Contracting out health services

Broadening coverage, raising quality, lowering cost

Contracting out public services is a way for governments to complement their own delivery of services. It is particularly effective for high risk or hard-to-reach populations that can be more effectively served by private groups. It can also contribute to more efficient delivery of primary health care (PHC).

Contracting out allows governments to use public funding to pay non-state providers, such as non-government organisations (NGOs) or for-profit groups, who have the capacity to deliver an agreed set of health care services. Because it offers greater flexibility than the public sector, it can tackle problems of low quality public services or unmotivated staff more effectively.

Advantages of contracting out include economic incentives resulting in more measurable performance and increased efficiency due to competition. NGOs are more flexible than governments, can respond faster to changing circumstances and have more decentralised decision-making. They often have ties to local communities or experience of specific services, which enable them to scale up or intensify their activities. NGOs can also more easily modify the type, location and staffing of services they offer as needs and available resources change.

Contracting out has resulted in better provider performance, lower costs, shorter waiting times and higher patient satisfaction

Some services are better suited to contracting out, such as those reaching high risk groups affected by conflict or with little health system contact. NGOs have the appropriate infrastructure and approach, and typically already serve such groups, who are often physically or socially isolated.

Contracting out services has worked well in many settings. In post-conflict situations, such as Afghanistan, it has become the only way to provide health services. In Brazil, a successful HIV and AIDS programme, that resulted in rapid prevalence reduction, relied on contracted NGOs to provide prevention, treatment and counselling services to high risk groups.

Various programmes that contract out PHC services have also been successful. Experiments in contracting out nutrition, hospital or PHC services across the five Central American countries showed impressive results. Programmes in Uganda, Cambodia, Haiti and Madagascar have also resulted in combinations of better provider performance, lower costs, shorter waiting times and higher patient satisfaction. In Nicaragua, contracting out PHC provision tripled coverage while costs declined 39 percent; waiting times were reduced by over 20 minutes and patients were more satisfied with the care.

While contracting can provide significant benefits, there are several issues governments need to consider when deciding whether to contract out PHC services. Where government oversight is weak, there are limited private and NGO options, or where shifts in government administration lead to changes in contracting arrangements, the use of contractors can be problematic. Managing a poorly performing contractor can be costly in terms of both time and money.

While contracting out can work, it is not a panacea; its design, incentives and oversight are important factors that determine success.

• The contract must be clear and specify funding and expected results.
• The contracted party must have sufficient autonomy and flexibility to work without government interference.
• Contracting governments must have clear criteria to assess performance.
• Governments must monitor performance and be able to modify contracts in response to problems rather than merely terminate them.
• Appropriate monitoring and evaluation of contractor performance is required; without it results remain impressionistic and it is difficult to know what has been achieved.

Maureen Lewis
World Bank, Human Development Network, 1818 High Street NW, Washington, DC 2043, USA
mlewis1@worldbank.org