# Sectoral Perspectives on Corruption

*November 2002*

# Corruption and the Health Sector

Taryn Vian

The views and interpretations represented in this paper belong solely to
its author and should not be attributed to USAID or to MSI.

![](media/image1.png)

# Acknowledgements

The following people were interviewed and contributed to the development
of the ideas in this paper: Karen Cavanaugh and Anthony Boni, USAID;
Richard Laing, Rich Feeley, and Kris Heggenhougen, Boston University
School of Public Health; Ron O'Connor, Management Sciences for Health;
Marc Mitchell and Peter Berman, Harvard School of Public Health. I am
grateful to reviewers Mark Austin, Forest Duncan, Michael Johnston,
Jerry O'Brien, Madalene O'Donnell, and Stephen Schwenke for helpful
comments on earlier drafts of this paper.

# Abstract

Corruption in the health sector is a critical problem in developing and
transitional economies where government resources are already scarce. In
Central Europe, 81% of survey respondents reported the need to offer
gifts to doctors in order to receive treatment, while procurement
kickbacks and absenteeism are frequent problems in Latin American
hospitals. This paper describes important areas of vulnerability to
corruption within the health sector and identifies approaches for
prevention. Two areas of special focus include the supply of drugs and
medical equipment, and informal economic activities of health providers.
These areas account for large losses in resources and have direct
effects on health by reducing quality of care and access to services,
especially for the poor.

Corruption in drug and equipment supply includes unethical promotion
affecting registration and selection of drugs; bribes and bid rigging
during procurement; and diversion of health commodities and budgets. In
addition to overall reforms of government procurement, approaches for
preventing corruption include promotion of essential drug lists;
enforceable codes of ethics for drug marketing; better market
intelligence and competitive systems for procurement; and
indicator-based monitoring to promote accountability.

Corruption affecting provider-patient interactions includes
under-the-table payments, absenteeism, private practice in public
facilities, and pocketing of official fee revenue. Approaches for
prevention discussed in the paper include encouraging private
alternatives to care; legalizing user charges; changes in provider
payment systems and performance-based financing.

Preventing corruption in the health sector should be linked with overall
anti-corruption strategies at the national level. It will also be
important to build commitment by demonstrating how reducing corruption
can result in better health outcomes, improved quality and expanded
access. The paper concludes with an agenda for further research.

**Table of Contents**

[Acknowledgements ii](#acknowledgements)

[Abstract iii](#abstract)

[1. Introduction 1](#introduction)

[2. Problems of Corruption and Health
2](#problems-of-corruption-and-health)

[Table 1: Types of Corruption in the Health Sector
3](#table-1-types-of-corruption-in-the-health-sector)

[3. Procurement and Management of Medicines, Equipment and Supplies
6](#procurement-and-management-of-medicines-equipment-and-supplies)

[Selection 6](#selection)

[Promotion 7](#promotion)

[Table 2: Drug Selection and Promotion: anti-corruption measures
8](#table-2-drug-selection-and-promotion-anti-corruption-measures)

[Procurement 9](#procurement)

[Table 3: Drug and Equipment Procurement: anti-corruption measures
12](#table-3-drug-and-equipment-procurement-anti-corruption-measures)

[Distribution 12](#distribution)

[Table 4: Drug Distribution: health reforms with anti-corruption effects
14](#table-4-drug-distribution-health-reforms-with-anti-corruption-effects)

[4. Informal Economic Activity of Health Personnel
14](#informal-economic-activity-of-health-personnel)

[5. Health Reform and Global Funds 19](#health-reform-and-global-funds)

[6. Comprehensive Anti-Corruption Strategies: How Does Health Fit in?
21](#comprehensive-anti-corruption-strategies-how-does-health-fit-in)

[7. Conclusion 22](#conclusion)

[References 25](#references)

# 1. Introduction

Corruption is a concern in all countries, but it is an especially
critical problem in developing and transitional economies where public
resources are already scarce and inadequate management or corrupt
systems can cripple growth and development. The purpose of this paper is
to describe areas of vulnerability to corruption within the health
sector and to identify tools and approaches for preventing corruption,
drawing on existing program experience and examples. The paper will be
used as input to USAID anti-corruption strategy formulation.

Development economists agree that health is an essential goal of
development, and a country need not have high income to achieve better
health.[^1] In the health sector, the government has an important role
in promoting equitable access to services, assuring sustainable
financing for health objectives, and preventing the spread of disease.
But too often, governments fail to perform these functions, leading to
inadequate and unequal access, poor quality of care and inefficient
services. In many cases, government failure is linked to corruption.

Corruption has been defined as abuse of public roles and resources or
the use of illegitimate forms of political influence by public or
private parties.[^2] Corruption in health may involve bribes from a
private supplier to win a government procurement contract,
misappropriation of public resources for private gain, or government
employees who extort under-the-table payments from patients.

The health sector is particularly vulnerable to corruption for several
reasons, including the diversity of services and outlays, the scale and
expense of procurement, and the nature of health care demand. There are
many kinds of processes and expenditures occurring in the health sector,
from expensive construction and high tech procurement, with attendant
risks of bribery, collusion and ex-post corruption, to frontline
services being offered within a provider-patient relationship marked by
imbalances in information and inelastic demand for services.[^3]

The resulting corruption in health can have great social costs. In many
countries economic conditions since the late 1980s have resulted in less
government financing for health services, which in turn has translated
into ruptures in supply of medicines and inadequate salaries or
non-payment of salaries for health workers. Within this environment,
corruption becomes a survival strategy for government workers and
patients alike. As health services fail, people end up having to pay
out-of pocket for services that are supposed to be free, with the burden
falling disproportionately on the poor.[^4]^,^[^5]^,^[^6]

Different countries can have divergent perceptions about corruption,
given their history and the balance of political and economic
opportunities and interest groups.[^7] For example, studies have shown
that the health sector is seen as one of the least corrupt sectors of
government in several Latin American countries, even though up to 40% of
patients reported having to make informal payments to receive care.[^8]
Yet in Central Europe, survey respondents consistently pointed to
hospitals as one of the most corrupt government institutions, with 81%
reporting the need to offer gifts to hospital doctors in order to obtain
services to which they were legally entitled.[^9] Strategies for
preventing corruption within a given country must consider these kinds
of differences.

Research to document the costs of corruption in the health sector, and
especially to test strategies for corruption prevention, is scarce. Some
recent studies have documented the problem of informal economic activity
or informal payments of health workers, defined as payments received
that are outside of official policy, as will be discussed later in the
paper. Even so, it is interesting to note that this practice is often
not called corruption, though it clearly fits the definition of abuse of
public roles or resources. In part this reflects the fact that
corruption is not yet widely recognized among health professionals as a
controllable problem or one that can be openly discussed.

# 2. Problems of Corruption and Health

Table 1, below, shows some of the areas or processes that are vulnerable
to corruption, describing the types of problems that are likely and the
outcomes that result.[^10]

## Table 1: Types of Corruption in the Health Sector[^11]

+--------------+------------------------+------------------------------+
| **Area or    | **Types of Corruption  | **Indicators or Results**    |
| Process**    | and Problems**         |                              |
+==============+========================+==============================+
| Construction | -   Bribes, kickbacks  | -   High cost, low quality   |
| and          |     & political        |     facilities and           |
| re           |     considerations     |     construction work        |
| habilitation |     influencing the    |                              |
| of health    |     contracting        | -   Location of facilities   |
| facilities   |     process            |     that does not correspond |
|              |                        |     to need, resulting in    |
|              | -   Contractors fail   |     inequities in access     |
|              |     to perform and are |                              |
|              |     not held           | -   Biased distribution of   |
|              |     accountable        |     infrastructure favoring  |
|              |                        |     urban- and elite-focused |
|              |                        |     services, high           |
|              |                        |     technology               |
+--------------+------------------------+------------------------------+
| Purchase of  | -   Bribes, kickbacks, | -   High cost, inappropriate |
| equipment &  |     & political        |     or duplicative drugs and |
| supplies,    |     considerations     |     equipment                |
| including    |     influence          |                              |
| drugs        |     specifications and | -   Inappropriate equipment  |
|              |     winners of bids    |     located without          |
|              |                        |     consideration of true    |
|              | -   Collusion or bid   |     need                     |
|              |     rigging during     |                              |
|              |     procurement        | -   Sub-standard equipment   |
|              |                        |     and drugs                |
|              | -   Lack of incentives |                              |
|              |     to choose low cost | -   Inequities due to        |
|              |     and high quality   |     inadequate funds left to |
|              |     suppliers          |     provide for all needs    |
|              |                        |                              |
|              | -   Unethical drug     |                              |
|              |     promotion          |                              |
|              |                        |                              |
|              | -   Suppliers fail to  |                              |
|              |     deliver and are    |                              |
|              |     not held           |                              |
|              |     accountable        |                              |
+--------------+------------------------+------------------------------+
| Distribution | -   Theft (for         | -   Lower utilization        |
| and use of   |     personal use) or   |                              |
| drugs and    |     diversion (for     | -   Patients do not get      |
| supplies in  |     private sector     |     proper treatment         |
| service      |     resale) of         |                              |
| delivery     |     drugs/supplies at  | -   Patients must make       |
|              |     storage and        |     informal payments to     |
|              |     distribution       |     obtain drugs             |
|              |     points             |                              |
|              |                        | -   Interruption of          |
|              | -   Sale of drugs or   |     treatment or incomplete  |
|              |     supplies that were |     treatment, leading to    |
|              |     supposed to be     |     development of           |
|              |     free               |     anti-microbial           |
|              |                        |     resistance               |
+--------------+------------------------+------------------------------+
| Regulation   | -   Bribes to speed    | -   Sub-therapeutic or fake  |
| of quality   |     process or gain    |     drugs allowed on market; |
| in products, |     approval for drug  |                              |
| services,    |     registration, drug | -   Marginal suppliers are   |
| facilities   |     quality            |     allowed to continue      |
| and          |     inspection, or     |     participating in bids,   |
| p            |     certification of   |     getting government work  |
| rofessionals |     good manufacturing |                              |
|              |     practices          | -   Increased incidence of   |
|              |                        |     food poisoning;          |
|              | -   Bribes or          |                              |
|              |     political          | -   Spread of infectious and |
|              |     considerations     |     communicable diseases    |
|              |     influence results  |                              |
|              |     of inspections or  | -   Poor quality facilities  |
|              |     suppress findings  |     continue to function;    |
|              |                        |                              |
|              | -   Biased application | -   Incompetent or fake      |
|              |     of sanitary        |     professionals continue   |
|              |     regulations for    |     to practice              |
|              |     restaurants, food  |                              |
|              |     production and     |                              |
|              |     cosmetics          |                              |
|              |                        |                              |
|              | -   Biased application |                              |
|              |     of accreditation,  |                              |
|              |     certification or   |                              |
|              |     licensing          |                              |
|              |     procedures and     |                              |
|              |     standards          |                              |
+--------------+------------------------+------------------------------+
| Education of | -   Bribes to gain     | -   Incompetent              |
| health       |     place in medical   |     professionals practicing |
| p            |     school or other    |     medicine or working in   |
| rofessionals |     pre-service        |     health professions       |
|              |     training           |                              |
|              |                        | -   Loss of faith and        |
|              | -   Bribes to obtain   |     freedom due to unfair    |
|              |     passing grades     |     system                   |
|              |                        |                              |
|              | -   Political          |                              |
|              |     influence,         |                              |
|              |     nepotism in        |                              |
|              |     selection of       |                              |
|              |     candidates for     |                              |
|              |     training           |                              |
|              |     opportunities      |                              |
+--------------+------------------------+------------------------------+
| Medical      | -   Pseudo-trials      | -   Violation of individual  |
| r            |     funded by drug     |     rights                   |
| esearch[^12] |     companies that are |                              |
|              |     really for         | -   Biases and inequities in |
|              |     marketing          |     research                 |
|              |                        |                              |
|              | -   Misunderstanding   |                              |
|              |     of informed        |                              |
|              |     consent and other  |                              |
|              |     issues of adequate |                              |
|              |     standards in       |                              |
|              |     developing         |                              |
|              |     countries          |                              |
+--------------+------------------------+------------------------------+
| Provision of | -   Use of public      | -   Government loses value   |
| services by  |     facilities and     |     of investments without   |
| frontline    |     equipment to see   |     adequate compensation    |
| health       |     private patients   |                              |
| workers      |                        | -   Employees are not        |
|              | -   Unnecessary        |     available to serve       |
|              |     referrals to       |     patients                 |
|              |     private practice   |                              |
|              |     or privately owned | -   Reduced utilization of   |
|              |     ancillary services |     services by patients who |
|              |                        |     cannot pay               |
|              | -   Absenteeism        |                              |
|              |                        | -   Impoverishment as        |
|              | -   Informal payments  |     citizens use income and  |
|              |     required from      |     sell assets to pay for   |
|              |     patients for       |     health care              |
|              |     services           |                              |
|              |                        | -   Reduced quality of care  |
|              | -   Theft of user fee  |     from loss of revenue     |
|              |     revenue, other     |                              |
|              |     diversion of       | -   Loss of citizen faith in |
|              |     budget             |     government               |
|              |     allocations[^13]   |                              |
+--------------+------------------------+------------------------------+

Two areas where there is great potential for corruption and where
corruption is a recognized concern in most countries include procurement
of drugs and equipment, and informal economic activities engaged in by
health providers (e.g. informal payments, private practice on government
time, etc.).[^14] The rest of the paper will focus on what is known
about these two areas. This is not to say that the other issues raised
in Table 1 are not important; however, it is beyond the scope of this
paper to treat all topics in detail and the areas chosen appear to have
critical impact on health status.

Measures to prevent corruption are discussed within the USAID
anti-corruption three-prong approach of limiting government authority,
improving accountability and improving incentives.[^15] Several other
conceptual models exist that are also helpful for categorizing
anti-corruption measures, including the TAAPE model (transparency,
accountability, awareness, prevention and enforcement), which several
USAID Europe & Eurasia health programs are already using to analyze
corruption issues;[^16] development economist Robert Klitgaard's
heuristic model (Corruption = Monopoly + Discretion --
Accountability);[^17] and Giedion et al.'s framework to summarize
hospital corruption by type of relationship (doctor-patient,
hospital-payer, and hospital-supplier).[^18] The paper concludes by
discussing some of the corruption-related implications of health reforms
and financing trends currently being adopted in many countries, and
presenting recommendations for further research.

# 3. Procurement and Management of Medicines, Equipment and Supplies

Outside of salaries, pharmaceuticals represent the largest category of
recurrent health expenditure in most government budgets. The total value
of pharmaceuticals changing hands in the developing world is estimated
at \$44 billion.[^19] Government budgets make significant contributions
to public sector drug financing, often allocating 20-50% of the
government health budget to procure drugs.[^20] Medical equipment is
also an area where large sums of money may be involved and corruption is
a danger.

In this section, I will discuss drug and equipment supply issues
according to the functional areas of selection, promotion, procurement,
and distribution, showing where corruption is likely to occur and what
options exist for prevention.[^21]

##  Selection

In the last twenty-five years, many countries have adopted drug policies
and essential drug lists in an effort to limit the selection of drug
products. By limiting choice, essential drugs lists (EDL) of generically
named products help health systems to achieve expanded access to a
smaller number of appropriate drugs.[^22] About 150 countries have
essential drugs lists.[^23] The movement toward essential drugs lists
has been critical in helping countries to increase the objectivity and
transparency of the pharmaceutical selection process.

Recent efforts of WHO have promoted changes in the composition of the
committees who develop and modify essential drugs lists. In the past,
national expert committees made decisions about drug lists based on WHO
principles for designating essential drugs, the WHO "model list," and
country preferences for certain products. One danger in this type of
process is the potential for members of the selection committee to have
a conflict of interest, or to be susceptible to bribes. More recently,
WHO is urging countries to develop EDLs starting from evidence-based
clinical treatment guidelines, rather than expert opinion.[^24] This
trend will help strengthen transparency and limit the discretion of the
national committee. While essential drug lists and selection processes
also exist at other levels of the health system, they are usually less
well developed.

## Promotion

Unethical promotion of medicines is a significant problem, not only in
developing countries but also throughout the world. Studies have shown
that industry hospitality (e.g. all expense-paid trips to luxury
resorts), gifts, and free samples all can affect physicians'
judgement.[^25]^,^[^26] Other potential causes of conflict of interest
include physicians who have financial stake in pharmaceutical or medical
device companies, or receive honoraria for speaking engagements,
referrals, or participation in clinic-based research.[^27] The
pharmaceutical industry is "not merely a provider of drugs, but...a
substantial purveyor of information and persuasion," according to a
recent report published in *The Lancet*.[^28] In 1999, the industry
spent \$8 billion on direct sales visits to physicians and exhibits at
medical conferences.[^29]

WHO and the International Federation of Pharmaceutical Manufacturers
Associations (IFPMA) have created ethical guidelines on medicines
promotion,[^30] though the effectiveness of such guidelines is not well
established. It is often difficult to tell when marketing ends and
corruption begins. For example, there is anecdotal evidence of influence
used during development of WHO clinical guidelines on hypertension. An
additional problem is pharmaceutical companies promoting clinical trials
that are really for marketing purposes.[^31]

One option used in U.S. hospitals to make drug selection processes more
transparent is Pharmacy and Therapeutics (P&T) Committees,
multidisciplinary groups who recommend policies regarding selection and
use of drugs, as well as assisting with continuing education of medical
staff on matters related to drugs.[^32] Indicator-based assessments and
monitoring are other ways to promote rational selection and supply
management by providing objective and comparable indicators that can be
used to detect unusual differences in practices compared to standards,
holding managers more accountable.[^33]^,^[^34] Programs to monitor
corruption, such as the Drug and Commodity Transparency Program proposed
for the USAID E & E Bureau,[^35] may also help increase awareness of the
problem and could help reduce corruption by increasing the risks of
exposure.

Table 2 summarizes anti-corruption measures for drug selection and
promotion and their likely effects.

## Table 2: Drug Selection and Promotion: anti-corruption measures

+----------------------------+-----------------------------------------+
| **Action**                 | **Likely Effects**                      |
+============================+=========================================+
| Promotion of Essential     | Limits influence of interest groups     |
| Drugs Lists (EDL) at       |                                         |
| national and sub-national  | Limits discretion of drug selection     |
| levels                     | committees                              |
+----------------------------+-----------------------------------------+
| Using standard treatment   | Promotes transparency and               |
| guidelines as a basis for  | accountability                          |
| EDL                        |                                         |
+----------------------------+-----------------------------------------+
| Enforceable codes of       | May reduce unethical promotion          |
| ethics in marketing        | activities                              |
| promoted through trade and |                                         |
| professional associations  |                                         |
+----------------------------+-----------------------------------------+
| Pharmacy & therapeutic     | Provides vehicle for public oversight,  |
| committees at facility     | increasing accountability               |
| level                      |                                         |
+----------------------------+-----------------------------------------+
| Indicator sets and         | Detects unusual selection and           |
| indicator-based            | purchasing patterns in comparison with  |
| assessments, monitoring    | needs                                   |
| programs like the Drug and |                                         |
| Commodity Transparency     | Comparative data, benchmarking, and     |
| Program                    | public dissemination of information can |
|                            | increase transparency, incentives and   |
|                            | motivation                              |
+----------------------------+-----------------------------------------+

##### 

## Procurement

New trends in the financing of health commodities may have an impact on
corruption. These trends have included increasing use of "basket
financing" mechanisms whereby donors and the government pool their
resources for financing health services, increased use of development
bank credits and loans, and the introduction of global funds for
specific commodities such as vaccines and TB or HIV/AIDS drugs.[^36]
These developments allow recipient agencies more opportunity to manage
and disburse external resources within government systems, along with
national budget allocations. With more money flowing through government
systems, there are greater potential gains from corrupt procurement and
distribution practices. Several authors have noted a lack of government
capacity for managing procurement processes for health
commodities.[^37]^,^[^38]^,^[^39]

Drug regulation and quality assurance are also problems for some
countries, and failure to enforce quality standards has resulted in a
surge in counterfeit drugs in some parts of the world.[^40] The
regulatory process for "fast-tracking" approval and licensing of drugs
may be influenced by bribes. In addition, drug inspection is a process
that is susceptible to corruption. Two specific areas that are worth
special attention include methods of payment for inspectors, and the
public release of inspection findings.

Klitgaard (2000) notes three types of corruption that are especially
likely in procurement: collusion in bidding, leading to higher prices;
kickbacks from contractors/suppliers, which reduce competition and
influence selection; and bribes to officials responsible for regulating
performance of the winning contractor, resulting in possible cost
overruns and low quality. Studies of competitive contracting as a way to
improve efficiency in government have noted that strong public
management skills are required to write specifications, supervise and
measure contract performance.[^41]^,^[^42] Although competitive
contracting in theory results in more efficient provision of services,
it requires preconditions such as an adequately sized private sector,
strong government, and sophisticated procedures for financial analysis
and information management.

In health-related procurements, particular problems may arise in the
specification of needs, as some medical equipment will require very
technical specifications. Government officials concerned with
procurement may not have the expertise to set these specifications. If
the specifications are made too detailed and rigorous, it may limit
competition, but if the specifications are too loose or vague, there may
be more discretion for officials and therefore more opportunity for
bribes to influence the selection. Procurement of consumable commodities
can present an added danger for corruption because it is difficult to
document whether the drugs or supplies were delivered.[^43] Klitgaard
(2000) notes that important conditions must be in place to fight
corruption in procurement, including a well-delineated civil service
system (merit-based and adequately paid) and law enforcement services
that can investigate problems. These conditions point to the need for
health services to work with overall national-level anti-corruption and
good governance programs.

Bribes, bid-rigging and other types of corruption can vary according to
the type of procurement process followed, e.g. open tender, restricted
tender, negotiated competition, or direct procurement.[^44] With open
tender, corruption can occur when confidential information on what
different suppliers have bid is selectively shared, allowing some
bidders inside information. There can also be corruption in the
adjudication of tenders, where the assessment of quality and reliability
are unfair and influenced by bribes. With negotiated competition there
can be opportunities for extortion and bribery during the back-and-forth
price discussions with firms.[^45] And although direct procurement is
effective with known and reliable suppliers, it requires excellent
market intelligence (up-to-date price information) and is often
expensive.

The World Bank and WHO both promote a move from open tender to
restricted-tender with pre-qualification of suppliers.[^46]^,^[^47]
Here, corruption tends to happen during the pre-qualification process,
with firms paying bribes to get on the list of approved bidders or to
restrict the length of the list.[^48] The World Bank recently produced a
procurement manual providing specific guidance for procurement using
World Bank credits and loan funds, and WHO has produced a separate
manual for procurement of vaccines.[^49]^,^[^50] USAID has assisted
governments in Moldova and Zimbabwe to improve need estimation and
procurement operations.[^51] Yet, more interventions are needed to
promote good procurement practices, including hands-on job training,
professional development, and systems redesign assistance.

Activities that can help promote transparency in procurement include the
development and dissemination of performance-ratings of suppliers, and
readily available and current price information. International agencies
or individual countries could maintain rosters of bidders with
information on past performance ratings.[^52] A more limited "white
list" of reliable and pre-qualified suppliers is another way to share
market intelligence. Price lists such as the MSH International Price
Guide[^53] and a WHO web page with links to web sites with medicine
pricing information[^54] put downward pressure on prices bid by
suppliers and help to reduce opportunities for bribes. Table 3
summarizes anti-corruption measures and their effects for drug and
equipment procurement.

## Table 3: Drug and Equipment Procurement: anti-corruption measures

+----------------------------+-----------------------------------------+
| **Action**                 | **Likely Effects**                      |
+============================+=========================================+
| Technical assistance to    | Limits and clarifies authority of       |
| help develop governments'  | government officials                    |
| capacity to manage         |                                         |
| competitive procurements   | Promotes competition                    |
+----------------------------+-----------------------------------------+
| Changes in how procurement | Provides better incentives, linked to   |
| officers and quality       | performance                             |
| inspectors are held        |                                         |
| accountable or paid        |                                         |
+----------------------------+-----------------------------------------+
| Public disclosure of       | Increases transparency                  |
| inspection findings        |                                         |
+----------------------------+-----------------------------------------+
| Rosters with performance   | Improves accountability by increasing   |
| ratings or white lists of  | access to information                   |
| suppliers, greater         |                                         |
| availability of price      | Limits discretion                       |
| information                |                                         |
+----------------------------+-----------------------------------------+

##  Distribution

In the past most countries used central government procurement offices
and central medical stores (CMS) to purchase and distribute commodities.
The health reforms in the 1980s and 1990s have created more variations
on this theme, most including some elements of privatization or
contracting services. These new initiatives have been designed to
improve efficiency, though in theory they may reduce the monopoly power
of government and therefore prevent corruption as well. Some countries
that have implemented these changes---with mixed results --- include
Tanzania, Zambia and Ghana.[^55] It will be especially important to
evaluate these structures from the point of view of preventing
corruption.

Transportation systems are an essential part of supply distribution, and
are used for direct health services delivery as well. Corruption can
occur when vehicles are appropriated for personal use (transporting
goods to market, for example), and when fuel is stolen or diverted for
non-health related uses. Recent work has documented innovative control
systems to measure efficiency and effectiveness of transportation
systems, also recommending public contracting of private services, or
internal transfer pricing systems as ways to increase
accountability.[^56]^,^[^57]

Finally, the problem of theft, diversion and resale of drugs has been
documented in many countries.[^58]^,^[^59]^,^[^60]^,^[^61] Corruption at
this level may include:

-   theft without falsification of records, i.e. physical inventory does
    not match recorded stock;

-   drugs dispensed to "ghost patients" who did not really attend;

-   drugs recorded as dispensed to real patients who do not receive
    them;

-   Drugs dispensed to real patients who pay for them, and the health
    care provider keeps the funds, contrary to government policy.

Analyzing data from health centers in Uganda, McPake et al. (1999)
estimated that over two-thirds of drugs meant for free distribution
through the public sector were lost due to theft and "leakage". An
estimated 68-77% of revenues from formal user charges were
misappropriated or pocketed by workers. McPake et al. believe that these
practices contributed to observed low rates of utilization due to
shortages of drugs and reduced financial accessibility. The authors also
noted stories of deaths and abuse resulting from services withheld from
people who couldn't afford to pay. Although mostly unverifiable, these
accounts were seen to demonstrate a profound lack of trust between the
community members and health workers. It is unclear whether the effects
documented by McPake et al. are typical of formal user fee systems in
other countries besides Uganda. This is an important area for further
study.

USAID projects that have focused attention on the management systems and
incentives needed to prevent these types of corruption include the
bilateral Kenya Health Care Financing project, the Niger Health Sector
Support Program, and systems-building activities of the Rational
Pharmaceutical Management (RPM) and RPM Plus projects. Local budgeting
and cost recovery systems with strong financial control systems that may
reduce problems, and inventory control systems associated with essential
drugs programs may also be effective. But these efforts only provide
technical solutions; to create incentives to implement these solutions
may require additional actions such as involvement of community
oversight groups or public dissemination of information to raise the
risks of corrupt behavior. In Kenya, clarifying the role of District
Health Management Boards and providing training for Board members helped
increase accountability.[^62] Letters of commendation and national
awards ceremonies were also used to provide praise and recognition for
employees who achieved good program results.[^63]

Table 4 summarizes health reforms and changes that have been implemented
and their possible impact on corruption prevention.

## Table 4: Drug Distribution: health reforms with anti-corruption effects

+----------------------------+-----------------------------------------+
| **Action**                 | **Likely Effects for Preventing         |
|                            | Corruption**                            |
+----------------------------+-----------------------------------------+
| Central medical stores     | Clarifies lines of authority            |
| reforms to privatize and   |                                         |
| introduce business-like    | Increases accountability and incentives |
| incentives                 |                                         |
+----------------------------+-----------------------------------------+
| Transportation contracting | Increases accountability and improves   |
| and resource management    | incentives                              |
| systems, transfer pricing  |                                         |
+----------------------------+-----------------------------------------+
| Improved drug management   | Increases accountability where systems  |
| logistics information      | are used (not just a technical          |
| systems, indicator-based   | solution, but requires the will to      |
| assessments                | implement)                              |
+----------------------------+-----------------------------------------+
| Financial management       | Increases accountability where systems  |
| systems                    | are put into use                        |
+----------------------------+-----------------------------------------+
| Local health boards,       | Limits discretion                       |
| community oversight        |                                         |
|                            | Improves accountability and             |
|                            | transparency                            |
+----------------------------+-----------------------------------------+

# 4. Informal Economic Activity of Health Personnel

Besides drug and equipment procurement and management, another key area
of vulnerability to corruption is health services personnel at the
service delivery point (SDP) level. Health officials in many governments
are paid meager salaries, with few rewards for exceptional performance.
Political patronage and delays in decision-making due to lack of local
authority for personnel decisions make it difficult for managers to
reward staff for good performance or sanction non-performers.[^64]
Penalties for corruption, if they exist at all, are rare. Under these
conditions, many workers engage in other economic activities during
working hours or pursue opportunities for private gain through public
service, including the practice of informal payments.

It should be noted that opinion is mixed on this topic: some condemn the
practice of under-the-table payments and call on governments to put a
stop to it, while others express sympathy and acknowledge that this is a
necessary strategy for survival during times of economic crisis.
Governments and medical professional associations may provide mixed
messages about the acceptability of such practices, as has been
documented in Hungary.[^65] This ambivalence creates a difficult
environment for policy making. Yet, as Lewis (2000) makes clear, tacit
acceptance of informal payments "reduces \[the government's\]
effectiveness as manager of the overall system, and undermines its
credibility as both guarantor and regulator of the health care system."

Recent literature has begun to document the growing problem of
under-the-table payments for supposedly free health care services, and
other illicit economic activities engaged in by health workers (e.g.
various drug theft or diversion schemes described above, using public
facilities to engage in private medical practice, working less than
full-time at a full-time public job, etc.). Studies have documented
these problems in Uganda[^66], Eastern Europe and Central
Asia[^67]^,^[^68], Russia[^69], Bangladesh[^70]^,^[^71], Vietnam[^72],
and Latin America.[^73]

Lewis (2000) defines informal payments as "payments to institutions or
individuals in cash or in kind made outside official payment channels
for services that are meant to be covered by the public health
system."[^74] These types of payments are increasingly common: in CIS
countries, more than 60% of those surveyed reported making informal
payments, while in Armenia the figure topped 90%.[^75] McPake et al.
(1999) observed that informal payments were sometimes five to ten times
as high as formal user charges in Uganda. In Bolivia, 44% of doctors
surveyed in municipal hospitals reported that informal payments occur
"always".[^76]

One problem in documenting this type of corruption is that it is
difficult to draw the line between bribes and gift giving, the latter of
which may be a culturally accepted practice for creating "webs of
relationships based on mutual obligations."[^77] For example, in
Kazakhstan the word *syilyq* refers to feast gifts and counter-gifts
from host to guest given during a feast; however, it also may be used to
refer to a watch or suit given to a doctor in exchange for better
medical treatment.[^78] In Kyrgyzstan, 55% of respondents thought it was
permissible for a doctor to receive gifts from patients.[^79] In Poland
as well, informal payments are common and socially acceptable.

Informal payments reduce access to services. They have been associated
with delays in seeking care in Poland, declines in prenatal care in
Tajikistan, and decreases in household assets in the Kyrgyz
Republic.[^80] McPake et al. (1999) associated informal payments with
large reductions in use of services, due to financial inaccessibility of
care. The burden of informal payments was shown to be regressive in
Romania, with poor households paying twice as much as medium-income
households, and medium-income households paying

twice as much

(proportionately) as high-income households.[^81] Informal payments also
reduce trust in government and in health workers, feeding feelings of
hopelessness and alienation, particularly among the poor.[^82] The text
box describes the factors that led to the increase in the level of
informal payments in Russia.[^83]

Informal payments are a survival strategy for both under-paid
professionals and patients, and may have root causes in inadequate
overall rates of compensation for health workers, overstaffing in the
public health work force, and provider payment systems with inadequate
performance incentives. Some of the solutions being considered for
dealing with informal payments include downsizing of the public system,
changing payment systems for health care providers, legalizing cost
sharing, and improving accountability through performance-based
management and financing systems. In theory, downsizing government can
allow increases in individual salaries without increasing total salary
expense presumably resulting in a more livable wage, albeit for fewer
personnel. In practice, there is little evidence of this occurring
however.[^84]

Another positive effect, in theory, is the gains in accountability that
can result from moving doctors from salaried civil service status to a
contractual relationship (either with payment per service, or per
capita, or other types of reimbursement contracting). These types of
service arrangements acknowledge that providers often engage in both
private and government service, whether this practice is legal or not.
For example, in Bangladesh, an estimated 80% of government doctors
engage (legally) in private practice as well, and most at least double
their government salary this way.[^85]

In practice, the effects of changes in provider payment mechanisms are
mixed and depend on many things including how changes are communicated,
values in society, and whether there is enough money in total being
spent on reimbursing providers.[^86] In Poland, the introduction of
fee-for-service and capitation payment systems has not had much effect
on the practice of informal payments; yet in Colombia similar changes in
payment systems have been successful in decreasing the incidence of
under-the-table payments. In the Czech Republic, informal payments have
all but disappeared; however, in addition to changing provider
reimbursement mechanisms the government has also greatly increased the
total amount of spending in the health system and has communicated those
changes in a systematic way.[^87]

Moving from salaried civil service status to contractual relationships
with key employees may increase accountability, but the state will still
have a difficult role to play in regulating such a system. For example,
in Northern European countries such as Finland, Sweden and Great Britain
health reforms have shifted health care provision from fixed-budget
bureaucratic institutions to contract payments based on
performance.[^88] While this has increased operating efficiency, it has
also required the State to play a more sophisticated role in regulating
services. The move from direct control of service provision to
contracting actually increased regulatory action, rather than reducing
the role of the State. Similar findings have been noted in the Czech
Republic, Estonia and Slovakia.[^89] Government regulation is needed to
avoid problems such as diverting of patients to private practice when
they could have been treated in the public sector, conflict of interest
where physicians own government-contracted ancillary services, and
supplier-induced demand.[^90]

Table 5 summarizes anti-corruption measures for dealing with informal
payments and other human resources management issues. There is need for
more research to determine the effects of these strategies in practice.

Table 5: Informal payments and personnel: anti-corruption measures

+----------------------------+-----------------------------------------+
| **Action**                 | **Likely Effects**                      |
+============================+=========================================+
| Downsize government and    | Improves incentives, though politically |
| pay workers higher wages   | difficult                               |
+----------------------------+-----------------------------------------+
| Promote government         | Increases accountability and improves   |
| contracting for payment of | incentives                              |
| private providers rather   |                                         |
| than civil service;        | Competition from private providers      |
| encourage private          | increases clients' exit options[^91]    |
| alternatives               |                                         |
+----------------------------+-----------------------------------------+
| Develop performance-based  | Increases accountability and provides   |
| management systems and     | better incentives, since performance is |
| provider payment systems   | rewarded                                |
+----------------------------+-----------------------------------------+
| Legal cost sharing         | Reduces opportunities for extorting     |
|                            | payments                                |
+----------------------------+-----------------------------------------+
| Increase role of community | Improves accountability by providing    |
| committees, local health   | ways for users to voice approval and    |
| board activism             | disapproval, increases chances          |
|                            | corruption will be caught               |
+----------------------------+-----------------------------------------+
| Report cards for public    | Improves accountability and incentives  |
| services[^92]              |                                         |
+----------------------------+-----------------------------------------+
| Analysis and dissemination | Improves transparency and               |
| of results of surveys and  | accountability; helps detect gaps       |
| data collection (such as   | between what the service statistics say |
| standards of living        | and what patients report                |
| surveys, PETS, QSDS, and   |                                         |
| DHS)[^93]                  |                                         |
+----------------------------+-----------------------------------------+

# 5. Health Reform and Global Funds

Health reform involves changing government institutions and policies in
purposeful, fundamental and sustained ways.[^94] Countries adopt health
reforms in response to external and internal drivers for change,
including economic crisis, inequitable resource distribution, gaps in
quality, changing health needs and changing societal norms. Health
reforms have taken different directions, but some important movements
have included decentralization, privatization, health insurance and user
fee systems, changes in provider payment systems, and restructuring of
tertiary and secondary levels of care.

USAID has provided enormous support for countries undergoing health
reform. Through multilateral projects such as Partners for Health Reform
Plus (and its predecessors)[^95] and through bilateral assistance
projects such as the Russia Legal and Regulatory Health Reform
Project,[^96] USAID has collected data, conducted research, and informed
policy decisions at many stages and levels. The relationships that have
been developed through this process are a significant resource for the
promotion of anti-corruption strategies. As institutions and structures
are changing, there are many opportunities to incorporate corruption
prevention into new policies and designs, or to highlight the
anti-corruption benefits in practices that are already being supported
through health reform. For example, health insurance fund and hospital
reform efforts in Kyrgyzstan and Romania, funded with USAID assistance,
have included the design of new reimbursement methods that can improve
accountability and reduce opportunities for corruption.[^97] USAID's
work in promoting National Health Accounts can also be used as a
springboard for the construction of spending standards and comparison of
expenditure patterns to improve accountability and transparency.[^98]

Another recent development in international health has been the creation
of public-private partnerships channeling financial assistance through
global funds. These funds pose a huge opportunity and challenge for
anti-corruption strategy, especially due to the conscious structuring of
global funds to circumvent national bureaucracies and speed the process
of disbursement. The Global Alliance for Vaccines and Immunization
(GAVI) has committed over \$600 million for vaccines and vaccine
program-related expenses, while the Global Fund to Fight AIDS,
Tuberculosis and Malaria (GFATM, or Global Fund) plans to disburse
\$600-800 million in the year 2002 alone.[^99] The Global Fund has
solicited proposals from Country Coordinating Mechanisms (committees of
individuals from communities, churches, government and the private
sector) who decide where the funds are to go. The Global Fund then
intends to use accounting agencies as Local Fund Agents rather than
channeling funds through slower bureaucracies such as national
governments or international organizations like the World Bank, WHO or
UNDP. One of the first proposals accepted was \$12 million for the
Tanzanian National Malaria Control Program; however, the grant has been
delayed due to accounting problems as described in a recent National
Public Radio report.[^100] It seems that the government's accounting
procedures allow grants to flow only through the Ministry of Finance.
Questions about flows of funds have arisen in South Africa and Uganda as
well.[^101]

Because the Global Fund to Fight AIDS, TB and Malaria is just beginning
to give funds, the responsibilities of Local Fund Agents vis-à-vis the
Country Coordinating Mechanisms used to develop the proposals are not
yet clear, and this may create problems for accountability. In addition,
approved proposals are not available to the public, signaling a lack of
transparency in the process.

The real strategy being used to assure accountability for global funds
(both GAVI and the GFATM) is performance-based grant mechanisms, which
means that after the initial grants countries will only be able to
receive additional funding based on the achievement of performance
benchmarks. Performance-based incentives have the potential to increase
accountability, but the incentives for false reporting are also clear,
and costs of monitoring can be significant.[^102]^,^[^103] GAVI's
measures for performance are targeted increases in vaccination coverage;
the Global Fund's indicators for performance are yet to be decided.

If global funds are wasted or lost to corruption, this huge new source
of international support for the needs of poor countries may be lost, as
trust is broken and the public-private partners become disillusioned.
The risk is real, as indicated by recent reports of diversion of donated
anti-retroviral drugs from the public sector to the private sector, and
from poor countries to developed country markets.[^104]^,^[^105]
Additional costs are involved in extending models of performance-based
financing throughout the health care management system in ways that are
sustainable. USAID has had some experience in implementing
performance-based grant systems in the Philippines and
Haiti.[^106]^,^[^107]^,^[^108] More should be done to share the lessons
learned from these programs.

# 6. Comprehensive Anti-Corruption Strategies: How Does Health Fit in?

An important element of strategy formulation is evaluating the external
environment. For corruption and health, this means assessing what are
the anti-corruption strategies going on at the national level\--or even
international level\--and how does health fit into these movements.
Also, what are the directions other donors are taking, and how can
USAID's approach be complementary and coordinated, to gain most benefit
from all resources directed at this challenge.

Because there will be many anti-corruption strategies taking place
outside the health sector, the health sector strategy must inform
stakeholders at all levels of how health fits into overall
anti-corruption strategy and policies. Much of the corruption found in
the health sector is a reflection of general problems of governance and
public sector accountability. Thus, the strategy for preventing
corruption in the health sector will need to include education of health
professionals about overall government anti-corruption measures such as
civil service management reform, changes in public accounting practices,
and anti-corruption agencies, to promote better understanding of how
these initiatives may benefit the health sector. The planned study of
corruption sponsored by the USAID Europe & Eurasia Bureau incorporates
this type inter-sectoral sharing and collaboration.[^109] It is also
important to increase understanding of the costs of corruption in health
and convey the sense that something *can* and *ought to* be done about
it.

Donor coordination of approaches is also essential. Where improved
financial management or inventory management systems are to be tested,
donors should agree on a common approach and support it fully. A
strategy of increasing the participation of civil society in oversight
structures, for example, holds more chance of success if multiple donors
support the initiative and share the costs of developing capacity and
evaluating implementation.

Finally, any corruption prevention strategy must plan on conducting
promotional activities to build commitment and support. To do this,
USAID and other donors must first show commitment to rooting out
corruption and corrupting influences in their own agencies. For example,
some issues USAID might want to address directly are financial
management and procurement corruption, potential dangers of nepotism
from relying on local nationals as agents, and favoritism toward certain
contractors. The World Bank has included self-analysis as one of the
central tenets of its corruption prevention strategy. To demonstrate
commitment to an anti-corruption strategy, USAID must show a willingness
to examine its own practices in a similar fashion. Other promotional
strategies could include educational seminars and dissemination of
research findings.

# 7. Conclusion

This paper has suggested specific areas within the health sector that
are most vulnerable to corruption. Priority areas of concern include
procurement and distribution of drugs and equipment, and informal
economic activities of health workers. These areas not only account for
large losses in resources, but also have the most direct effects on
health in terms of reductions in quality of care and access to services,
especially for poor segments of the population. The paper has also
argued that corruption prevention strategies in the health sector should
link with health reforms and initiatives in other sectors, and efforts
must be made to convince health policy decision makers and frontline
health workers that something can be done about corruption.

Finally, the paper has revealed several areas where further research is
needed, as described below. It is hoped that this list will provoke more
discussion among health and governance staff and ultimately result in an
agenda for research that will be an important part of the USAID
anti-corruption strategy for the health sector.

-   *Assessing Corruption in the Health Sector*. More research should be
    done to develop tools and methods to assess corruption in the health
    sector. For example, World Bank corruption surveys and other data
    sources could be mined for health-specific findings regarding the
    disproportionate impacts of corruption on the poor. The refined
    methods and tools could be used to document the extent and costs of
    corruption in accreditation systems, food and drug regulation, and
    other areas described in Table 1 (not covered in this paper) and to
    broaden and deepen the analysis of the two areas included in this
    paper (i.e. procurement and informal payments).

```{=html}
<!-- -->
```
-   *Corruption and user fees*. Misappropriation of fee revenue was
    estimated to be 68-77% in Uganda. Is this range typical of what most
    user fee systems experience? What role do improved accounting
    systems and civic oversight structures play in reducing revenue
    loss? How scaleable are these types of solutions?

-   *National Health Accounts and other data sets as anti-corruption
    tools*. How can National Health Accounts data be used to improve
    accountability and transparency in health sector spending, identify
    problem areas or set standards? What other sets of data exist, and
    how have they been used to detect and draw attention to resource
    allocation/misallocation concerns? What are the technical and
    political issues that must be addressed before NHA or other data
    sets can be used as an anti-corruption tool?

```{=html}
<!-- -->
```
-   *Performance-based financing mechanisms*. The health sector seems to
    raise particular challenges in applying performance-based
    mechanisms. For example, there is a risk that performance-based
    financing for health result in health care needs not being met, or
    too much focus on easy-to-quantify indicators to the exclusion of
    important health activities that are harder to measure. How can
    performance-based financing mechanisms be structured to minimize
    negative health effects while retaining incentives for achievement?
    Can low-cost verification systems be made corruption-resistant? How
    have these challenges been managed in practice?

```{=html}
<!-- -->
```
-   *Global Funds and Corruption*. Global funds are already having a
    large impact on the budgets of the poorest countries and will need
    special vigilance. What are countries doing now to address the
    potential for corruption in these large-scale public-private
    partnerships? How are Country Coordination Mechanisms increasing
    transparency and accountability in practice, and how will they
    interact with Local Fund Agents? What measures should be used to
    evaluate the effectiveness of these different initiatives over time?

-   *Targeting and Sequencing of anti-corruption strategies*. What do we
    know about effective targeting and sequencing of strategies for
    preventing and curing corruption in the health sector? Should
    anti-corruption strategies be targeted to the youth who may be more
    willing to change? What are the key factors that influence people's
    behavior vis-à-vis corruption and adopting anti-corruption
    behaviors? Behavioral change models can be used to identify how much
    people are influenced by personal beliefs, perceptions of what
    others are doing, and beliefs about personal control. This
    information can then inform the targeting and sequencing of
    anti-corruption efforts.

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Orlowski JP and Wateska L. "The effects of pharmaceutical enticements on
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Vian T. "Low- and middle-income country perspectives on collaborative
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Wall LL and Brown D. "Pharmaceutical sales representatives and the
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594-599.

Werner C. "Gifts, bribes and development in Post-Soviet Kazakhstan."
*Human Organization* 59 (2000):11-22.

Wilson B. "Global Disease Fund Postpones Tanzania Grant." National
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<http://www.npr.org/archives/index.html>. Accessed November 25, 2002.

World Health Organization Expert Committee on the Use of Essential
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[^1]: Amartya Sen, *Development as Freedom* (New York: Alfred A. Knopf,
    Inc., 1999)

[^2]: Michael Johnston, "Public Officials, Private Interests, and
    Sustainable Democracy: When Politics and Corruption Meet," in
    *Corruption in the Global Economy*, ed. Kimberly Ann Elliott
    (Washington, DC: Institute for International Economics, 1997), p.
    62. Johnston acknowledges that defining corruption is a complex
    issue, especially who gets to decide the meaning of "public,"
    "private," "abuse," and "illegitimate."

[^3]: I am grateful to Michael Johnston for raising these ideas in
    comments to an earlier draft.

[^4]: Maureen Lewis, "Who is paying for health care in Eastern Europe
    and Central Asia?" (Washington, DC: World Bank, Human Development
    Sector Unit, Europe and Central Asia Region, 2000).

[^5]: JR Killingsworth et al., "Unofficial fees in Bangladesh: price,
    equity and institutional issues" *Health Policy and Planning* 14
    (1999):152-163.

[^6]: World Bank, "Diagnostic Surveys of Corruption in Romania"
    (Washington, DC: World Bank, 2001).

[^7]: Michael Johnston, 76.

[^8]: Raphael Di Tella and William D. Savedoff, eds., *Diagnosis
    Corruption: Fraud in Latin America's Public Hospitals* (Washington,
    DC: Inter-American Development Bank, 2001).

[^9]: WL Miller, AB Grodeland, TY Koshechkina, *A Culture of Corruption?
    Coping with Government in Post-Communist Europe* (Hungary and New
    York: Central European University Press, 2001).

[^10]: Omar Azfar summarizes evidence regarding the relationship between
    corruption and health outcomes in his paper "Corruption and the
    Delivery of Health and Education Services," preliminary draft,
    limited circulation (College Park, MD: IRIS Center, University of
    Maryland, no date). While many methodological problems exist, Azfar
    reports that some studies have shown a significant negative impact
    of corruption on health indicators such as infant and child
    mortality, even after adjustments for income, female education,
    public health spending and urbanization.

[^11]: This table is adapted from Taryn Vian, "Corruption,
    accountability and decentralized health systems: keeping the
    public's trust" (Presentation prepared for the 130^th^ Annual
    Meeting of the American Public Health Association, Philadelphia,
    November 13, 2002), with added components from interviews conducted
    for this paper. Klitgaard, Maclean-Abaroa and Lindsey use a similar
    format to present issues of corruption in procurement at the
    municipal government level in their book *Corrupt Cities: A
    Practical Guide to Cure and Prevention* (Washington, DC: World Bank
    Institute, 2000).

[^12]: This topic is certainly of concern; however, it may be more an
    issue of ethics than corruption. For more on informed consent and
    research ethics issues see: Marcia Angell, "Investigators'
    Responsibilities for Human Subjects in Developing Countries," *NEJM*
    342 (2000): 967-969; Daniel Fitzgerald et al., "Comprehension During
    Informed Consent in a Less-Developed Country," *The Lancet* 360
    (2002):1301-1302; and Niels Lynoe et al., "Obtaining Informed
    Consent in Bangladesh," *NEJM* 344 (2001):460-461. For further
    discussion of the pharmaceutical industry's role in sponsored
    medical research, see David Henry and Joel Lexchin, "The
    Pharmaceutical Industry as a Medicines Provider," *The Lancet* 360
    (2002):1592; and Susan L. Coyle, "Physician-Industry Relations. Part
    1:Individual Physicians," *Annals of Internal Medicine* 136
    (2002):400.

[^13]: Diversion of budgets and resource-flow problems have been
    documented by Riitva Reinikka and Jakob Svensson in the World
    Bank-supported study "Assessing Frontline Service Delivery"
    (Washington, DC: World Bank, Development Research Group, Public
    Services. Draft, January 23, 2002). Reinikka and Svensson use data
    from two types of surveys, the public expenditure tracking survey
    (PETS) and the quantitative service delivery survey (QSDS) to
    quantify resource leakage and other problems in Uganda, Tanzania,
    Ghana and Honduras. Findings include 41% leakage of the non-wage
    health budget in Tanzania as it passes from the central level down
    to the facility level; in Ghana the situation was even worse with
    only 20% of non-wage health spending reaching the frontline
    facilities where it was intended to be spent.

[^14]: Peter Berman refers to these issues more broadly as "health care
    delivery rent seeking and pursuit of opportunities for private
    profit through or as part of public service." (personal interview,
    October 31, 2002)

[^15]: USAID Center for Democracy and Governance, "USAID Handbook on
    Fighting Corruption" (Washington, DC. 1999) Several reviewers noted
    that the USAID model requires some nuanced interpretation,
    especially the approach of reducing government's role and authority
    through privatization initiatives, and reducing discretion of health
    authorities. For example, an expanding private sector may actually
    require a stronger government role, as discussed in section 4 of
    this paper. In addition, limiting discretion may be a volatile issue
    in policy areas dominated by physicians and can have negative
    effects on quality of care. It may even be necessary to increase
    government discretion for some health reforms such as the
    transformation of large government hospitals into parastatal
    organizations with better management incentives.

[^16]: Forest Duncan, "Corruption in the Health Sector," draft paper.
    (Washington, DC: USAID E&E Bureau, March 2002.)

[^17]: Klitgaard, Maclean-Abaroa and Lindsey.

[^18]: Ursula Giedion, Luis Gonzalo Morales, and Olga Lucia Acosta, "The
    Impact of Health Reforms on Irregularities in Bogotá Hospitals," in
    *Diagnosis Corruption: Fraud in Latin America's Public Hospitals*,
    ed. Di Tella and Savedoff.

[^19]: Dian Woodle, "Vaccine procurement and self-sufficiency in
    developing countries," *Health Policy and Planning* 15
    (2000):121-129.

[^20]: T Falkenberg and G Tomson, "The World Bank and pharmaceuticals,"
    *Health Policy and Planning* 15 (2000):52-58.

[^21]: Management Sciences for Health, *Managing Drug Supply: the
    Selection, Procurement, Distribution, and Use of Pharmaceuticals*,
    2^nd^ ed. (Boston, MA: Management Sciences for Health, 1997). MSH
    discusses promotional activities of pharmaceutical companies as one
    factor influencing drug use (p. 450-463). I have pulled out this
    topic as a separate function, due to the strong potential for undue
    influence and corruption.

[^22]: WHO Expert Committee on the Use of Essential Drugs, "The
    selection and use of essential medicines. Report of the WHO Expert
    Committee," *World Health Organization Technical Report Series*
    (2002)

[^23]: Michael Reich, "The Global Drug Gap," *Science* 287
    (2000):1979-1981.

[^24]: Richard Laing, Hans Hogerzeil and Dennis Ross-Degnan, "Ten
    Recommendations to Improve Use of Medicines in Developing
    Countries," *Health Policy and Planning* 16 (2001):13-20.

[^25]: JP Orlowski, L Wateska, "The Effects of Pharmaceutical
    Enticements on Physician Prescribing Patterns. There's No Such Thing
    as a Free Lunch," *Chest*. 102 (1992): 270-3; MM Chren and CS
    Landefeld, "Physicians' Behavior and Their Interactions with Drug
    Companies. A Controlled Study of Physicians who Requested Additions
    to a Hospital Drug Formulary," *JAMA* 271 (1994): 684-9; and T Mick,
    "Pharmaceutical Funding and Medical Students," *JAMA* 265 (1991):
    662-4, cited in Coyle.

[^26]: L. Lewis Wall and Douglas Brown, "Pharmaceutical Sales
    Representatives and the Doctor/Patient Relationship," *Obstetrics &
    Gynecolog*y 100 (2002):594-599.

[^27]: Coyle, 397.

[^28]: M N Graham Dukes, "Accountability of the Pharmaceutical
    Industry," The Lancet 360 (2002):1682-1684.

[^29]: Coyle, 396.

[^30]: Ethical Criteria for Medicinal Drug Promotion, Geneva: WHO, 1988
    (<http://www.who.int/medicines/library/dap/ethical-criteria/ethicalen.htm>),
    and IFPMA Code of Pharmaceutical Marketing Practices, www.ifpma.org.

[^31]: Coyle, 400.

[^32]: I Heemink et al., "Review of the Functioning of P&T Committees in
    Boston Area Hospitals, Parts 1 and 2" *Pharmacy and Therapeutics*
    (May-June 1999)

[^33]: P Brudon, J-D Rainhorn, and MR Reich. "Indicators for monitoring
    national drug policies: a practical manual," 2^nd^ edition. (Geneva:
    WHO, 1999)

[^34]: Rational Pharmaceutical Management Project, Latin American and
    Caribbean Health and Nutrition Sustainability Project. "Rapid
    pharmaceutical management assessment: an indicator-based approach."
    (Arlington, VA: RPM Project, Management Sciences for Health, 1995)

[^35]: Duncan, 5-6.

[^36]: Taryn Vian and James Bates, "Recent Trends and Developments for
    Logistics Management in Essential Drugs, Vaccines and
    Contraceptives: Implications for Contraceptive Security" (Arlington,
    VA: The DELIVER Project, John Snow Inc., October 2002)

[^37]: Woodle.

[^38]: James Bates et al., "Implications of Health Sector Reform for
    Contraceptive Logistics: A Preliminary Assessment for Sub-Saharan
    Africa" (Arlington VA: Family Planning Logistics Management Project,
    John Snow, Inc., 2000)

[^39]: Miloud Kaddar et al., "Costs and Financing of Immunization
    Programs: Findings of Four Case Studies" (Bethesda, MD: Partnerships
    for Health Reform, Abt Associates, Inc., 2000)

[^40]: Association of International Pharmaceutical Manufacturers, "AIPM
    Position Paper on Counterfeit Drugs in Russia" (Moscow, Russia:
    AIPM, April 2001)

[^41]: Anne Mills, "To Contract or Not to Contract? Issues for Low and
    Middle Income Countries" *Health Policy and Planning* 13
    (1998):32-40

[^42]: WB Abramson, "Monitoring and Evaluation of Contracts for Health
    Service Delivery in Costa Rica" *Health Policy and Planning* 16
    (2001):404-411

[^43]: Susan Rose-Ackerman, *Corruption and Government: Causes,
    Consequences, and Reform* (New York: Cambridge University Press,
    1999).

[^44]: Management Sciences for Health, *Managing Drug Supply*.

[^45]: Rose-Ackerman presents arguments by Steven Kelman, former
    director of the U.S. Office of Federal Procurement Policy during the
    Clinton administration, who favored negotiated procurement with
    increased flexibility and outcome-based accountability for
    procurement officials. While Rose-Ackerman believes that the U.S.
    experience may have some lessons for developing countries, she notes
    that Kelman's reforms may not work in a climate of "grand" (high
    level) corruption. According to Rose-Ackerman, approaches that
    increase the competitiveness of the market, rather than the
    procurement process alone, might be more valuable for lower income
    countries. (Rose-Ackerman, p. 60-68.)

[^46]: World Bank, "Technical Note: The Procurement of Health Sector
    Goods" (Washington, DC: World Bank, 2002)

[^47]: Richard Laing, "The World Health and Drug Situation"
    *International Journal of Risk & Safety in* *Medicine* 12
    (1999):51-57

[^48]: Rose-Ackerman, 27.

[^49]: World Bank, "Technical Note: The Procurement of Health Sector
    Goods."

[^50]: World Health Organization, "Guidelines for the international
    procurement of vaccines and sera" (Geneva: World Health
    Organization, Global Programme for Vaccines and Immunization,
    Vaccine Supply and Quality, 1998)

[^51]: Woodle, 125-126.

[^52]: Rose-Ackerman, 64, citing Kelman.

[^53]: Management Sciences for Health and WHO, "International Drug Price
    Indicator Guide" (Boston, MA: Management Sciences for Health, 2001)

[^54]: WHO Department of Essential Drugs and Medicines Policy. "Fact
    sheet on drug price information services: what is WHO doing to
    improve drug price information?" Web site: http://www.who.int.

[^55]: Vian and Bates.

[^56]: Abt Associates Inc. SAFI Program, "Transport in Primary
    Healthcare: a Study to Determine the Key Components of a Cost
    Effective Transport System to Support the Delivery of Primary Health
    Services" (Bethesda, MD: Abt Associates Inc. SAFI Program, 2001)

[^57]: S Nancollas, "From Camels to Aircraft: the Development of a
    Simple Transport Management System Designed to Improve Health
    Service Delivery" (Paper Prepared for the WHO TECHNET Meeting, 1999)

[^58]: Barbara McPake et al., "Informal Economic Activities of Public
    Health Workers in Uganda: Implications for Quality and Accessibility
    of Care*" Social Science & Medicine* 49 (1999):849-865

[^59]: Killingsworth et al.

[^60]: Lewis.

[^61]: Di Tella and Savedoff.

[^62]: David H. Collins et al., *Health Financing Reform in Kenya: The
    Fall and Rise of Cost Sharing, 1989-1994* (Boston, MA, Management
    Sciences for Health, 1996.

[^63]: Ibid.

[^64]: J Martinez and T Martineau, "Rethinking Human Resources: an
    Agenda for the Millennium" *Health Policy and Planning* 13
    (1998):345-358.

[^65]: Lewis.

[^66]: McPake et al.

[^67]: Lewis.

[^68]: E Delcheva, D Balabanova and M McKee, "Under-the-Counter Payments
    for Health Care: Evidence from Bulgaria" *Health Policy* 42
    (1997):89-100.

[^69]: FG Feeley, IM Sheimann and SV Shiskin, "Health Sector Informal
    Payments in Russia" (Boston: Boston University Department of
    International Health, 1999)

[^70]: Killingsworth et al.

[^71]: R Gruen et al. "Dual Job Holding Practitioners in Bangladesh: An
    Exploration" *Social Science and Medicine* 54 (2002):267-279.

[^72]: William J Bicknell, Andrew C Beggs and Phi Van Tham. "Determining
    the Full Cost of Medical Education in Thai Binh, Vietnam: a
    Generalizable Model" *Health Policy and Plann*ing 16 (2001):412-420.

[^73]: Di Tella and Savedoff.

[^74]: Informal payments are considered separately from the theft or
    diversion and re-sale of drugs (mentioned in the previous section),
    though in practice it can sometimes be hard to distinguish these
    types of corruption.

[^75]: Lewis.

[^76]: G Gray-Molina, E Perez de Rada and E Yanez, "Transparency and
    accountability in Bolivia: does voice matter?" (Washington, DC:
    Inter-American Development Bank, Working Paper Number R-381, Latin
    American Research Network, Office of the Chief Economist, 1999).

[^77]: C Werner, "Gifts, Bribes and Development in Post-Soviet
    Kazakhstan" *Human Organization* 59 (2000):11-22

[^78]: Werner.

[^79]: E Ilibezova et al. "Corruption in Kyrgyztan" (Bishkek: Center of
    Public Opinion Studies and Forecasts, 2000).

[^80]: Lewis, 25.

[^81]: World Bank, "Diagnostic Surveys of Corruption in Romania."

[^82]: Ibid, 20.

[^83]: The increase in informal payments in Russia is a problem that
    must be seen in the broad context of economic and health sector
    reform, including problems of oversupply of physicians, low wages,
    and very low levels of health spending. See Cashin and Feeley 2002
    for more on this topic.

[^84]: Martinez and Martineau.

[^85]: Gruen et al.

[^86]: Peter Berman, personal communication October 31, 2002.

[^87]: Ibid.

[^88]: Richard B Saltman, "Regulating Incentives: the Past and Present
    Role of the State in Health Care Systems" *Social Science and
    Medi*cine 54 (2002):1677-1684

[^89]: Saltman.

[^90]: Gruen et al.

[^91]: Gray-Molina, Perez de Rada and Yanez.

[^92]: Laura Bureš, "Citizen Report Cards" (Washington, DC: World Bank,
    2002).
    [Http://worldbank.org/poverty/empowerment/toolsprac/tools16.pdf](http://worldbank.org/poverty/empowerment/toolsprac/tools16.pdf).
    Accessed November 24, 2002. Report cards have been used in
    Bangalore, India, Ukraine and the Philippines, in addition to the
    U.S. and other Western countries.

[^93]: PETS (public expenditure tracking survey), QSDS (quantitative
    service delivery survey), DHS (demographic and health survey).
    Reinikka and Svensson note that when survey data from Uganda
    documenting leakages of funds became public knowledge, government
    officials implemented a number of reforms including the publishing
    of monthly transfers of public funds to the districts in the mass
    media, and requiring facilities to post information on inflowing
    funds, thus increasing transparency and public accountability (p.
    21).

[^94]: Peter A Berman and Thomas J Bossert, "A Decade of Health Sector
    Reform in Developing Countries: What Have We Learned" (Boston, MA:
    Data for Decision Making Project, Harvard School of Public Health,
    2000)

[^95]: Web site: http://www.phrproject.com/

[^96]: Web site: <http://dcc2.bumc.bu.edu/RussianLegalHealthReform>

    Accessed November 25, 2002.

[^97]: Duncan.

[^98]: Web site: <http://www.phrproject.com/globali/nha.htm> Accessed
    November 25, 2002.

[^99]: Vian and Bates.

[^100]: Brenda Wilson, "Global Disease Fund Postpones Tanzania Grant,"
    National Public Radio, Morning Edition Audio Report, November 25,
    2002. (http://www.npr.org/archives/index.html) Accessed November 25,
    2002.

[^101]: Ibid.

[^102]: R Brugha, M Starling, and G Walt, "GAVI, the first steps:
    lessons for the Global Fund" *Lancet* 359 (2002):435-438

[^103]: A Heaton and R Keith, "A long way to go: a critique of GAVI\'s
    initial impact" (United Kingdom: Save the Children Briefing
    Analysis, Revised edition March 2002)

[^104]: George Kibumba, "Donated fluconazole stolen in Uganda," E-drug
    Listserv, October 4, 2002

[^105]: James Love, "Plan to curb illicit medicines trade," IP-Health
    Digest, Vol 1 #976, October 29, 2002

[^106]: Management Sciences for Health, "Lessons Learned from the Family
    Planning Management Development Project" (Manila, Philippines: MSH,
    1993)

[^107]: Management Sciences for Health. Using Performance-based Payments
    to Improve Health Programs. *The Manager* 10 (2001)

[^108]: Rena Eichler, Paul Auxila and John Pollock, "Performance Based
    Reimbursement to Improve Impact: Evidence from Haiti" (Presentation
    to the Commercial Market Strategies Project, Washington DC, October
    2002)

[^109]: Duncan.