Even in the United States, vertical integration under health maintenance organizations
(HMOs) is being eclipsed by virtual integration between the provider network HMOs,other provider groups, and a globalized insurance industry. Vertical integration between
production and distribution units is now being viewed as a coordination mechanism of last
resort, and is used mainly when contractual alternatives are not available (60).
Efforts at virtual integration face three common problems, related to decentralization,
separating purchasers from providers, and user charges. In many countries, there has recently
been an increased enthusiasm for decentralization as a means of attaining a wide
variety of policy and political goals in health as in other areas. The explicit objective of
decentralization is often to improve responsiveness and incentive structures by transferring
ownership, responsibility and accountability to lower levels of the public sector. This is
usually done through a shift in ownership from the central government to local levels of the
public sector – states or provinces, regions, districts, local communities, and individual publicly
owned facilities.
A common difficulty with such reforms has been that the internal structural problems of
the hospitals, clinics and public health facilities do not disappear during the transfer. In
Uganda, decentralization did not close the financing gap experienced by many health facilities.
In Sri Lanka, decentralization exposed weak management capacity but failed to
address it. In Ghana, the unfunded social obligations were passed on to lower levels of
government which did not have the financial capacity to absorb this responsibility because
the proposed social insurance reforms had stalled. In many cases, central governments
reassert control in a heavy-handed fashion when local governments deal with politically
sensitive issues in a way that does not accord with the views of the national government on
how such issues should be treated.
Where there is a split between purchasers and providers, similar tensions often arise. In
Hungary and also in New Zealand there has been conflict between purchasing agencies
situated in different branches of the government and still responsible for stewardship (such
as ministries of health and finance) and the owners of the contracted providers (such as
municipalities and local governments). In Hungary, constitutional powers were given to a
self-governing National Health Insurance Fund that was controlled by the labour unions
during the early 1990s. For about eight years, until the abolition of this arrangement in
1998, there was an open conflict between the Ministry of Finance and the Health Insurance
Fund over fiscal policy and expenditure control. Providers were often not paid on time.
Finally, the introduction of user fees creates tensions between policy-based and prepaid
purchasing and market-driven purchases of services by individual consumers. This has
been especially true in many of the central Asian republics and in countries affected by the
east Asia crisis, where the revenues channelled through policy-based purchasing have experienced
a dramatic drop in recent years. This can undermine national policies on priority
setting and cost containment, and as discussed in Chapter 2, it makes financing much less
fair. The issue of how to organize purchasing as an integral part of the financing function is
treated at more length in Chapter 5.
In order to attain the goals of good health, responsiveness and fair financial contribution,
health systems need to determine some priorities and to find mechanisms that lead
providers to implement them. This is not an easy task, because of two sources of complexity.
Priorities should reflect a variety of criteria that are sometimes in conflict, and that
requires a great deal of information that most health systems simply do not now have
available. And to make priorities effective requires a mixture of rationing mechanisms, organizational
structures, institutional arrangements and incentives for providers that must
above all be consistent with one another and with the goals of the system.