This paper discusses the economic rationale for innovative service
models in private sector health care delivery. \"Social franchising\"
and other business models of health care delivery secure cooperation
between providers, and coordinating agencies in order to improve
quality, access, and efficiency of primary health care (PHC) in the
The paper develops a simple economic theory of health care production
and demand that is illustrated through application to the simple cases
of independent private health providers and government operated clinics.
The economic theory highlights the need for supervisory inputs above and
beyond the provider-patient level to guard the quality of care. The
theory is then enlarged to show how innovative service models of health
care can be arranged to deliver supervision and coordination of provider
quality. Theoretical predictions are compared to the experience accrued
in several experiments using innovative service models to improve
primary health care services.
What emerges from the theory are the following predictions: 1) The
missing ingredient in both public and private PHC are incentives and
financing for the proper functioning of coordinating agencies above the
level of the provider; 2) The key to success in Innovative service
Models is their promise in eliciting and sustaining diligent effort by
the coordinating agencies; 3) The efforts of coordinating agencies offer
positive social benefits on par with the outputs of government health
Experience to date shows that although the private providers can sustain
themselves with normal profits, the coordinating agencies seldom create
enough value for providers to sustain themselves on levies and royalties
- yet the coordinators do create great value for society. This financial
problem is the primary obstacle to the success of innovative models.
Several suggestions are forwarded to improve the financial position of
Future Health Systems Working Paper 5, 21 pp.
Innovative service models to improve quality and access.