Provider Purchasing and Contracting for Health Services_The Case

According to the guidelines, the district boards were allowed to negotiate with secondary or
tertiary providers on how much of their grant they could allocate for referral purposes. The
amounts varied across different districts but were within the range of 20 and 40 percent of the
district grants, depending on the outcome of the negotiations.
Contracting-in at Various Levels of the Referral System
Purchase of Beds: This is a term designating the contractual arrangements for the funding of
hospital services. The District Health Management Teams (DHMTs) use the number of beds
as the basis for determining the value of the contract for the financial year. The purchasing of
beds refers to the number of bed capacity that a DHMT assesses as its requirements in the
event that it does not have a district level hospital and so has to seek first-level clinical care
from the next level of service available such as a secondary or tertiary facility or from the
neighboring first-level services or DHMTs that may have surplus service to extend to the
DHMT seeking to buy such services. It has been the design of the policy of purchaser
provider contracting that if the DHMT does not have a district hospital that falls directly
under its jurisdiction or control but has a secondary or tertiary facility, the facility available is
mandated to provide or allocate a certain level of bed capacity for the provision of first-level
health care services. By the same principle, the district was under the obligation to purchase
first-level hospital services. In this context, the DHMT did not have the option of deciding
not to purchase such services as it was expected that district or primary level services were a
mandatory prerequisite for efficient and effective resource allocation and resource use. The
purchase of beds was then based on a recommended “bed price” or some form of capitation.
This however was subject to limitation within the 20 – 40 percent expenditure band of the
total district health expenditures. Each contract between the DHMT as a fund holder (with the
existence of the Central Board of Health) lasts for duration of 12 calendar months.
Effectively, the contracts cover the period from January to December for ease of operations.
Strictly speaking, therefore, the contract overlaps with the financial year, which runs from
July 1 to June 30. This scenario has been slightly complicated by the fact that, although the
government financial year runs from January to December, public expenditures are only
authorized in April and run to March 30.
Second-level referral service: Secondary hospitals served as referral facilities for the first
level and provided technical backup, capacity building, and health services.
For contracting purposes, these facilities were contracted to provide services to the District
Health Boards. In addition, these facilities were contracted directly by the Central Board of
Health to provide secondary level services to designated catchment populations.
Third-level referral services or tertiary and specialized hospitals: These formed the apex of
the referral system. For contractual purposes, these institutions were contracted by District
Health Boards to provide the required primary health services and by the Central Board of
Health to provide the required tertiary services. Thus, they negotiated their contracts with the
Central Board of Health for specialized treatment and with the District Health Boards for
necessary primary health services.
Monitoring and evaluation
Annual action plans developed by hospitals and accepted by the Central Board of Health set
forth the budgets and targets that the facility intended to achieve. In addition, contracts
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