3. Strengthening Health Systems

Successive studies have evaluated experiences in contracting out hospital care and primary care services in South Africa. The hospital study compared three district hospitals whose management had been contracted out to the same private company with three nearby, comparable, publicly managed district hospitals. Overall, the contractor hospitals were able to provide care of more or less equivalent quality at significantly lower cost to themselves—in major part because their productivity was more than double that of the public hospitals as a result of their effective human resource policies. However, the contractor captured all the efficiency gains as profit, leading to a situation where contracting out was actually more costly for the government than direct provision. The contractor's capacity to profit from the arrangement was due mainly to its ability to secure highly favorable contract terms and prices and to ensure a high total number of days of care. Interview data confirmed a substantial imbalance between the government and the contractor in relation to the skills, capacities, and information required to negotiate contracts. In addition, government officials underestimated the extent of potential competition for contracts and therefore overestimated their dependence on the one contractor.

A similar study evaluated the performance of contracts with general practitioners for primary care in two provinces and compared their performance with that of public clinics. General practitioners' costs were similar to those of small public clinics, but the service was generally of poorer quality. Exploration of the relationship between purchasers and providers found that the contract was incomplete and open to interpretation and that monitoring was constrained both by a lack of capacity and resources and by the difficulty of monitoring a complex service delivered in remote locations. Sanctions were vaguely specified and rarely used because of a sense of mutual dependence between parties to the contract that lessened their willingness to enter into disputes. In addition, the two provinces varied in terms of their capacity to monitor performance. The province with lesser capacity had little information about general practitioners' performance and little contact with them, which seemed to increase suspicions of what general practitioners were doing. In contrast, the province with greater capacity had a better information system and a decentralized management system that led to greater contacts between managers and general practitioners and an apparently greater degree of understanding between the parties.

Sources: Broomberg, Masobe, and Mills 1997; Mills and others 2004; Palmer and Mills 2003.