Financing the Health Systems of the Future: A Proposed Framework for Including Non-Communicable Diseases
by Arin Dutta, HP+ and Caroline Ly, USAID/Office of Health Systems
A series of studies put out by the Lancet in 2017 highlighted the urgent challenge that health systems face in addressing a growing burden of non-communicable diseases (NCDs) — diseases that now account for nearly three-quarters of global deaths and will grow to more than 80 percent by 2040.
Meanwhile, health sector reform initiatives are gaining traction in low- and middle-income countries (LMICs) and in some low-income countries (LICs). As these reforms get underway, they will need to finance health systems that can address countries’ pressing health needs, inclusive of NCDs. A focus on health sector reform creates an opportunity for policymakers and technical agencies to think strategically about financing for NCDs and opens the conversation to innovations which could drive efficiency and better outcomes.
We’ve been doing a lot of thinking about a framework which could inform country-specific roadmaps for NCD financing across the specific components of a national NCD response, especially for integration into broader health financing reform. While diseases and conditions categorized as NCDs range widely in prevention, medical response, and costs to treat, as a group NCDs raise issues that distinguish them sufficiently from other health areas.
The role governments must play in financing the response to NCDs will need to be considered carefully. There is a misperception that NCDs are too costly to address. In reality, they are too costly not to address, with the economic burden of some NCDs potentially outweighing the costs of their prevention and treatment. In 2015, Rachel Nugent estimated that the average benefit-to-cost ratio of five NCD interventions was about 9:1.
Thinking of the potential of diverse funding modalities can help us move the conversation forward for NCD financing — beyond complex debates on earmarked taxation to how to progressively structure taxes, mobilize resources effectively, and utilize revenues from taxes on sugary drinks and products, tobacco, and alcohol. As countries set priorities and design benefit packages, particularly in LIC/LMICs where NCDs are juxtaposed against primary care and communicable diseases, there may be an inherent desire to wait until other priorities are addressed. But, when we consider the increasing link of comorbidity for NCDs with outcomes for key communicable illnesses and maternal health, or the importance of primary care in NCD responses, it’s clear we can’t wait.
Building a framework for including NCD financing in health sector reform
As a community, we need to consider where gaps in NCD financing are appearing. By characterizing health systems using broad archetypes of the maturity of the health financing system, we can begin to do just that. The intention of using these archetypes is to connect the discussion on financing NCDs to the parallel, evolving policy discussion on feasible pathways for LIC/LMICs towards higher health coverage and increased financial protection. Pre-payment schemes — which avoid the burden of paying out-of-pocket at point-of-care — are seen as a beneficial reform. This includes health insurance.
Our proposed framework, which shows the intersection of different payers and the various elements of the NCD response — from prevention to treatment/chronic case management — is outlined in the table below. The shading is based on a compound qualitative score which combines the “budgetary feasibility” (or financial, in the case of non-tax-funded payers) and “financing need.”
Budgetary feasibility expresses the likelihood that funds for the area of the NCD response can be mobilized by the specific payer. For example, while low-income/low-maturity governments could fund many aspects of primordial prevention using tax-based budget allocation, they may struggle to mobilize effective levels of access for even-targeted populations for other aspects of NCDs. Insurance schemes in low- and medium-maturity schemes in LICs/LMICs suffer from sustainability challenges, while some show operational surpluses, belied by low-benefit utilization. Many other schemes show significant deficits when utilization spikes, as seen with initial adverse selection under Indonesia’s National Health Insurance scheme. Similarly, while large enterprises in such countries could assign resources for workplace NCD prevention and screening, they will not feasibly have the resources given the scale and margins of their operations to fund curative or chronic management areas to cover workers’ needs. Even if we rate budgetary feasibility as high (darker blue shades), this does not mean that the payer will definitely assign resources; just that the feasibility exists, pending political or management intent.
Financing need expresses the intensity of a requirement to act for the payer, for a specific NCD response area. This intensity is driven by the particulars of the type of intervention; the likelihood of market failure in financing; and the epidemiology of NCDs and country income level; and is judged overall by maturity and income level. For example, due to difficulties for insurance schemes in contracting for primordial prevention and/or financing this cost, we expect the need for tax-based sources to be high across country typologies. Similarly, given the focus of insurance on protecting individuals from high-cost, uncertain events, we see a key role for government-supported and private insurance schemes in covering their members with a chronic NCD care or hospitalization need. Given the current trends in epidemiological transitions, NCD burden may still be disproportionately high among the higher-income classes who contribute the bulk of insurance members in low/medium maturity settings. We recognize that this trend, unfortunately, may be increasingly shifting as the NCD burden becomes more distributed.
Across both budgetary/financial feasibility and financing need, we consider that a funding constraint for the public sector will require some targeting. This is especially relevant for the tax-funded services. In the case of other payers, the more obvious groups are listed for clarity.
Together, a dark blue shade in the table denotes a payer who has the budgetary and financial capability to act and faces a higher underlying need, given the disposition of other actors and the typology of the country. A yellow shade suggests a financing gap, because budgetary/financial feasibility is low, but significant need exists.
Highlighting some of the implied trends in the framework
Looking at the table, there are some implied trends worth noting:
- As health financing maturity and income levels increase, it will be critical and should be feasible for insurance schemes to cover their members for primary/secondary prevention of NCDs, and for specialized care. At higher maturity levels, even prevention of risk factors at the community level could be funded from such sources, using the principles of health maintenance organizations with an incentive for preventive care.
- Low-income and lower maturity systems will face critical gaps in the current landscape for financing NCD responses, even when we impose the targeting required by our assumption of a budgetary constraint for the public sector.
- Hard-to-reach uninsured households will not be able to finance the care they need beyond nominally being able invest in healthier habits, which in higher income settings may involve getting sufficient exercise and improved nutrition. Therefore, detecting these populations and understanding their specific prevention and specialized therapeutic, chronic care needs for NCDs will be a priority in years to come.
- There is a moderate role for large enterprises to fund aspects of NCD care for their workers. This will be more feasible in higher income and maturity levels. At low-income levels, there is a financing gap which needs multi-sectoral intervention to address.
- Private health insurance does not exist in many low-income settings, but there exists a need and market for private health insurance for higher income groups. If the financing gap could be filled, private insurance could provide critical care for these segments which would allow rational targeting for scarce tax-based and government-supported scheme resources for lower socioeconomic segments.
Reacting strategically to the emerging financing gaps for NCDs
The agenda for NCD financing in LIC/LMICs is more un-started than unfinished. While key policy documents and international guidance have highlighted the urgency, health sector reform efforts have not strategically engaged in the issue. The framework we propose is a first step that follows the urgency to act. We expect a lot more detail can be added in country-specific financing strategies, which can also engage with innovations to fill financing gaps that include, but may extend beyond, those we’ve discussed here.
Working in innovative partnerships with the private sector will be critical for countries to expand access. There are many partnering models already being explored across LMIC settings which can be migrated to LICs as well. These offer solutions to different aspects of financing challenges highlighted in the framework. The following non-exhaustive list provides examples of possible partnerships that exist across LMICs in sub-Saharan Africa and Asia, but there is a need to consolidate learning on what works, and how lessons can be exchanged:
- Encouraging new private sector supply which can satisfy demand from segments with the ability to pay, which will increase the ability of the government to target the poor and vulnerable for aspects of NCD care. Various models are possible, including the land grant approach to encourage greenfield investment in specialized care facilities in urban or peri-urban areas where there is a middle class. With sufficient additional controls and stipulations, these can also create subsidized care for the poor.
- Reduce cost of care for the uninsured poor in the absence of other pre-payment alternatives through cross-subsidization. This assumes specialized care providers can price-discriminate; charging higher-income patients more for inpatient hospitalization or commodities, which allows them to reduce prices charged to the poor on a sliding scale of financial need. Governments can encourage this and add subsidy or other incentives to these models, including vouchers.
- Increase the availability of subsidized specialized care in rural areas within public facilities to cater to the poor by encouraging private providers to set up an embedded NCD unit (e.g., a clinic or a diagnostic unit) in government hospitals in disadvantaged areas. While these units may charge user fees, the fees can be negotiated to be lower than market because of government subsidizing infrastructure and facility overhead.
- Reduce costs of key NCD care inputs to increase the affordability of services — especially in the absence of other market forces creating economies of scale — by working in partnership with different payers to pool the size of procurement. Large purchasers can better negotiate the wholesale price of key medicines and diagnostic consumables, even in the absence of high insurance coverage.
- Reduce the cost for tax-based funding for NCD care at public facilities by changing the cost of key infrastructure and related inputs, for example through leasing agreements with major suppliers for medical diagnostic equipment rather than outright purchase. These agreements turn on a guaranteed order size for the tests, which requires different payers in the public sector (e.g., local and national governments across different hospital levels) to coordinate.
This framework will be developed further, along with an additional framework for how NCDs can be strategically purchased. In other words, a framework for paying providers optimally which, among other facets, will focus on strengthening the incentives across the relationships of payers, providers, and patients to achieve a system of delivery of NCD services that increases the likelihood of high quality (better outcomes), appropriate volume at each level of the health system (e.g., lower complexity care provided more at primary levels), and improved control of overall costs.