9

**Lessons learned.** Brazil's attempts to address the deficiencies<sup>of its pre-1983 health financing</sup> system appear to generate better incentives tor a more<sup>efficient health care delivery system, but there</sup> are insufficient data available to clearly evaluate<sup>the impact of various reforms (though this may be</sup> remedied by the proposed study mentioned in the previous<sup>footnote). The Curitiba Pian and later the</sup> AIHi created an institutional framework for moving<sup>consumers through the health care systeni in an</sup> organized manner and for limiting provider-induced<sup>demand by requiring that the gatekeepers to the</sup> system be employees of the insurt r, and that these employees<sup>determine the total course of treatmrent</sup> to be provided. Pixed reimiburse..i,nt on a case<sup>basis rather than fee-for-service should reducc the</sup> number of unnecessary procedures that are perfornied.<sup>Finally, unifying the resou,ces and</sup> administration of the institutions responsible for<sup>delivering both curative and preventive services</sup> should allow for cross-subsidization and the possibility<sup>of a more cost effective health care delivery</sup> system.

# _China_<sup>_4_</sup>

In 1981, China's health facilities were instructed to<sup>cover their non-staff recurrent costs</sup> through user charges, paid either out-of-pocket or through<sup>insurance. Although facilities are all</sup> publicly owned, this change induced them to operate<sup>in a manner similar to private institutions. By</sup> 1988, 82 percent of recurrent health expenditures were<sup>estimated to have been made through a</sup> combination of patient fee payments and insurance reimbursement.<sup>In that year, about 20 percent</sup> of the population was covered under government and<sup>employer-sponsored (though heavily subsidized</sup> tl,rough the tax system) health insurance that reimbursed health providers<sup>100 percent of billed</sup> charges. Another IO to 15 percent of the population<sup>is estimated to have more limited coverage (i.e.,</sup> with cost-sharing provisionF). Reimbursement under these<sup>programs is on a retrospective fee-for-</sup> service basis, and insurers are third-party payers separate<sup>from providers and playing no role other</sup> than financing services. Insurance primarily pays for curative<sup>services, but disease prevention</sup> activities for which prices are charged are covered<sup>as well.</sup> The pricing of health services has create,i incentives<sup>for providers to favor the acquisition and</sup> use of particular types of services and technologies.<sup>Fees for technologies and services which were</sup> in use in the late 1950s (e g., outpatient consultations,<sup>inpatient care, surgical operations) were set</sup> below costs (without an accurate idea of what cests<sup>were) at that time, and even with attempts to</sup> increase prices for this category of services in 1985,<sup>fees for most of these "older" medical</sup> techno'ogies, procedures, and services remain considerably<sup>below cost. Older price guidelines do</sup> not exist for new technologies, and a number of<sup>these (e.g., CT scans, laborato±'y services,</sup> ultrasound, coronary care, ar' dialysis) appear to be priced<sup>above costs. Therefore, hospitals benefit</sup> financially when these newer services are consumed.<sup>Another category of prices is for drugs.</sup> Hospitals are explicitly allowed to mark up the price<sup>of drugs by 10-18 percent over the wholesale</sup> price for which they acquire them. The mark-up foe traditional<sup>medicine drugs averages 20 percent.</sup> While the mark-up is intended to cover storage and<sup>distribution costs, there are clear incentives to</sup> overprescribe.

Cost escalation. Total health expenditures grew at<sup>an annual average rate of 17 percent in real</sup> terms frorn 1980 to 1988, increasing from 2.( percent<sup>to 3.2 percent of GDP during these years.</sup> Most of this growth has resulted from increases in<sup>patient fee payments (average annual growth rate</sup> 4 A forthcoming World Bank study (Bumgarner, ed.)<sup>is the source of information provided on China in this section.</sup>