Efficiency in Health System
Dr. Shahram Yazdani
Health System: an inefficient system



Dr. Shahram Yazdani
A set of 185 publicly-funded interventions in the United
States cost about $21.4 billion per year, for an
estimated saving of 592 000 years of life (considering
only premature deaths prevented).
Re-allocating those funds to the most cost-effective
interventions could save an additional 638 000 life years
if all potential beneficiaries were reached.
At the level of specific services, the cost per year of life
saved can be as low as $236 for screening and treating
newborns with sickle-cell anemia or as high as $5.4
million for radionuclide emission control
Health Economics

Health economics, is the study of how to
allocate scarce resources for production
of health and of how health services and
health itself is distributed among
individuals and groups in society.
Dr. Shahram Yazdani
Why Efficiency Is Important?

Scarcity + opportunity cost →
need for efficiency
Dr. Shahram Yazdani
Efficiency


Efficiency measures whether healthcare
resources are being used to get the best
value for money.
Healthcare can be seen an intermediate
product, in the sense of being a means to
the end of improved health.
Dr. Shahram Yazdani
Efficiency

Efficiency is concerned with the relation
between resource inputs (costs, in the
form of labor, capital,or equipment) and
either intermediate outputs (numbers
treated, waiting time, etc) or final health
outcomes (lives saved, life years gained,
quality adjusted life years (QALYs)).
Dr. Shahram Yazdani
Efficiency


Although many evaluations use
intermediate outputs as a measure of
effectiveness, this can lead to suboptimal
recommendations.
Ideally economic evaluations should focus
on final health outcomes.
Dr. Shahram Yazdani
Technical efficiency “doing things right”
Dr. Shahram Yazdani
D1 N1 DALY1
I11 C11 E11
*
I12 C12 E12
*
I13 C13 E13
I14 C14 E14
E1i Is The Percent Reduction In DALY Lost
Most Effective Intervention =
Max
E1i
DALY Saved For I11 (Most Effective Intervention)= DALY1 × E11
Total Cost = N1 × C11
Usually we have not enough resources for using the
most effective interventions
Technical Efficiency =
Max
E1i
C1i
DALY Saved For I12 (Technically Efficient Intervention)= DALY1 × E12
Total Cost = N1 × C12
DALY1 × E11 > DALY1 × E12
Shift from Most Effective to Technically Efficient Is a Kind of Rationing
Technical efficiency



Dr. Shahram Yazdani
Technical efficiency refers to the physical
relation between resources (capital and labor)
and health outcome.
A technically efficient position is achieved when
the maximum possible improvement in
outcomes obtained from a set of resource
inputs.
An intervention is technically inefficient if the
same (or greater) outcome could be produced
with less of one type of input.
Technical efficiency

Consider treatment of osteoporosis using
alendronate. A recent randomized trial
showed that a 10 mg daily dose was as
effective as a 20 mg dose. The lower
dose is technically more efficient.
Dr. Shahram Yazdani
Input quantities vs. input cost

Critically, almost all mainstream
definitions take technical efficiency to
refer only to input quantities, and not input
costs in monetary terms
Dr. Shahram Yazdani
Economic Efficiency



Dr. Shahram Yazdani
The cost of any production process is, of
course, influenced not only by the quantities of
inputs used, but also by the cost of these
inputs.
A production unit which is economically efficient
will produce a given output for the minimum
possible total input cost, or maximize output for
a fixed value input budget.
Thus, an economically efficient firm is, by
definition, a cost-minimiser.
Economic Efficiency


Dr. Shahram Yazdani
The critical implication of economically efficient
behaviour is the “principle” or “rule” of
substitution (e.g. Lipsey and Chrystal, 1995;
Samuelson and Nordhaus, 1995)
When the relative prices of inputs change (for
example, if the prices of imported drugs rise
relative to the costs of labour due to exchange
rate depreciation) the choice of production
process will change to use relatively more of the
cheaper factor and relatively less of the more
expensive factor.
Economic Efficiency



Dr. Shahram Yazdani
This formulation of economic efficiency is
particularly important in considering health care
interventions.
Clinicians (quite reasonably) tend frequently to
focus on best practice in terms of inputs – but
differences in relative input prices may mean that
a technically efficient “best practice” is
economically efficient in one country but not in
another.
This possibility is clearly a key practical constraint
upon attempts to produce truly international
“evidence based medicine” and to develop easily
generalizable cost-effectiveness results.
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
I84 C84 E84
I94 C94 E94
*
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
*
I84 C84 E84
I94 C94 E94
Moving from less effective interventions
To
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
*
I84 C84 E84
I94 C94 E94
Moving from less effective interventions
To
Most effective interventions
Performance
B
A
Cost
Moving from less effective interventions
To
Most effective interventions
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
*
I84 C84 E84
I94 C94 E94
Moving from most effective intervention
But we have not enough resources to ensure
To
delivery of most effective interventions
Most efficient interventions
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
*
I84 C84 E84
I94 C94 E94
Moving from most effective intervention
To
Most efficient interventions
Effectiveness to Technical Efficiency Rationing
Performance
B
C
A
Cost
Moving from most effective intervention
To
Most efficient interventions
Performance
C
A
Cost
Moving from a more costly, less effective intervention to most
efficient intervention usually is the case
Allocative efficiency “doing the
right things”
Dr. Shahram Yazdani
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
DALY2×E23
DALY3×E33
I34 C34 E34
I44 C44 E44
*
*
*
DALY4×E41
DALY5×E53
I54 C54 E54
*
DALY6×E64
I63 C63 E63
I64 C64 E64
I73 C73 E73
I74 C74 E74
DALY7×E72
I84 C84 E84
DALY8×E81
I94 C94 E94
DALY9×E92
I83 C83 E83
*
DALY1×E12
I14 C14 E14
I93 C93 E93
*
*
Moving from Technical Efficiency
To
But
DALY
wegain
haveif not
we adhere
even enough
to technical
resources
efficiency
to ensure
Allocative Efficiency
delivery
in all problems
of most efficient interventions
Technical Efficiency to Allocative Efficiency Rationing
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
D6 N6 DALY6
I61 C61 E61
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
×
*
*
*
*

I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I52 C52 E52
×

×
I62 C62 E62
*
*
Most Effective Intervention
Most Efficient Intervention
×
I12 C12 E12
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
*
*
I24 C24 E24
*
DALY2×E23
DALY3×E33
I34 C34 E34
*
DALY4×E41

*
I44 C44 E44
*
I54 C54 E54
DALY5×E53
I63 C63 E63
I64 C64 E64
DALY6×E64
I73 C73 E73
I74 C74 E74
DALY7×E72
I84 C84 E84
DALY8×E81
I94 C94 E94
DALY9×E92
I53 C53 E53
I83 C83 E83
*
DALY1×E12
I14 C14 E14
I93 C93 E93
*
*
Moving from Technical efficiency
Selecting
the right set of technically
To
Allocativeinterventions
Efficiency
efficient
Allocative efficiency



Dr. Shahram Yazdani
To inform resource allocation decisions in
broader context a global measure of efficiency
is required.
The concept of allocative efficiency takes
account not only of the productive efficiency
with which healthcare resources are used to
produce health outcomes but also the efficiency
with which these outcomes are distributed
among the community.
Such a societal perspective is rooted in welfare
economics and has implications for the
definition of opportunity costs.
Allocative Efficiency

Dr. Shahram Yazdani
In contrast to the technical and economic
efficiency concepts discussed above,
which all consider only the process of
production, concepts of allocative
efficiency embrace the notion that society
is concerned not just with how an output
is produced, but also with what outputs
and what balance of outputs are to be
produced.
Allocative Efficiency


Dr. Shahram Yazdani
Thus allocative efficiency is conventionally
defined as being achieved in a situation in which
it is impossible to improve the welfare of anyone
without reducing the welfare of someone else
through a change in the output combination (the
achievement of a Pareto-optimal state).
Explicitly, technical and economic efficiency are
necessary but not sufficient conditions for
allocative efficiency to be achieved.
Allocative Efficiency

Knox Lovell and Schmidt (1988) present a
neat summary of what this entails for the
individual firm:

Dr. Shahram Yazdani
“It [the firm]…produces the correct mix of
outputs, given output prices, uses the correct
mix of inputs, given input prices, and adopts
the correct scale given input and output
prices: this is what allocative efficiency
requires.”
Allocative Efficiency


Dr. Shahram Yazdani
In recent years, a common usage of the term
allocative efficiency has been adopted in health
care which refers increasingly to the idea that
society’s health status should be maximised,
through achieving the most cost-effective
balance of programs and interventions.
Through this usage, sectoral cost-effectiveness
analysis (e.g. through the use of DALYs etc.),
cost-utility or cost-benefit analysis can be seen
as providing information on allocative
(in)efficiency in health care.
Technological efficiency “moving
to new right things”
Dr. Shahram Yazdani
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I44 C44 E44
*
I73 C73 E73
I74 C74 E74
I93 C93 E93
*
I54 C54 E54
I64 C64 E64
*
*
*
I34 C34 E34
I63 C63 E63
I83 C83 E83
*
I14 C14 E14
*
I84 C84 E84
I94 C94 E94
Technology Push to more effective but not
necessarily more efficient interventions
*
D1 N1 DALY1
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
D3 N3 DALY3
I31 C31 E31
D4 N4 DALY4
I41 C41 E41
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
I13 C13 E13
I22 C22 E22
I23 C23 E23
I32 C32 E32
I33 C33 E33
I42 C42 E42
I43 C43 E43
I72 C72 E72
*
*
*
I82 C82 E82
I92 C92 E92
I53 C53 E53
*
*
I24 C24 E24
I35 C35 E35
I34 C34 E34
I44 C44 E44
*
*
*
I55 C55 E55
I54 C54 E54
*
I63 C63 E63
I64 C64 E64
I73 C73 E73
I74 C74 E74
I75 C75 E75
I84 C84 E84
I85 C85 E85
I94 C94 E94
I95 C95 E95
I83 C83 E83
*
I14 C14 E14
I93 C93 E93
*
*
Technology Push to more effective but not
necessarily more efficient interventions
*
I11 C11 E11
D2 N2 DALY2
I21 C21 E21
I22 C22 E22
I23 C23 E23
D3 N3 DALY3
I31 C31 E31
I32 C32 E32
I33 C33 E33
D4 N4 DALY4
I41 C41 E41
I42 C42 E42
I43 C43 E43
D5 N5 DALY5
I51 C51 E51
I52 C52 E52
I53 C53 E53
D6 N6 DALY6
I61 C61 E61
I62 C62 E62
D7 N7 DALY7
I71 C71 E71
I72 C72 E72
D8 N8 DALY8
I81 C81 E81
D9 N9 DALY9
I91 C91 E91
*
*
Most Effective Intervention
Most Efficient Intervention
I12 C12 E12
*
D1 N1 DALY1
*
*
I82 C82 E82
I92 C92 E92
*
I13 C13 E13
I14 C14 E14
*
*
I24 C24 E24
I34 C34 E34
I44 C44 E44
*
*
I35 C35 E35
*
I55 C55 E55
*
*
I54 C54 E54
*
I63 C63 E63
I64 C64 E64
I73 C73 E73
I74 C74 E74
I75 C75 E75
I83 C83 E83
I84 C84 E84
I85 C85 E85
I93 C93 E93
*
*
*
I94 C94 E94
Technology Push to more effective but not
necessarily more efficient interventions
Performance
B
A
Cost
Effect of Technology Development
C
Performance
A
Cost
Effect of Technology Development
Technological Efficiency


Technological change occurs through the development
of new processes which can produce more output for
the same or less input than older processes; they argue
that the introduction of such a new process can be
thought of as rendering all previous processes
technically inefficient.
Under this view, “technology’ consists of the series of all
known techniques for producing a particular output –
although the invention of a new technique does not
necessarily mean it will be available to all producers or
all countries (Meier, 1995).
Dr. Shahram Yazdani
Technological Efficiency

Clearly, though, there is a difference
between inefficiency due to operating off
the isoquant for a given technology, as
opposed to inefficiency due to failing to
move to a different isoquant made
possible by a new technology.
Dr. Shahram Yazdani
Efficiency Summary
Dr. Shahram Yazdani
Cost performance dilemmas
Performance
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Main Impediments to
Efficiency
Dr. Shahram Yazdani
Short Run and Long Run



Dr. Shahram Yazdani
These concepts concern the extent to which,
over time, a production unit can change the
level and combination of inputs it employs,
and/or the level or type of output it produces.
The long-run refers to a period which is
sufficiently long for a production unit to be
completely free in its decisions from its present
policies, possessions or commitments (Baumol,
1977).
In contrast, in the short-run, at least one
significant factor of production cannot be
changed, i.e. is fixed.
Main conceptual sources of technical
and economic inefficiency

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Dr. Shahram Yazdani
Failing to minimize the physical inputs used (i.e.
operating within the production possibility
frontier)
Failing to use the least cost combination of
inputs (i.e. failing to operate at the point of
tangency between the isocost curve and the
isoquant)
Operating at the wrong point on the short-run
average cost curve
Operating at the wrong point on the long-run
average cost curve
Failing to minimize the physical inputs used
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Dr. Shahram Yazdani
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Excessive hospital length of stay, with patients remaining in
hospital after they have ceased to benefit from hospitalization
Poor scheduling of diagnostics and procedures, resulting in
excessive hospital stay
Prescribing an intervention or diagnostic test which is known to be
of no therapeutic value or relevance
Over-prescribing of drugs (too high a dosage, too long a course,
more substances than are actually required)
Excessive use of diagnostic tests (e.g. performing daily tests when
the specialist will only be available to interpret them once a week)
Wastage of stocks – allowing stocks to expire, or allowing
deterioration due to poor storage etc.; discarding unused contents
of opened packets
Over-staffing
Failing to use the least cost combination of
inputs
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Dr. Shahram Yazdani
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Inappropriate overuse of more expensive staff relative
to less expensive staff, e.g. physicians vs. professional
nurses for basic prescribing of essential drugs,
professional nurses vs. nursing assistants for basic
personal care, professional nurses vs. clerical staff for
basic administrative duties
Use of branded drugs when generics are available
Failure to secure lowest cost supply e.g. continuing to
buy supplies from retail suppliers instead of through
competitive bidding
Being “locked in“ to purchasing consumables at a set
price from a manufacturer for a piece of equipment
which has been provided “free” or on loan
Using paramedic-staffed emergency ambulances to
transport patients home from hospital, instead of paying
for their bus ticket
Operating at the wrong point on the
short-run average cost curve
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Dr. Shahram Yazdani
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Implementing budget cuts which protect
salaries at the expense of other expenditure
items, hence reducing the number of patients
who can be treated, but with no reduction in
fixed costs
Refusing to fill a vacant anesthetist post due to
budget restraints, forcing the surgical staff to
limit their operating time
A rural hospital operating at an average bed
occupancy of 50% due to limited local demand
Inadequate drug supply leading to underutilization of primary care clinics
Operating at the wrong point on the
long-run average cost curve
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Dr. Shahram Yazdani
Planning to provide full pathology
laboratory facilities at every hospital when
laboratory services actually demonstrate
economies of scale
Planning to build a 1500 bed teaching
hospital when diseconomies of scale are
known to operate in hospitals above 600
beds
Factors Predisposing Towards Technical
and Economic Inefficiency
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Absence of incentives for efficient
behavior,
Constraints on decision-makers’ abilities
to make efficient choices.
Dr. Shahram Yazdani
Factors Predisposing Towards Technical
and Economic Inefficiency
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At three levels:
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micro, meaning the level of individual health
care workers or provider units;
system, meaning the health care delivery
system or sector as a whole;
macro, meaning the macroeconomic, society
or government level.
Dr. Shahram Yazdani
Absence of incentives for efficient
behavior
Dr. Shahram Yazdani
Public Ownership
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Micro:
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System:
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Reduced incentive to minimize costs
Unable to retain savings within sector, therefore no
incentive to minimize costs below level necessary to
keep in budget
Macro:
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Dr. Shahram Yazdani
System seen not as an asset but as an expenditure
liability, leads to under-investment
Objectives
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Micro:
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System:
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Probably poorly understood and often contradictory
at delivery level, leading to unclear incentives,
confusion, satisfying responses and “doing what
we’ve always done”
Inevitable trade-offs mean that no single objective is
likely to be maximizable, including cost-minimization
Macro:
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Dr. Shahram Yazdani
Non-health macroeconomic policy objectives may
further constrain ability to operate efficiently, e.g.
expenditure cuts, duties on imports, refusal to allow
retrenchment of public sector workers etc.
Payment Mechanism- Personnel
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Micro:
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System:
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Salaries provide little incentive to improve productivity,
incentivized schemes may focus (distort) effort towards
specified areas, often with unpredictable results
Salary systems good for cost control, despite lack of incentives.
Performance related pay systems can be unfair and
administratively complex, and with mixed evidence of success
Macro:
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Dr. Shahram Yazdani
Often difficult to reconcile centralized pay bargaining with
performance based systems; nationally negotiated and
unfunded or under-funded pay settlements can undermine
efficient local operation
Payment Mechanism- Provider
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Micro:
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System:
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Incentives under FFS to maximize revenue may
undermine cost minimization, and lead to
inappropriate care and supplier-induced demand
Introducing payment incentives within a fixed budget
may have very unpredictable impacts and distort
priorities; without a hard budget, they will lead to
cost-escalation
Macro:
Dr. Shahram Yazdani
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Setting up cost escalation may divert resources from
higher priority uses
Market Information
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Micro:
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System:
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No comparative benchmarks, lack of pressure for
improvement or innovation, leading to X inefficiency
Little possibility to exercise judgments on
performance and to reward/ punish
Macro:
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Dr. Shahram Yazdani
Lack of information on outputs or performance leads
to a sense that health sector is an “unproductive”
black hole, leading to reluctance to invest additional
resources
Corruption, theft and fraud
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Micro:
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System:
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Theft and wastage of resources increases costs and deprives
patients of care; comes to be seen as compensation for
inadequate salaries
Increased costs; misallocation of resources away from priorities
towards areas which maximize rents; corrosion of management
authority and accountability
Macro:
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Dr. Shahram Yazdani
Increased costs; misallocation of resources away from priorities
towards areas which maximize rents; diversion of resources
from poor to rich; corrosion of systemic integrity
Constraints on decision-makers’ abilities
to make efficient choices.
Dr. Shahram Yazdani
Lack of resources
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Micro:
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System:
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Poor motivation due to low salaries. General resource
shortages constrain ability to choose efficient input mix and
undermine quality
Systematic tendency to skimp on “discretionary” expenditures
(e.g. maintenance, training) leading to deterioration and
increasing technical inefficiency over time. Donor dependence
and resultant use of inappropriate technology
Macro:
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Dr. Shahram Yazdani
General lack of confidence in health system; health careers
appear unattractive, leading to skill shortages. Increasing
under-investment in human and physical capital in favor of
recurrent items. Donor dependence
Input Indivisibilities
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Micro:
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System:
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Under-utilization due to demand / supply mismatch
leads to high fixed costs
Exacerbated by inflexible management procedures;
tendency to try to increase utilization (“good money
after bad”) rather than rationalizing assets
Macro:
Dr. Shahram Yazdani
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Perceived under-utilization may lead to a reluctance
to increase funding or investment
Demand
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Micro:
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System:
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Under-utilization and high fixed costs; by-passing of
lower levels of care; demand for technically
inefficient care (e.g. excess or unnecessary
prescribing)
High fixed costs due to dispersed population; private
providers exploit demand for inappropriate care
Macro:
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Dr. Shahram Yazdani
Service duplication between public and private
sectors, distortion of health priorities and often
substandard care by private providers
Management
Information Systems
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Micro:
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System:
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No information on prices of many inputs and no involvement in
procurement processes, hence little incentive or ability to
minimize costs
Inadequate data to undertake performance management or to
inform planning. Little diffusion of price information. No data or
control in key areas (e.g. maintenance and transport) for which
other sectors responsible
Macro:
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Dr. Shahram Yazdani
Absence of data with which to demonstrate health benefits,
productivity and efficiency improvement reinforces stereotype
of health as ‘unproductive’
Public Sector Procedures and Policies
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Micro:
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System:
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Limited local ability to change input mix due to e.g. employment
contracts and policies, centralized procurement and supply,
inflexible budgetary rules; limited local decision authority or
financial delegation
Excessive centralization of decision responsibility stifles
flexibility; ‘one size fits all’ policies perpetuate inefficient input
mixes; lack of integration in decision-making and procurement
reduces opportunities to improve efficiency
Macro:
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Dr. Shahram Yazdani
Uniform employment and budgetary systems for different
sectors may be appropriate for none; civil service employment
procedures remove employment decisions and policy from
provider units and even from sectors
Continued Dominance by Medical
Profession
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Micro:
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System:
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Resistance to and lack of professional management at local
level; little pressure on individual physicians to justify service
quality or resource use
Low status of medical administration fails to attract best
candidates; lack of willingness to challenge clinical colleagues
and resistance to introduction of performance management
Macro:
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Dr. Shahram Yazdani
Maintaining mystique of health’s ‘special’ status hides poor
performance. Ministers and civil servants who are clinically
trained tend to lack professional political and managerial skills
Thank You !
Any Question ?
Dr. Shahram Yazdani