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This chapter explains the rationale for contractual agreements with the private sector to provide both clinical and non-clinical health services, and the expected benefits. Evidence from the four country case studies and from Thailand is used to analyse the extent to which this policy has been adopted, the forms the policy has taken and the likely problems associated with this reform measure. Particular attention is paid to the demands the policy makes on government capacity. The chapter draws conclusions on the factors constraining the more widespread adoption of contracting out, and speculates on its relevance in different country contexts.

The case study countries differed considerably with respect to the structure of their health systems, the roles played by government within these systems, and in terms of health sector performance. This chapter first provides an overview of the primary organisational arrangements for health service delivery, including the relative roles of public and private sectors, and then explores different dimensions of health sector performance. The chapter aims to provide readers with an understanding of how the health systems of the study countries operated and what these systems had achieved.

This chapter provides an overview of health sector reform in the five study countries. The policy context, content and process are each analysed (Walt and Gilson 1994). New Institutional Economics emphasises that most institutional change is incremental and slow and hence the historical structure of institutions will affect the speed and success of reform. Accordingly, the following section on context explores in some detail the historical development of the health system in the study countries. The contextual section also addresses macro-economic and social issues, describing trends in economic and social indicators and the design and implementation of structural adjustment programmes. Consideration of these broader contextual issues helps explain the health system performance described in the previous chapter.

The previous chapter addressed both the capacity problems faced by those case study countries that had considered or introduced specific reforms, and how capacity might best be increased. It left largely unaddressed the fundamental question of the relevance of these reform measures to particular countries, and indeed the relevance of what is widely perceived to be an international health sector reform agenda based on NPM principles. While the evidence that capacity constraints are a severe barrier to the implementation of reforms provides a prima facie case for questioning those reforms, it is also important to address directly the relevance of reforms.

The introductory chapter to this book set out a framework for analysing capacity which was used for data collection and analysis in countries. This conceptual framework emphasised: Internal and external aspects of capacity — the distinction between aspects of capacity internal to the implementing organisation such as the skills and systems present in the Ministry of Health, and external aspects of capacity including the broader political, social and economic environment. It was suggested that development of internal capacity needed to be congruent with the external environment; for example, problems would occur if new financial systems developed by the Ministry of Health did not satisfy government-wide financial regulations. The task-specific nature of capacity — for example, the capacities required for government to directly finance and deliver health care may be very different from those required for government to contract out services. An assessment of capacity therefore needs to be linked to the tasks to be performed.

New Public Management protagonists argue that the private sector can play an important role in service delivery. A variety of theoretical arguments have been used to support such an approach. For example, some economic theorists argue that few health services have characteristics which mean that they cannot be provided by the market. Indeed, for most personal, curative, health services, markets are likely to exist; however, they are likely to function imperfectly due to problems of asymmetric information.

Like the other reforms examined in this book, a policy of user fees necessitates a degree of decentralisation and new management capacity. But, on an a priori basis, such a policy can be expected to be less demanding on government capacity than contracting out, or regulation and enablement of the private sector, since they require no radical organisational restructuring, no changes in the public private delivery mix, nor a shift from direct to indirect service provision roles. Nevertheless, it is well recognised that effective implementation of user-fee policy requires government capacity to perform effectively a range of routine collection, accounting and administrative functions, as well as new financial management roles at central and sub-national levels, and the most difficult task of the effective implementation of exemptions targeted at the poor and vulnerable (Gilson, Russell and Buse 1995).

There has been much substantive debate about the appropriate role of government during the past decade. While initially much of this debate took the form of a very polarised discussion of the strengths and weaknesses of government, in recent years the debate has become more nuanced. Analysts have explored the extent to which ownership alone can influence performance, and the extent to which a competitive environment or an effective regulatory framework affects the desirability of government involvement. Services have been broken down into constituent components, some more suitable than others for government provision. Current analyses of the role of government recognise that there are likely to be failures in both government and private markets. In the health sector, it is clear that while governments have made many significant achievements, including improving infant mortality rates, rapidly increasing trained local health staff and expanding health services to rural areas, there are also common negative aspects to government performance (Bennett, Russell and Mills 1996, Mills 1997a, World Bank 1987, World Bank 1993). Traditional public sector bureaucracies are often plagued by a multiplicity of problems which, in the health sector, manifest themselves in inefficient, inequitable, unresponsive and poor quality public health services.