# COUNTRY CASES

## _Brazil Prior to 1983_

Most curative personal health care in Brazil was financed by the National Institute for Medical Care and Social Security (INAMPS), the health insurance component of Brazil's payroll-financed social security system. Preventive care and basic curative services for the poor were provided by the Ministry of Health, which was financed through government budget allocations and administered separately from INAMPS. The social security system has grown rapidly, from coverage of 23 percent of the population in 1963 to over 90 percent in 1982 (McGreevey, 1982). Although insurance coverage has become nearly universal, there is great disparity in the supply of health providers between the relatively well off south and southeastern ivgons of Brazil and the rest of the country (Briscoe, 1990). Until 1983, INAMPS reimbursed physicians and hospitals on a fee-forservice basis for each service provided to patients according to an official price list which included 2,600 items (the Hospital Guide (GIH) system). INAMPS paid all costs; covered persons were not responsible for any cost sharing. Under this system, INAMPS served largely as a third party payer for services ilelivered by private providers. In 1981 for example, 85 percent of hospitalizations paid for by INAMPS were in private contract hospitals, while only about 9 percent (including 2 percent in INAMPS' own facilities) were in public sector facilities (McGreevey, 1988). Thus, INAMPS under the GIH system could be characterized as a retrospective fee-for-service reimbursement system covering curative services only. INAMPS served a3 a passive financial conduit; it did not try to impose cost consciousness on providers, and the absence of cost sharing meant that consumers also had nothing to gain by limit-ag their utilization of services. The implications of these characteristics are described below.

**Cost escalation.** Largely as a res"lt of the incentives of the curative care reimbursement system, health expenditures increased by more than 20 percent annually during the 1970s, and public sector health expenditure as a share of GDP rose from I perzent in 1949 to 3.7 percent in 1975 and 5.6 percent in 1982 (World Bank data). From the late 1960s until the early 1980s, the number of private hospital beds increased by over 40 percent, and the hospital industry grew faster than the rest of the economy (Rodrigues, 1989). The fee-for-service reimbursement system encouraged hospitals to increase both the number of patients and the amount of services provided per patient as a means of generating profits. The private provider network "responded to a set of incentives that paid [providers] whatever they billed to provide virtually unlimited services to patients who bore none of the costs directly" (Briscoe, 1990). The retrospective fee-for-service system coupled with the passive role played by INAMPS with respect to monitoring private providers was probably responsible for the widespread fraud (e.g., billing for non-existent patients and procedures by the private health provider network) discovered in the mid-1980s.

**Resource allocation.** The curative health subsystem, financed through payroll taxes, developed independently from the Ministry of Health's public health programs, and grew with increased employment and economic expansion in the 1960s and 1970s. The MOH budget's share of GDP declined over this period. Thus, the explosive growth of total health care spending referred to above occurred entirely in the market for curative services. The result of these forces was that the share of government (MOH plus INAMPS) health expenditure devoted to curative (medical and hospital) as opposed to preventive services rose from 36 percent in 1965 to 85 percent in the early