UNRISD

UNITED NATIONS RESEARCH INSTITUTE FOR SOCIAL DEVELOPMENT

Health Systems and Commercialisation

In Search of Good Sense

Meri Koivusalo and Maureen Mackintosh

prepared for the UNRISD international conference on

Commercialization of Health Care:
Global and Local Dynamics and Policy Responses

in the UNRISD programme on

Social Policy and Development

DRAFT ▪ March 2004 ▪ Geneva

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1. Introduction: health care commercialisation and health policy, whose
common sense?
‘.of the various interpretations of public health, the Indian subcontinent is being
pushed into choosing a restrictive paradigm, which offers apparently sophisticated
methodologies for the collective good, without actually helping the good to
materialise’ (Qadeer 2001 p.117)

Health policies reflect, and have always reflected, values, culture and policy priorities in
different countries. The analysis of health policies therefore necessarily brings together
sociological and political understanding and more technical evidence with insights from
epidemiology, clinical medicine and economics.

However, in the world at present, health policy analysis has come to take a particular
predominant form: the analysis of health care as an economic sector of health service
provision plus a set of managerial evaluation techniques for analysing health care inputs
and outcomes. The fragmentation engendered by this dual approach is often reinforced by
a division within the institutions of health policy analysis between those whose interests
and expertise lie in health protection and public health policies, and those whose ‘lens’ is
the analysis of health care perceived a market-provided service. This dominant ‘common
sense’1 of health policy then perpetuates fragmentation through a policy framework that
allocates public health measures to a limited policy sphere of ‘public goods’ while
framing health services as a sector of market trading: these are the ‘sophisticated
methodologies’ Imrana Qadeer is referring to above.

We argue below, drawing on both new research and existing evidence, that this dominant
common sense in health policy is in certain ways both incoherent and damaging.
However our aim is primarily constructive rather than destructive. It is well understood
that a properly functioning health system is essential to an effective market economy. To
make a health system work in a market economy, however, does not imply simply the
commercialisation of the health care sector itself. It requires rather a different starting
point for health policy.

This alternative starting point has traditionally been articulated as part of a health systems
approach. It recognises the importance of values. It also acknowledges the existence of
market failures in health systems. It draws on economic analysis of health care financing
and economic assessment of health care systems as a whole. But it draws also on public
health and medical knowledge concerning the needs and problems that health systems
have to deal with. Our ambition with this paper and the project to which it relates is
nothing less than to provide the outline of such an improved ‘common sense’, as a
foundation for better analysis and practice in health systems and health policy design.

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We define this concept in Section 5.

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This alternative starting point has traditionally been articulated as part of a health systems
approach. It recognises the importance of values and ethically based objectives. It draws
on economic analysis of health care financing and economic assessment of health care
systems as a whole. But it draws also on public health and medical knowledge
concerning the needs and problems that health systems have to deal with. Our ambition
with this paper and the project to which it relates is nothing less than to provide the
outline of such an improved ‘common sense’, as a foundation for better analysis and
practice in health systems and health policy design, and some basis for it in evidence.

We begin in Section 2 by discussing the concept of ‘health system’: creating a definition

and discussing the ways in which the definition of health systems employed makes a
difference, helping or hindering our analysis and understanding of processes and change
in health systems as well as understanding of their role and purpose in a society. We also
examine the economic ideas associated with this concept of health system. We contrast
these concepts with the dominant model of health sector reform and its economic
presuppositions.

The values at the centre of health systems have today to be pursued in a rapidly changing
context of health service commercialisation, both within countries and in integrating
international markets. In Section 3 we seek to contribute to a better understanding of the
nature and consequences of this commercialisation, by examining cross-country and
case-based evidence different ‘paths’ of health care commercialisation.

In Section 4 we offer some evaluation of the current commercialisation of health care.

We argue that the cross-sectional and qualitative evidence available contains no comfort
for the commercialisers. On the contrary, commercialisation, on many indicators, is
positively associated with ill health and exclusion. And some patterns of
commercialisation appear particularly damaging.

In Section 5 we set our to define the basis for a new ‘common sense’, explaining in more
detail what we mean by this term. We argue that to build effective and decent health
systems, some elements and patterns of commercialisation have been and will have to be
blocked – not merely ‘regulated’ – in the interests of public health and effectively
functioning market economies.

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2. Health systems, health policies and economic suppositions: two
contrasting views

2.1 Health systems, redistribution and industrial change

Defining health systems

Our working definition of health policies and health systems in this paper is grounded in
the understanding that public policies and health policies form part of the broader public
policy framework in a society. Health policies tend to be discussed in the context of
broader social policies of a country. However, while choices of health policies are often
in line of the values and emphasis of broader social policies, decision-making on health
policy often differs greatly from social policy. The role of service provision is
substantially larger in health and the impact of labour markets more limited than in the
context of social policies. Health policies are also part of normative policy-making within
a society, and embedded in legal rights and commitments made as part of public policies.
While analysis of health policies may need to cover processes and stakeholders, these
relate more to politics of health than health policies. In practice health policies are rarely
defined explicitly in a society unless a process of reform or policy change is suggested.

Health policies are fundamentally based on values, but many aspects of policies are based
on evidence, experience and more technical aspects of decision-making. Health systems
are the institutional basis and expression of health policies. The way in which the health
system is structured, organised and governed has fundamental implications to how health
policies can be implemented and on what cost. Health policies define the direction
towards which health systems are geared, how health systems are resourced and on what
basis these operate. We argue that health system should be exist to fulfil a purpose, and
that their functions, structures, financing and priorities are, and should be based on aims
which are health- and health policy-related.

Health systems are thus based in the expectations and priorities of a society. The basic
reference for health systems remains at national level, but in practice health systems,
especially in many federal countries, operate at the sub-national level. National level
decisions do however have importance also at sub-national level and thus provide the last
resort in terms of accountability.

This definition of health systems contrasts with recent very broad usage: from the
corporate providers of 'health systems' to all-embracing definitions covering education or
what individuals do at home. Internet search on the phrase ‘health system’ brings a large
share of corporate health care plans, which are referred to as ‘health systems’. In this
paper we have wanted to put the emphasis on national level as still many core decisions
are made at national level and have implications for the ways in which regional or local
levels function. Health systems have also a global dimension, which is set in the global
regulatory context and has major importance, for example, with respect to the ways in
which standard setting is based, diagnostic criteria are defined and many regulatory
measures operate.

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In order to define health systems, it helps to specify some crucial aspects of health
systems that are usually assumed but rarely discussed in practice. These include the
following:

1) Focus and scope: health systems cover areas and functions in which health is a first
priority and have broader than individual or health services focus: Health systems are
population-based and cover public health policies, health promotion and assessment of
health implications of other policies. It is known that driving forces/determinants of
health status are defined often by other sectors than health. However, while food or
education policies may be of crucial importance to health it is not meaningful to extend
the definition of health system to cover everything that is of relevance to health. Health
systems may thus cover institutions, capacities and ways in which 'healthy' food and
educational policies are promoted and ensured in the context of health policies and
priorities, but not food or educational policies as such.

2) Legitimation and accountability: health systems are response to political commitments

made towards citizens: The accountability and responsibility for proper functioning of
health systems thus lies in the domain of public policies and cannot be left merely to
consumer choice and action.

3) Groundedness and universalism: the organisation and functions of a health system

reflect the culture, resources and values of a country. This is often taken as granted or
ignored, but is of substantial relevance to how health system can be organised. While the
way health systems are organised may have largely the same elements in any country, the
emphasis on different aspects of care differ substantially. The case is perhaps clearest
with respect to family planning and abortion, but exists also in other aspects of care.

We have previously proposed that health systems exist to fulfil a purpose and this
purpose is often defined through the definition of objectives. The WHO World Health
report in 2000 defined three fundamental objectives for health systems: improving the
health of the population they serve, responding to people's expectations, and providing
financial protection against the costs of ill-health. (WHO 2000). We would define the
aims rather differently, and with more explicit focus on what health systems do, as this is
often in danger of becoming lost in management terminology or mere emphasis on health
services. We would claim that the aims of health systems should generally cover the
following areas:

1) Protection and promotion of population health and provision of preventive services

and emergency preparedness ("public health")

2) Provision of health services and care for all according to need, and financing these
according of ability to pay ("health services")

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3) Ensuring training, surveillance and research for maintenance and improving of
population health and health services and availability of skilled labour force ("human
resources and knowledge")

4) Ensuring ethical integrity and professionalism, mechanisms of accountability, citizen

rights, participation and involvement of users and respect of confidentiality and dignity in
provision of services ("ethics and accountability")

The first aim covers traditional public health aspects of health systems, covering the
necessities to ensure traditional public health policies, preventive measures as well as
health promotion and the notion of healthy public policies and assessment of health
implications of other policies. The aim of these functions is to maintain and improve
health, and reduce structural aspects of disparities in health. It also deals with general
regulatory means in the field of health protection (e.g. drinking water quality), health
promotion (advertising of products hazardous to health) and broader health efforts
(campaigns and health impacts of other policies).

The second aim defines the principles of universality in access according to need and
solidarity in provision and financing of health services and care. This covers also the
protection of people against costs due to illness, cost-containment in the context of the
whole health system and the distributional matters in health care financing. It also relates
to regulatory and organisational aspects of quality of care and health technology,
pharmaceutical policies and other so called supporting functions in health systems.

The third aim states human resource and knowledge- and evaluation -based aspects of
health care systems. It deals with data, but also evaluation and regulatory aspects of
quality of care and standards of medical treatment. This is often neglected in analysis of
health systems, and is an issue which cannot be left merely to the markets to fulfil. The
knowledge-based functions also provide a basis for the development of capacities and
resources to ensure data and surveillance functions as well as procedures of quality of
care.

The fourth covers political and ethical commitments of health systems. These include the
ways in which citizens social rights are set and met, the accountability of the health
system and services providers, and ethical issues covering such areas as confidentiality,
malpractice and non-health related client aspects of health care. These cover also matters
concerning public health and preventive measures as well as ensuring citizen trust on
public policies and in relation to health protection. However, we have set these principles
more in the context of rights of public services provision and citizen rights than of more
consumerist models emphasising responding to expectations and ensuring choice.

We have, through our definition of health systems, wanted to combine and ground the
analysis of health systems more closely in the health and public policy priorities.

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Economics of health systems: redistribution and industrial change

Health systems understood as based on these values are rooted in a concept of the
economy which accepts that some elements of that economy are inherently ‘social’. By
this we mean, health care is perceived in this framework, not as a commodity like any
other, but as inherently a social and public responsibility, an element of the public sphere
of concern. The economic perspectives underpinning this concept of health system
necessarily include:

1. an acceptance that benefits from health care can be compared between individuals, as
a basis for evaluating redistribution through the health system;

2. a concept of the economics of health which draws on macroeconomics as well as

microeconomics, understanding its redistributive function as inherent in economic
evaluation of outcomes;

3. an analysis of the processes of change in industrial production and marketing of

goods and services that shape the possibilities and constraints of the health system;

4. an institutional understanding of the non-market patterns of incentives, exchange and

caring that sustain professionalism and effective care in a health system.

None of these economic perspectives are new or, in analytical terms, particularly
controversial. Redistribution was identified as a standard function of macroeconomic
management of the economy after 1945, and the option of provision of services ‘in kind’
to ensure that all had access to certain ‘merit goods’ such as education and health care
was included for decades in macroeconomic and fiscal policy texts even in the United
States (Musgrave and Musgrave 1984). In almost all rich countries, health care forms one
of the least controversial elements of macroeconomic redistribution (Barr 1998). The
economic analysis of inequality and equity routinely treats individual benefits as
commensurable (Atkinson and Stiglitz 1987).

The analysis of firms and the dynamics of industrial change is a major branch of
economic analysis (Simonetti et al 1998). Only the analysis of non-market behaviour is
less familiar, and even that is increasingly an element of government economic policy,
for example in the analysis of gender impacts of budgets (Elson 1998). However, as a set
of perspectives, they are not currently brought to bear on health systems, and we intend
this project and conference to assist in repairing this gap.

Health systems as just noted are a major sphere for economic redistribution. Health has
thus served, in many different countries and epochs, as a political and social platform for
addressing social inequality and exclusion. In most rich countries today, health systems
are highly redistributive in economic terms: the combination of proportional, mildly
progressive or somewhat regressive financing with services which approach (though they
do not generally achieve) equity in the face of need, has a very large progressive impact

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on the income distribution that emerges from market activity (Wagstaff et al 1999, Besley
and Gouveia 1994). Only one rich country, the United States, does not achieve – and
does not aim to achieve – universal near-equitable inclusion in health care.

Redistributive health care based on universalist objectives is also found in some low and
middle income countries, including upper middle income countries such as Costa Rica,
Taiwan and Korea (Kwon and Tchoe 2004 this conference); low income countries such
as many African states in the early independence period which rapidly expanded public
provision of primary care as a way of responding rapidly to social need (Mackintosh
2001); socialist states such as China up to the 1990s and Cuba to date; and Sri Lanka
before the 1980s (Drèze and Sen 1989). Even the African public expenditure patterns on
health care, so often characterised as ‘regressive’ or ‘pro-rich’, are generally having a
progressive impact on the market-derived income distributions, as indeed the IMF
acknowledges (Davoodi et al 2003, Kida and Mackintosh 2004 this conference).

To estimate the extent of redistribution through health care we need to assume that
benefits to individuals from health care provision can be compared. This does not sound
particularly controversial: we assume that the benefit of an appendicectomy, or the
treatment of a fracture, or immunisation against polio – or more generally benefit from
the availability of such services in case of need - is the same for each person who
requires the service, and can or may one day benefit from it. Indeed, in the economics of
inequality literature this is not controversial: we cannot analyse the extent of inequality
and redistribution without making assumptions of this kind.

There are good reasons why health care is an excellent sphere for redistributive economic
policy. Health care systems address one of the major forms of social risk people face,
and there is a widely held view that it is not ethically acceptable that access to care when
ill should depend on ability to pay. Inclusive health systems in most rich countries
combine in one health system insurance against the costs of ill-health and treatment, cost
control in health services, and insurance against one major source of severe
impoverishment (Barr 1998).

An appropriately functioning health system is also important for economic policy in

terms of ensuring healthier citizens, provision of basic social security, limiting impact of
epidemics and public health scares and in containing the overall costs of health care to
the individual and indirectly to the productivity of the economic sectors of the society as
whole. Whatever the institutional form, and whatever the mix of types of provider and
pattern of social insurance or tax financing, health policy can be seen, in economic terms,
as part of a country’s macroeconomic policy framework as well as a major sector of the
economy.

However, in order to understand aspects of commercialisation it is also necessary to treat

and understand health sector also in the context of microeconomic activity. Health
systems are influenced and reshaped by industrial innovation, interests and investment. In
the context of health promotion and public health policies, the nature and ways in which
industrial innovation, products and markets operate have always been highly influential.
However, the role and relevance of industrial change has become increasingly influential

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in the organisation and costs of health services and health systems. Health systems have
been transformed in the last fifty years, in terms of what they can do, by industrial
innovation in pharmaceuticals and medical technology. Industrial innovation, interests
and developments in the services industry are also becoming more evident in the sphere
of health services provision, through both direct and indirect influence on how health
services are financed and organised.

In the OECD countries market driven processes in health systems have in practice been
associated with rising costs of care. According to the most recent OECD assessment the
main reason and driving force behind increasing costs of health care is health technology
(OECD 2003). In low and middle income countries too, health care has long been a field
for industrial and service sector investment, as this paper and this conference explores
(Chaudhuri 2004, Altenstetter 2004, Jasso et al 2004, Lethbridge 2004 this conference).
The pattern of investment behaviour and the emerging market structure including patterns
of monopoly and competition and the profitability of different market segments, shape
the constraints and options open to public authorities in the design of health systems.
Where there is a commitment to the design of an inclusive and effective health system, an
economic understanding of industrial change is a key working tool for health policy
makers: the regulatory aspect of health policy needs to be rooted in an understanding of
what market incentives are driving change, and how patterns of private investment can be
harnessed and constrained to serve public purposes more effectively? An economics of
solidarity requires an economics of industrial change.

Finally, health policy requires an effective institutional economic understanding of non-

market working relationships in the public sector, in the nongovernmental sector (notably
the role of value-based provision in the religious-owned facilities), and outside the health
system in care provided by relatives, friends and neighbours. Health policy makes strong
yet unexamined assumptions about the nature of non-market behaviour in health care,
and most of those assumptions appear to be wrong (Mackintosh and Gilson 2002).
Without an improved understanding of non-market working relationships, policy makers
may inadvertently undermine – or fail to construct – acceptable incentives and conditions
for professional working behaviour, and may effectively misunderstand the extent to
which health system functioning depends on limited care resources outside the home.

2.2 Health services as a market sector

The definition we have put forward above of health systems is neither universally agreed,
nor currently the dominant view in international health policy thinking, though the tide of
international opinion may be shifting. The view of health systems implicit in the highly
influential models of health sector reform defines a health system ostensively: the phrase
indicates the totality of the health facilities and public health activities there happen to be
in any country at a given moment. This empirical definition appears to be value-free but
it is not: the implied redefinition of a health system as a set of health services forming a
sector of a market economy is based in some strong value-based assumptions. Like our
definition above, it is also rooted in a particular form of economic analysis.

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Health sector reform and health systems.

The international literature on health systems has been dominated during the last two
decades by the literature on health care reform. The processes of health sector reform
have been seen also as an element of globalisation process, propagated by epistemic
communities and managerial and consultants’ networks (Lee 2002; Moran and Wood
1996). While deploring the 'blueprints' of the past, the health sector reform (HSR)
literature has peddled new universal ‘blueprints’ for the management of health services.
The ‘new public management’ structures and mechanisms have become embedded in the
proposals for health care reform and for broader public sector reform, presented as
technical rather than political measures (Mills et al 2001).

The outlines of the HSR model as promoted for middle and low income countries have
been endlessly rehearsed ( World Bank 1987; World Bank 1993; WHO 1997; OECD
2003; WHO 2000; Gwatkin 2003; World Bank 1997; Preker and Harding 2003). They
include in various combinations the following changes:

· provision of health services by a ‘mix’ of public, private and voluntary providers;

· liberalisation of private clinical provision and pharmaceutical sales;
· retreat of government to a mainly regulatory role, with responsibility for direct
provision of services in public health and primary care for the poorest ;
· the emphasis on "government steering, not rowing"
· decentralisation of health systems and emphasis on local resource gathering
· user charges for remaining government health services and for government-provided
drugs and supplies;
· the use of contracting-out where possible when governments continue to finance
provision;
· autonomisation and corporatisation in the hospital sector;
· liberalisation of insurance provision for health care, and a shift towards insurance
rather than tax-based financing mechanisms including mutual insurance schemes; the
introduction of concepts of pre-paid care or even more direct emphasis on prepaid
plans (managed care)
· encouraging competition between insurers as well as providers and distancing social
insurance mechanisms from government, including the abolition of compulsory
elements of social insurance and the contracting out of insurance management.

The emphasis within the ‘package’ has differed between ‘clients’ of HSR advice, and the
proposals have also been allied with donors’ demands for broader government sector
decentralisation and reform. The role of international organisations, such as the OECD
and World Bank, in the process and implementation of reforms has been important in
practice (Lee 2002). The elements of the HSR package are reflected more broadly in
public sector reform models promoted for lower income contexts that promote a residual
provider role for the state through means-tested funds.

This model has been summarised as a reliance on private provision and insurance where
possible, with public finance – and as a final fall back public provision – for the poorest:

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‘market commodities and poor relief’ (Laurell and López Arellano 1996). The huge
critical and evaluative literature on HSR in developing countries focuses in particular on
the consequences for inequity and exclusion, and also for quality, of particular aspects of
reforms such as user charges and cost sharing2. The reforms have been energetically
proposed and indeed ensured by various international organisations, such as the OECD
and World Bank. The complexity of the model in relation to the institutional capabilities
in the developing world have also been criticised in internal evaluations undertaken the
international agencies. The core concept of a shift to a more formally commercial health
system has been widely questioned, and the rest of this paper addresses this aspect in
more depth. We argue below that while the institutional environment of health systems
has changed in many countries in the developing world, the evidence base to suggest that
further commercialisation would improve outcomes is scarce if not largely non-existent.

The WHO 2000 report on health systems claimed to have changed from ideological
stands of health for all policies to more evidence-based approches, however, it is clear
that many of the claims and also ways of measurement and ranking were based more on
ideological preferences and values (Ollila and Koivusalo 2001). An example of this is
that the United States was given the first rank in responsiveness of health care in spite of
known problems of uninsured persons without sufficient access to health care. This was
possible due to the weighting of the measures and in practice the inclusion of share of
private sector providers as part of this weighting process (WHO 2000, Ollila and
Koivusalo 2001). The most recent World Health Report, however, has actually returned
to the recognition of Health for All policies and the importance of the more integrated
primary health care approach to the development of health systems (WHO 2003).

Health policies and health systems are fundamentally based on values and these need to
be explicit and guide the way how health systems are governed organised. Worse than
explicit blueprints are such implicit blueprints which are maintained and implemented
without broader contextualisation to the health system as whole and within the local
context of service provision.

The question of the appropriateness of the HSR model is sharpened by the new emphasis
in the international development literature and donor policies on pro-poor policies.
International interest and support for poverty reduction and for services for those who are
poor (‘pro-poor services’) has become more outspoken (Gwatkin 2003, World Bank
2003, OECD 2003). As proposals for pro-poor policies become more defined, the values
underlying HSR have come to be more openly questioned.

First, there is increasing recognition that the ways reformed health systems are financed
may lead to poverty. People may be willing to pay and invest in health care much more
than they are able to afford, driving themselves into chronic poverty. There is thus a need
to separate ways of coping with costs related to illness from the impact in terms of loss of
capacities and costs of care. Health sector reform models, by treating health care as, at

2
See the reference list in Mills et al (2001); recent papers include Stierle et al (1999), Fabricant et al
(1999), Gilson and Mills (1995)

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root, a market sector, obscure the ways in which the systems re-distribute resources in the
short and long run.

Second, the HSR model generates a response to poverty that focuses on the provision of
basic services for those poor. The problem is not about being pro-poor or putting
emphasis on basic services, but rather in forgetting the existence of the rest of the health
system and the rest of the population and the impacts of this on the aims of provision of
basic services to those poor in the long-run and the implicit residual model of health
policies and role of public policies merely as provider of last resort.

One crucial aspect with respect to basic services for those poor is what is understood as
‘basic’. The danger is that basic becomes too basic and selective to address actual health
services needs of people. In segmented systems services for those poor are likely to
remain poor services. In this respect three issues need to be raised, first, the capacity to
ensure quality of services and limits of participatory mechanisms; second the problem of
professional work-force and education; and third, the problem of more long-term
financing of services. Hospitals are an important part of a health system and teaching
hospitals have a specific broader value to a national health system and training of
professionals. There is no evidence that those poor suffer from less problematic diseases
which would be more treatable purely in the context of basic services. The difference
between poor and ‘non-poor’ is not always sharp or stable, since a substantial part of the
non-poor is vulnerable to becoming poor due to health care costs.

Third, and in some ways ironically, poverty policy in the context of HSR generates a
focus almost exclusively on public sector budgets. The model diverts attention from the
assessment of the overall costs of poverty policy generated by particular health system
design; the focus merely on targeting of public funds or organising particular services,
treating the public sector as a separable sector, obscures interactions between public and
private that may change the scope of the public itself (Baru 2004 this conference). The
focus on basic services for those who are poor, and the targeting of public funds, is in the
context of the promotion of commercialisation for the more affluent, and pressure for
privatisation of hospitals, that between then create an inbuilt bias against risk sharing and
resource pooling.

Pro-poor policies which exclude those more affluent and healthy are a bad basis for
building up a health system with cross-subsidisation and risk pooling. A crucial issue for
poverty policy is how to make the rich and healthy pay more than their share for the
services, and to ensure that a skilful workforce and good quality of services for those
poor is maintained or built up. Proposals to ‘off-load’ the better off need to explain how
redistribution will be achieved without a common pool of health service funding. The
danger is that the quality of the services for those poor is so bad that they are driven to
use the services of (low quality, for the poor) the private sector. The HSR schemes pay
insufficient attention to the nature of poverty and the ability to pay for health care costs of
the so-called ‘non-poor’ (Kida and Mackintosh 2004 this conference).

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Finally, there are consequences for poverty policy of the impact of HSR and associated
commercialisation within the public sector and as part of public finances. Contracts and
collaboration with private sector and especially non-profit actors in many countries long
predate the emergence of more managerial approaches. However, under the pressures of
commercialisation and technical emphasis on ‘steering’ rather than ‘rowing’ (Osborne
and Gabler 1991), the public sector is itself commercialising, as are some of the ways in
which non-profit agencies operate. This commercialisation of the public sector from
within is an important aspect of health sector reforms. Management models and
contractual arrangements stimulate the entry of private sector firms into publicly funded
or reimbursed service provision, but leave the responsibility for service provision still
with the public sector, which also acts as the last resort financier in case problems
emerge.

There are also tasks which become easily 'underserved' in a more commercially oriented
mode of service provision and which are more difficult to ensure in the contractual
arrangements. The most important is provision of emergency services and emergency
preparedeness. Health systems do have firefighting functions, which cannot be assessed
merely in terms of commercialised services, which are hard to assess and which require
substantial resources. During epidemics it is usually the ultimate responsibility of the
public services’ staff to take a frontline position, however they may be denigrated at other
moments. The bearing of risks and accountability in health systems is a crucial question
which needs to be addressed when services are contracted out, but can rarely be
addressed as part of contracts. Another problem is related to the capacities of Ministries
of Health to manage and steer, and the access to and availability of data for purposes of
evaluation and analysis of the functioning of the health services. Given the prevailing
view that the state has failed in the direct provision of health care, it is not clear why
there is greater faith in its ability to regulate, especially the more sophisticated forms of
regulating that seek to avoid the 'command and control' mode (Mills 2000).

Finally, the more commercialised context of health systems creates options and prospects
for many such commercial activities which are of problematic ethical nature. This can be
exemplified by the trade in human body parts and the options of malpractice and
quackery as personal economic career choices in a poorly regulated and commercialised
context of service provision. The more traditional emphasis on professionalism, trust and
ethics in health systems is also challenged by the incentives towards more consumer
oriented and demand-based context of service provision which encourages more
entrepreneuralism.

The underlying economics: health care as competitive market exchange

The economic model underpinning HSR is the competitive-market model of health care
as market exchange, rooted in ‘neo-classical’ microeconomic theory. Two key values
implicit in this model – which as a ‘welfare’ model does embody explicit values – are key
to understanding both its influence and the opposition it arouses.

14
1. The model assumes that individuals are incommensurable: islands unto themselves.
The value of health services to one person cannot be compared to the value to others.
Our valuation of services is expressed by market purchase, and hence freedom to
choose what to purchase is the basis of expression of individual valuations.

2. The model assumes that all products and services are marketable. Health care can be
divided into units of service for efficient individual purchase.

This framework of thought is the ‘common sense’ of much current microeconomics of

health care: the taken-for-granted set of assumptions which are true until demonstrated
false3. It is an individualist methodology that provides the ethical (not merely the
empirical) basis for much current research. Consumption of health care by individuals is
the key variable for analysis; individual experiences and preferences the key values;
choice (e.g. of health care provider) a core concern. Hence, this is often called a ‘choice-
theoretic’ framework of economic analysis of health care, and it motivates an analysis of
health care interactions that starts by conceptualising them as atomistic exchange among
individuals.

This health economics literature also contains however a very substantial demonstration
that the second key assumption above is frequently false in health care markets. It
identifies a long list of perverse incentives (that is, incentives for inefficient market
behaviour) generated in principle and practice by market incentives in health care and
health insurance (Barr 1998). The most important of these ‘market failures’ are poor
information in the hands of patients, and resultant incentives and opportunities for
providers to over-treat and offer poor quality treatment, and for the uncontrolled
escalation of costs of provision to the benefit of providers’ incomes and the detriment of
patients; also the exclusion even of some who would have been able to pay through the
inefficient operation of private insurance markets in health care. The literature also
analyses at length the (limited) extent to which health care can be regarded as a ‘public
good’ that cannot (technically) be divided into pieces to be sold on a market, hence must
necessarily be provided by public action. And it recognises, of course, that in a market
system people who cannot pay will be excluded.

The literature on public goods and ‘global’ public goods in health (Smith et al 2003)
accepts this residual definition of ‘public goods’ as those items the market cannot provide
(not those items to which all should have access) and tries to expand its reach a little.
These are the working assumptions that underpin – almost uniquely – health policy in the
United States. The current World Development report on services characteristically
treats the broad framework of thought as of universal applicability while characterising
critics as bound by national preconceptions4.
3
See for example current US health economics texts and journals; however, even much more institutionally
focused UK texts, such as Donaldson and Gerard 1993, start (Chapters 2 and 3) with an exposition of a
standard market model of the economics of health care.
4
For example: ‘For instance, British and Nordic advisers are familiar with a free clinic-based free health
service and so prefer to support these systems in low income countries too’ (World Bank 2003 p.217. Note
the ‘so’; there is no equivalent recognition in the report that the relentless promotion of competition might
be the result of United States ‘familiarity’ with that system.

15
This framework of thought is also widely referred to by proponents of international
market liberalisation in health care. A WTO official’s informal contribution at a seminar
in 20025 put it neatly: his view was that other services benefited from liberalisation and
that he could not see why this could not also be true of health services. As discussed
below, the impact of GATS (the General Agreement on Trade in Services ) in health care
has so far been limited, though the liberalisation of insurance markets may be
increasingly important in health, as are some of the implications of TRIPS (WHO 1997;
Correa 2002ab; Chaudhuri 2004 this conference).

There is substantial evidence that market failures in health care can interact cumulatively
to reinforce exclusion from care because of inability to pay, at all levels of income. The
effect is generated by rising costs of both insurance and services that worsen levels of
access by those on low incomes. ‘Catastrophic’ health costs – the consequence of
unpredictable severe illness – then become a key cause of impoverishment in many low
income countries where most health care is paid for – when the money can be found –
from people’s pockets (Stierle et al 1997, Mackintosh and Tibandebage 2002 World
Bank 2000/2001). By contrast, there is remarkably little available systematic evidence on
the benefits of competition in health care provision and insurance.

This economic model of health care obscures, as noted above, the redistributive processes
within the health system as a whole. Rather, this framework of thought carries a
presumption against cross-subsidy within health care as a means of redistribution.
Instead, redistribution through cash income transfers is typically proposed, or direct
‘delivery’ by the public sector if needed for those unable to pay. While reducing the
public sector to a residual actor, and generating a strong critique of government agency,
the model thus puts the whole weight of redistribution within the system onto public
expenditure, while promoting a highly regressive predominant mode of private financing
of access to provision. The burden on a weak public sector is enormous: the HSR model
in effect rejects the redistributive processes within health systems, typical of most
inclusive health systems with a high level of legitimacy, in favour or redistribution
around a regressive system .

As a market model, these economic assumptions tell is little, however, about what makes
for an effective public sector: by definition it has little to offer on how to make the public
sector work. The public sector is a residual, and treated as a wholly separate sector, not
an inherent part of an interactive system. The framework has, by definition rather little to
offer about the analysis of the ‘meso’ level of institutional processes and interventions at
which policies to regulate, constrain and supplement private care necessarily operate
(Mwabu 2001).

Yet the model also puts an enormous weight onto government in its demands for
regulation of the private sector. Especially in the context of developing countries it is not
clear why there is at the same time recognition of the failure of the state to provide
services and at the same time sunstantial faith in the abilities of the state to undertake
5
where the authors were present

16
sophisticated regulatory measures. The model of government stewardship or steering of
private provision implicitly assumes that it has the capacity and skills to regulate the
services, to ensure (or at least promote) equity, quality and cost-containment. However,
the regulation of a strong commercially oriented private sector or a multitude of small
actors is a highly demanding process. Large private institutions have their own interests
and constraints. A large share of the non-governmental organisations associated with
health services provision are connected with a religious institution. This implies that
provision of reproductive health services and sexual health care may face substantial
problems. Some corporate actors in the fields of pharmaceuticals and health technology,
which are directly associated with health related products, are interested in moving into
provision of health services, and conflicts of interest can be severe. Information
problems, and issues of relative power arise. Regulation of entrepreneurial behaviour has
been shown to be complex even in the developed countries with good information and
management structures (Saltman et al 2001), and much of private provision in low and
middle income countries is effectively unregulated.

As capacities to regulate remain often weak, the longer-term risks of non-regulation are
relatively large. Two examples may be raised: the control of epidemics and antibiotic
resistance. The control of epidemics and prevention of diseases cannot be separated from
the provision of services. The separation of personal health services from the ‘public
goods’ conceptof public health services and regulatory functions is to a large extent
artificial. The human and economic costs of epidemics are substantial and require a
cooperative, not competitive, relationship between health services providers. In the
pharmaceutical sector antibiotic resistance is a serious concern and has potentially
extensive public health implications of global relevance. In the more commercialised
context of health systems various mechanisms at different levels pave way to an
increasing risk of antibiotic resistance. First, through inappropriate demand-based
practices in treatment of disease in a more commercialised context of care, second
through liberalised markets in distribution of pharmaceuticals and inbuilt incentives
towards selling more highly priced drugs, third through increasing direct purchasing of
pharmaceuticals due to increased cost-sharing and costs of care.

17
3. Commercialisation and globalisation: is there an economic transition
in health care?

3.1 Defining commercialisation and globalisation

The key focus of this project and this paper is the nature and implications of
commercialisation in health care. We define the concept of ‘commercialised’ health care
to mean:
· the provision of health care services through market relationships to those able to pay;
· the associated investment in and production of those services for cash income or
profit;
· and health care finance derived from payment systems based in individual payment or
private insurance.

This definition is wider than simply the ‘private sector’ of provision and finance, and
encompasses the nature and implications of differentiated market structures and
processes. It is also broader than ‘liberalisation’ and ‘marketisation’, each of which
refers to a shift to market-led provision from state-led or state constrained systems; it is
also broader than ‘privatisation’, which refers to the sale or transfer of state-owned assets
into private hands. We explore in this paper some indicators of the extent of such
commercialisation of health care, and also of its direction.

The concept of economic globalisation is also a narrower concept than

‘commercialisation’. ‘Globalisation’ of the economy is something that happens within as
well as between countries: that is, two economic processes, both in principle measurable,
operate to create the experience of ‘globalisation’:
· individual economies become more ‘open’, that is, their internal economic structure
and dynamics become increasingly driven by the nature of their insertion into the
international economy;
· particular international markets become more integrated, so that firms supplying
those markets treat them increasingly as a single market.

Commercialisation of health care in the sense just defined long predates in many
countries the current wave of globalisation. Indeed the history of health care in many
countries could be written in terms of waves of commercialisation followed by resistance
to commercial practice and a turn to decommodification. By ‘commodification’
(discussed further below) we mean the creation of health services in the form of units that
can be and are sold on markets; decommodification implies a turn to non-market patterns
of supply. This retreat to non-market provision has then been followed in some countries
– and, at present, internationally – by renewed pressures for commercialisation of service
provision, as policies and economic pressures have shifted.

It follows from this set of definitions that globalisation presupposes commercialisation,

but not vice versa. We therefore treat commercialisation as the focus of our analysis in
this project, and globalisation as a set of pressures among others that drive, embed and

18
restructure commercialisation. We set out to understand from the perspective of middle-
and low-income countries the nature and effects of these pressures.

Finally there is another sense of ‘globalisation’ in the literature: globalisation not as a set
of observable economic and social phenomena but as a policy project. In the ‘policy
project’ sense, the current literature includes within ‘globalisation’ not only policy
pressure from multilateral organisations and bilateral donors to open economies to the
international trade and investment, including the policies associated with health sector
reform, but also pressure for internal liberalisation of economies, including liberalisation
of supply of health and education services (Lee et al 2002). Internal and cross-border
liberalisation are closely intertwined, but should not be taken to imply that all
liberalisation is driven by globalisation.

3.2 Is health care commercialised? Data analysis of the ‘public/private mix’

To analyse the extent of commercialisation we need a model or framework of analysis to

allow us to interpret available evidence. There are two available. The currently dominant
framework of thought – part of current common sense in the international literature – is
the concept of the ‘public/private mix’ (Bennett et al 1997a, 1997b, Bennett and
Tangcharoensathien 1994, Bhat 1993, Ngalande Banda and Walt 1995, Bloom 1998,
Leonard 2000b, Segall et al 2000, Najandra et al 2001). Like all models this is in essence
a metaphor: an image of a (cake) mix where one can have more of one ingredient and less
of another along a continuum. We employ this metaphor initially to analyse the available
cross-country data on extent and patterns of commercialisation, and identify its
limitations in creating policy relevant concepts of commercialisation. In the following
sub-section, we employ an alternative economic metaphor for analysing
commercialisation, with stronger roots in economic theory. We employ cross-country
comparative data in this section not as a means to analyse causality, but rather in
exploratory mode: it see what they can tell us about different patterns of
commercialisation world wide.

In the ‘public-private mix’ framework, the appropriate indicators of commercialisation

are the public and private proportions of health expenditure or supply of health services.
Expenditure data can give us estimates of the proportion of health spending that is done
by private individuals buying services or private insurance, as compared to the proportion
of the money for health care spent by governments or by compulsory social security
funds. We use here comparative health care expenditure data and other indicators from
the WHO (www.who.int/whosis ) and World Bank (World Development Indicators
online www.worldbank.org ).

Alternatively we can look at data on provision: who owns the capacity to provide the
health care? Oddly, however, there are virtually no comparative data sets routinely
collected on this topic. The multilateral data collection effort would appear to have been
driven by the assumption (or perhaps the principle) that while the public/private financing
split is a key policy variable, the public/ private/ voluntary pattern of ownership is not.
This, we will argue, is a mistake. It is indeed a curious feature of the current literature

19
that the now quite substantial case study literature on the ‘public-private mix’ in
provision has not been associated with systematic cross-country data collection.

In part no doubt this lack is because of the conceptual and practical difficulties of
collecting data on ownership of health services supply. We employ below two indicators.
One is the proportion of hospital beds in the public and private sectors, drawn country by
country from a wide variety of sources. (We have been unable systematically to
distinguish non-profit from other private beds in these data). We could find no
comparable direct indicator of ownership of primary care capacity, so we have used an
intermediate one: the public/private split in use of ambulatory care. We draw below on
data from the Demographic and Health Surveys, undertaken since 1990 in 44 largely low
and lower-middle income countries (www.worldbank.org), showing the public/private
division in use of facilities for specified childhood illnesses.

Findings

From the expenditure side, we use as our indicator of commercialisation the proportion of
total health care spending that is spent by individuals directly or via private insurance. A
key characteristic of such private spending is that it is in principle unrelated to ability to
pay. Conversely, government or social insurance spending may (or may not) be income-
related. Private spending is not of course only spent in the private sector; much private
spending now goes on fees for religious, NGO and government-provided care as well as
to private providers. The data show the following patterns of commercialisation.

1. Commercialisation, measured by the share of private in total health spending, tends to

be higher in lower income countries.

Commercialised health care (on this indicator) is not a system preferred by the better off;
rather it appears more as an affliction of the poor. Levels of commercialisation as
measure in this way are significantly and negatively associated with average incomes,
across the world, though there is considerable dispersion (Figure 1). Rich countries have
almost universally established social insurance or government-based health financing
systems: only the United States and Singapore have private shares over 50%. All but one
of the twelve countries in Figure 1 that have private health expenditure shares over 70%
have national incomes per head under $1000 per year.

2. The poorer a country, the more likely the population is to face the most regressive form
of health finance, out of pocket expenditure.

Private health finance is likely to be – and generally is found to be – regressive, that is,
where it is a predominant means of access to health care across the social scale, it weighs
most heavily on those on lower incomes and excludes the very poor. Its most regressive
form of all is out-of-pocket spending, and it is the population of some low and middle
income countries, including India and China, who face most severely this barrier to
health care access. Not only is the proportion of health spending that is out of pocket
strongly negatively associated with income per head by country (Figure 2); even worse,

20
large numbers of low and middle income countries – and no rich countries except
Singapore – finance over 40% of health care out of pocket and/or spend over 3.5% of
GDP out of pocket on health care (Figure 3).

3. Health care appears highly valued, since at higher average incomes, proportionately
more is spent on health care in total and through government/social security expenditure;
however private health spending is not apparently valued in this same way.

Strikingly there is no correlation whatsoever between average incomes per head and the
share of GDP spent privately on health care. Health care appears a valued good in the
sense that the richer countries not only spend more than poorer countries, they spend
relatively more, a significantly higher share of their total income, and they generally do
this through a higher share of government/social security health spending in GDP (Figure
4). These relationships are strong and significant: economists call goods that are bought
proportionately more at higher incomes ‘luxury goods’; the usual examples include
yachts (Begg Dornbusch and Fisher 2000), but ironically government/socially-purchased
health care seems to fit the definition. Equally striking, private spending on health care
does not: it is not a luxury good in this sense, since its share in GDP is completely
uncorrelated with income per head (Figure 5). The irony lies in the frequent casual
association drawn in the economic literature between privately purchased health care and
quality.

4. Higher spending in total on health as a percentage of GDP is associated not only with
higher incomes per head but also, independently, with higher private health spending
relative to GDP: is the extra private spending producing more care or just higher costs?

The data show that countries with highly commercialised health systems in the sense of a
high ratio of private health spending/GDP also spend more of their GDP in total on
health care independent of income per head (Figure 6). (This is not the case for
government health spending/GDP.) This suggests that countries with commercialised
health care in this sense tend to have either more health care or higher cost health systems
than would be expected for their income level (or both).

5. Regionally, Asian health systems are the most commercialised, as measured by private
as % of total health expenditure, and high income OECD countries the least.

Only Asian (low and middle income) economies have a median level of private/ total
health expenditure, by country, over 50%. Only high income OECD countries (treated as
a ‘region’ apart) have a median below 30% (Figure 7). The pattern suggests – as do
historians of social provision, and common sense – that local economic, political and
cultural strands are important determinants of health care commercialisation. Japan
however has a low rate of commercialisation on both measures even by rich country
standards.

Interpreting expenditure data – and assessing its quality – is not easy, but the problems
are worse when we turn to ownership of health facilities and the employers of health care

21
staff. Here there are no reliable indicators or accessible cross-country data at all. Using
the data referred to above, these are the findings.

6. Hospital provision has a generally low level of commercialisation.

To explore secondary care commercialisation we have collected data (of variable

quality6) on the public/private ‘mix’ in ownership of hospital beds. Beds data provide a
better indicator than ownership of facilities, since they remove what can be dramatic bias
in the indicator as a measure of commercialisation of provision if public hospitals are (as
they tend to be) larger than private ones. The data show that in most countries, less than
fifty percent of hospital beds are in non-government sectors (Figure 7); the median
percentage is 23.5, and only four of 32 countries have over 50% non-government beds.
Government hospitals thus still appear to provide the bulk of hospital based in-patient
care.

7. Conversely, primary care provision in low and middle income countries is highly
commercialised.

Primary care commercialisation can only really be assessed comparatively by data on

usage. Ownership of facilities is a problematic indicators, because of the very different
sizes and levels of service provided. The DHS data (see details above) give us one
indicator of primary care commercialisation: the proportion of children who, when ill
with acute respiratory infection or with diarrhoea and taken for treatment, were taken to a
private facility or provider as opposed to a government provider. The data include
information on children ill but not taken for treatment. In almost all countries, the
percentage of children treated for ARI and for diarrhoea who were treated privately was
over 50%, and this percentage was unrelated to GNI per head. Figure 8 shows ARI data;
the pattern for child diarrhoea is very similar. This image of highly commercialised lower
income primary care is well supported by qualitative evidence (see below) and has
serious and increasingly debated consequences for public health.

8. Deliveries outside the home, however, in low and middle income countries, are less
commercialised than primary care for children.

A rather different indicator of commercialisation can be drawn from the same data set, on
deliveries. Deliveries are recorded as supported by a trained attendant or unsupported,
and as deliveries at home or as a private or government inpatient. For the DHS set of
countries, the proportion of deliveries outside the home as a percentage of the total varies
very widely, for example from 5 % in Bangladesh to 99% in the Kyrgyz Republic at
similar recorded income levels; both the percentage of deliveries outside the home and
the percentage of attended deliveries in the total tend to be higher at higher income levels
but the associations are not strong. In no country was the proportion of total deliveries in
private facilities over 25%; in most it was much lower. The percentage of deliveries

6
The data are from a variety of sources; we have sought to cross-check with researchers in the relevant
country where possible. We owe some of this data collection to Seife Ayele.

22
outside the home that were in private facilities was generally well below 50% (Figure 6),
and in only one country were more than 15% of all deliveries attended privately.

9. Commercialisation as measured by expenditure indicators is unrelated to

commercialisation in terms of ownership of provision

The data show that the pattern of publicly and privately owned provision does not map
onto the public/private ‘mix’ in expenditure. This conclusion is robust, and is consistent
with earlier research on 1980s data. As Hanson and Berman (1998 p.208) explain:
‘The public-private mix in finance is unrelated [in their data] to the mix in
provision: this suggests that a simple segmented model of public and private
health care may be very misleading.’
There is thus no significant association in our 1990s data, between the percentage of
health expenditure which is private, and the proportion of hospital beds in the private
sector. Nor is there any significant association between the proportion of children taken
to the private sector when ill, or the percentage of deliveries in the private sector, in the
data set of low and middle income countries, and the proportion of health care spending
that is private.

Interpreting the findings

There is, then, no straightforward way to create an index of health care commercialisation
by bringing together indicators of commercialisation of expenditure and of ownership of
provision, given the lack of association between the two. This is because existing health
care systems are not generally segmented into a ‘private’ sector funded privately and a
‘public’ sector funded by the government. That model is a strong policy aspiration for
some multilateral commentators, national policymakers and economists; as David
Gwatkin puts it: (Gwatkin 2003)
‘A more radical approach would be to get the better-off out of government
facilities altogether …by, say, using government regulatory powers to foster the
establishment of a fully self-financing private commercial health sector serving
the better off.’

However the model bears no relation to current reality.

Nor, conversely, do the data represent a ‘demand and supply’ pattern of health service
markets, where the all expenditure goes via the patient or ‘insurer’ to pay for a range of
services. This too represents an aspiration in some policy circles but is again in no way a
description of reality. On the contrary the pattern of public health activity and service
provision is, in lower and higher income countries alike, a system of mixed funding of
mixed provision, where much public spending goes on direct provision as does some
private funding (e.g. company clinics), and ‘private’ funds are spent in all sectors by
ownership: government, NGO and private.

Responses to this apparent confusion have included proposals to tidy it up by ‘separating

financing and provision’ (in rich and middle income countries) and by segmenting the

23
system into private (for the well off) and public (for the poor) in the low and middle
income countries. Neither of these are helpful as universal nostrums, in part because the
image of semi-commercialised health care systems on which they are constructed is too
thin. To design policy that can create more inclusive systems we need ‘thicker’ models
that allow us to understand the implications of different kinds of commercialisation,
notably in the sense of understand the behaviour of different kinds of firms and providers.
To inform policy effectively, our models need to distinguish the corporate supplier from
the informal drug shop: to draw, in other words, on industrial rather than market
economics.

3.3 How is health care commercialised? Alternative paths at different income

levels.

Our economic approach to explanation therefore focuses on seeking to explain behaviour

of suppliers, funders and those seeking care. We draw on institutional and industrial
economics, and frame our understanding of commercialisation in dynamic terms.

In practice this means:

· not all markets are alike and history matters : we can treating markets as instituted
processes that can be empirically classified according to observed patterns of
interactive market behaviour that involve have involved learning and feedback and
that tend to lock in particular outcomes (‘path dependency’):
· private ownership is a complex category: size, national or international ownership,
sector of activity, historical evolution of the company, profit seeking or not, all these
aspects influence the kind of private sector that emerges over time; policy can
influence the kind of private sector as well as its scale;
· public sector behaviour is diverse and market-influenced: public providers that
charge fees take on some of the behavioural characteristics of private providers – this
is one reason why the ‘public-private mix’ model is so misleading;
· response to policy incentives is diverse : there can be no single model for ‘regulating’
commercial provision, response to incentives depends strongly on prior experience
and professional cultures.

On that basis, here are three stylised ‘paths’ through commercialisation of health care,
drawn from both the above data and large amounts of qualitative and case study
evidence. We concentrate here on commercialisation of services; the next sub-section
considers inputs such as drugs.

1. The informal commercialisation of low income primary care

In many low income countries, the predominant form of health care commercialisation is
the informalisation of primary care, through the creation, expansion or reinforcement of
private small scale, largely unregulated primary provision. In most low income countries,
urban primary care is delivered to a substantial or predominant extent by private
individuals for fees. These countries include many Sub-Saharan African countries, South
Asia, and also the currently low and (now) middle income transition economies such as

24
Vietnam and China (Hanson and Berman 1998). Based in household sample surveys,
recent data for India locate over 80% of outpatient consultations in the private sector in
both urban and rural areas (Narayana 2003). In Vietnam there has been rapid growth of
independent provision at primary level, with a strong bias towards urban areas, and the
attendant problem of widespread unlicensed practice (Nguyen Hong Tu et al 2003). The
Vietnamese studies emphasise the particular dangers of very widespread purchase of
drugs including antibiotics without prescription, including self-medication. The poor as
well as the somewhat better off use private services and unlicensed drug sellers in
Vietnam, as in China and across Sub-Saharan Africa (Segall et al 2000).

In these countries fee levels in private practice necessarily interact with user fees in
government primary care (Tibandebage 1999). The Asian transition economies went into
the marketisation process with a substantial and well distributed primary care network;
many sub-Saharan African countries created government primary care provision as a key
political element of nation-building. The organisation and scope of this publicly funded
sector is now at issue in all these countries. Most, especially low income African
countries, have seen the rise of informal charging in government health care, coinciding
with economic crisis and a resultant severe fiscal squeeze on public sector wages and
supplies. The subsequent introduction in many countries of official fees for access to
government primary care has interacted in complex ways with existing informal charges,
and many public sector health workers also work informally in the private sector.

The implication is that the population in low income countries is now are generally faced
with heavy out-of-pocket spending for health care, whether for public sector fees (formal
and informal) or access to private providers and commercial medicines. The
predominant form of commercialisation at low average incomes has thus tended to be a
largely informalised, small scale private practice market for health services paid on the
spot, much of it unlicensed and uninspected, involving widespread sale of drugs off
prescription. There is a negligible development of private insurance, few forms of private
risk pooling, and social insurance restricted to the formally employed and sometimes to
the public sector.

Private sector suppliers are generally individuals and small firms, and operate particularly
in urban markets; the market is too small for corporate capital. The poor depend heavily
on this informalised primary care and generally spend a much larger proportion of their
incomes on health care than the better off, and there is widespread exclusion of those
unable to pay (Jowett et al 2003, Tibandebage and Mackintosh 2001, Nandraj 2001, Baru
1998). This informalised marketisation undermines public health measures, leading to an
emerging literature on how private providers can be given incentives to respond to public
health needs. Furthermore, hospitals remain predominantly public or government-
supported religious foundations in many low income countries; proposals to privatise
them need to take into account the implications in the context of commercialisation of
primary care.

25
2. Polarisation and corporatisation in middle income countries

A quite different pattern of commercialisation can be seen in some particularly middle

income countries: the development of private medicine, funded through private insurance
for the well off, and reliance by the poor on public services. South Africa is an example
of this pattern, built up during the apartheid era. Wadee et al (2003) show that the
majority low income African population still rely heavily on public sector health care,
though there is a shift over time to more use of private provision even by the poorest
quintile of the population. The system remains extremely polarised between the well off,
including most of the white population, belonging to private ‘medical aid’ insurance
schemes, and the rest. The private sector is subject to cost escalation and is itself
financially fragile.

The pattern of private insurance for the well off alone is found among mainly middle
income developing countries. India, however, while a low income country in terms of
average incomes, is a huge country that in absolute terms has a large, prosperous middle
class. Hence the Indian economy can support, in addition to the small scale informalised
marketisation just described, a private formal commercial hospital and clinic sector,
associated with private insurance, alongside small scale private providers and some (in
most states, very patchy) public provision for the poor (Baru 1998, Narayana 2003).

It is particularly in middle income countries, because of the attractiveness of their

markets to corporate investors in health care and health finance, that the sharpest battles
are occurring over commercialisation of secondary care. Many middle income countries,
in Latin America, Asia and transitional Europe, have a history of social insurance
provision that includes health care, and also of direct public health care provision. Many
also have a recent history of rising levels of private insurance and increasing corporate
investment (Londoño and Frenk 1997, Stocker et al 1999), and face external demands
from donors to break up social security funds.

If social insurance mechanisms for health care are broken up in this way, and replaced
with (or come into competition with) individual risk rating in private insurance, the effect
is to increase pressure for social and economic polarisation. This is because the private
insurers will seek to sign up the well, young and cheap, leaving bad risks to the social
system and undermining cross-subsidy. If private individual insurance for the well off
becomes established, associated with expensive for-profit provision, this helps to build
inequality into the social institutions of a country, making it hard to move over time
towards the kind of universal risk-pooling systems most high income countries have
achieved and many middle income country populations aspire to.

3. High income regulated commercialisation

High income health care systems have strong commercial elements on the supply side in
many countries, but are typically very highly regulated, and normally exclude
commercial finance except at the margins. Most high income OECD countries have
health care systems dominated on the expenditure side by social insurance or tax-based

26
universal provision, and private providers work either for those systems, or as
supplementary providers. Where private insurance is compulsory for the better off, as in
the Netherlands, it is very closely regulated to ensure wide risk pooling and inclusion.
Proportions of private providers financed vary greatly – and are increasing in some
countries – but all providers within these countries are very strongly regulated (Saltman
et al 2002). Only the US tolerates high levels of inequity in health care access; levels of
inequity are fairly low elsewhere and overall most high income health care systems are
strongly redistributive (Wagstaff et al 1999, van Doorslaer et al 2000). However, the
USA too spends substantial sums from government funds to support health care access by
some categories of the population, notably the elderly.
3.4 Globalisation and health care: evolving international market integration
and the role of global regulation

Discussion of globalisation in health care has tended to focus on the extent of observed
service trade: activities such as ‘health tourism’, that is, export of services such as surgery
for high income patients. One ambition of this project was to shift this focus from the
concerns of the rich world to the experiences and perspectives of developing countries.
The project work has produced three robust generalisations about the nature, extent and
consequences of international market integration and associated international/
multilateral policy pressure.

1. The predominant form of globalisation in health is on the input side

In medical technology and pharmaceuticals, where MNCs operate increasingly in

integrated markets; actively seek scope for further integration; and are having
considerable success. Their role in shaping of public policies has been substantial, for
example, in the context of European Community policies (Greenwood 1997; Altenstetter
2004 this conference). At the global level the role of MNCs has been and still is
substantial in protection of corporate interests through international agreements, such as
the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS
is an example of an agreement with substantial indirect implications to health and health
systems (Koivusalo 2003; Correa 2002ab; CIPR 2002). The most important of these
implications are mediated through pharmaceutical and research policies and technology
transfer. The role of industry in negotiating and promoting the TRIPS Agreement is well
established ( Drahos 1995; Drahos 1997). TRIPS is not about liberalisation of services,
but essentially about protection of commercial interests and rights.

This emphasis in TRIPS has been reflected in the debates on access to pharmaceuticals in
developing countries in the context of Doha declaration and Cancun decision on the
matter, during which the interests of US and European based pharmaceutical industry
were set against presented public health interests in the developing countries. It is likely
that from a health policy perspective the interests of the US and Europe could have been
more in line with the positions of developing countries, but the issue was carefully kept
aside from the debates.

27
These patterns of integration of drugs and technology markets have enormous
implications for low income countries’ health service costs, and for their ability to
respond to rising expectations in middle class patients. The potential of these
technologies is enormous, but slanted to the historical concerns of the wealthy countries.
In the corporate sector, research and development expenditures are predominantly geared
to larger markets and to the diseases of more affluent populations. These account for
about 95% of investments, and just 5% goes toward diseases of major importance to
developing countries (CIPR 2002). Another concern has been raised with respect to
antibiotics as research lines on antibiotics have been closed due to insufficient profit
margins (Nelson 2003). On the other hand the focus and emphasis on access to
pharmaceuticals ignores the problems of inappropriate use of pharmaceuticals, including
the threat of increasing antibiotic resistance. The risk to industrial development and
health care access from the import of some of these drugs into unregulated low income
contexts is enormous.

As a result, the national ownership of productive and technological capacity emerges in

this project as a key issue. The case study on pharmaceutical policies in India has shown
the importance of local production to costs of pharmaceuticals (Chaudhuri 2004 this
conference). It has also shown the ways in which international commitments in the
context of TRIPS and associated political pressures undermine the product development
capacity of developing and transition countries. This international restructuring of
industrial capacity in health inputs – and the slanted technological developments
associated with it – promise to create new problems for the viability of developing
countries’ health care systems.

2. The second key form of international market integration in health care is in the
labour market .

It has long been forcibly argued that, because health care is a labour intensive system, its
costs are substantially lower than in high income countries, hence health care is more
affordable than may at first appear (Drèze and Sen 1989, Sen 2001). This argument is
losing its bite, as active recruitment of doctors and nurses from low income contexts to
work in higher income systems proceeds. Increasingly, the cost of health care staff is
influenced by international market conditions and international recruitment firms’
behaviour.

The increasing migration of health care staff to better conditions of work and pay is thus
leaching the health care systems in low income countries of professional staff. A paper
for this project (Mensah 2004 this conference) proposes that this situation should NOT
draw from concerned policy makers a response that undermines the human rights of
professional staff from low income countries by preventing migration, but rather be
responded to by policies to rebuild the health care systems in which they work.

3. International market integration in services is patchy and fragile

28
As compared to the above, a much less robust, more faltering form of globalisation is that
in the market for health service provision: cross-border investment in services for sale to
individual (privately insured) high income patients wherever found. This has had a lot of
air time, but papers for this project find that corporatisation and international market
integration in health services provision is hard to achieve profitably, and it is limping.
Many MNCs have considered this form of FDI to be in their longer term interest, only to
change their mind in a few years (Jasso and Waitzkin 2004 this conference).

There has nevertheless been great pressure put on middle income countries by some
donors, by multilateral initiatives and from large firms with home government support, to
permit risk rating and the breaking up of compulsory social security schemes to support
this form of commercialisation. In effect, this is a process of ‘market making’ (Chan 2004
this conference); creating new markets through changing regulation and marketing as
well as liberalisation. The underlying problem facing multinational companies in health
services such as hospitals appears to be that corporate provision of health care tends to be
high cost, low profit and high risk: the US system, in constant crisis and unable to
incorporate all its citizens, is the paradigm case. No other rich country, for good reason,
permits this form of commercialisation to dominate its provision. As a result, many large
firms in this sector prefer to keep risk under control through management contracts rather
than asset ownership; through joint ventures; and through contracts that reduce their
exposure to risk.

Some WTO Agreements are of importance in promoting all three of these patterns of
international market integration, notably the General Agreement on Trade in Services
(GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS). The GATS agreement deals with international trade in services, and the
regulation of service takes the agreement much further into the sphere of domestic
regulation than the predecessor agreement GATT (General Agreement on Tariffsand
Trade) had gone (Mattoo and Sauve 2003). The role of GATS is to promote liberalisation
of trade in services; however, its role in current processes of commercialisation of health
care is probably far smaller than it is usually assumed. The opening of markets and
ensuring regulatory framework for the operation of commercial actors may currently be
more easily achieved in practice through bilateral treaties and regulatory reforms than
directly through multilateral GATS negotiations.

This lack of impact is not due to the fundamental structure of GATS: to the extent that
commitments are made, the Treaty ‘locks them in’ when committments are made. The
flexibility of the Treaty thus ends at the moment a Member State commits a services
sector. However, in terms of current state of committments sectors, GATS commitments
in health sector have been limited (Adlung and Carzaniga 2001). Furthermore some
crucial parts of the Treaty, which are of more relevance to health systems, such as
approaches to subsidies, issues of domestic regulation, necessity tests and future of
activities with respect to several of the so called Singapore issues, competition,
investments and government procurement, remain still to be negotiated.

29
Finally, it is often emphasised that GATS does not influence health policy aims or
priorities. However, this notion is not explicit in the sense that GATS has a broad
importance in setting the international commercial legal framework in which policies
take place and thus how services are organised. The relevance of GATS also increases
the more the provision of health care is open to commercial providers. The emphasis on
aims of policy priorities thus obscures the important ways how GATS influences how
health systems function and address the aims of health policy. The inbuilt emphasis on
least trade restrictiveness in the context of GATS then becomes more important as it
easily indirectly pushes towards a more individualised and market-based models of health
care provision and regulation as these tend to be less restrictive to market opportunities
and commercial rights.

30
4. Evaluating health care commercialisation

4.1 Cross country evidence: no comfort for the commercialisers

So do these patterns of commercialisation matter? How are they associated with health
outcomes and inequality? Given the assurance with which the concept of health care as
a ‘private good’ – a ‘default’ policy of marketisation of health care – has been promoted,
this is a very important question. This section explores the cross-country evidence for
associations between health outcomes and patterns of commercialisation. We are well
aware that drawing causal implications from such cross-country regressions is intensely
problematic, because health care systems evolve, as we argue further below, on their own
politically and culturally embedded tracks, over time, and one richer country’s experience
will not represent the future of a poorer developing country.

Nevertheless, cross-country comparisons are widely used as an input to multilateral and

bilateral policy advice. We therefore use these data in this section to argue that,
strikingly, the evidence on health outcomes contains no comfort for the commercialisers.
Very much the contrary.

To make this point, we offer here five ‘stylised facts’ drawn from the same cross-country
data as was used in Section 3.2.

Stylised fact 1: countries with longer healthy life expectancy at birth and lower under-5
mortality have a significantly lower percentage of private in total health expenditure.

Healthy life expectancy (HALE) tends to be lower, across countries in 2000, in countries
with higher ratios of private to total health expenditure (Figure 10). HALE is also
strongly influenced, especially in sub-Saharan Africa, by the AIDS pandemic. A
regression of HALE on both the private share of health spending and a dummy variable
for sub-Saharan Africa shows a large negative coefficient for SSA, but the negative
relationship between health life expectancy and share of private in total health spending
remains significant (Figure 11 shows the partial regression plots). Commercialisation, on
this indicator, (to put the point contentiously) appears bad for your health.

A similar result is found for child mortality. The probability of dying before five years is
positively related to commercialisation in this sense: a higher share of private spending is
associated with a higher probability of death before 5 years.

Behind this conclusion lies one of our findings above. Higher income countries have
higher healthy life expectancy and lower child mortality; they also (as shown above) have
lower private shares in total health spending. If we allow for the association of higher
average incomes with longer healthy lives, using regression analysis, then we still find no
comfort for commercialisers. A regression of HALE on GNI/head and on the share of
private in total health spending produces a strong and significant effect of income per
head and turns the effect of the private share of health spending insignificant. There is
still no positive relationship to be found between the share of private health care spending

31
and healthy life expectancy. Similarly for child mortality, allowing for the effect of
higher incomes in a regression reduces the effect of the commercialisation indicator to
insignificance, but the coefficient remains positive: there is no mortality benefit
associated with a higher private share of total health spending.

Stylised fact 2: countries with longer healthy life expectancy and lower under-5 mortality
spend significantly higher shares of their GDP in the form of government (including
social insurance) expenditure on health care.

We explained above that government/social insurance expenditure on health care is a

‘luxury’ good in economic terms: the richer countries buy proportionately more (Figure
4). The data make it appear money well spent.

There is a strong and significant positive association of HALE with the share of GDP
spent by government on health (Figure 12), and a negative association of child mortality
with the same variable. The relationships are weak in AIDS-devastated Africa, but
strong elsewhere. An additional dummy variable for Sub-Saharan Africa in the
regressions has a significant coefficient, while the relationship between the outcome
variables (HALE and child mortality) and the share of GDP spent by government on
health remains strong.

A pattern thus emerges: richer countries spend relatively more on health care via the
government and they enjoy better outcomes. No statistically significant effect of the
share of government spending independent of income per head can be found in the data –
additional relative spending by government does not consistently improve outcomes
further.

Stylised fact 3: however healthy life expectancy and child mortality have no significant
cross-country association at all with the share of GDP spent privately on health care.

Spending more of your GDP privately on health care is associated with no observable
benefit at all in terms of the two health outcome indicators studied here. Figure 13 shows
this result for child mortality, that is, the probability of dying under five; note that a
decline in this indicator is beneficial. The plot for HALE is similarly patterned.

This result is rather strengthened if one allows for the associations between HALE and
child mortality on the one hand and income per head on the other; there are still no
additional health benefits from additional spending per head. Figure 14 shows the partial
regression plots for the regression of child mortality on: income per head, a dummy
variable for Sub-Saharan Africa, and the share of private health spending in GDP. The
last is quite strongly positive, though not significant: to the extent there is any association
it is with higher child mortality (strongly influenced by a few country observations). The
regression result for healthy life expectancy is precisely comparable and the coefficient is

32
also not significant: private health spending as % of GDP is associated with, if anything,
lower life expectancy. There is no comfort for commercialisers here.

Stylised fact 4: across a set of low and middle income countries, better care at birth is
associated with a higher share of GDP spent on government-financed health care. There
is however no significant association with the private health spending/GDP ratio.

This evidence is drawn from data from the 44 countries’ Demographic and Health
Surveys, made available on the World Bank web site. As in the bigger data set above,
GNI/head and government health expenditure as a share of GDP are strongly correlated
with each other. Both are positively associated with the share of births that occur with a
trained attendant.

However private health spending as a share of GDP has no significant relation to any of
these variables. There is no evidence here that higher private spending is associated with
better care at birth. Figure 15 shows the partial regression plots from a cross-country
regression of the percentage of births attended by a trained person on public and private
spending on health as percentages of GDP. The public spending coefficient is strongly
positive and significant, the private spending coefficient is positive but insignificant.

Stylised fact 5: for a set of low and middle income countries, the percentage of children
treated for acute respiratory infection is negatively associated with the percentage
treated privately.

We proposed in Section 3.2 that the percentage of children who, when taken for treatment
for acute respiratory infection (ARI) or diarrhoea, are seen privately, can be thought of as
a proxy for commercialisation. Across countries in the DHLS data set, the higher is this
percentage, the lower is the percentage of children who are taken to any facility for
diagnosis and treatment when ill with ARI. Figure 15 shows this (significant) negative
relationship for ARI. The higher the share of private in total consultations, the lower the
rate of consultation. The data thus suggest that commercialisation in this sense is
associated with higher levels of exclusion from access to care.

It follows that the percentage going public is positively correlated with treatment rates. In
this data set, income per head has no significant association with the rate of treatment for
childhood ARI, nor do any of the government and private health care spending variables.
Only the proportions of public and private treatment are significantly associated,
positively and negatively, with overall treatment rates.

4.2 A global health care transition?

A second way of assessing commercialisation is to ask: where is it going? What is the

direction of change and to what extent can it be understood as a transition to a globally

33
commercialised health care system? The concept of economic transition has been widely
used since the 1990s to refer to a change in economic regime in currently and formerly
communist-governed countries, from extensive direct allocation of economic resources
and planned, state-owned production, to a much more market-led system of production
and exchange of goods and services. Several contributors to this project are working in
countries where such processes of transition are a key aspect of economic experience and
policy. To what extent is health care sharing in that transition in ‘transitional’ countries?
And more broadly, can one see the current period of change in health care world wide as
a step change of this kind from more state-controlled to more market-led systems of
health care?

To answer this question in economic terms we need some way of modelling it, and
evolutionary models in economic analysis of industrial and institutional change offer a
way to do this. Evolutionary modelling asks, how are the directions of change determined
by the starting points, the incentives within the system, and the feedback of current
actions (such as investment decisions and technological discoveries) on future change?
Evolutionary models do not imply that change cannot be reversed, but they look for ways
to model cumulative causation and change.

These ideas of incentives and feedback give us a way of examining the question of
transition. ‘Transition’ in economic terms refers to a major change in economic
institutions, and, centrally, in the type of economic incentives facing people and firms. It
specifies a shift from non-market allocations of resources to production in response to
opportunities to make profits, and a shift to access to goods and services via market
exchange. This kind of change has clearly been occurring in the last two decades in
health care in a number of countries – and for much longer in some.

The concept of transition (to a market system) contains however a strong implication of
irreversibility – or at least great difficulty in going into reverse. Investment decisions - in
factories, say, or hospitals, or training schemes - shift into private hands, and the
investments made begin to build market incentives into steel and concrete… and into
skills in writing software or using high-tech medical equipment. Institutional and
industrial economists call this effect ‘path dependency’: early decisions shape later
opportunities, hence constrain later actions. The system becomes physically different in
terms of the types of assets available and goods and services consumed, as well as the
ownership patterns. Once this has happened on a substantial scale, any road back to a
more planned system has to undertake major investments in a different direction. It is not
that the process cannot be reversed: but it is difficult and expensive. Any reversal of
direction faces strong vested interests from new asset owners.

This notion of a one-way process, not a reversible choice, characterises much economic
writing on the broad processes of transition in the Eastern European, Russian and East
and South East Asian contexts. The economic transition is understood as the dismantling
of one set of institutions and the creation of set of market processes and institutions
which once established have a life of their own. If we were to find that we could apply to
health care commercialisation world wide the concept of transition in just this sense, a

34
profound institutional and economic transformation generating its own logic of behaviour
and operation, then in principle health care commercialisation will only be reversible
through another sharp break, as when some European systems were redirected via
nationalisation.

Indicators of transition

How would we know if such a process was occurring? Possible indicators of transition
that might be drawn from the analysis of commercialisation in Section 3 include the
following.

1. The commercialisation of the public sector

If the logic of public sector operation – both the incentive structures and they way in
which people respond to them – becomes marketised, then the capability of public sector
institutions to create (socially defined) public goods will be permanently undermined.
There is, as already suggested, a failure of logic at the heart of current reform models in
that they rely on public interest behaviour by the government sector, for ‘residual’ safety
net provision and for regulation, while both denying (at times) its possibility and
proposing to undermine it in practice. Empirically, the marketisation of the public sector
can be observed and the cultural changes researched (Baru 2004, Kida and Mackintosh
2004). There is considerable evidence of public sector commercialisation in low income
contexts, predating health sector reform. There is also some indication in rich-country
work that importing material incentives into public sector professional contexts can
undermine established public benefit behaviour that can then be very hard to re-establish.

2. Instituting risk rating in health insurance

A key institutional shift, which is very hard to reverse, is the breaking of risk pooling in
health care finance – for example by privatising social insurance systems or liberalising
private health insurance as a competitor to socialised insurance - and the resultant shift to
risk rating. The more this happens, the more expensive and exclusionary the health care
system and the harder to reform in a more inclusive direction, since reinstituting wider
risk pooling then faces opposition from entrenched interests. A strong alliance between
private insurers and corporate hospital provision may be the most important driver of
extreme social polarisation of provision and access in middle income countries. Some
middle income countries, notably in Latin America, may be shifting in that direction, but
in others there is a strong movement to institute social insurance; a number of papers for
this project explore aspects of this issue (Sun Qiang 2004, Iriart 2004, Kwon and Tchoe
2004, Datzova 2004, Blam and Kovalev 2004 this conference).

3. Privatisation of public hospitals

Substantially privatised health care systems, in the sense of systems dominated by private
facility ownership, vary a great deal in terms of accessibility and quality. It may be that
one of the most important factors blocking public health deterioration in some countries

35
is the existence of a decent and functioning, even if over-stretched, public hospital
system. The public hospitals act as ‘beneficial competitors’7, putting a floor on the
quality that can be got away with elsewhere, providing a benchmark for public
expectations. One of the most serious consequences of the current ‘reform’ model of
moving resources away from hospitals, and marketising their operation, may have been to
remove this underpinning from the broader health care system.

Access to primary care is relatively more affordable and it is in the context of hospital
care where larger costs incur. The privatisation or decay of public hospitals may also lead
to impoverishment of those non-poor due to higher costs of care. The role of public
hospitals gains importance also in the context of government action in emergencies and
epidemics.

4. Blocking public sector asset creation

This point follows from the one above. There is a lot of discussion of the need for
‘regulation’ in the current health care literature, but little of it is convincing on methods
and incentives. In a personal service sector of this kind, rule making alone is a poor basis
for regulatory influence. To regulate effectively, the public sector needs expertise and
leverage, it needs to be a player (Ayres and Braithwaite 2002; Tibandebage and
Mackintosh 2002). This implies investment in public assets to support public sector
delivery and intervention. To the extent that ‘reform’ models prevent that, regulation will
have little effect on market dynamics.

5. The segmentation of basic services according to ability to pay

The segmentation of primary health care into public health interventions and preventive
measures ('public goods') and the lossof effective hospital referral capacity can be seen as
indicators of shift from primary health care-based health systems towards mere provision
of basic services. The danger of this lies in the incremental return to the selective vertical
programmes approach in the public sphere, in contrast to a more comprehensive primary
health care, an issue which has raised already concern in the context of emphasis on three
diseases and the establishment of Global Fund to fight against HVI/AIDS, tuberculosis
and Malaria (Segall 2003; Unger et al 2003a; Buve et al 2003; Mahendradhata et al 2003;
Unger et al 2003b). The debate between selective and comprehensive primary health care
is not new (Koivusalo and Ollila 1997). It is also known that when pilots of selective
approaches to service provision were tested, patients were reluctant to use these facilities
because they realised that these facilities could not cover the broad spectrum of their
complaints and that they would need to visit another health post for complementary
treatment (Prost and Jancloes 1993). It can thus be argued that the more selective and
basic primary care services become, the more prone they are to become part of a vicious
circle increasing commercialisation in health care as people will by pass public facilities.

7
The phrase is from Mackintosh and Tibandebage 2002, and originates from discussions with D. Narayana,
an economist working in Kerala where public hospitals appear to play a role of this kind in the increasingly
privatised Keralan health care system.

36
6. Regulation with ‘one way valves’

Finally, transition may be, not only facilitated but also locked in by regulatory
intervention. This is one of the main worries of the critics of GATS and NAFTA in terms
of public health implications: that the agreements may create ‘one way valves’
(Commission on the Future of Health Care in Canada 2002 p.238) locking in policy
changes which turn out to be detrimental. Worries include the difficulty of excluding for-
profit suppliers of clinical services once admitted, and of facing legal challenges to
expansion of the scope of public financing monopolies in Canada under NAFTA.

At present, the survey of the extent of commercialisation in this paper suggests that
transition is partial. The regulatory structures do not enforce it, and the resistance to the
dominance of risk rating – and associated emphasis on building social insurance – is
probably growing. But policies towards the scope, scale and culture of the public sector
– shrinking and commercialising it, and undermining its capacity to operate on the basis
of non-market incentives – form the most serious set of pressures for such a transition to
a market led system; the further this goes, the harder retreat would be.

37
5. A better common sense for health policy: in search of good sense
We have argued that there has been for the last two decades a ‘common sense’ embedded
in the dominant models of health care reform relentlessly propagated by multilateral
agencies and some donors. The ‘common sense’ is embedded in the fall-back
assumptions, presented as indisputable because technical, of health care as a ‘private
good’ that should be sold commercially unless this was technically inefficient. And we
have argued that this has silenced, excluded from dominant discourse, a set of issues that
health policy makers and users of health services have continued to be concerned with,
notably the redistributiveness of health systems and the importance of an effective public
sector.

We intended this project, from the start, to explore the outlines of an alternative common
sense. Before we outline our tentative conclusions, we want to reflect briefly on the
nature of this idea of ‘common sense’ and its political and policy importance.

‘Common sense’ and ‘good sense’

The use of the concept of ‘common sense’ in not new in health policy writing. We are
building upon recent critical writing on multinational investment in health and insurance
services in Latin America which examines US and multilateral efforts to bring about a
change in health policy ‘common sense’ (Waitzkin et 2003).

This notion of ‘common sense’, as we develop it further here, is a Gramscian one. In the
Prison Notebooks (Gramsci 1929-35 [edition 1971: pp.323-33]) the innovative Italian
Marxist philosopher Antonio Gramsci defined ‘common sense’ as ‘a generic form of
thought common to a particular period and a particular popular environment’ (ibid 330).
He drew a distinction between popular common sense, which encompassed a necessarily
somewhat incoherent set of assumptions and generally held beliefs, and a core of ‘good
sense’ within it, rooted in experience and systematic thought. This ‘good sense’ he
characterised as a ‘conception of necessity which gives a conscious direction to one’s
activity’ (328).

Gramsci furthermore linked this idea of good sense to the concept of an elaborated
‘philosophy’, that is, a coherent system of ideas that may typically become the common
sense of intellectuals in a given place and period (330). And he noted that just as there are
different philosophies, so also ‘common sense is a collective noun’ (324): there are many
versions of common sense, each a product of a different history.

These notions of ‘common sense’, ‘good sense’ and ‘philosophy’ – or ‘theory’ –have
shaped the way we have drafted this paper. We have understood the health care reform
frameworks of thought, and the repeated appeal in policy papers to a very elementary
version of neo-classical micro-economic theory, as a deliberative exercise in shifting the
dominant ‘philosophy’ in health policy, especially in international arenas, in such a way
as to influence the day to day common sense of national health policy makers, in favour
of the concept that an economic transition in health care was inevitable. That political

38
power has been at times exercised internationally to impose these reform frameworks is
part of the process, but only a part of the rather dramatic change in working assumptions
that these initiatives have sought to impose. There seems no doubt that, over a number of
years, the more macroeconomic and public sector-based concepts of redistribution and
primary health care have been supplanted in dominant discourses by the more
individualist and market-oriented frame of thought outlined in Section 2.2. This has been
made to seem even ‘good sense’ by a popular experience of a deteriorated and even
abusive public sector in many developing countries, systematically undermined by
periods of severe economic crisis. Furthermore this changing common sense has been
associated in a number of contexts – including sub-Saharan Africa from the 1980s, the
transitional economies from around 1990 or before, and also many Latin American
countries since the 1970s – with a real increase in the levels of health care
commercialisation (as defined in Section 3.1) as compared to the mid-20th Century.

We have argued that this current health policy common sense is, however, resting on a
remarkably small evidence base. On the contrary, better health and higher health care
activity by governments are strongly associated across the world; historically, success in
address ill health at low income levels is strongly (not of course uniquely) associated with
public expenditure based initatives. The analysis of social policy approaches behind the
'success' cases (Costa Rica, Chile, Cuba, Kerala and Sri Lanka) in the 1990s in terms of
superior educational and health performance concluded that the overall social approach to
social policy and the pattern of public expenditure and provision of services that
mattered. The single most important common feature of their experience is the pursuit of
social policies according to priority to primary health care, adult literacy, basic education
and sanitary and environmental improvements. These programmes are not too costly in
terms of finance and skills. But they do require an efective public sector which can reach
the entire population with these services (Ghai 2000).

Furthermore, when democratic countries can afford higher levels of spending, they turn
predominantly to public initiatives and inclusive projects. This has been true in virtually
all now-high income countries, and growing upper middle income countries such as
Korea and Taiwan have experienced political movements and ‘advocacy coalitions’ for
universalising health care. Social insurance initiatives are widespread. And the discourse
of risk pooling and cost control is returning to international policy documents (OECD
2003; EC 2002; WHO 2003). One could see these responses as a re-emerging of a
popular and intellectual ‘good sense’ in favour of concepts of health policy rooted more
in the notions of health systems and redistributive economics we outlined in Section 2.1.

A better common sense in health policy

So how might a better common sense in health policy, rooted in this (re)emerging good
sense, be summarised? The main aspects appear to be:

· a concept of ‘health systems’ that unites value-based objectives for the health system
and health policy and evidence combining the fields of public health, medical care
and economics, rooted in ethical principles and reflecting a broad understanding of

39
 the requirements for the medical, epidemiological, political and social construction of
public health in the context of public policies;
· an economics of health care that focuses on redistribution, and understanding of
industrial and service sector investment patterns and technical change and their
regulatory implications, and the importance of professional and caring non-market
relationships to effective health care,
· a recognition that effective health policy requires, as its absolute precondition, an
effective public sector of an appropriate form for the national context, able to exert
leverage over the system as a whole; and hence a policy focus on the (re)construction
of government and public sector capacity.
· a recognition of conflicts between global commercial regulation and health policy
interests. Ensuring global support to the normative and legislative functions in health
systems and in the field of public health, equity and regulation and assessesment and
containment of quality and costs of services.

In economic terms, the change in ‘default’ assumptions is needed, away from market
exchange as the paradigm unless proved inefficient. Revised ‘default’ assumption
include the promotion of cross-subsidy within the health care system; the sustaining of
non-market professional relationships and incentives within facilities and relations with
users; the valuing and promoting of the public sector, including public hospitals as a
valuable part of the system; a regulatory process that values and tries to shape appropriate
patterns of private investment and technical change.

Taken together, these elements provide the basis for a better common sense: a revised
‘philosophy’ and a better set of taken-for-granted assumptions that could frame market
processes and regulatory structures within a value-based understanding of health systems
and of non-market relationships. Such a revised international common sense must be
rooted in the variety of local common sense: for example, it would build on existing and
long standing (intellectual and popular) conceptions of public health and the public good;
on widely held understandings of health care and of ethical and professional behaviour;
and on the central role that health care has repeatedly played, across the world, in
inclusive and redistributive politics and nation building.

Blocking and shaping commercialisation

Most fundamentally, the switch in common sense for which we are arguing requires an
acceptance that the extent of commodification of health care – what is and is not shaped
into market commodities for sale - is an essentially social (not technical) matter and a
proper concern of public policy makers. We need to know, in different contexts, which
current forms of commercialisation need to be blocked, in the interest of current and
future health care access by those on low incomes. It would be good to see less general
discussion of regulation, and more systematic identification of the most seriously
perverse market incentives in the current system, and what is to be done to circumvent
them. Which are the most damaging forms of commercialisation and why? Our list
would probably include liberalisation of drugs supply, widespread privatisation of public

40
hospitals, and the attempt to resolve public sector inefficiency by tolerating and
reinforcing individual materialist behaviour.

Others would have a different list: we simply aim to get this question more centrally into
the health policy agenda. We could put our point a different way. Some ‘mixed
economies’ of health care work. Many reasonably equitable health care systems rely on
strongly commercialised supply systems. All truly inclusive health care systems avoid
significant individual payment at the point of use. All health care systems that contain
costs successfully unite funding and provision in a form that is not corporate/
commercial. All inclusive health care systems rely on some form of social risk pooling.
None of these statements is controversial.

What are controversial are the implications for low and middle income countries’ health
policies. Consider the evidence gaps, excluded from research by dominant policy
frameworks. For example, which types of markets generate socially beneficial
innovation and which are most perverse? How do market structure and political
economy of policy formation interact, e.g. to influence public expenditure allocation?
How can cross-subsidy be sustained in a partially commercialised system? What parts of
the health care system can a country shape into a ‘public good’ associated with rights of
access? What types of commercialisation are disastrous for inclusive health care? How
can a culture of effective contracting be built up in a mixed health care system?8 Which
types of regulation most effectively sustain the continuing existence of low-cost
pharmaceutical production in developing countries? Most generally: what kind of health
system best serves the purpose of achieving universal access to decent health care?

8
There is an industrial literature on contracting cultures barely referred to in the health contracting
literature (Sabel and Prokov 1996, Burcell and Wilkinson 1997, Deakin and Michie 1997)

41
Figures

Figure 1: Private as a percentage of total expenditure on health, by log GNI/ head

2000

Private as % total health expen Fitted values

85.9
Private as % total health expend

60

40

20

8.3
90 1000 10000 41860
GNI / head 2000 Atlas method

Notes: 163 countries (intersection of WHO and World Bank full data set less Pacific
islands.) Regression is significant at 1% level. Horizontal axis is log scale; regression x
variable is log GNI per head; the association is considerably strengthened using PPP data
for GNI/head.

42
Figure 2: out-of-pocket as % of total health expenditure plotted against GNI per
head (PPP basis) log scale.

out of pocket as % total health Fitted values

86
out of pocket as % total health

60

40

20

5
450 1000 10000 49990
GNI/ head 2000 PPP

Notes: Notes: 155 countries (intersection of WHO and World Bank full data set less
Pacific islands.) Regression is significant at 1% level. Horizontal axis is log scale;
regression x variable is log GNI per head (purchasing power parity); the association is
also strong and significant as the same level using Atlas method exchange rate data for
GNI/head. The outlier among the high income countries (upper right) is Singapore.

43
 Figure 3: out of pocket as % total health expenditure plotted against out of pocket
health expenditure as % of GDP 2000

Nigeria
86 Côte d'I
Myanmar India

Pakistan
Cambodia
Tajikist Sudan
Indonesi
Iraq
Georgia Nepal
out of pocket as % total health

Singapor Viet Nam

China Bosnia a
Armenia
60 Yemen Dominica Lebanon
Benin
Ethiopia
Democrat
Somalia Iran, Is
Cameroon
Belize Kenya
El Salva
Togo Kyrgyzst
Banglade
GabonEgyptMorocco Mexico
Libyan SriA Central
Lank
Niger
Guinea
TrinidadAfghanis Gambia
Guatemal
Burundi
Angola
Malaysia Ghana
UnitedMali
R Guinea-B
Republic Latvia Paraguay
Bahamas Nicaragu
Mauritiu
Philippi
Comoros Honduras
Republic
Sierra
SenegalAntigua
L
40 CyprusJordan
Brazil
Lao Peop Peru
Kazakhst
Thailand
Burkina
Saint LuSaint Vi
Saint KiJamaica
Zambia
Eritrea
Chile
GreeceSwitzerl
Sao Tome Ecuador
Ukraine Venezuel Malta
Madagasc
Swazilan
Cape
SyrianVer
Grenada
ATurkey Israel
Azerbaij RwandaCosta
Andorra
Dominica
Bolivia Ri
Argentin
Congo Poland
Lithuani
AlgeriaBarbados
Mauritan
Democrat
Equatori Russian
Uzbekist Panama
Seychell
Uganda Malawi
Albania San Zimbabwe
Spain
Mari
Italy
Bahrain Djibouti
Serbia-M
Mongolia
Haiti
Kuwait Hungary
Colombia
Finland
Liberia
Brunei D Tunisia
Estonia
20 Lesotho
TurkmeniRomania
Bulgaria
Chad
Guyana
Portugal
Australi
Austria
United Japan
Maldives
ANew
Denmark
Canada Uruguay
Iceland
Belgium
The form
Sweden
Belarus Zeal United S
Croatia
Suriname
Norway
Cuba
Ireland
Mozambiq
South Af
Botswana
Slovakia
United
Saudi
Bhutan K
Germany
ArFrance
Papua
QatarSlovenia
Netherla
NeRe
Czech
Palau
Oman
Luxembou
Namibia
5
.1 2 3.5 6 8.6
Out of pocket health exp % GDP

Notes: All rich countries (>$20000 per head Atlas method) except Singapore lie in
bottom left quadrant. Though hard to read, this figure identifies the countries with
strikingly high scores on each variable.

44
Figure 4: government expenditure on health as % GDP and log GNI per head (PPP
basis) 2000

Govt expend on health % GDP Fitted values

8
Govt expend on health % GDP

.4
450 1000 10000 49990
GNI/ head 2000 PPP

Notes: 155 countries; the relationship is highly significant on both measures of GNI/head.
Note that the rich countries lie predominantly above the regression line; an additional
variable in the form of a dummy variable for rich countries is significant at the 1% level.

45
Figure 5: private expenditure on health as % of GDP and log GNI per head (PPP
basis) 2000

Private expend on health % GDP Fitted values

10.1
Private expend on health % GDP

.4
450 1000 10000 49990
GNI/ head 2000 PPP

Notes: 155 countries; there is no significant relationship between the variables. The use
of GNI/head (Atlas method) data produces the same result.

46
Figure 6 : partial regression plots for the regression of total health spending as % of
GDP on log GNI/head (Atlas method) and on private health spending as % GDP,
2000
Model:
Predicted (total health spending as % GDP) = -2.124046 + .7574481 (log GNI/head)
+ .9368991 (private health spending as % GDP)
R2 0.686 Observations: 163
Both independent variables significant at 1% level.
The countries exerting a particularly high leverage on the right in plot (b) are Cambodia,
the Lebanon, the United States and Kenya.

(a) Partial regression of total health care spending as % GDP and log GNI/head

coef = .7574481, se = .06218516, t = 12.18

4.76605
e( tot_gdp | X)

-2.98759
-2.99904 3.17656
e( GNI_ln | X )

(b) Partial regression of total health care spending as % GDP and private health
care spending as % GDP

coef = .93689907, se = .0675858, t = 13.86

7.53124
e( tot_gdp | X)

-4.0991
-1.91557 7.85655
e( priv_gdp | X )

47
Figure 7: box and whisker plot: private as % of total health spending by region (low
and middle income countries) and high income countries, 2000

Private as % total health expenditure

86

60

50

30

20

8
SS Africa Asia Lat/Cen Am MENA Tr Eur/Asia Hi Income

48
Figure 8 Percentage of hospital beds not government owned by GNI/ head 2000
(US$ Atlas method)

South Ko
92 Lebanon
% hospital beds non-government

75

Japan

German

50 Tanzani
Uganda New Zealand

India
France
Indonesi
Mexico
Jordan Singapor
Vietnam
25 Banglad Syria
Morocc
Malaysi
Poland
ThailanSouth Af Sweden
d

Egypt Czech
Turkey R
Ethiopia UK
Russia Finland
China Bulgaria
1 Norwa

100 500 100 1000 3800

GNI/head 2000

Note: 32 countries, data for various years 1990-2002

49
Figure 8 Percentage of children taken for treatment for ARI who were taken to
private facilities, by GNI per head (log scale)

Haiti
90 Chad
Nepal
Banglade Morocco

Egypt
Burkina Pakistan
India
Percent children treated for ARI privately

Yemen
Togo Benin
Uganda Guatemal
Niger Cameroon Colombia
75 Turkey
Madagasc
Philippi Dominica
Ghana Bolivia
Indonesi Brazil
Central Kenya
Nigeria
Malawi
Mozambiq Vietnam
Comoros Peru
Mali
Zimbabwe

Nicaragu

50

Zambia
Tanzania

Namibia
35
100 500 1000 2000 3600
GNI per head US$ Atlas

50
Figure 9 Private deliveries as % of all deliveries outside the home, by GNI/head (log
scale) various years 1990-2002

Indonesi
57

50

Egypt
Private as % deliveries outside

Pakistan Philippi
India
40 Uganda

Banglade
30
Kenya Bolivia
Malawi Ghana ParaguayDominica

Zambia
20 Cameroon
Haiti
Yemen Guatemal
Colombia
Nepal Benin Brazil
Morocco
Peru
10 Chad Togo
Tanzania
Central Senegal Turkey
Madagasc
Nigeria Nicaragu
Mali Zimbabwe Namibia
Vietnam
NigerBurkina
Mozambiq Kyrgyz RComoros Uzbekist Kazakhst
0
100 500 1000 2000 3600
GNI per head US$ Atlas method

Note 44 countries, all low and middle income.

51
Figure 10 Healthy life expectancy and private as % of total health spending, 2000
HALE 2000 Fitted values

73.8
HALE 2000

50

29.5
8 20 40 60 86
Private as % total health expend

Notes: 178 countries. Significant at the 1% level.

52
Figure 11
(a) Partial regression plot, HALE and private as % of total health expenditure 2000

coef = -.14177487, se = .02929448, t = -4.84

20.4872
e( HALE | X)

-26.887
-30.5153 46.9847
e( Priv_exp | X )

(b) Partial regression plot, HALE 2000 and dummy variable for sub-Saharan Africa

coef = -19.65142, se = 1.1818365, t = -16.63

18.0834
e( HALE | X)

-25.9845
-.463868 .831347
e( reg8 | X )

53
Figure 12 Healthy life expectancy (HALE) and government expenditure on health as
% of GDP 2000

HALE 2000 Fitted values

73.8
HALE 2000

50

29.5
.3 2 4 6 8.3
Govt expend on health % GDP

Notes: 173 countries.

54
Figure 13 Log of probability of dying before five years and private expenditure on
health as % of GDP, 2000

Log (Prob of dying < five years Fitted values

5.69709
Log (Prob of dying < five years)

1.09861
.3 2 4 6 8 10.1
Private expend on health % GDP

Notes: 178 countries. The indicator of child mortality is strongly skewed, hence the fit is
(mildly) improved by using the log of the indicator variable. The coefficient on the
independent variable is insignificant. R2 is 0.0001

55
Figure 14 Partial regression plots from the regression of log (probability of dying
before 5 years) on log (GNI/head Atlas method), the share of private health
spending in GDP (%) and a dummy variable for Sub-Saharan Africa

(a) Partial regression plot of log (probability of dying before 5 years) and log
(GNI/head Atlas method) 2000
coef = -.59982496, se = .02901548, t = -20.67

2.11021
e( prdy_ln | X)

-2.64664
-2.88521 2.76578
e( GNI_ln | X )

(b) Partial regression plot of log (probability of dying before 5 years) and private
spending on health care as % GDP 2000
coef = .049396, se = .02609327, t = 1.89

1.01201
e( prdy_ln | X)

-1.27044
-2.06059 7.68287
e( priv_gdp | X )

(b) Partial regression plot of log (probability of dying before 5 years) 2000 and a
dummy variable for Sub-Saharan Africa

coef = .75506061, se = .10441891, t = 7.23

1.60939
e( prdy_ln | X)

-1.65577
-.64308
e( reg8 | X )
.921701
56
Figure 15: Regression of percentage of deliveries with a trained attendant on
government and private health expenditure as percentages of GDP. (44 low and
middle income countries, various years 1990-2002)

(a) partial regression plot of percentage of deliveries with a trained attendant on

government health expenditure as a percentage of GDP.

coef = 9.812034, se = 2.8870707, t = 3.4

50.2023
e( del_att | X)

-44.5075
-1.90152 2.99475
e( gov_gdp | X )

(b) partial regression plot of percentage of deliveries with a trained attendant on

private health expenditure as a percentage of GDP.

coef = 2.2406813, se = 2.4765306, t = .9

48.2553
e( del_att | X)

-39.0118
-1.91858 3.91363
e( priv_gdp | X )

57
Figure 15 Percentage of children with ARI taken for treatment, and percentage of
those taken for treatment seen privately, various year 1990-2002

% with ARI treated Fitted values

Zambia
70.7 Tanzania Vietnam India
Namibia
Pakistan

Uganda Egypt

Nicaragu Kenya Philippi

Indonesi
Malawi
Comoros
Zimbabwe
% with ARI treated

50 Colombia
Dominica
Peru Brazil
Cameroon
Ghana
Bolivia
Central Guatemal
Mozambiq
Nigeria Turkey
Madagasc

Yemen Banglade
Benin
30
Togo
Niger

Mali
Burkina Chad
Nepal
Morocco
Haiti
16.8
34.8 50 70 90.9
private as % of ARI treated

Note : 44 countries.

58
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