Taking stock on Result-based Financing
Results-based financing (RBF), also called performance based financing or pay-for-performance is a mechanism that receives considerable attention globally. Like all mechanisms for financing of health care systems, RBF has potentially positive and negative sides.
RBF is a strong feature in the Norwegian initiative for Millennium Development Goals 4 & 5, and Norway could be seen as one of the key actors in this area. Yet the experience in our own country with this type of mechanism has not been well taken into account in Norway's international work. That is why Norad and the Directorate of Health recently hosted a joint half day seminar on RBF.
All financing mechanisms provide incentives directly or indirectly, and all have unintended effects, both positive and negative. A service provider may also behave in various ways according to the method of payment, depending on whether she or he gets an activity-based per-patient reimbursement, over the budget (capitation) or through user fees directly from the patient.
Hospital financing in Norway
In the case of Norway, hospitals are financed partly through capitation (60 percent) and partly through activity-based reimbursement (40 percent). This financing arrangement was established in 1997, and later adjusted in 2002. Since then both activities and productivity have increased, though costs have also escalated.
In Norway there are some cases of data fraud in order to receive higher payments (gaming) and there are reports of hospitals adjusting their activities to where they earn more (cherry picking). Still the expected distortion effect has been outweighed by supplemental follow-up measures by the government.
Despite cases of data fraud, the health information system appears in fact to have overall improved due to the focus on data. However, a weakness is that hospital financing to a large extent has happened in isolation from other levels of the system, causing problems in the interaction and referrals between levels. Improving the interaction between various entities and levels in the health system is now identified a priority.
Norwegian RBF activities abroad
The Norwegian RBF support related to the MDG 4 & 5 initiative is mostly provided through a multi-donor trust fund on RBF in the World Bank - the Health Results Innovation Trust Fund - with RBF pilots in six countries. In addition, there are RBF elements in the bilateral program of cooperation with India, Pakistan, Tanzania and Nigeria.
This is support to RBF systems within countries and their health systems and should not be confused with results-based aid when agreements are entered between national and international level, such as GAVI's support to immunization services (ISS).
The experiences so far
Experience with supply- and demand side RBF in low- and middle income countries is still meager and has for the most part not been rigorously evaluated. Yet there is a growing volume of unpublished "grey" literature available. The overall experience to date is that financial incentives of this kind may be effective in the case of focused and clearly defined behavior goals in the short term. There is not sufficient experience to determine the long term effects.
Rwanda has currently one of the most advanced RBF systems, with performance based financial incentives to health providers for a wide range of services, and with encouraging impact on a number of indicators for maternal and child health.
The Afghan system contracts out service delivery to NGOs and financing according to performance has increased availability, access and utilization of services. A number of areas still remain under-served.
In Mexico conditional cash transfers to poor and marginalized people have resulted in higher coverage of preventive services.
The risks and benefits of RBF
There are great potentials in RBF, especially in getting rapid results in focused areas, provided the incentives are carefully considered. There is also potential for improving motivation among health workers, and the results focus in itself may add to this. The health information system may also be improved in quality, as data is used for a specific purpose.
The downside is that incentives are complex and need to be handled carefully in order not to avoid or mitigate serious negative effects, and schemes may need to evolve and be adjusted over time to compensate for undesirable behaviour. Validation of data is key, but might also be costly. There are risks of corruption, of increasing quantity but not quality of services. All this was anecdotally confirmed by participants in the meeting, with experiences from India, South Korea, Tanzania - and Norway.
A conclusion is that RBF systems and incentives can certainly work in a powerful way, but that they need to be tailored as a response to well-specified objectives, that local context and ownership are key, and that monitoring and administration capacity needs to be in place. Potential negative side effects need to be tracked and addressed when designing and introducing RBF systems in countries.
An interim results-based financing web site was launched by the World Bank in August 2008.
The RBF inter-agency working group recently released the first Update on its work.
An overview of research on the effects of results-based financing, a report from the Norwegian Knowledge Centre for the Health Services nr 16 -2008 (commissioned by Norad)