Ch 9-12. Healthcare financing

Question 1

Define– Community financing.

Answer 1

Community financing. Collective action of local communities to finance health services through pooling out-of-pocket payments that can include a variety of payment methods such as cash, in-kind and partial or delayed payment

Question 2

Define– Financial intermediary.

Answer 2

Financial intermediary. An agency collecting money to pay providers on behalf of patients.

Question 3

Define– Fund pooling.

Answer 3

Fund pooling. The collection of funds that can be used for financing a given population’s health care so that contributors to the pool share risks.

Question 4

Define– Out-of-pocket (direct) payment.

Answer 4

Out-of-pocket (direct) payment. Payment made by a patient directly to a provider.

Question 5

Define– Over the counter (OTC) drugs.

Answer 5

Over the counter (OTC) drugs. Non-prescription drugs purchased from pharmacists and retailers.

Question 6

Define– Purchasing.

Answer 6

Purchasing. The process of allocating funds to the providers of health care.

Question 7

Define– Regulation.

Answer 7

Regulation. Government intervention enforcing rules and standards.

Question 8

Define– Revenue collection.

Answer 8

Revenue collection. The raising of funds either directly from individuals seeking health care or indirectly through governments or donors.

Question 9

Define– Universal coverage.

Answer 9

Universal coverage. Extension of health services to the whole population so that they have access to good quality services according to needs and preferences, regard- less of income level, social status or residency.

Question 10

Define– Unofficial payments.

Answer 10

Unofficial payments. Spending in excess of official fees, also called ‘under the table’ or ‘envelope’ payments.

Question 11

what are the 3 ways in which healthcare is financed?

Answer 11

1. revenue collection– raising of funds either directly from individuals seeking health care or indirectly through governments or donors
2. pooling– collection of funds that can be used for financing a given population’s health care so that contributors to the pool share risks
3. purchasing– allocating funds to the providers of health care.

Question 12

what are some ways to distinguish between public and private in the financing of healthcare

Answer 12

– public agency refers not only to government organizations but also to public bodies with statutory responsibilities, like social insurance companies.

– The private sector can be divided into for profit and not for profit organizations.

– for profit– any financial surplus goes out of the organization to the shareholders

– not for profit– reinvest any financial surplus in their organization by developing facilities and training staff.

Question 13

define – Agent.

Answer 13

Agent. A person who acts on behalf of another.

Question 14

define – Agency theory (or principal-agent theory).

Answer 14

Agency theory (or principal-agent theory). Describes the problems that arise under conditions of asymmetric information between two parties, the principal and the agent.

Question 15

define– Capitation payment.

Answer 15

Capitation payment. A pre-determined amount of money per member of a defined population, served by the third-party payer, given to a provider to deliver specific services.

Question 16

define– DRG (diagnosis-related group)/HRG (health care resource group).

Answer 16

DRG (diagnosis-related group)/HRG (health care resource group). A case- mix classification scheme which provides a means of relating the number and type of acute inpatients treated in a hospital to the resources required by the hospital.

Question 17

define– Fee-for-service (FFS).

Answer 17

Fee-for-service (FFS). Payment mechanism where providers receive a specific amount of money for each service provided.

Question 18

define– incentive

Answer 18

Incentive. Factor that motivates a particular course of action or encourages people to behave in a certain way.

Question 19

define– principal

Answer 19

Principal. A person on whose behalf an agent acts.

Question 20

what are 4 main ways health professionals are paid?

Answer 20

fee-for-service
capitation
salary
performance-based payment

Question 21

advantages/ disadvantages of– fee for service

Answer 21

A– Provides a direct incentive to the doctor to increase effort (can be useful in some situations where there is an under-use of services)

D– Incentive to increase the provision of services beyond what is necessary (over-supply or supplier-induced demand); cost escalation

Question 22

advantages/ disadvantages of– capitation

Answer 22

A– No incentive to over-supply or induce the demand; strong incentive to improve efficiency of care delivery; improves continuity of care; ensures a good control of costs

D– Incentive to undersupply; increased efficiency may cause providers to sacrifice quality (however, not so much if patients are free to choose); ‘cream-skimming’ behaviors – doctors favor the enrollment of patients who are less sick

Question 23

advantages/ disadvantages of– salary

Answer 23

A– No incentive to over-supply or induce the demand; no incentive to compete for patients and/or select better-off and healthier patients; ensures a good control of costs

D– No incentive to improve efficiency; incentive to reduce services and/or quality of care

Question 24

advantages/ disadvantages of– performance based payment

Answer 24

A– Increase the provision of specific (desired and targeted) services; increase the quality of care (when targeted)

D– ‘Gaming’ behaviours (people trying to cheat by over-reporting); effort and attention is taken away from services that are not rewarded; potentially complicated system to monitor and enforce

Question 25

what are the 4 ways that hospitals are paid?

Answer 25

line-item budgets
global budgets,
payment per day
payment per case

Question 26

what are line item budgets?

Answer 26

a detailed budget for the main categories of inputs used in the delivery of health services

This type of hospital payment mechanism was used in former communist countries as it allows a high level of control from the central level. It is still widely found in low- income settings where the lack of information on the costs, volumes of patients and patients’ characteristics prevent governments from implementing more complicated payment mechanisms.

Question 27

what are global budgets?

Answer 27

hospitals receive a lump sum payment

Question 28

what are payment per day?

Answer 28

hospitals receive a set amount of money per bed-day

Question 29

what is payment per case?

Answer 29

paying providers a flat amount per hospitalization.

Question 30

define– Cross-subsidization.

Answer 30

Cross-subsidization. A situation arising when the funds of different population groups’ risk pools are pooled.

Question 31

define– Formal sector employees.

Answer 31

Formal sector employees. Members of the population who are employed with a taxable income.

Question 32

define– Fragmentation.

Answer 32

Fragmentation. A situation whereby there are many financing schemes which operate as separate risk pools with limited cross-subsidization.

Question 33

define– Progressive.

Answer 33

Progressive. A financing mechanism is described as progressive if it consumes a greater proportion of the income of the rich than the poor.

Question 34

define– Regressive.

Answer 34

Regressive. A financing mechanism is described as regressive if it consumes a greater proportion of the income of the poor than the rich.

Question 35

what is universal coverage?

Answer 35

implies equity of access and financial risk protection.

equity in financing – i.e. contributions are based on ability to pay rather than according to whether a person falls ill

Question 36

what are the challenges of creating universal healthcare?

Answer 36

• the breadth of coverage: the proportion of the population who have access to afford- able and quality care;
• the depth of coverage: the range of accessible quality services available to the popula- tion in need;
• the height of coverage: the proportion of health care costs covered by the financing system.

Question 37

what is social health insurance (bismark model)?

Answer 37

typically operated by a public agency and financed through compulsory contributions from payroll. The amount is usually split between employers and employees.

Question 38

features of social health insurance?

Answer 38

• has compulsory membership;
• involves payroll deduction of contributions;
• is run by public bodies, either single or multiple organizations;
• is based on redistributional policies;
• has clearly defined, earmarked resources;
• is usually complex and expensive to administer, relative to tax-based systems;
• can mobilize additional resources for the health sector.

Question 39

what are the advantages of social health insurance?

Answer 39

• funds for health care are clearly identified and do not have to compete with other demands on government such as defense, housing and social security;
• people may be happier paying social insurance knowing that it will be spent on health care than paying taxes which may not be used for health care;

•employee contributions mean that people may behave as better, more responsible consumers of health care, reducing the risk of moral hazard, and may be more
likely to demand high-quality services from providers;

•employer contributions mean that they have an incentive to ensure premiums are as low as possible, thus encouraging health care providers to be as efficient as possible.

Question 40

what are the disadvantages of social health insurance?

Answer 40

• social insurance is a form of employment tax (i.e. it is paid by those in employment) and this may prove to be a disincentive for employers to create new jobs;
• the amount raised will vary with the number of people employed so the health care system has no guaranteed income;
• the cost of collecting funds from employees and employers (extra costs that do not arise with tax-based systems);
• if there is more than one social insurance fund, there is the risk of adverse selection of subscribers.