what to buy, in which form, and what to exclude), the “contracting” (the from whom, at what price to buy, and how much to buy), the “provider payment systems” (at what price and how to pay) and “accountability measures” to assure funds are spent efficiently and achieve optimal levels of quality.

In an interview with InOrder, health financing expert and member of the InOrder Advisory Board, Mr Jack Langenbrunner shares his assessment of India’s strategic purchasing journey thus far and provides suggestions from diverse country experiences.

Could you please share your outside-in take on the performance of strategic purchasing tools in India? What do you think could have been or can be done to further improve them?

Strategic Purchasing (SP) as a modality began in Europe and North America in the 1980s, and moved to Asia in the last 2 decades – Thailand, China, Vietnam, Indonesia – for example.  At its best, SP can both improve and optimize efficiency and quality in the delivery of services. 

By international standards, the National Health Authority is off to a fast start.  They have refined the benefits packages inherited from the RasthriyaSwasthyaBimaYojana, contracted with both public and private providers, done the costing and the pricing, developed a number of accountability mechanisms such as a three level accreditation system, and states have chosen various pathways related to quality and fraud management, standards/guidelines/protocols, and preauthorization.

I would like to see the NHA do more over the next few years including

  • payment fairness for complications and co-morbidities,
  • payment to private providers for capital expenses
  • ongoing refinement of accountability mechanisms such as IT software review of patterns of good and bad behaviors, quality assurance clinical teams to review 5 percent of medical records ex post, the right set of indicators that may constantly evolve over time, consumer hotlines, telephone surveys, and tough de-empanelment or legal actions. 

The work done by states like Uttar Pradesh, Maharashtra, Uttarakhand, and even Assam in this direction is commendable.  They presented their work at the second anniversary Ayushman Bharat webinars. 

Finally, we will also need private and professional associations of doctors and experts to help develop pathways to update good care and utilize indicators from these new pathways.  Of course, they could work in collaboration with public sector groups in the Ministry of Health and beyond.

How can we create a level playing field for all providers before using strategic purchase pricing as a bid to discover the right market price for healthcare services?

In the short run, we could start with updating costing studies for services. We could refine the package rates to address the complications and comorbidities.  The Diagnosis Related Groups (DRG) system is a model used by over a hundred countries in some form or the other. It has been in use in Indonesia since 2014.  China and Vietnam are implementing this now.

Secondly, we may reconsider the various so called supply-side subsidies in the public sector around construction, equipment, pharma and other vertical programs.  Ajay Tandon of the World Bank found that in some countries, this is as much as 60 percent of revenues to a hospital.  That can be a huge and unfair advantage.

Some of this, such as capital expenditure needs to be included in the payment to private hospitals as soon as possible.  A full review should be done and then adjustments could be developed for private facilities.  In Europe and North America, different models exist. Sometimes it is lump sum payments like in Germany, while other countries such as the United States and Estoniacalculate adjustments up for each admission. In the US, this was not easy to develop, as capital adjustments will vary between a new facility and one that is 50 years old and in need of replacement.  Regardless, we know that public subsidies create unfair distortions.

I would also recommend to the Modi government to freeze all CAPEX for public sector hospitals immediately and to use these funds to begin levelling the playing field across the public and private sectors. NITI Aayog was also considering this option. Studies suggest that India lags behind some middle and low income countries in the maturity profile of strategic purchasing, more importantly in the areas of output-based payment and other purchasing strategies (e.g. use of data, quality management, etc.); What needs to be done for us to progress to that maturity stage?

This process has started. There are exemplary“green shoots” in states such as Tamil Nadu, Maharashtra, and Karnataka.  States differ in how they utilize the four policy levers.  The NITI report titled Health Systems for a New India: Building Blocks—Potential Pathways to Reforms, from November 2019 details these areas of progress.

The NHA has been a launch pad for new initiatives as outlined in the webinars held on the occasion of the second anniversary of Ayushman Bharat.

Perhaps the biggest issue is that the level of pooled funds under NHA remain relatively low.  We need to push more funding through the NHA platform.  We do not necessarily need new funds (although it would be welcome), but use the existing funds flow such as the National Health Mission budget.  The NHA and State Health Authorities can then begin to buy not only hospital level care, but also primary care.  Once the funds are diverted, the NHA can lead the work to

  • Establish a standard or minimum Benefits Package across States (states could top up)
  • Determine supply side minimum standards for public and private sectors
  • Develop new payment methods such as pay for performance (P4P), capitation, or some blend of fee for service (FFS), capitation and P4P as we see in much of Europe
  • Identify key parameters for quality and accountability

This will be politically disruptive but is necessary to bring to India a modern health sector.  It will force the public sector to reorganize its outdated model. I ask you: has India changed since 1947 in terms of its demographics and clinical profiles?  Of course, it has, and its public sector needs to catch up as well.

Do you see the need for an Accountable Care Organization (ACO) kind of a model to help accelerate the pace and use of strategic purchasing and to also pivot it to a value based care model? Or is it a bit too early for us?

It is certainly not too early. 

One thing the NHA can do is to promote new innovations through a national program of pilots and demonstrations.  This is how ACOs started in the US.  The ACOs are each different: to fit local context and history, as well as to find new innovative ways to provide the full range of services for a pre-set payment amount. 

The NHA could call for ideas and proposals to cover populations for an entire package and agree on a prepayment amount and a set of performance indicators.  Providers could either develop

  • An internally whole organization to deliver the package (such as with the Kaiser Health Maintenance Organizations (HMO) in California) or
  • Band together with a consortium of providers through internal contracts to deliver the full package.  This latter model is what we are seeing with most ACOs today in the US.  Who receives the funding and how the funding is distributed are key aspects of these ACO pilots.The jury is still out on performance of these in the US.

Regardless, lessons and findings could be utilized for policy development down the road. 

Can we target “localization” (Build in India for India) in key healthcare delivery components like pharma and medical devices through our strategic purchasing strategy? Have you seen this concept in other countries?

Well, it is a good idea, especially because India is a global hotbed of innovation, around pharma, telemedicine, and IT, for example.  The last 18 months with the COVID pandemic have witnessed an impressive upsurge of innovations in these areas from Indian entrepreneurs.  I would attend global webinars, and it was the private sector Indian experts who typically offered the most exciting new approaches and technologies, whether device, drug, or procedure-based. 

A couple of options come to mind:

  • One is to give preference to new innovations in terms of what is acceptable for payment under the benefits package.  These new innovations need to be vetted for safety and efficacy to assure protection for the Indian population butcan be fast-tracked within the current national technology assessment process.  NHA could work with the MoH to prioritize these innovations for study as the list is usually very long in terms of areas that need review.
  • A second idea is to use pricing, negotiations, and even methods such as “reverse auctions” to identify who is in the market and help prioritize local innovations.  A small level of subsidy – say five percent–could be built in.  For example:  an Indian product will be given the contract award as against the same international product if the India product is within five percent of the winning bid amount in terms of price.  But here, we would need to exercise caution, as we do not want local innovations to game the process to make everything cost more than is necessary. The process would need transparent management. 

For a purchaser to be strategic in the services it buys, it needs information on a range of issues like population health needs, costing for service, supply side data etc. What would be the right approach to accelerate the information augmentation and analysis to start optimizing strategic purchase strategy?

That is absolutely correct.  SP requires certain enabling factors, and IT is one critical enabler.  The new national IT platform initiative is a good start, though it is still voluntary. Dr. R.S. Sharma’s leadership at the NHA might see this area move forward in exciting ways.

In Germany, the Netherlands, and Switzerland, for example, every encounter (public and private) uses the same claims form, and reporting forms.  Costing methods are standardized nationally.  These rules are not voluntary. 

These data are then analysed and compared across payers.  In Germany, there are literally hundreds of payers.  As India will continue to evolve with multiple payers (as is my guess), the health sector will need to develop the same type of comparative platform and policies. Payers and consumers can use these data systems for payment, contracting, and assessment of quality. 

People often complain that the private sector is not accountable.  I would say, until we have these data systems, the public sector is not accountable either.

India is the global leader in IT.  It was no accident Bill Gates recruited his first programmers from India.  Let’s see India’s Health lead for the world. 

Has COVID-19 brought a significant change in the strategic purchasing strategy in the emerging markets?

Yes, I have just noted that the COVID-19 has brought about enormous innovations from the private sector.  This trend is global and not just in India.  The number of contracts with private providers has expanded. There are hundreds of them in the UK, for example. There are new ways to perform telemedicine, new pharma products, improved IT systems, and even hospital workers working from home in Canada.

The challenge will be to fully integrate these innovative approaches under the health care system in routine delivery of care going forward.  And, I believe SP is the modality to do that quickly as it is constantly looking, through its policy levers, for ways to improve efficiency, quality and responsiveness.