UNIVERSXTY OF ECONOMICS HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES THE HAGUE VIETNAM THE NETHERLANDS VIETNAM-THE NETHERLANDS PROJECT FOR M.A ON DEVELOPMENT ECONOMICS USER FEES AND FEE EXEMPTION MECHANISM IN PUBLIC HEALTH FACILITIES: THE CASE OF QUANG NGAI PROVINCE The thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY PHAM VAN TRONG SUPERVISORS: Dr ARDESHIR SEPEHRI Mse TRAN THANH SON HO CHI MINH CITY- MAY 20th, 2002 CERTIFICATION “I certify that the substance of this dissertation has not already been submitted for any degree and is not being currently submitted for any other degree I certify that to the best of my knowledge any help received in preparing this dissertation and all sources used have been acknowledged in this dissertation” Pham Van Trong Date: May 20th, 2002 i ACKNOWLEDGEMENT This thesis is done under the Vietnam-Netherlands Project for MA on Development Economics I would like to thank The Netherlanđs for Her aid and scholarship I am grateíul to all project teachers and staíĩ Especially, gratefulness is sent to Mr Tran Vo Hung Son- the Project Leader Many thanks are also released to Ms Nguyet- the Project Secretary and Ms Chi- the Project Librarian High appreciations are given to Dr Haroon Akram-Lodhi and Dr Youdi Schipper for worthy academic teaching and encouraging me on my thesis draft I would like to express my deep appreciations to Dr Gabrielle Berman- member of Project Scientific Committee- and Msc Tran Thanh Son- my supervisor- who gave me lots of valuable academic advise to improve the quality of the paper From the bottom of my heart, I would like to give many deep appreciations to Dr Ardeshir Sepehri who guide, support and going witìi me throughout the process of doing this thesis Especially, his mental encouragement is a great support for me to finish this thesis Again, I would like to give deep appreciations and best wishes to him and his íamily Finally, I would like to express my respectíul gratitude to everyone in my family who has been untiringly contributing their mental and íínancial support for me to complete my thesis and looking for my success Pham Van Trong Date: May 20th, 2002 ii TABLE OF CONTENT List of figures List of tables Abstract CHAPTER 1: INTRODUCTION -Pdge 1 Problem statement Objectives, research questions and hypotheses ofthe study - 2.1 Objectives - 2.2 Research questions - 3 Hypotheses of the study - 3 Data source and research method Data source 3.2 Research method - 4 Rationale of the study - Structure of the thesis CHAPTER 2: LITERATURE REVIEW - I Theorical framework User fees - Potential benefit of user fees , 2.1 Efficiency enhancing potential of user fees 2.2 Revenue raising potential ofuser fees 2.3 Equity enhancing potential ofuser fees Price elasticity of demand for health care 13 Willingness to pay and ability to pay - 14 Russell's argument on the inequity of user fees - 14 Willis and Leighton's argument on the ineffectiveness of fee exemption mechanism 15 Gilson and Russel's theory on the ineffectiveness of fee mechantsm exemption 15 11 Empirical evidence 19 111 CHAPTER 3: USER FEES AND FEE EXEMPTION MECHANISM IN HEALTH SERVICES IN VIETNAM -Page 27 Overview of health sector in Vietnam - 27 1.1 Before renovation ( 1989) 27 1.2 After 1989 - 27 User fees and fee exemption mechanism in health services 28 CHAPTER 4: FEE EXEMPTION MECHANISM, EQUITY AND WILLINGNESS TO PAY: RESEARCH METHODOLOGY AND DATA ANALYSIS 34 Research methodology 34 1.1 Method of data analysis - 34 1.2 Analytical framework 34 Data collection 36 Overview of main economic activities and health care system in Quang Ngai province 37 Data analysis - 40 3.1 Definition of the poor and the non-pu-:r 40 Data analysis and discussion - 44 Commune health centers - 44 2.2 Ba To district hospital 45 3 Quang Ngai provincial hospital 51 CHAPTER 5: CONCLUSION AND SUGGESTION - 57 "'' iv LIST OF FIGURES Figure : Equity enhancing potential of user fees -Page 11 Figure : Affect ofuser fees to the poor 16 Figure : Conventional model 35 LIST OF TABLES Table : Econometric estimates of own price elasticities of the demand for medical care in developing countries - 20 Table : Mobilizing resources to pay for care - survey in Sierra Leone - 22 Table : Mobilizing resources to pay for care (%) - 23 Table 4: User fee exemption for occupational groups: Cross country experience - 25 Table :Health service contacts per person following per capita expenditure quintiles, 1998 - 31 Table 6: Percent ofusers who are exempted from payments for a visit to a governmental health facility, 1998 32 Table : Variable framework - 36 Table 8: Income:per capita following income quintiles - 43 Table 9: Payment and exemption for outpatients in district hospital 47 Table 10: Payment and exemption for inpatients in district hospital 48 Table 11: Inpatient care costs and health financing sources 49 Table 12: Payment and exemption for outpatients in provincial hospital - 52 Table 13: Payment and exemption for inpatient in provincial hospital 53 Table 14: Inpatient care costs and health financing sources 54 v ABSTRACT User fees have come to play a significant role in the financing and delivery of public health services in many developing countries since 1980s It is considered as a way of rationalizing the use of care, raising revenue and improving the coverage and quality of health services While many have been written on the revenue-raising potential of user fees, little is known about the equity-enhancing potential ofuser fees In Vietnam, user fees were introduced since renovation in health sector in 1989 Although there is formal fee exemption mechanism for the poor in public health services, it doesn't work well in practice My paper tries to examine the equity impact of user fees by coming to know the fee exemption mechanism in public health facilities in Quang Ngai province On that purpose, my study tries to examine whether the poor patients receive exemptions in health services, there is a correlation between household income and level of exemption, and the poor has to sell their productive assets to pay for care or not From that, some conclusions and suggestions are given to the policy-makers to improve the equity of user fees in health services Vl CHAPTER 1: INTRODUCTION 1- Problem statement One of the objectives of governments around the world is the promotion of human development in general and the health of the population in particular So, the provision of health care is the great concerns for many countries in all over the world Since the early 1980s, many governments of developing countries have been restructuring the financing and the delivery of publicly provided health services Due to the serious imbalances between demand and supply of health services and the budget constraints, many low and middle-income countries have introduced user fees or user fees in health services as an essential policy to finance publicly provided health services According to de Ferranti (1985), Griffin (1987) and World Bank (1987), user fees have been considered as a way of rationalizing the use of care, mobilizing sources within the health sectors, encouraging community participation and making the delivery of health care services more efficient and equitable Revenues from user fees are used to expand the coverage and the quality of services The improvement in coverage and quality of health care services combined with the exemption of user fees for the poor are argued to enhance equity because it creates chances for the poor to access the high quality health services But in reality, the introduction of user fees in some aspects is not good for some people in society, especially the poor Theoretical models suggested that the price elasticity of demand of health services is to be higher for the low-income groups than the higher income groups (Me Pake, 1993) So, user fees combined with no policy to exempt the poor are unlikely to promote equity and harmful for the poor Many poor patients, who face difficulties in finding funds to finance medical care, has to transfer funds from payment for foods and other necessity goods or selling off productive assets to payment for care (Russell, 1996) Before doi moi (economic reforms), the government of Vietnam provided medical care free of charge The user fees were introduced in the late 1980s when the "doi moi" policy encouraged private sector's participation in health services Public hospitals began charging patients for consultations and drugs In 1989, a fee system was introduced in three levels (district, provincial and national) of the health care delivery system In 1995, the Ministry of Health issued formal user fee schedules for each kind of consultation and each kind of diagnostic test and procedure in clinics and hospital (Vietnam-Public Expenditure Review 2000) However, as it is noted by the Vietnam-Public Expenditure Review 2000, although there is a formal fee exempting mechanism for the poor, handicapped, war veterans, orphans and individuals suffering from certain ailment, it doesn't work well in practice The research of Ensor and San ( 1996) showed that there is no correlation between fee exemption and household income Quang Ngai was chosen because it is a poor province located in the middle of the central of the country In 1999, GDP per capita in Quang Ngai is equal to USD 174, whereas GDP per capita in Vietnam as a whole is USD 363 at that time (Quang Ngai statistical yearbook, 1999) Main cultivations here are rice, sugar-cane, casava The livestocks include buffalo, cow, pig, chicken The health care system here is underdeveloped including one provincial public hospital, district health centers, and commune health centers In 1990, user fee system in health services was introduced and applied But it is seemly that it operated ineffectively Many poor patients didn't receive any exemption from payment for treatment and some had to sell their assets to finance their costs of treatment Crucial to the equity-enhancing potential of user fee argument is the assumption that the poor need to be exempted from paying user fees While many have been written on the revenue generating potential of user fees, little is known about their equity enhancing effects The purpose of my research is to fill this gap by examining (i) the exemption mechanism as practiced in Quang Ngai province and (ii) the extent to which the households rely on selling their asset to pay for the medical expenses 2- Objectives, research questions and hypotheses of the study 2.1 Objectives Some previous research (Russell and Gilson, 1997) indicated that there is no policy to exempt the poor from user fees in health services in some developing countries And if having, it didn't operate well in practice My study tries to examine how the fee exemption mechanism operates in health care system in Quang Ngai province; whether the poor receive fee exemption in health services; and in the case of receiving no fee exemption in health services how they pay for their treatment From that, some suggestions on user fee mechanism in health services are given to policy-makers to make it better 2.2 Research questions The main research question in my study is: • Do poor patients receive an exemption or reduction of user fees in public health facilities including: commune health centers, district health centers and provincial hospitals? Besides that, the sub-research questions in my study are: • Is there a correlation between household income and fee exemption level in health services? • Do the poor households with illness have to sell their assets in order to pay their cost of treatment? 2.3 Research hypotheses The main hypothesis of my study is: • That not all poor households receive fee exemption from public health services There are some poor households who don't receive any fee exemption The sub-hypotheses of my study are: • That there is no correlation between household income and fee exemption in health care It means that exemption doesn't increase from highest income quintile to lowest income quintile It may be that the poor receive exemption equal to or less than the rich • That some poor households have to resort to selling their assets in order to pay hospital fees Selling productive assets such as machines, buffaloes, land etc will Besides that, the richest and the poorest nearly receive the same exemptions from inpatient fees implying the inequity of fee exemption mechanism There is no correlation between household income and level of fee exemption Moreover, exempting the rich from fees also mean less revenue retained at local health facilities to improve coverage and quality of services It suggests the inequity of user fees The rich seem to be more likely to get benefits from this mechanism rather than the poor • Inpatient care costs and health financing sources The results of inpatient care costs and health-financing sources are summarized in table 14 Table 14: Inpatient care costs and health financing sources Inpatient care costs Total Income quintiles r Q1 Q2 Q3 Q4 Q5 Less than or equal to 500,000 12 3 3 500,000- 1,000,000 1 1,000,000- 1,500,000 1 1 Greater than 1,500,000 Owned money 0 Borrowing 2 0 Selling assets 21 Owned money + selling assets 1 Borrowing + selling assets 10 3 Health financing sources From table 14, we see that the richest households pay for much less inpatient care costs than the poorest households 60% (3/5) of the richest households with family members who had inpatient care costs pay for inpatient costs less than 500,000 dong and none of them pay for inpatient costs greater than 1,500,000 dong By contrast, there are only 33% (3/9) of the poorest households who had inpatient care costs paying less than 500,000 dong and up to 56% (5/9) of them paying greater than 1,500,000 dong It suggests that the poor households often suffer more from greater health problems than the rich households and pay more for the treatment of illness than the rich households 54 On health financing sources, we see that 60% (3/5) of the richest patients uses their owned money to finance their health expenditure There are only 20% (1/5) of them has to sell assets to finance their cost of treatment At the other end, none of the poorest uses their own money to finance their treatment and up to 44% (4/9) of them has to sell assets to finance their treatment It shows that using owned money to finance the costs of treatment is the dominant source to the richest The sale of assets, especially productive assets, to finance health care costs is the dominant source to the poorest Besides that, table 14 also shows that borrowing from relatives or friends and selling assets to finance the costs of treatment are main financing sources to the poor It's expressed in quintiles Q1, Q2 and Q3 It would seem that the poor in Quang Ngai suffer more from greater health problems than the rich In addition, the fee exemption mechanism doesn't work well in provincial hospital The poor don't receive exempdons as expected Therefore, they spend more money on health expenditure than the rich Large expenditures on health problems take them to borrow money or sell assets Borrowing and selling assets may result in serious decreases for the welfare of poor households Borrowing means that the households have to pay back interest and principal in future Thus, it affects future savings and expenditure and leads to lower investment and productivity gains On the other hand, selling assets, especially productive assets, will set down the income generating capacities of households In the survey, I found that nearly 85.7% of sold assets are productive assets The result is that the poor households' welfare is decreased This is negative impact ofuser fees In summary, the fee exemption mechanism doesn't work well in the Quang Ngai provincial hospital The poor have to pay and pay much more for health fees than the rich There is no correlation between household incomes and levels of fee exemptions In addition, the poor often suffer more from greater health problems than the rich Health problems combined with no exemption lead the poor to large expenditures on health care It takes the poor to borrow from their relatives and friends or sell their assets The result is that the poor households' welfare is decreased It's the inequity of user fees •!• Brief summary and conclusion for chapter 55 The surveys were implemented in mountainous villages in Ba To District, Quang Ngai province Although there is a formal fee exemption mechanism in public health facilities, it doesn't work well in practice Through the surveys, I have some findings: There are full fee exemptions for all patients in commune health centers, regardless of their incomes This is the inequity of fee exemption mechanism because, according to user fee theories, the poor should be exempted from user fees The rich have to pay fees On the oth~r hand, the effectiveness of fee exemption mechanism is constrained due to some following factors including lack of good medicines and equipments, lack of informations on exemptions, long distances and costs of travels, more personal nature of services in nurses' houses in comparison with commune health centers and beliefs in traditional healers Although there is a formal fee exemption mechanism in the Ba To district hospital and the Quang Ngai provincial hospital, it doesn't work well in practice The fee exemption mechanism doesn't distinguish between the rich and the poor The poor have to pay and pay much more for health fees than the rich There is no correlation between household incomes and levels of fee exemptions It's the inequity of user fees because, according to user fee theories, the poor should be exempted from user fees The rich have to pay fees On the other hand, the poor often suffer more from greater health problems than the rich Health problem combined with no exemption lead the poor to spend much on health care So, they have to borrow from their relatives and friends or sell their assets Borrowing means that the households have to pay back interest and principal in future Thus, it affects future savings and expenditure and leads to lower investment and productivity gains On the other hand, selling assets, especially productive assets, will decrease the income generating capacities of households The result is that their living standards and welfare will be decreased If Quang Ngai is representative of other regions/provinces in Vietnam then in fact there is substantial inequity in the user fee system in Vietnam 56 CHAPTER 5: CONCLUSION AND SUGGESTION User fees had come to play a significant role in the financing of publicly provided health care services in many developing countries since 1980s It is considered as a way of improving efficiency, equity and raising revenue in health services While many have been written on revenue-raising potential of user fees, little is written on equity enhancing potential of user fees In Vietnam, user fees were officially applied in 1989 when the government issued a fee system in three levels (district, provincial and national) of the health care delivery system Although there is a formal fee exemption mechanism for the poor in health services, it doesn't work well in practice (Vietnam Public Expenditure Review, 2000) The purpose of my thesis is to examine the equity impacts of user fees by taking into consideration of fee exemption mechanism in public health facilities in Quang Ngai province My research is based on the household surveys in mountainous villages in Ba To district, Quang Ngai province The results from research supp