Markets in health care : an analysis of demand, supply and the market structure of health care in the Philippines.

Abstract

This study sought to examine the economic structure of the Philippine health care system, in the light of recent legislative initiatives in the country and global managed market reforms. In the context of a market-orientated system in the Philippines, the study modelled the interaction of health care agents in three markets: regulations, financing or insurance and health services. The bulk of the research examined the nature of exchange in the health services market, using neo-classical economics. Theories in industrial organization and public choice served as organizing frameworks for explaining other market elements. The study' s methodology used primary and secondary data analysis, as well as findings of other research, to bring together a coherent picture of the market structure of health care in the Philippines. The analysis of the regulatory market showed that the rent-seeking nature of Philippine social, political and medical institutions has weakened regulatory structures in health care. Compared to its Asian neighbours, the relative position of the country in the 60s in terms of major health indicators, has been eroded. Limited resources and allocative inefficiencies have affected the government's ability to fulfil its constitutional mandate to ensure minimum levels of care, especially for the poor. The performance of the market was examined in terms of health policy objectives of efficiency and equity in the financing of health care. Private sources, with households forming the bulk, comprised 64 percent of health care expenditures. The position of concentration curves drawn to illustrate the equity of household financing, showed inequities in health and health expenditures. The largely fee-for-service system operating in the health insurance market had caused risks to be borne largely by consumers and funders. Low coverage of the population and weak utilization rates, may have encouraged some providers to behave opportunistically. An examination of the prospects for an alternative system of compulsory health insurance, illustrated through a project with health maintenance organizations indicated the problems of contracting. Estimates of health service market conditions on the demand-side, from an outpatient provider choice model, showed low price and time cost elasticities, with the poor being more responsive than the rich. Simulations showed that the introduction of user fees in public services were likely to drive demand towards private care in urban areas, and out of the market in rural areas. The welfare effect estimates showed that if public hospitals were to charge one-half the price of private doctors, the welfare loss would be about 10 percent of household budget of the lowest income group. The amounts needed to compensate losers from the policy change can be transformed into contributions for risk -sharing schemes. From the supply-side, the distribution of facilities, productive resources and technology were shown to have wide variations across regions and types of facilities. The study cited research that showed that total cost structures in hospital firms were largely determined by the volume of services rendered. Moreover, variable costs were shown, by other research, to be neither influenced by scale nor by the scope of operations. The analysis of the market structure, based on a modified Hirschman-Herfindahl measure, showed that no hospital-firms had a dominant share of the market. Regression results, from the same research on total cost functions, showed that hospital outputs were unresponsive to actual competition. Price competition appeared to be swamped by nonprice competition. An examination of pricing behaviour showed widespread cost-price mark-ups, reflecting the 'market power' of providers. The co-existence of competitive and monopolistic tendencies in the health care market, combined with weak and/or distortive incentive structures, suggests that the tenets of contestability analysis were not fulfilled. The last chapter showed the limitations of the analysis in providing conclusive evidence on the behavioural underpinnings of the health care market in the Philippines. Conceptual and methodological difficulties, arising from data and measurement problems, imply that the results are at best exploratory; and that further work can use the issues raised as starting points. For health policy reforms in the Philippines, recent legislative initiatives could improve health sector performance from a three-pronged approach: enhancing access, agency and co-ordination.