The Design of Incentives for Health Care Providers in Developing Countries: Contracts, Competition, and Cost Control

17 Pages Posted: 20 Apr 2016

See all articles by Jeffrey S. Hammer

Jeffrey S. Hammer

Princeton University - Woodrow Wilson School of Public and International Affairs

William Jack

World Bank

Date Written: February 2001

Abstract

Whatever the theoretical attractiveness of certain policy options, the fact that public employees are people who make independent decisions about their careers and lifestyles can set bounds on how well government agencies can deliver promised services, such as universal health care, including in rural areas. Hammer and Jack examine the design and limitations of incentives for health care providers to serve in rural areas in developing countries. Governments face two problems: It is costly to compensate well-trained urban physicians enough to relocate to rural areas, and it is difficult to ensure quality care when monitoring performance is costly or impossible.

The goal of providing universal primary health care has been hard to meet, in part because of the difficulty of staffing rural medical posts with conscientious caregivers. The problem is providing physicians with incentives at a reasonable cost. Governments are often unable to purchase medical services of adequate quality even from civil servants. Using simple microeconomic models of contracts and competition, Hammer and Jack examine questions about:

The design of rural service requirements and options for newly trained physicians.

The impact of local competition on the desirable level of training for new doctors.

The incentive power that can be reasonably expected from explicit contracts.

One problem a government faces is choosing how much training to give physicians it wants to send to rural areas. Training is costly, and a physician relocated to the countryside is outside the government's direct control. Should rural doctors face a ceiling on the prices they charge patients? Can it be enforced?

Hammer and Jack discuss factors to consider in determining how to pay rural medical workers but conclude that we might have to set realistic bounds on our expectations about delivering certain kinds of services. If we can identify reasons why the best that can be expected is not particularly good, it might lead us to explore entirely different policy systems. Maybe it is too hard to run certain decentralized systems. Maybe we should focus on less ambitious but more readily achievable goals, such as providing basic infrastructure.

This paper - a product of Public Economics, Development Research Group - is part of a larger effort in the group to analyze service delivery in the social sectors.

Keywords: provider incentives, contract theory, rural health care

Suggested Citation

Hammer, Jeffrey S. and Jack, William G., The Design of Incentives for Health Care Providers in Developing Countries: Contracts, Competition, and Cost Control (February 2001). World Bank Policy Research Working Paper No. 2547. Available at SSRN: https://ssrn.com/abstract=632614

Jeffrey S. Hammer (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

William G. Jack

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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