The role of contractual arrangements in improving health sector ...

Pakistan
a variety of health insurance mechanisms, which again may be national, regional or local in
nature. Other non-health government entities such as state owned companies or groups may
also directly contract for health care. The contractor, also referred to as provider or vendor is
an individual or organization that sells its services or products via the contracting agreement.
Private sector contractors generally fall into the for-profit and non-profit categories. The forprofit
providers of health care exist to earn profit for their owners and include private practice
physicians, nurses, midwives; traditional medical practitioners; hospitals clinics and health
centres; and pharmacies and other retail drug and medical supply outlets. The non-profit
providers, many of which are known as nongovernmental organizations, are private but define
their mission in terms of social or public health goal. They also include professional medical
and nursing associations or philanthropic groups. Community organizations, sometimes also
included under the nongovernmental organization category, usually are smaller and less
formally constituted than a nongovernmental organization, serve a limited geographical area,
and are formed to serve the interests of their members alone. Public parties can also be
contractors, for example when the Ministry of Health contract with quasi-governmental
medical stores for drug procurement.
Need for contracting [4]
The general theoretical rationale for contracting out relates to theories of why
governments fail in their provision of services. There are two main schools of thought. The
property rights theory contends that the main source of inefficiency in the public sector is the
weakening of property rights, so that decision-makers face few incentives to allocate
resources efficiently. This is contrasted with the incentives facing entrepreneurs or
shareholders in the private sector. The public choice theory contends that politicians and
bureaucrats who control public bureaucracies cannot be assumed to be acting in the public
interest, since they are more likely to serve their own interests, or those of powerful interest
groups. In response to these analyses, the “new public management” envisages the use of
market mechanisms to generate appropriate price and demand signals, and to weaken the
influence of politicians and professionals over public service delivery, thus ensuring that these
services are more responsive to market signals and to customers. It is also argued that private
organizations can bring the advantages of functional specifications, as well as speed and
flexibility in adjusting to changing factor prices, technology and demand conditions. A central
theme of this thinking is thus the view of the state as responsible for enabling or ensuring
service delivery, rather than for direct delivery of service itself, except in certain identifiable
circumstances.
Types of contractual agreements [5]
Contractual agreements come in various forms. Two important forms are contracting-in
and contracting-out. The former refers to bringing in outside private management to operate
an internal government service. The latter refers to purchasing services from a private source
that provides the service, using primarily an external workforce and resources. In this latter
situation, contractors have complete responsibility for service delivery, including hiring,
firing, setting wages, and procuring and distributing essential drugs and supplies. Other
contractual options for purchasing health services are franchising and leasing. In franchising,
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