Stronger foundations: Building a health care model that provides better coverage and quality

By including everyone under a health insurance coverage scheme and ensuring affordable drugs reach all socioeconomic groups, the Philippines is setting an example on how to tackle the problem of the high cost of medical care and social inclusion. The Philippine experiment of combining public spending on preventive health care and medical coverage with private sector delivery holds the promise of resolving the challenge of meeting public health goals with scarce resources. It may also serve as a model for public-private partnerships (PPP), in which the health sector emerges as a driver of growth and employment opportunities.

MULTILEVEL: The evolution of the health sector has been a tale of mixed experiences. Over the years, the government has passed enabling legislation to improve health care access for the wider population. However, proper public sector health care provision has been in short supply due to inadequate infrastructure, underinvestment and a lack of adequate health care professionals. The authorities have been looking to enhance health coverage through the PPP model, which provides a greater role to private service providers. A research fund has also been established to encourage private research projects aimed at improving service quality and delivering better health outcomes.

Meanwhile, the government has adopted a plan aimed at providing universal coverage and provision of quality health care for all citizens. The private sector, complemented by public insurance programmes, is expected to play an important role in this plan through innovative service delivery models. The government has actively promoted the medical tourism and health care business process outsourcing (BPO) sectors to generate more employment opportunities.

CURRENT CHALLENGES: Low public health expenditure and high private out-of-pocket expenses – primarily on medicines – are the main challenges facing the sector. Skilled medical professionals, such as nurses and physicians, have been migrating overseas due to the lack of adequate opportunities in the country. This has resulted in an undersupply of professionals, especially in the rural areas.

The country’s health expenditure as a percentage of GDP was 4.1% in 2011, according to the World Bank, which compares to 5.7% in Cambodia, 2.7% in Indonesia, and 4.1% in Thailand. Per capita spending on health care in the Philippines is well below that of regional peers. In 2011, the figure stood at $97 as compared to $202 in Thailand and $346 in Malaysia, respectively.

Data from the National Statistical Coordination Board show that in 2011, private sources accounted for more than 63.1% of total health expenditure while the public sector (national and local governments) contributed 27%. Private out-of-pocket expenses made up 52.7% of total health expenditure. Social insurance, including the National Health Insurance Programme (9.1%) and grants from foreign countries (1%), were the other components of health expenditure.

The large share of private out-of-pocket expenses highlights the problems in health care service delivery by public sector institutions. The country follows a decentralised structure, which includes three tiers – municipal, provincial and regional. With the Department of Health (DoH) transferring several responsibilities to local government units (LGUs), the latter are now in charge of district hospitals. The DoH continues to supervise regional hospitals and other specialised treatment centres. Municipalities, on the other hand, are in charge of health centres in villages. According to Francis S del Val, vice-president and general manager of GlaxoSmithKline's Philippines, Singapore and Brunei division, the issue of inefficient local service delivery emanates from factors such as weak coordination among LGUs and a lack of institutional capacity among LGUs to perform the devolved functions, he told OBG. Improper financial resources for programmes which are not supported by DoH also adds to the challenge. The structure of the private sector, meanwhile, features mostly large hospitals, smaller specialised clinics and health maintenance organisations (HMOs).

HEALTH INDICATORS: According to data from the World Bank, as of 2012, the rate of infant mortality in the Philippines was 24 per 1000 live births. This compares to 26 and 11 for Indonesia and Thailand, respectively. The country faces a high maternal mortality ratio of 99 per 100,000 live births as compared to 48 in Thailand. Meanwhile, life expectancy at birth in 2011 stood at 65 years for males and 72 years for females, with Indonesia and Thailand recording 68 and 71 years for males, and 72 and 77 years for females, respectively.

A shortage of public funding, high private out-of-pocket expenses and low per capita health spend are some of the main problems that the government faces in building an inclusive health care regime. For instance, only 3% of the 2013 national budget was allocated to health, as compared to 10.6% in Thailand. However, the 2014 budget, as announced by President Benigno Aquino III on July 23, specifies P87.1bn ($2.1bn) to achieve the government’s universal health care targets. This amounts to 3.8% of the entire P2.27trn ($54.71bn) 2014 national budget, to which the government has placed an added focus on allocations for education and social welfare. A large proportion of the health budget will be directed toward preventive health care services and for providing insurance to 14.7m low-income families.

PROGRESS: An important achievement in recent years has been the falling incidences of communicable diseases such as malaria. The number of reported deaths from the mosquito-born disease decreased from 124 in 2006 to just 12 in 2011, with a 75% decrease in case incidence from 2000 to 2011. The country does nevertheless face the growing challenge of non-communicable diseases (NCDs). According to 2009 figures from the National Statistics Office, cardio-related and cerebrovascular diseases were the top two causes of death in the country, accounting for some 21% and 11.8% of deaths, respectively. Unhealthy lifestyle is deemed to be a major factor driving rising incidences of NCDs. The World Health Organisation estimates that the prevalence of obesity will increase significantly among both males and females by 2015.

The DoH is currently collaborating with the Philippine Medical Association to raise awareness of the rising incidence of NCDs. Both agencies are seeking to leverage health campaigns and communications strategies to educate citizens about the adverse effects of smoking and overeating, and to combat malnutrition among adolescents, which, in part, has its roots in the low consumption of fruit and vegetables nation-wide.

PUBLIC INSURANCE: The Philippine Health Insurance Corporation, commonly known as PhilHealth, is the primary government institution providing health insurance to citizens. It was established through the National Health Insurance Act (NHIA) of 1995 with an aim to boost access to subsidised health services to the wider population, especially the poor and impoverished.

Membership to this insurance programme is mandatory for formal sector employees, which includes contractors and subcontractors, as well as overseas Filipino workers. Recently, demands have been made for the inclusion of informal sector workers in PhilHealth as well.

The government has introduced changes in PhilHealth as part of its goal to provide universal health coverage to all citizens. For instance, employee contributions to PhilHealth have recently been increased with the objective of paying more benefits to members. As of January 2013, for employees with a monthly salary range of P7000 ($169) or below, the premium of P210 ($5.06) is equally contributed by the employer and employee. For employees with a salary in the range of P7000 ($169) and P50,000 ($1205), both the employer and employee will contribute 1.5% each. The premium will be P1500 ($36.10) with an equal contribution of P750 ($18.08) from both employers and employees for all those earning more than P50,000 ($1205). Thus, the annual premium for the employee in the lowest income bracket is P2520 ($58), up from P1200 ($28.92) earlier. However, PhilHealth also has a partial subsidy scheme which reduces the annual premium to P2400 ($57.84) and is applicable for individual paying members and people within the lowest income bracket.

The recent amendment of the NHIA mandates public insurance coverage for every Filipino. This includes citizens listed as living in poor households (according to a list prepared by the Department of Social Welfare and Development), who will be entitled to PhilHealth benefits even if they have not paid premiums. Such premiums will be paid by the government, while PhilHealth will also pay a capitation fee to rural health units to provide medicines and laboratory diagnostics to poor citizens. “To address the lack of primary care, PhilHealth has the Primary Care Benefit 1 package, whereby many of the people enlisted are enrolled in rural health units or other clinics where they get primary examinations and treatment to basic illnesses. Reimbursement to these procedures incentivises primary care,” Alexander A Padilla, president and CEO of PhilHealth, told OBG.

Campaigns to promote breastfeeding and reduce smoking will also be launched. In 2011, PhilHealth also instituted the No Balance Billing policy under which members, whose insurance is sponsored by the government, will be exempted from paying anything. This scheme will apply when the member’s medical bills at a PhilHealth-accredited hospital are higher than the related PhilHealth case rates for the medical condition.

In 2013, PhilHealth conducted a pilot programme to enhance the outpatient benefit package for over 600,000 personnel of the Department of Education. The package offers coverage for screening packages and lifestyle counselling as part of PhilHealth’s efforts to shift public attitude in favour of preventive health care. If successful the programme may be rolled out to cover all those who are formally employed.

PRIVATE HEALTH CARE: Over the years, the Philippines has witnessed a proliferation of private hospitals. With public facilities affected by under-investment and a shortage of resources, private hospitals stepped in to fill the gap and boost service delivery and coverage. In urban areas, private hospitals were set up by corporations, while in semi-urban and rural areas private clinics have been established to provide primary level care in addition to services such as diagnostics or pharmacy. At the time of writing, the country had approximately 1800 hospitals, of which 60% are private, and which cover a range of services in the areas of medicine, paediatrics, primary and tertiary clinical laboratory, and radiology. The number of primary health care centres around the country is 2252 and there are 721 public hospitals under the management of LGUs. There are 70 DoH hospitals, which treat patients suffering specific illnesses requiring a range of services. In 2010, there were a total of 98,155 hospital beds, of which 50% were in private hospitals. The primary revenue sources for private hospitals are user fees and health-cost reimbursement from PhilHealth. As private hospitals in Philippines are smaller than public facilities, for-profit private ventures seek to make investments in those treatments in which returns are higher. These include eye care, cosmetic surgery and orthopaedics, which has resulted in some services being affected by oversupply while others, such as those pertaining to cancer treatment, are not catered to efficiently.

Data and research on human resources in the Philippines private hospital sector is scarce, which affects resource planning and service delivery mechanisms. However, according to the “2010 Census of Philippine Business and Industry”, hospital activities employed 98,214 people in the country, of which 96,994 were paid staff. Many of these employees were based out of the National Capital Region and Calabarzon Region, since these areas have a large number of private hospitals. Total compensation paid by health and social work activities accounted for P19.5bn ($469.9m). Average pay for staff employed in hospital activities was P169,992 ($4097), while social work employees drew an average salary of P209,773 ($4720). Hospital activities generated revenue of P64.6bn (1.56bn), representing 76.6% of the sector’s P84.3bn ($2.03bn) total.

The government also aims to modernise hospitals via the PPP model. Hospitals would be handed over to private partners which will modernise existing facilities, create additional infrastructure and operate the hospital profitably for a fixed number of years before handing it over to the government. This strategy is aimed at providing better services to patients, and in mid-2013 the government embarked on a P5.7bn ($137.4m) modernisation project for the Philippine Orthopaedic Centre. As of June 2013, the Megaworld-Citi consortium was the sole bidder for the project, and their technical proposals were being evaluated by the authorities.

REGULATIONS: The Aquino III administration has actively promoted PPPs as a means to improve health care delivery and access. This includes funding of private sector research projects, which are expected to drive health innovations and lead to the further development of the nation’s pharmaceutical industry. The government recently ratified a law which has led to the creation of the Philippine National Health Research System (PNHRS), which has facilitated the establishment of the Philippine National Health Research Fund. The PNHRS will guide health research projects, which will be funded by higher taxes on cigarettes and alcohol. Additional financial resources will also be available for private research projects, which are likely to play a key role in the health sector’s development in the long term. The government has also launched a Joint Development Initiative based on PPPs to meet the goal of universal health care through better governance and leadership. At P38.4m ($925,440), the programme will cover a 10-year period, during which it will provide training to government health workers and enhance capacity-building in rural areas, in particular delivering better antenatal and obstetrics services to rural inhabitants.

Access to innovative medicines is also being facilitated by engagement between the public and private sectors. The Type-Z benefit system has been devised for certain treatments such as breast cancer and kidney transplants. In addition, the system provides medicines to patients who are PhilHealth members and are prequalified to participate in the Z-package programme.

The government also introduced a new classification system for hospitals and other health facilities in 2012, with the aim of providing a wider variety of services to patients and enhancing access to medical services for all citizens. Guidelines for the scope of services and operating standards at different types of hospitals have been issued and non-adherence to the new system would result in downgrades for hospitals (see analysis). However, private hospitals argue that such a system will have an adverse impact on the operations of several facilities and may even lead to their closure.

MEDICAL TOURISM: Meanwhile, medical tourism has seen regulation improve to provide various incentives for potential private investors, with the government’s focus driven by the objective to create employment for skilled professionals, enhance revenues and boost access to management and technological know-how.

According to the Board of Investments, the main investment arm of the government, a range of fiscal incentives are offered to investors for setting up medical tourism facilities. These include duty-free imports of medical equipment and a four-year tax break on income earned solely by providing services to foreign patients. Non-fiscal incentives include a special investor’s resident visa as well as provisions to facilitate employment of foreign workers. The list of activities covered under the incentive scheme includes hospital services, ambulatory surgical services and dental services.

Medical tourism is set to lift revenue to $3bn annually by 2015, according to the National Economic and Development Authority. Investment incentives, a skilled labour force and an established medical infrastructure can potentially drive growth in the number of patients.

Cebu, one of the major islands comprising the Visayas, has been able to promote itself as a leading medical tourism destination due to its central location, pleasant climate and internationally accredited hospitals. For example, the Chong Hua Hospital (CHH) and the Cebu Doctors’ University Hospital (CDUH) are internationally accredited facilities located on the island. CDUH has been accredited by QHA Trent, a UK-based health care company, while CHH has received accreditation from Joint Commission International (JCI).

The other JCI-accredited hospitals are St Luke’s Medical Centre (SLMC) in Quezon City, The Medical City and Makati Medical Centre (MMC). SLMC, for instance, was the first hospital in the Philippines and the second in Asia to receive JCI accreditation in 2003. The facility attracts a large number of medical tourists from Guam, Japan and South Korea, among others, due to its rigorous patient care and safety standards. “With the growth of the tourism industry, more and more foreigners are looking at the Philippines as a viable medical tourism destination. At SLMC, we provide services that are available in 90% of US hospitals at competitive prices, with 70% of our staff having foreign training,” Edgardo Cortez, president and CEO of SLMC, told OBG.

ACQUISITIONS: In recent years, several private hospitals have been acquired by large business groups with a focus on infrastructure development and better service delivery. A higher level of management and technological expertise, coupled with greater capital from investors, is expected to boost professionalism in hospitals, raise investment and improve quality standards.

An important indicator of acquisition activity has been investments made by the Metro Pacific Investments Corporation (MPIC). MPIC recently completed the acquisition of its eighth hospital, which strengthened its position as the largest hospital brand in the Philippines. The group acquired 51% of the 200-bed Central Luzon Doctors’ Hospital Educational Institution with an investment of P187m ($4.51m). An infrastructure development plan has also been drawn up with a focus on increasing patient beds and clinics for doctors. The other hospitals acquired by MPIC are: MMC, Davao Doctors Hospital; Cardinal Santos Medical Centre in San Juan City; Our Lady of Lourdes Hospital in Manila; Asian Hospital and Medical Centre in Muntinlupa City; and De Los Santos Medical Centre in Quezon City. The latest acquisition increased MPIC’s bed capacity to 2137 and the company plans to expand this number to 3000 by 2015.

TALENT: In recent years the Philippines has been a major exporter of skilled health professionals to the rest of the world. Low salaries and under-investment in public health facilities at home resulted in inadequate incentives for the professionals, prompting them to look for opportunities in other economies. In 2011, the country had 10,773 general practitioners, 12,701 medical specialists, 201 dentists and 522 midwives.

Economic development and the nation’s emergence as a key services outsourcing destination has generated opportunities for skilled health workers in recent years. A large number of US-based organisations have set up outsourcing operations in locations such as Manila and Cebu, while the government, for its part, is promoting investment in the health care BPO industry in order to generate more employment opportunities for medical workers. According to a report from Everest Group, a business advisory firm, revenues from the health care BPO industry rose from $102m in 2010 to $430m in 2012. The Philippines enjoys a distinct advantage of having a large pool of English-speaking US-licensed nurses. Around 6000 nurses graduate in the country every year and Filipino nurses constitute the largest proportion of foreign-educated candidates qualifying for the US Nursing Licensure Examination for Registered Nurses, which provides a licence to practise nursing in the US. The nurses are qualified to handle a variety of tasks such as medical transcription, billing and insurance-claims processing. They also receive high salaries due to the specialised nature of the tasks performed. By 2016 the health care BPO sector is projected to generate revenues of $1bn and create employment opportunities for 100,000 health workers.

Under-representation of qualified health workers in rural communities remains a challenge for the government. Growing opportunities in the private hospitals and clinics as well as in the health care outsourcing sector have been concentrated primarily in urban areas. This has meant that remote rural areas continue to experience acute shortages of health professionals. Most doctors and nurses prefer to work in the private sector, which provides higher salaries than public health institutions. Rural communities must often access services from a health worker with basic qualifications and who is often unable to handle complex cases.

OUTLOOK: The government’s focus on promoting medical tourism and the health care BPO industry provides an enabling environment for future investments. Supportive laws, a skilled workforce and the country’s need for greater managerial and technological expertise also adds long-term promise. Active participation of the private sector, through the establishment of professionally managed health facilities in urban areas, has allowed clients to enjoy care services of a high standard, as well as generate employment opportunities for skilled health professionals. Notwithstanding, the government needs to increase public health care investment, with better coverage in rural areas likely to rest on collaboration between public institutions and the private sector.