CHAPTER 6
Improving Service Delivery: A Question of Incentives
Introduction of new health financing mechanisms, such as the New Rural Cooperative Medical Scheme and Basic Medical Insurance, can go a long way toward improving access to health care and protecting households from financial risk. But many of the problems highlighted in chapter 2— escalating costs, widespread provision of unnecessary care and drugs, low efficiency, a lack of attention to public health, and poor quality—call for more than financing reform. If these problems are not fixed, costs will continue to escalate and patients will remain vulnerable to exploitation by profit-oriented providers. While the NRCMS and the BMI may protect households from large out-of-pocket payments, rising costs will soon be felt through higher social security contributions or tax payments. How can these problems be fixed? This chapter argues that an essential step is to change the incentive structure for providers. Hospitals, health centers, and other health care providers continually make decisions that directly impact costs, appropriateness of treatment, and efficiency. How patients and insurers pay providers—determined largely through the system of price regulation—is arguably the most important factor shaping these decisions, and one of the biggest obstacles to a more rational allocation of health sector resources. Changing the way hospitals and other providers are financed is hence part of the solution, and the 115