User fees and fee exemption mechanism in public health facilities the case of quang ngai province

LIST OF FIGURES Figure 1 : Equity enhancing potential of user fees---Page 11 Figure 2 : Affect ofuser fees to the poor--- 16 Figure 3 : Conventional model--- 35 LIST OF TABLES Table 1 :

HO CHI MINH CITY- MAY 20th, 2002

VIETNAM-THE NETHERLANDS PROJECT FOR M.A ON

DEVELOPMENT ECONOMICS

USER FEES AND FEE EXEMPTION MECHANISM IN PUBLIC HEALTH FACILITIES: THE CASE OF QUANG NGAI PROVINCE

The thesis submitted in partial fulfillment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY

PHAM VAN TRONG

SUPERVISORS: Dr ARDESHIR SEPEHRI

Mse TRAN THANH SON

i

CERTIFICATION

“I certify that the substance of this dissertation has not already been submitted for any degree and

is not being currently submitted for any other degree

I certify that to the best of my knowledge any help received in preparing this dissertation and all sources used have been acknowledged in this dissertation”

Pham Van Trong Date: May 20th, 2002

Ms Chi- the Project Librarian

High appreciations are given to Dr Haroon Akram-Lodhi and Dr Youdi Schipper for worthy academic teaching and encouraging me on my thesis draft

I would like to express my deep appreciations to Dr Gabrielle Berman- member of Project Scientific Committee- and Msc Tran Thanh Son- my supervisor- who gave me lots of valuable academic advise to improve the quality of the paper

From the bottom of my heart, I would like to give many deep appreciations to Dr Ardeshir Sepehri who guide, support and going witìi me throughout the process of doing this thesis Especially, his mental encouragement is a great support for me to finish this thesis Again, I would like to give deep appreciations and best wishes to him and his íamily

Finally, I would like to express my respectíul gratitude to everyone in my family who has been untiringly contributing their mental and íínancial support for me to complete my thesis and looking for my success

Pham Van Trong Date: May 20th, 2002

List of figures

List of tables

Abstract

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION -Pdge 1

1 Problem statement - 1

2 Objectives, research questions and hypotheses ofthe study - 2

2.1 Objectives - 2

2.2 Research questions - 3

2 3 Hypotheses of the study - 3

3 Data source and research method - 4

3 1 Data source - 4

3.2 Research method - 4

4 Rationale of the study - 4

5 Structure of the thesis - 4

CHAPTER 2: LITERATURE REVIEW - 6

I Theorical framework - 6

1 User fees - 6

2 Potential benefit of user fees -, - 6

2.1 Efficiency enhancing potential of user fees - 6

2.2 Revenue raising potential ofuser fees - 8

2.3 Equity enhancing potential ofuser fees - 9

3 Price elasticity of demand for health care - 13

4 Willingness to pay and ability to pay - 14

5 Russell's argument on the inequity of user fees - 14

6 Willis and Leighton's argument on the ineffectiveness of fee exemption

mechanism -7 Gilson and Russel's theory on the ineffectiveness of fee h exemption mec

antsm -11 Empirical

evidence -15

15

19

CHAPTER 3: USER FEES AND FEE EXEMPTION MECHANISM

IN HEALTH SERVICES IN VIETNAM -Page 27

1 Overview of health sector in Vietnam - 27

1.1 Before renovation ( 1989) - 27

1.2 After 1989 - 27

2 User fees and fee exemption mechanism in health services - 28

CHAPTER 4: FEE EXEMPTION MECHANISM, EQUITY AND WILLINGNESS TO PAY: RESEARCH METHODOLOGY AND DATA ANALYSIS - 34

1 Research methodology - 34

1.1 Method of data analysis - 34

1.2 Analytical framework - 34

1 3 Data collection - 3 6 2 Overview of main economic activities and health care system in Quang Ngai

province -3 Data

analysis -3.1 Definition of the poor and the

non-pu-:r -3 2 Data analysis and

discussion -3 2 1 Commune health

centers -3 2.2 Ba To district

hospital -3 2 hospital -3 Quang Ngai provincial hospital

-CHAPTER 5: CONCLUSION AND

SUGGESTION -"''

37

40

40

44

44

45

51

57

LIST OF FIGURES

Figure 1 : Equity enhancing potential of user fees -Page 11

Figure 2 : Affect ofuser fees to the poor - 16

Figure 3 : Conventional model - 35

LIST OF TABLES Table 1 : Econometric estimates of own price elasticities of the demand for medical care in developing countries - 20

Table 2 : Mobilizing resources to pay for care - survey in Sierra Leone - 22

Table 3 : Mobilizing resources to pay for care (% ) - 23

Table 4: User fee exemption for occupational groups: Cross country experience - 25

Table 5 :Health service contacts per person following per capita expenditure quintiles, 1998 - 31

Table 6: Percent ofusers who are exempted from payments for a visit to a governmental health facility, 1998 - 32

Table 7 : Variable framework - 36

Table 8: Income:per capita following income quintiles - 43

Table 9: Payment and exemption for outpatients in district hospital - 47

Table 10: Payment and exemption for inpatients in district hospital - 48

Table 11: Inpatient care costs and health financing sources - 49

Table 12: Payment and exemption for outpatients in provincial hospital - 52

Table 13: Payment and exemption for inpatient in provincial hospital - 53

Table 14: Inpatient care costs and health financing sources - 54

ABSTRACT User fees have come to play a significant role in the financing and delivery of public health services in many developing countries since 1980s It is considered as a way of rationalizing the use of care, raising revenue and improving the coverage and quality of health services While many have been written on the revenue-raising potential of user fees, little is known about the equity-enhancing potential ofuser fees

In Vietnam, user fees were introduced since renovation in health sector in 1989 Although there is formal fee exemption mechanism for the poor in public health services, it doesn't work well in practice My paper tries to examine the equity impact of user fees by coming to know the fee exemption mechanism in public health facilities in Quang Ngai province On that purpose, my study tries to examine whether the poor patients receive exemptions in health services, there is a correlation between household income and level of exemption, and the poor has to sell their productive assets to pay for care or not From that, some conclusions and suggestions are given to the policy-makers to improve the equity of user fees in health services

CHAPTER 1: INTRODUCTION 1- Problem statement

One of the objectives of governments around the world is the promotion of human development in general and the health of the population in particular So, the provision of health care is the great concerns for many countries in all over the world Since the early 1980s, many governments of developing countries have been restructuring the financing and the delivery of publicly provided health services Due to the serious imbalances between demand and supply of health services and the budget constraints, many low and middle-income countries have introduced user fees or user fees in health services as an essential policy to finance publicly provided health services According to de Ferranti (1985), Griffin (1987) and World Bank (1987), user fees have been considered as a way of rationalizing the use of care, mobilizing sources within the health sectors, encouraging community participation and making the delivery of health care services more efficient and equitable Revenues from user fees are used to expand the coverage and the quality of services The improvement in coverage and quality of health care services combined with the exemption of user fees for the poor are argued to enhance equity because it creates chances for the poor to access the high quality health services But in reality, the introduction of user fees in some aspects is not good for some people in society, especially the poor Theoretical models suggested that the price elasticity of demand of health services is to be higher for the low-income groups than the higher income groups (Me Pake, 1993) So, user fees combined with no policy to exempt the poor are unlikely to promote equity and harmful for the poor Many poor patients, who face difficulties in finding funds to finance medical care, has to transfer funds from payment for foods and other necessity goods or selling off productive assets to payment for care (Russell, 1996)

Before doi moi (economic reforms), the government of Vietnam provided medical care free

of charge The user fees were introduced in the late 1980s when the "doi moi" policy encouraged private sector's participation in health services Public hospitals began charging patients for consultations and drugs In 1989, a fee system was introduced in three levels (district, provincial and national) of the health care delivery system In 1995, the Ministry

of Health issued formal user fee schedules for each kind of consultation and each kind of diagnostic test and procedure in clinics and hospital (Vietnam-Public Expenditure Review 2000) However, as it is noted by the Vietnam-Public Expenditure Review 2000, although there is a formal fee exempting mechanism for the poor, handicapped, war veterans, orphans and individuals suffering from certain ailment, it doesn't work well in practice The research of Ensor and San ( 1996) showed that there is no correlation between fee exemption and household income

Quang Ngai was chosen because it is a poor province located in the middle of the central of the country In 1999, GDP per capita in Quang Ngai is equal to USD 17 4, whereas GDP per capita in Vietnam as a whole is USD 363 at that time (Quang Ngai statistical yearbook, 1999) Main cultivations here are rice, sugar-cane, casava The livestocks include buffalo, cow, pig, chicken The health care system here is underdeveloped including one provincial public hospital, district health centers, and commune health centers In 1990, user fee system in health services was introduced and applied But it is seemly that it operated ineffectively Many poor patients didn't receive any exemption from payment for treatment and some had to sell their assets to finance their costs of treatment

Crucial to the equity-enhancing potential of user fee argument is the assumption that the poor need to be exempted from paying user fees While many have been written on the revenue generating potential of user fees, little is known about their equity enhancing effects The purpose of my research is to fill this gap by examining (i) the exemption mechanism as practiced in Quang Ngai province and (ii) the extent to which the households rely on selling their asset to pay for the medical expenses

2- Objectives, research questions and hypotheses of the study

2.1 Objectives

Some previous research (Russell and Gilson, 1997) indicated that there is no policy to exempt the poor from user fees in health services in some developing countries And if having, it didn't operate well in practice My study tries to examine how the fee exemption mechanism operates in health care system in Quang Ngai province; whether the poor

receive fee exemption in health services; and in the case of receiving no fee exemption in health services how they pay for their treatment From that, some suggestions on user fee mechanism in health services are given to policy-makers to make it better

2.2 Research questions

The main research question in my study is:

• Do poor patients receive an exemption or reduction of user fees in public health facilities including: commune health centers, district health centers and provincial hospitals?

Besides that, the sub-research questions in my study are:

• Is there a correlation between household income and fee exemption level in health services?

• Do the poor households with illness have to sell their assets in order to pay their cost of treatment?

2.3 Research hypotheses

The main hypothesis of my study is:

• That not all poor households receive fee exemption from public health services There are some poor households who don't receive any fee exemption

The sub-hypotheses of my study are:

• That there is no correlation between household income and fee exemption in health care It means that exemption doesn't increase from highest income quintile to lowest income quintile It may be that the poor receive exemption equal to or less than the rich do

• That some poor households have to resort to selling their assets in order to pay hospital fees Selling productive assets such as machines, buffaloes, land etc will

decrease household's income generating capacity It leads to a decline in their standard of living and welfare

3- Data sources and research method

3.1-Data sources

The primary data was collected through a household survey by direct interview in 3 mountainous villages: Ba Thanh, Ba Dong and Ba Cung in Ba To district, Quang Ngai province Choosing observations is random 150 households were interviewed directly in 3 weeks The interview was implemented by asking the household heads and then filling in the questionnaires

3.2- Research method

From above collected data, method of descriptive statistic will be used to measure qualitative variables This method will produce output tables that results are expressed in number and percentage relative to income quintiles that are easy for us to access and

4- Rationale of the study

Quang Ngai is the poor province including 7 plain districts, 5 mountainous districts and 1 island district The purpose of my study is to examine how the fee exemption mechanism for the poor operates in health services So, I chose the Ba To district is the one of 5 mountainous districts, where the ethnic people with the low standards of living takes a large amount of the population in the district, to do the survey Choosing the villages in Ba

To district to do the survey is also important To do that, I chose 3 villages: Ba Thanh, Ba Dong and Ba Cung in relative to the district lowest per capita income in Ba Thanh, the average in Ba Dong and the highest in Ba Chua Doing so will help me to collect suitable observations, including the poor and the rich, in order to do my research

5- Structure of the thesis

My thesis will be divided into 5 chapters Chapter 1 is the chapter introduction Chapter 2

is the literature review First of all, I summarize some theorical amd empirical arguments relating benefits and disavantages of user fees Then, in analytical framework, some empirical arguments highlighting disadvantages of user fees and fee exemption mechanism are presented that they are considered as basis for my analysis later Chapter 3 is user fees and fee exemption mechanism in health services in Vietnam Some general overview of health sector in Vietnam are introduced first Then some benefits and disadvantages of user fees are assessed Whereas, I especially stress disadvantages of user fees and fee exemption mechanism to the poor Chapter 4 is fee exemption mechanism, equity and willingness to pay: research method and data analysis This chapter will analyze the fee exemption mechanism, equity and willingness to pay in public health services in Quang Ngai province First of all, research methodology is introduced Whereas, method of descriptive statistic is used in my study Next, some general features about Quang Ngai main economic and health care system are introduced to help readers to have some general thinkings about Quang Ngai province Finally, data analysis will give out results collected from the research Chapter 5 is conclusions and suggestions From the analysis in chapter 4, some conclusions and suggestion are issued to make the user fee policy and fee exemption mechanism operate more effectively in Vietnam now

1'

CHAPTER 2: LITERATURE REVIEW

I Theorical framework

1 User fees

Since the 1980s, due to budget constraints and government expenditure crises in social basic services in some low and middle- income countries, the introduction of user fees was considered as the government's important and essential policy to finance social basic services: health, education, transportation, energy, etc Dor and Van Der Gaag (1991) highlighted that some countries, such as the countries of Sub-Sahara African, that had traditions in supplying health services free of charges had now introduced fees User fees were introduced as a primary policy response to health sector resource constraints

The term of user fees was defined by Kamal Malhotra (1999) referring to the social economic policy obtaining direct financial contributions from individual users of social basic services as health, education, energy, etc Besides that, to avoid the confusion between user fees or cost-recovery and 'cost sharing or community financing, he also introduced four important definitions referring to four of the above concepts He suggested that cost- sharing and community financing are normally expressed in labor or other kinds, not in cash, and involve some forms of participation, management or control over the use

of contributions and revenues By contrast, cost recovery and user fees mainly involve the contribution in cash without community participation, management or control He also added that user fees are normally imposed on individuals based on a form of charge per unit of used service and revenues obtained are returned to higher administrative levels of either government or private sector

2 Potential benefit of user fees

The potential benefits of user fees are often analysed related to efficiency-enhancing, revenue-raising and equity-enhancing potentials

2.1 Efficiency-enhancing potential of user fees

2.1.1 Arguments for efficiency-enhancing potential of user fees

There have been many arguments for efficiency- enhancing potential ofuser fees

Griffin (1987), in his study, wrote about efficiency-enhancing potential of user fees He said that the application of user fees would encourage rational utilization of services among users by limiting the use of services for 'frivolous' or 'unnecessary' reasons He argued that if users of health services have to pay partially or fully for services, they will have more responsible attitudes toward the use of services because they have to pay for their use

on health services from their pocket This will limit the use of services for 'frivolous' or 'unnecessary' reasons

Next, he also argued that a well-designed fee structure at public facilities will reflect the relative costs ofthe services and reduce patients' inappropriate use of referral care Prior to user fees, most patients go to hospital to treat their illness freely Now, patients have to consider their financial ability and level of their illness before they go to hospital And in some cases, some patients whose illnesses can be sufficiently treated in lower level health facilities will do so It will reduce the overcrowding in hospital

Mwabu ( 1997) also spoke about user fees and encouraged the rational utilization of services among users He said that a system of moderate user fees can be considered as a mechanism for curbing moral hazard behavior Previously, patients are treated freely in the health facilities Therefore, they don't have precautionary attitudes to their health and illnesses Now, most of patients have to pay for their treatment at health facilities Hence, it may be difficult for them when they get illnesses or diseases because it takes them a large amount of money for their treatment So, everyone now has an appropriate attitude to health to avoid unnecessary visits to health facilities

2.1.2 Arguments against efficiency-enhancing potential of user fees

Besides the arguments for efficiency-enhancing potential, there have been many arguments agaisnt efficiency-enhancing potential ofuser fees

Abel-Smith and Rawall (1992) argued that user fees deter 'unnecessary' or 'frivolous' use

of health services is based on the assumption that people know enough about their own and family needs of health and potential benefit of some health services In fact, this assumption is rarely true because many patients are not in position to judge the serious level of their disease symptoms and how much they will pay for suitable treatment

In addition, user fees are only one component of the total cost of obtaining health services Indirect costs, including costs in time (traveling, waiting and treatment time), efforts, money lost, money spent on travel and sometimes unofficial payments for health personnel, often take a large share of total costs of treatment Therefore, if the indirect costs are high enough, most of unnecessary use will be reduced due to the indirect costs, not due to user fees So, user fees play no role in curbing the 'frivolous' or 'unnecessary' use of health services

Yoder (1989) suggested that the introduction of user fees is argued to do little to curb the 'frivolous' or 'unnecessary' use of wealthier groups in society The rich already accept spending on services with the purpose ofbetter health So, user fees will not influence their behavior on their health

Barer (1994) said that there are always existence of informational asymmetry and incomplete agent relationships between the providers and the users of health services So, user fees will punish patients for decisions made by providers about which patients have little or no understanding Hence, in some cases even though they spent much money on their treatment, the effectiveness of their treatment may be not equal to the amount that they spent

2.2 Revenue-raising potential of user fees

2.2.1 Arguments for revenue-raising potential of user fees

There have been many arguments for revenue-raising potential of user fees

Griffin (1987) suggested that user fees are considered as a way of increasing the financial resources of the health sector and through that help to alleviate governments' budget

constraints in developing countries Greater reliance on user financing helps to reduce the public health costs by shifting part of health costs to recipients of service and thus reducing economic burden for government Moreover, user fee mechanism will curb 'frivolous' or 'unnecessary' use of services as mentioned above Therefore, more sources will be freed

In addition, part of the collected fee revenues is retained at the public health facilities It

can be used to improve the coverage and quality of services The improved quality of services, in turn, will increase fee revenues and thus increase revenue potential from fees WHO (1988) admitted that the introduction of user fees in health services can be considered to encourage community financing and participation in health sector In other words, fee collection is aim to mobilize private resource in health sector It creates high revenue-raising potential of user fees

2.2.2 Arguments against revenue-raising potential of user fees

There have been many arguments against revenue-raising potential of user fees

Nolan and Turbat (1995), in their research in developing countries, found that the collecting ratio is in practice very low It's often under 10-20 per cent of total government recurrent health expenditure This affects directly the revenue-raising potential ofuser fees Gilson (1995) found that the revenue-raising potential of user fees is in reality constrained

revenue-by some of the following factors: weak administration and management capacities, seasonality in the availability of cash and lack of flexible credit system Clearly, in developing countries, there is the fact that the administration capacities are very weak and are often corruption with substantial costs of cumbersome administrative mechanisms Therefore, they cause large resource waste and limit revenue-raising potential in health sector Moreover, the formulation and implementation of a system of differentiated user fees by different income groups require the various community members and health personnel to have the administrative and managerial skills to set up affordable fee levels in compliance with households' ability to pay Unfortunately, these requirements are rarely met in practice Besides that, the poor have little availability of cash for treatment and a

9

lack of flexible credit system as a payment intermediate, which serves to partially constraint the revenue-raising potential of user fees in health sector

Sepehri and Chernomas (2000) argued that the revenue-raising potential of user fees is also limited by the fact that the collected fees revenue are in practice rarely fully retained at local hospitals to improve the coverage and quality of the health services A large proportion of fee revenue is often transferred to local treasury and government's budget for other purposes that it is sometimes used ineffectively

Mwabu (1997) stressed that the revenue-generating capacity of user fees and its sustainability have also been constrained by limited community participation The reason is that user fees are often imposed by relevant authorities on the use of people or communities without the prior consultation or with litt~e consultation This may cause the isolation and opposition of users to the introduction of user fees and partially limit community participation In the case of limited community participation and considerable opposition to the introduction of user fees, the collection of fees may then face some difficulties such as non-payment, delayed payment or a decrease in patient quantities All partially limit the revenue-generating capacity of user fees

2.3 Equity-enhancing potential of user fees

2.3.1 Arguments for equity-enhancing potential of user fees

There have been many arguments for equity-enhancing potential of user fees

Griffin (1987) argued for the equity-enhancing potential of user fees He said that equity here is understood to be better served by charging the user fees and using the retained fee revenues to expand the coverage, especially to under-serviced areas, and improve the quality of the health services, such as a better supply of drugs and other essential medical equipments, better working condition for health personnel, the upgrading/restraining of the health personnel and better maintenance of buildings and equipments

Moreover, Leighton (1995) issued that when the user fee collecting mechanism is applied, the health sector self-finance sufficiently The result is that more freed government

budgetary resources are launched and used for further improvements in availability and quality of the services as these resources are redirected toward under-funded programmes that provide public benefits and toward increasing the coverage and quality of the services that is used by disadvantage groups in society Besides that, these improvements also provide benefit to the poor by making the public health centers more affordable and reducing total cost of treatment to the poor in public health centers in comparison with traditional care

Besides that, Gilson (1995) added that it is administratively feasible to formulate and implement an effective pricing and collection mechanism in health sector that protects the poor This will set up equity for all income-groups in accessing public health services The fee exemption mechanism will help the poor to avoid full cost of care and create more chances for them in getting quality public health services

In general, the arguments for equity-enhancing potential of user fees focus on the fact that fee revenue needs to be used to benefit the poor and the poor need to be exempted from payment for care All have the same purpose of increasing the chances of accessing the quality health services for the poor And they are express in the following figure:

Figure 1: Equity-enhancing potential of user fees

I Equity

Better health

The exempted ~ncreased

2.3.2 Arguments against equity-enhancing potential of user fees

Arguments against equity-enhancing potential ofuser fees are as following

Gilson (1995), in his findings, said that the equity-enhancing potential of user fees is limited due to only small part of fee revenues is retained at local health facilities and used for small improvements in perceived quality, such as maintaining adequate drug supplies and supplementing staff salaries Most of revenues are often transferred to the central treasury for other purposes So, there is a lack of resource to expand the coverage and improve the quality to benefit the poor in the local health facilities

He also said that the introduction of user fee mechanism often do little to improve the health status of the poor, especially the poor in rural areas, because the existing fee revenue allocation mechanism is inequitable and often skewed towards urban, not rural areas And even though governments receive external aids to reform the health sector, the allocation of governments' public health expenditure still continue towards urban sector rather than rural sector

Mills (1991), issued that user financing may lead to a deepening of regional inequity in health sector Some regions and districts with low living standards, low proportions of population able to pay and few health facilities are often less able to raise the fee revenues than in some regions and districts with people's high living standards, high proportions of population able to pay and many health facilities So, the resources for improvement in quality and coverage of health services to benefit the poor in these regions and districts are less than in better-off regions To achieve equity in health sector under such circumstances, governments have to either redistribute revenue from user fees towards the less-favored localities or reallocate budgetary subsidies towards the locations with lower fee revenue per capita In practice, experience from developing countries show us that the budget allocation

is often towards the better-off regions rather than the worse-off regions

According to Russell (1996), the demand for health services by low-income households are more sensitive to price changes than the demand by high-income households So, an increase in prices or an application of user fees to health services will decrease greater the

demand for health care in low- income households than in high-income households So, users charges are likely to hurt the poor

He also added that the willingness to pay and demand studies do not examme how households obtain resources to pay for care and how the health status and the overall welfare of household's members are affected when they face difficulties in payment for their treatment To solve difficulties in paying, the poor households have to divert funds from the purchase of food and other basic necessity goods or selling off their productive assets to the payment for care Diverting funds from the purchase of food and other basic necessity goods to payment for care will affect badly the hea1th status of household's members in long term Selling off productive assets to pay for care will decrease household's livelihood and income generating capacity The result is that household's welfare is decreased

Willis and Leighton (1995) in their study said that the effectiveness of equity-promoting mechanism in health care is known little and some factors are likely to constraint the effectiveness These factors are definitions and measurements of household income to issue exemptions Even if we are able to identify household income, the effectiveness of exemption mechanism are also hampered by other factors including social and cultural factors Those are information about exemption option, cost of travel, the fear of stigmatization and other non-monetary cost of access (socio-cultural barriers associated with age, gender and race) On the other hand, although many governments recognize the need to exempt the poor who are unable to pay, the policy guidelines and frameworks on exemption are often left to health facilities and local communities Thus, the implementation is ineffective

3 Price elasticity of demand for health care

For a long time, people in developing countries have been used to using public health services freely So, the introduction of user fees will affect their demand for care Malhotra (1999) researched the affect of user fees on price elasticities of demand He said that in general when the price of goods or services goes up or when a previously free good or service needs to be paid, it will affect the demand for care of different income groups in

society in different ways He suggested that the poor and vulnerable person has high and negative demand elasticities in social basic services, such as health, education, energy, etc

So, when user fees are introduced, it will diminish their demand by an amount larger than amount of increase in price On the other hand, the rich have a low demand elasticity or inelasticity in social basic services So, the significant increase in price will not affect or affect inconsiderably their demand for these services In other words, the rich will have both willingness to pay and ability to pay for their demand in social services, unlike the poor who has willingness to pay but not be able to pay

4 Willingness to pay and ability to pay

The introduction of user fees in health services in many developing countries means that people are expected to contribute to the cost of health care from their own pocket So, user fees are related closely to the people's willingness to pay (WTP) and ability to pay (ATP) for health services

Malhotra (1999) considered 'willingness to pay' measures for demand for a good or service based on the assumption that families or individuals will have sufficient resources to cover all their needs and therefore not need to manage their needs in advance By contrast, ability

to pay is directly related to the size of household's limited resources in relation to a variety

of competing basic needs, such as water, food, health care, education, housing, etc, which needs to be prioritised to important needs He also said that the poor and vulnerable people who may have a willingness to pay but clearly lack ability to pay in their daily consumptions and access to other social basic services So, he argued that the two concepts

of willingness and ability to pay are different

Moreover, Russell (1996) analyzed more clearly the difference between WTP and ATP He said that some poor families, even though they face many great difficulties in paying for the health services, still persist in using the services because they don't have any other choices The money, which they used to pay for health services, can be used to serve other needs, such as food, education or agriculture investment, etc Hence, payment for health care is made at considerable social cost to these families And so, this payment is rarely said to express 'willingness to pay' in compliance with the normal meaning of this word

He also argued that WTP is not synonymous with ATP because health expenditure may impose considerable cost on consumption and investment to the poor households And in the case that they haven't got enough cash, it may cause them start a process of asset depletion and impoverishment to pay their treatment In summary, ATP is related to ability

of mobilizing resources to pay In which, cash income is not the only determinant of ATP for health care and thereforce is not the only resource available to household Potential resources include cash, assets, education, consumption and investment, etc

5 Russell's argument on the inequity of user fees

According to Russell (1996), the demand for health services by low-income households are more sensitive to price changes than the demand by high-income households So, an increase in prices or an application of user fees to health services that they are free before will decrease the demand for health care greater in low- income households than in high-income households A large decrease in demand for health services also means a large decrease in health care for the poor and it's likely to hurt the poor

He also added that the willingness to pay and demand studies do not examme how households obtain resources to pay for care and how the health status and the overall welfare of household's members are affected when they face difficulties in payment for their treatment To solve difficulties in paying, the poor households have to divert funds from the purchase of food and other basic necessity goods or selling off their productive assets to the payment for care Diverting funds from the purchase of food and other basic necessity goods to payment for care will affect badly the health status of household's members in long term Selling off productive assets to pay for care will decrease household's livelihood It means that household's income generating capacity is decreased

So, household's welfare is decreased

In summary, Russell's argument is expressed in following figure

Figure 2: affect of user fees to the poor

Diverting funds

Decreased User ~ The from purchasing ~ ~ health

charges poor foods or other status and

necessities and

livelihood selling off assets

is in informal sectors, not in accounts in the banks as in some developed countries So, to give correct definition and measurement of household's income is very difficult Next, even if we are relatively able to identify household income, the effectiveness of exemption mechanism is also hampered by social and cultural factors, such as lack of information about exemption options, cost of travel, the feat of stigmatization and other non-monetary cost of access (socio-cultural barriers associated with age, gender and race) On the other hand, although many governments recognize the need to exempt the poor who are unable to pay, the policy guidelines and frameworks on whom to exempt are often vague and left to health facilities and local communities Thus, the accuracy and appropriateness of exemption scheme become dependent on health personnel and community leaders and on whether patients or facilities bear the burden of the inability to pay user fees It may lead to the ineffectiveness of fee exemption mechanism

7 Gilson and Russel's theory on the ineffectiveness of fee exemption mechanism

7.1 Identification of target groups

According to Gilson and Russel (1995), the vital step in developing the exemption mechanism is to identify the target groups He highlighted two kinds of targeting mechanisms including direct targeting and characteristic targeting

~ Direct targeting is based on income level

~ Characteristic targeting is a method using the general characteristics of groups of people to identify who are eligible for protection Three main types of characteristic are used:

• Geographical characteristic It means that people living in a given area and they have the same some characteristics, such as ethic people living in mountainous areas that have low incomes, low standards of living and lack

of health care, etc So, they need subsidized care

• Demographic characteristic It means that subsidized care are given to group

of people on the basic of age or sex For instance, children under five olds or the elderly receive subsidized care

year-• Specially-health or medical condition of the person For example, children and pregnant mothers will receive subsidized care and services such as immunization or chronic diseases (tuberculosis, leprosy) will also receive subsidized care

situation is that the lack of information about people's income This makes local exemption administrators face huge difficulties in assessing household's income Even if the relevant information is available, the income eligibility criteria may not accurately reflect ability to pay In developing countries, the majority of population are living in rural areas and their incomes from informal sectors are relatively large Therefore, data on earnings are often scant and it is difficult to locate a household above or below an "arbitrary poverty line" Even where it is possible to use "poverty lines" to identify the poor, it doesn't indicate accurate targeting of benefit to the poor because:

• Household income changes seasonally and annually

• Households transfer income to other kinds

• Household data indicate little about differences in income and access to health care (e.g a woman in a non-poor household may not have money and little chances to access quality health services)

• There is considerably distortions in living conditions among households living under poverty line

• Households may be classified as wealth because they have assets even if they

do not cash But, the main determinant of ability to pay for health care may be cash availability rather than assets

• The high levels of illiteracy of respondents make the reduced accuracy of information on the diversified sources of household income

cost are often high-income civil servants A survey in Niamey National Hospital showed that the median income of patients who are not exempted is lower than the median income

of patients who are exempted On the other hand, patients in the "indigent" category paid for their treatment much higher than other categories

ll Empirical evidence

1 Price elasticity of demand for health care

In the recent years, there have been a large number of studies (see Gertler and Hammer,

1997 for review of empirical studies) that have tried to estimate the price elasticity of demand for outpatient health services using cross-sectional household surveys They suggested that higher prices are associated with lower utilization In addition, the important result coming out from these studies is that the price elasticities differ among economic and demographic groups, in particular between the rich and the poor They produced that the demand for health care by low-income people are more sensitive to the price changes than those by high-income people This means that increasing in fees will reduce more utilization to low-income people than to the high-income people

Gertler and Hammer ( 1997) summarized some empirical studies usmg econometric estimates on own price elasticities of demand for medical care in developing countries All

of these studies indicated that the demand for health care by low-income people are more sensitive to the prices than those by high-income people They are expressed in the absolute values of own price elasticity of demand for health care to low-income people are higher than those to high-income people

' l '

Table 1: Econometric estimates of own price elasticities of the demand for medical

care in developing countries

Overall Low income High income

(1994)

Cote d'Ivoire 1985 Health clinic -0.61 -0.38 Gertler & Vander

Female Traditional healer -0.43 -0.24 Gertler (1997)

Source: Gertler and Hammer (1997)

From the above table, we see that when price of a health service increase, it will take a reduction of demand for that service by low-income households larger amount than those

by high-income households So, price increase is likely to hurt the poor For example, Chin (1995) found that the price elasticity of demand for public health providers in Philippines is -2.26 to low-income households and -1.28 to high-income households It means that when price of public health services increase 1%, it will take a reduction 2.26% of demand for

those services by low-income households which is nearly twice the reduction 1.28% of demand for those services by high-income households

2 Household's ability to pay for care and its impacts on their life

2.1 Household's ability to pay

Russell (1996) summarized some results of ability to pay based on previous household surveys implemented in some developing countries The surveys indicated that the lack of cash to pay for care is common in developing countries A survey in Sierra Leone (Fabricant, 1992) found that cash to pay for care was not available in 56% investigated households and that a lack of cash prevented 34% patients from seeking medical treatment

A survey in Kenya (Mwabu, 1995) also produced the same finding that 59% of respondents did not have cash available to pay for care In Tanzania (Abel-Smith and Rawal, 1992), 32% of rural households and 22% of urban households said that they didn't have enough money to pay for care

The lack of cash to pay for care has forced families to mobilize other resources A survey

of 545 households without available cash to pay for care in Sierra Leone (Fabricant, 1992) showed household's resource mobilizing and frequency of each resource as in table 2

Table 2: Mobilizing resources to pay for care- survey in Sierra Leone

Reponses of households without available cash to pay for care Frequency (%)

- Borrowing from relatives or friends 44.4

- Borrowing cash from money lender or bank 1.7

- Foregoing investment in other essential areas 1.3

- Using, selling or pledging stores and assets:

In addition, other community surveys in 6 Mrican countries by Abel-Smith and Rawal (1992), Me Pake (1992) and Mwabu (1995) showed us about the resources used to pay for care (table 3) All respondents resorted to non-routine cash sources to pay for care It suggested that households didn't have enough cash to pay for care and had to mobilize non-routine cash sources These surveys also indicated that the dominant resources mobilized when cash is not available are borrowing from relatives or friends Followings are selling stores ofvalue (farm produce, belongings and livestock)

Table 3: Mobilizing resources to pay for care(%)

Sources of money for health expenditure Tanzania Kenya Uganda Nigeria Burundi Guinea R.outine wage or salary income 40.2 41.2 - - -

Borrowing from relatives or friends 35.6 21.1 49 36 35

Borrowing cash from money lender or bank - - - 1 1

roregoing consumption of other essential - - - -

-nnmodities (e.g food)

roregoing investment in other essential areas - - - -

-Selling farm producea 32.3 19.3 - 23 18

Using, selling or pledging stores and assets:

c Including not seeking care and paying in kind

d Totals more than 100% indicate respondents gave more than one answer, totals less than 100% indicated no receiving of some responses in the surveys

Sources: Abel-Smith and Rawal (1992), McPake (1992) et al., Mwabu (1995) et al

2.2 Impacts of ability to pay on household life

Above surveys indicate that the dominant resource mobilized when households had not available cash to pay for care was borrowed from relatives or friends However, this

borrowing caused some serious problems According to the research ofFabricant SJ (1992)

in some developing countries, loans are nearly always paid back So, they will impose a burden on household's future income and reduce household expenditure on other necessity goods, such as education, food, housing, etc It will reduce household's welfare On the other hand, when they don't have money to pay back, their reputations are lost In that case, they have to leave their villages and start new lives in other areas

Although the sale of farm produce is a common response, whether it was surplus to consumption requirement is an important question Coreil ( 1993)' s study of allocation of household resources for health in rural in Haiti indicated that families spent considerable amounts from selling farm produce on medicine for children aged 2-5 years But, the result

is they could not afford adequate diets for these children to prevent malnutrition

Besides that, sales of productive assets and stores have serious impacts on household life Studies in Thailand by Baum and Strensky (1989) and in Kenya by Chambers (1982) reported that 60% and 24% of land sales were to get money for illness treatment The sales

of these productive assets reduce household's livelihood and earning capacity It will reduce families' future income and living standards

Foregoing consumption of other essential commodities and investment in other essential areas for health expenditure also impose bad impacts on household life For example, spending much on health will lead to the lack of funds to support children's education And thus, it will reduce household's human capital and future earning generation Waddington and Enyimayew (1989) gave an example in Ghana of a man that had to pay 2000 cedis for treating his wife's jaundice in hospital But unfortunately, the time of payment coincided with the time of reopening of his son's school And it caused financial difficulties 'The money spent on my wife's illness was ear-marked for the payment ofthe children's school fees and buying of school uniforms' (Waddington and Enyimayew, 1989), the man said

3 The failure of exemption mechanism by targeting groups

3.1 The failure of exemption mechanism by characteristic target following occupation

Russell and Gilson (1997) implemented an international survey of user fees and exemption policies in health services in 26 low and middle-income countries to consider whether the user fees policies protect the poor or not They found that the exemption option for the poor through occupational characteristic targeting was not effective (table 4)

Table 4: User fee exemption for occupational groups: Cross country experience

Groups covered by exemption policy Number (per cent) of countries where

exemption operate Health workers/health workers and families 13 (50%)

Civil servants/civil servants and families 10 (38%)

Military personnel 8 (31%)

Source: Russell and Gilson (1997)

The unemployed were most disadvantage occupational category but the results showed that they received exemption the least, only in 7 countries (27 percent) In contrast, non-poor occupational groups such as health workers, civil servants and military personnel received exemption commonly The most protected occupational group was health workers and their families It means that the exemption for these groups was inequitable and there was an increase in leakage of benefits to the non-poor

3.2 The failure of exemption mechanism by direct targeting

Gilson, Russell and Buse (1995) gave evidence from Thailand reported about the failure of exemption mechanism by direct targeting In Thailand, low-income households, determined by income per capita level of household, received the cards with which they can use to obtain fee exemption at clinics and hospitals Village leaders and committees are responsible for identifying which households are worth of receiving the cards The survey ofMinistry of Public health (MOPH) in 1988 indicated that only 28.3 per cent of the target group held the cards and the household survey in the same year re-confirmed this suggestion that only 28 per cent of the interviewed 8648 eligible households actually held the cards On the other hand, the survey showed that 19.5 per cent of cards were distributed

to the wrong people, to the non-poor So, the poor are commonly under-covered in health services and there is high leakage of coverage to the non-poor

•!• Summary of the literature review

Since the late 1980s, many developing countries have applied user fees in health sector in the purpose of mobilizing resources for public health services There are many arguments relating to the benefits and disadvantages of users fees While many arguments support user fees, others against them The literature review highlighted that the poor should be exempted from user fees It may contribute to increased equity of user fees But in reality, the fee exemption mechanim operates ineffectively Not all the poor receive exemptions in health services So, some of them have to sell their assets to pay for care Selling assets, especially productive assets, leads to a deq.ease of the poor's income generating capacities and living standards, further increasing the inequity resulting from the application of user fees

CHAPTER 3: USER FEES AND FEE EXEMPTION MECHANISM IN HEALTH

The Vietnam health sector began facing challenges after reunification in 1975 when the public health care network in the North was extended throughout the South The negative growth of the Vietnam economy in the 1980s limited government's ability to finance the extensive hospital and clinic network as well as the preventive outreach programs (Gertler and Litvack, 1998) Some basic health services (basic curative care and preventive care) in communes were financed by commune resources But in the late 1980s, the collapse of cooperatives considerably reduced the financing to commune health centers Moreover, the collapse of Soviet Union in 1991 led to the situation that Vietnam lost health aid Along with the budget constraint, the above causes led to crisis in the health sector and reduced the extended coverage ability of public health facilities and programmes Facing this situation, Vietnam implemented a renovation in health sector in 1989 when user fees were applied in public health facilities and private health care was officially recognized for the first time

1.2 After 1989

The remarkable point of the renovation in health sector in 1989 was that health care with private participation was admitted for the first time The government opened the door for private participation with the purpose of mobilizing resources in society to finance and improve health services The public hospitals began charging patients for their consultation and drugs in order to mobilize private financing for public health services In 1989, a fee system was introduced in three levels of health care system including district, provincial and national levels It required the patients who are able to pay have to pay at least a minimal part of their health care The handicapped, orphans, families of health personnel, individuals who have certification of indigency from village people's committees and patients suffering from certain diseases (i.e tuberculosis, leprosy, etc) were treated free of charges In 1995, the Ministry of Health issued user fee schedules applied for each type of consultation and each type of diagnostic test and procedure in clinics and hospitals (Vietnam- Public Expenditure Review, 2000) For inpatient services, there is an additional daily bed charge User fees change relative to hospital levels (i.e first-class hospital, second-class hospital, fourth-class hospital and polyclinic ) In addition, the schedule includes a range of charges- not a single fixed charges- for each type of services Non-insured patients and patients not eligible for fee exemption are required to pay all fees in advance Patients are responsible for the purchase of drugs themselves, either from private pharmacies or public pharmacies in public hospital premises

2 User fees and fee exemption mechanism in health services

The user fee policy has mobilized private sources into health sector The role of private sector has become more important The role of public sector has become relatively minor Untill 1998, while hospital inpatient care was still provided 100% by the public sector, two-thirds of outpatient consultations were provided by the private sector Drugs, for self-medication without formal consultation, are now exclusively provided by the private sector (Prescott, 1997) In terms of financing, the private sector contribution came to 7,500 billions dong in 1993 In which, the dominante proportion was spent on drugs (7,300 billions dong) While the government is a large provider of health services, its role in financing health expenditure is modest In 1998, the public share in aggregate health

spending was only 20 percent, the remaining 80 percent is taken by the private sector (Vietnam Public Expenditure Review, 2000)

Although the renovation in the health sector via the introduction of user fees brought a big success in the mobilization of private resources to finance health services, the introduction ofuser fees led to inequity in accessing to health services between the rich and the poor

• Health expenditure

The lack of a systematic effort to protect the poor through fee exemption mechanism in health services leads the poor to pay significant user fees for their treatment In 1993, the poor had to pay the equivalent of 8% of their non-food consumption for a visit to the commune health services, whereas the rich only paid the equivalent of 3% of their non-food consumption In addition, the poor had to pay 26% of their non-food expenditure for hospital outpatient visits that is four times as much as the rich did (Prescott, 1997) Such expenditure on health care made the poor poorer and the rich richer

• Service utilization

The reform in health sector by introduction of user fees have transformed the provision of health care into a large private market The public sector no longer monopolizes the delivery of health care although it's still main provider of inpatient care The private sector takes a large participation into outpatient services and drugs This creates a wide range of health care providers - not only public hospitals, but also private doctors, paramedics, pharmacies, and drug dispensaries (Gertler and Litvack, 1998) The choice of health providers varies marketly across economic groups In recent years, along with increasing income, there is a shift toward higher quality health services including private clinics, doctors and public hospitals and away from low quality health services including drug-vendor and commune health centers (Vietnam Public Expenditure Review, 2000)

There is a substantial difference in quality of care between low quality health services and high quality health services For example, there is a difference in quality of services between commune health centers and public hospitals In commune health centers, not only

is there likely to be a severe shortage of drugs, but the probability of being treated by a

trained doctor is less than 10 percent By contrast, in public hospitals, good medicines are available and the probability of being treated by a doctor is more than 90 percent This disparity suggests that the poor, who are often treated primarily by commune health centers, generally receive lower quality care than the non-poor, who are often treated primarily by hospitals and private clinics or doctors (Gertler and Litvack, 1998)

One of the indicators to measure the service utilization is the contact rate That is the share (number of times) of sick people contact to health care system for treatment The large expenditure on health care limits the poor to access higher quality health service Data from VLSS 1998 shows that the average number of contacts per person in quality health services for the poor is much smaller than those for the rich (table 5) In public hospitals, the contact number per person by richest quintile is nearly three times as much as it by the poorest quintile In private clinics or doctors, the contact number per person by richest quintile is nearly 1.43 times as much as it by poorest quintile By contrast, the contact number per person in commune health center by the poorest quintile is nearly four times as much as it

by the richest quintiles In drug-vendors, the contact number per person in poorest quintile

is nearly 1.2 times as much as it by richest quintile All express that user fees prevent the poor from accessing high quality health services