Contracting is the purchasing of services on an ongoing basis, with a pre-agreed definition of service parameters (quality, quantity, beneficiaries, times and location of availability etc) and payment modalities (per-capita, per unit, pre-payment, etc).
There are two distinguishing features of contracting in health: first, contracts set performance expectations, and second, contracts are (usually) competitively bid. These are important distinctions from the normal public-sector delivery systems where funding is allocated based staff numbers, facility size, a multiple of prior year budgets, or other fixed measures.
Contracting in the health sector is applied to everything from facility management to laundry services to district level comprehensive clinical and preventative care services. The documented success of service contracting in improving access, quality, and efficiency is now largely agreed upon. As a result, much attention now is given to specific contract types, namely Performance Based Contracting, or Output Based Aid contracts.
The Private Sector
Public sector contracts with private providers have been used successfully to deliver services in many settings, from national social health insurance programs to local village healers. The range of benefits accrued through contracting are set out in the box to the right.
Contracting may be targeted to areas lacking public services (e.g. remote districts in Haiti needing vaccinations), to specific geographical areas (e.g. rural Afghanistan), to specific populations (e.g. pregnant women in Gujarat), or towards specific illnesses (e.g tuberculosis in Pakistan). There are often spinoff benefits. For example, in Indonesia, contracting midwives to provide services via a voucher scheme led many to establish private practices. These private practices increased the availability for a broader range of services than had originally been envisioned by the voucher program.
Comprehensive service contracting
Comprehensive district-level contracting has been shown to increase cost-effective service delivery. In Cambodia, contracts for multiple districts produced 2x to 4x efficiency gains over non-contracted districts. Comprehensive service contracting has been used, with documented success, to provide broad rural coverage of care in Cambodia, Afghanistan, Rwanda, Haiti and Bangladesh. What you’ll notice right away is that four of the five countries began contracting out comprehensive care after periods of major civil war or unrest when infrastructure and local capacity was nearly nil. Contracting in Bangladesh (and in Guatemala, Pakistan, and many other countries where contracts are not comprehensive, but are nevertheless being undertaken at a large scale) developed as a result of a competent government recognizing limits to national medical service effectiveness and working with existing partners to cover areas of the country which would otherwise remain unserved.
Bangladesh et all are the exceptions, and this is the central challenge with service contracting: however effective, however well written the contract, contracting out services means a significant loss of patronage opportunities and political power for the ministry that signs the contract. As a result, despite many examples of positive results, it is primarily states with few alternatives that have undertaken contracting on a large scale.
The greatest challenge to contracting, of course, is enforcing contract terms and assuring oversight. For contracts to be effective, they must be appropriately structured and administered. The cost of oversight can often be prohibitively high: in Chile, government oversight for a social insurance contract eventually cost 30% of the total contract value.Current Programs and Resources - Contracting