| Contracting | Information Dissemination | Regulation Definition Contracting is a purchasing mechanism used to acquire a specified service, of a defined quantity and quality, at an agreed-on price, from a specific provider, for a specified period. In contrast to a one-off exchange, the term "contracting" implies an on-going relationship, supported by a contractual agreement. (Preker and Harding 2003) Top Status of Contracting Governments can use contracting to guide private sector delivery of health services, and to achieve national health objectives. Contractual arrangements come in various forms. Two important forms are Contracting-In and Contracting-Out. The former refers to bringing in outside private management to operate an internal government service (i.e. hiring a private firm to run cleaning or catering services inside a public hospital). The latter refers to purchasing services from a private source that provides the service, using primarily an external workforce and resource. In this latter situation, contractors have complete responsibility for service delivery, including hiring, firing, and setting wages, procuring and distributing essential drugs and supplies. Other contractual options for purchasing health services are franchising and leasing. - Franchising: A government grants a contractor the right (may or may not be exclusive) to provide specified services, for which the patient pays, to a particular population.
- Leasing: A government secures the use, but not ownership, of facilities or equipment from an outside source under a lease agreement.
Furthermore, it is important to recognize that governments can contract with public providers. For example, governments can establish a contractual agreement with autonomous institutions, which remain under public ownership. According to Harding and Preker (2003), the potential benefits of contracting from a public sector perspective are: - Competitive forces: Contracting can generate pressure on both public and private providers to improve their performance in terms of both service and price.
- Planning and Policy Development: Contracting requires and may promote better planning and policy development by improving the flow of information about volumes of goods, services, costs, quality, responsiveness, population served, health needs, and other issues.
- Price Stability: Contracting provides government with a mechanism for purchasing needed health services at an agreed-on, and therefore, predictable price.
In addition, contracting can also improve the level of equity in distribution of health services because governments can establish contracts that focus on delivering services to vulnerable populations. Information about the theoretical rationale, benefits, and challenges of contracting are available in several documents, including Mills and Broomberg (1998) and Harding and Preker (2003) Top Issues in Contracting Critics of contracting note that there are several problems associated with this strategic tool. - Transaction Costs: If there are significant costs in designing, administering, monitoring, and evaluating contracts, the government may not capture the efficiency gains from contracting.
- Government Capacity: If contracts are poorly designed or if contracts are managed poorly due to low government capacity, potential gains may not be achieved.
- Provider Capacity: If there is a small or a weak private health sector, the number and capacity of bidders can be limited. Contracts are, subsequently, awarded to sub-optimal providers, leading to low quality of care.
- Complexities of Price Setting: If the government overestimates the amount of resources needed to deliver a certain service, it overpays the contractor and wastes resources.
- Monitoring and Evaluation: If the government allocates inadequate resources towards monitoring and evaluating the performance of contractors, it cannot effectively enforce contracts and achieve strategic outcomes.
More information about the challenges in contracting are presented in several documents, including Mills and Broomberg (1998) and Harding and Preker (2003) Top Trends in Contracting Contracting for health services is common in developed countries, including the US, Finland, Canada, the Netherlands, and the UK. In middle-income countries, especially in Latin America and the Carribbean and Central Europe, contracting is also becoming widespread. In Latin America, contracting has been a popular reform in the last decade, both between the public sector and NGOs to increase access to primary services for hard-to-reach populations, and between social security agencies and private providers to improve service quality and consumer choice. Combined capitation and fee-for-service contracts are most often used for primary health care services, while contracts for hospital services typically include capped per-diem or case-based payments. In developing countries, contracting is becoming more prominent and has attracted the interest of several governments. In Bangladesh and Cambodia, the governments are experimenting with contracting primary health care services. In India and Colombia, the governments are involved in contracting for reproductive health services. World Bank: Contract Database provides a glance at what countries are engaging in what type of contracting. However, despite such engagements in contracting, in low-income countries there is mixed evidence of the ultimate impact of health services contracts. Recent evaluations include: - Eichler, Auxila et al . (2001) evaluates a pilot in Haiti to reward NGOs for performance in delivering basic health services
- Loevinsohn (2000) evaluates the effects of contracting primary care services in Cambodia.
- Loevinsohn (2002) evaluate the effects of contracting primary care services in Bangladesh.
- Slack and Savedoff (2001) examines contracting cases in Latin America and the Caribbean.
- Soeters and Griffiths (2003) evaluates in-depth the contracting-in experience in Cambodia.
In addition, several documents discuss approaches to mitigating potential problems. Those interested should refer to Harding and Preker (2003), Vining (1997), Mills and Broomberg (1998), as well as other documents listed in the Key References and Further References sections.
Top Key References World Bank - Eichler, Auxila et al. (2001). Output-Based Health Care: Paying for Performance in Haiti. Public Policy for the Private Sector, Washington, DC, World Bank.
 Evaluates a pilot of contracting with NGOs in Haiti to provide essential services, such as immunization and prenatal and maternal care. Performance improved significantly after payment shifted from reimbursement up to a ceiling to rewarding performance with a bonus for meeting targets. - Harding, A. and A. Preker, Eds. (2003). Private Participation in Health Services. Washington, DC, World Bank.
Includes a chapter by Robert Taylor on contracting for health services. Discusses contracting as a government tool, and as a strategic process. Also, reviews the theoretical benefits and limitations of this reform. - Loevinsohn, B. (2003). Checklist for Contracting of Health Services.
A relevant list of practical questions to consider when contracting for health services, including issues such as overall approach, political issues, maximizing participation, ensuring quality, bidding and contracting process, contract financing, contract management, and evaluation and sustainability. - Loevinsohn, B. (2000). Contracting for the delivery of primary health care in Cambodia: design and initial experience of a large pilot-test. Washington, DC, World Bank.
Describes the design and early implementation experience with a pilot project in Cambodia that involves large scale contracting with non-governmental organizations for the delivery of primary health care. The overall conclusion is that contracting using a competitive bidding approach is feasible and that governments can design, monitor, and manage contracts effectively. - Loevinsohn, B. (2002). Practical Issues in Contracting for Primary Health Care Delivery: Lessons from Two Large Projects in Bangladesh. Washington, World Bank.
Examines the experience of large-scale contracting in Bangladesh under a World Bank financed nutrition project and an Asian Development Bank financed primary health project. The study found that contract management issues, including problems with prompt payment of contractors, procurement, and field supervision have been significant. - Marek, T., Yamamoto, C., and Ruster, J. (2003). Private Health: Policy and Regulatory Options for Private Participation. Public Policy for the Private Sector, Note No. 264. Washington, DC, The World Bank.
Defines options for mobilizing private resources for achieving public health objectives. Defines various forms of contracting. - Rosen, J. (2000). Contracting for Reproductive Health Care: A Guide. Washington, World Bank.
Looks at the use of government contracting to meet the demand for quality reproductive care in developing nations. It is a guide that touches on some of the reasons why governments choose to contract out and provides an introduction to the range of contracting issues.
Describes sample contracts for reproductive health in India and Columbia. Also discusses a sample contract for social marketing of condoms in Haiti. - Vladescu, C. and Radulescu, S. "Primary Health Services: Output-Based Contracting to Lift Performance in Romania." Public Policy for the Private Sector. Washington, DC. The World Bank
Presents an overview of a pilot scheme of output-based contracts for primary health services in Romania. Aims were to develop the independent provision of primary health services, increase the share of health spending on preventive services, and improve access in rural areas. The scheme has now been extended to the entire country.
External - Barnett, C., Connor, C. and Putney, P. 2001. "Contracting Non-governmental Organizations to Combat HIV/AIDS." Partnerships for Health Reform. Special Initiative Report No. 33.
Evaluates NGO contracting as a mechanism to increase the scale of HIV/AIDS services and streamline funding and monitoring in developing countries. - Marek, T. (1999). "Successful Contracting of Prevention Service: Fighting Malnutrition in Senegal and Madagascar." Health Policy Planning 14(4): 382-389.
Describes two successful large-scale community nutrition projects in Africa as examples of what can be done in prevention using the contracting approach in rural as well as urban areas. Results indicate that contracting is associated with improved health outcomes, and better targeting of the poor. - Mills and Broomberg (1998). Experiences of Contracting: An Overview of the Literature. Geneva, Switzerland, World Health Organization.
Reviews experiences in developed and developing countries. Concludes that there remains relatively limited and contradictory evidence on the impact of contracting on efficiency and equity. - Palmer, N. (2000). "The use of private sector contracts for primary health care: theory, evidence and lessons for low-income and middle income countries." Bulletin of the World Health Organization 78(6): 821-829.
Highlights theories and evidence relating to primary health care services. Examines their implications for contractual relationships in developing countries. - Slack, K. and W. Savedoff (2001). Public Purchaser-Private Provider Contracting for Health Services. Washington, DC, Inter-American Development Bank.
Discusses 27 examples of contracting with the private sector in Latin America and the Caribbean. The authors have compiled a database of contracts and a system of ranking them on key characteristics so they can be compared. They highlight the key role played by the payment mechanism and the incentives it creates, the attention paid to quality assurance, monitoring and information systems, and competition between providers. - Soeters, R. Griffiths, E. (2003) "Improving government health services through contract management: a case from Cambodia." Health Policy and Planning 18: 74-83.
Discusses the successes and failures in one of the contracted districts, where HealthNet International applied the contracting-in approach. Authors find that despite increasing official user fees, utilization of services increased. Family health expenditures decreased as well,although polipharmacy and continued use of injections in the health facilities remains a concern. - Vining, A. and S. Globerman (1998). "Contracting-out health care services: a conceptual framework." Health Policy 26: 77-96.
Presents and discusses a systematic framework for policymakers to identify and assess potential problems in contracting out health care services, as well as some approaches to mitigating these potential problems.
Top Resource People World Bank External Top Useful Websites - Commonwealth Competition Council: Tool Kit for Contracting Out.
Website created by the Commonwealth Competition Council, an independent council within Virginia's state government in the United States. Offers decision support tools that can help public officials to effectively contract out. The decision support tools also help users measure the output of internally provided vs. contracted government services in terms of quality, quantity and cost. - ID 21 Insights: To Purchase or Provide? Should Governments Contract Out Hospital Care?
Discusses a research study that looked at effects of contracting out district hospital services. The main focus of the research study was to assess 1)the relative efficiency of contracted-out and directly managed services; 2)determinants of any observed differences in efficiency; and 3) relative costs to the states of contracting versus itself providing services directly. - KnowNet: Contracting Desk Reference
Offers guidance to Contracting Officers and Project Officers in successfully soliciting, awarding, and administering performance based contracts (PBC). The website also discusses the key concepts, legal basis, and general opportunities and challenges of PBC.
KnowNet is an organization supported by the US government. - Public Administration and Management: Contracting and Government: Some Further Thought
A web document displayed by the Public Administration and Management Journal, a peer-reviewed journal from Pennsylvania State University. Discusses the impact of privatization on the tension between professional administration and politics. In addition, the site focuses on the financial implications of privatization for governments and the organizations that are involved with this reform. - World Bank: Contracting for Reproductive Health: A Guide
Organized by the World Bank, this guide is intended primarily for use by Bank operations staff, especially task teams for Bank-funded projects that include a reproductive health component. Includes three cases studies, discussion of fundamental concepts in contracting, and contact information for professionals experienced in contracting for reproductive health services. Includes sample contracts for reproductive health in India and Columbia. Also includes a sample contract for social marketing of condoms in Haiti. - World Bank: Operations Policy and Country Services: Bidding and Proposal Documents Staff Access Only
This internal World Bank website lists sample procurement documents that may be used as guidelines for developing contracts with NGOs or private providers for health services in World Bank projects. The "Procurement of Non-Consultant Services" document on the website is most relevant for this purpose - World Bank-Rapid Response Unit: Contracting for Health Care Services
Organized by the World Bank Group Private Sector Advisory Services. Lists key documents and case studies related to contracting for health care services in developing countries.
Top Additional References - Abrantes, A. (1999). Contracting Public Health Care Services in Latin America. Washington, DC, World Bank.
- Abramson, W. (1999). Partnerships Between the Public Sector and NGOs: Contracting for Primary Health Care Services - A State of the Practice Paper. Bethesda, MD, PHR Resource Center, Abt Associates.
- Abramson, W. (2001). "Monitoring and evaluation of contracts for health service delivery in Costa Rica." Health Policy and Planning 16(4): 404-411.
- Bennett, S. and A. Mills (1998). "Government Capacity to Contract: Health Sector Experience and Lessons." Public Administration and Development 18(4): 307-326.
- de Silva, S. (2000). Community-based Contracting. Washington, DC, World Bank.
- England, R. (2000). Contracting and performance management in the health sector. London, DFID Health Systems Resource Centre.
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