A Supply-Demand Model of Health Care Financing with an...

Economic Development Instituteof The World Bank

A Supply-Demand Modelof Health Care Financingwith an Application to Zaire

A Training Tool

Ricardo A. Bitran

EDI TECHNICAL MATERIALS

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EDI TECHNICAL MATERIALS

A Supply-Demand Modelof Health Care Financing

with an Application to Zaire

A Training Tool

Ricardo A. Bitran

The World BankWashington, D.C.

O 1994 The International Bank for Reconstructionand Development / THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printing May 1994

The Economic Development Institute (EDI) was established by the World Bank in 1955 to train officials concerned withdevelopment planning, policymaking, investment analysis, and project implementation in member developing countries. At presentthe substance of the EDI's work emphasizes macroeconomic and sectoral economic policy analysis. Through a variety of courses,seminars, and workshops, most of which are given overseas in cooperation with local institutions, the EDI seeks to sharpen analyticalskills used in policy analysis and to broaden understanding of the experience of individual countries with economic development.Although the EDI's publications are designed to support its training activities, many are of interest to a much broader audience. EDImaterials, including any findings, interpretations, and conclusions, are entirely those of the authors and should not be attributed in anymanner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries theyrepresent.

Because of the informality of this series and to make the publication available with the least possible delay, the manuscript has notbeen edited as fully as would be the case with a more formal document, and the World Bank accepts no responsibility for errors. Somesources cited in this book may be informal documents that are not readily available.

The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office ofthe Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and willnormally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission tocopy portions for classroom use is granted through the Copyright Clearance Center Inc., Suite 910, Rosewood Drive, Danvers,Massachusetts 01923, U. S. A.

The backlist of publications by the World Bank is shown in the annual Index of Publications, which is available from DistributionUnit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, Banquemondiale, 66, avenue d'Ina, 75116 Paris, France.

Ricardo A. Bitran, an economist, is senior scientist in the International Health Group of Abt Associates Inc., Cambridge,Massachusetts, U. S. A.

Library of Congress Cataloging-in-Publication Data

Bitran, Ricardo A., 1958-A supply-demand model of health care financing with an application

to Zaire : a training tool / Ricardo A. Bitran.p. cm.-(EDI technical materials)

Includes bibliographical references.ISBN 0-8213-2342-31. Medical economics-Computer simulation. 2. Medical economics-

Zaire-Computer simulation. 3. Medical care-Utilization--Computersimulation. 4. Medical care-Utilization-Zaire-Computersimulation. 5. Health facilities-Cost effectiveness-Computersimulation. 6. Health facilities-Zaire--Cost effectiveness-Computer simulation. 7. Public health-Econometric models.1. Title. II. Series.RA410.5.B58 1994338.4'33621'01 13-dc20 93-20079

CIP

EDI Catalog No. 480/014

CONTENTS

FOREWORD Vii

PREFACE ix

ACKNOWLEDGMENTS xi

1. INTRODUCTION 1

2. OVERVIEW OF THE MODEL 3Pricing 6

Break-Even Analysis 7

Health Facility Loss and External Subsidization 8

Comparative Statics 9

A Change in the Price of the Focus Health Facility 9

A Change in a Competitor's Price 10

A Change in the Number of Competitors 10

A Change in the Illness Incidence Rate 10

A Change in Population Size 11

A Change in Household Income 11

A Change in the Geographic Distribution of the Population 11

Changes in Costs 11

3. AMBULATORY CARE 13

Structure of the Market 13

Health Care Demand 14

Curative Care 14

Preventive Care 16

Consumer Categories 16

Health Center Finances 18

Health Center Revenue 18

Health Center Costs 18

iii

iv Contents

4. DEMAND, COSTS, AND HEALTH CENTER FINANCIAL PERFORMANCE:

SIMULATIONS 21Structure of the Health Center Component of the Model 21

Simulations 21

The Base Scenario 21

An Increase in the Price of Curative Care at the Health Center 24

A Change in a Competitor's Price 26

Price Cross-Subsidization between Curative and Preventive Care 27

Price Discrimination by Income 28

Price Discrimination by Distance to the Health Center 29

A Change in Insurance Enrollment and Premium 30

An Increase in the Insurance Copayment 32

An Increase in the Amount of Free Care 33

A Devaluation of the Country's Currency 34

A Change in the Population Distribution 34

5. HOSPITAL CARE 35

Main Features of the Hospital Component of the Model 35

Inpatient Services 35

Bed-Days as a Measure of Utilization 35

Hospital Beds Needed 36

Administrative and Support Personnel 37

Medical Personnel 37

6. AGGREGATE PROJECTIONS AND CONCLUSIONS 39Conclusions 39

APPENDIXES

Technical Appendix A: Computation of Weighted Average Distance

between the Population in Ring r and a Competitor 41

Technical Appendix B: Demand Equations and Elasticities 42

Appendix C: Menu Structure of Computer Model 44

Appendix D: Computer Model, Health Center Component 45

Appendix E: Computer Model, Hospital Component 58

Appendix F: User's Manual 66

Appendix G: Additional Simulation Results 73

BIBLIOGRAPHY 78

EXHIBITS

Exhibit 4-1 Health Center, Reduced Menu, Base Scenario 22

Exhibit 4-2 Price, Income, and Distance Elasticities of Demand,Health Center and Competitors 24

Exhibit 4-3 An Increase in the Price of Curative Visitsat the Health Center 25

Exhibit 4-4a Health Center's Expanded Menu---A Reductionin a Competitor's Price of Curative Care 26

Exhibit 4-4b A Reduction in a Competitor's Price of Curative Care 27

Exhibit 4-5 Cross-Subsidization of Preventive by Curative Care-Pricesand Quantity Demanded 28

Exhibit 4-6 Comparison between a Single-Price Policyand a Policy of Price Discrimination Based on Income,Curative Ambulatory Care 29

Exhibit 4-7 Comparison of a Policy of a Single Price and a Policyof Differential Prices According to Distance to the HealthCenter---Curative Ambulatory Care 30

Exhibit 4-8 A Drop in the Insurance Premium Coupled with a Risein the Proportion of People Insured 31

Exhibit 4-9 An Increase in the Insurance Copayment 32

Exhibit 4-10 A Rise in the Proportion of People Receiving Free Careat the Health Center 33

Exhibit 5-1 Hospital, Reduced Menu, Base Scenario 36

Exhibit 6-1 Aggregate Projections 39

FIGURES

Figure 2-1 Interaction between Demand and Supply and the Effecton a Health Facility's Financial Performance 4

vi Contents

Figure 2-2a Public Facility Pricing with Break-Even Constraintand Declining Average Cost 7

Figure 2-2b Case 1: Single-Product Facility--Two Break-EvenSolutions Exist 7

Figure 2-2c Case 2: Single-Product Facility---Break-Even NotPossible, External Subsidy is Needed 7

Figure 3-1 Market for Ambulatory Care 14

Figure 3-2 Consumer Decision Tree 14

Figure 3-3 Demand by the Insured Who Pay a CopaymentC (C< 1) and the Uninsured Who Pay the Full Price 17

Figure 3-4 Demand by the Nonpaying with and without Rationing 17

Figure 3-5 Labor Costs Modeled as Step-Fixed Costs 19

Figure A-1 Computation of Distance between Population in Ringr and a Competitor 41

FOREWORD

Developing countries are turning increasingly to cost recovery to pay for health care services;but the decisionmakers who must develop and implement systems for cost recovery are often unfamiliarwith health care financing issues. In recent years, economists have begun to develop computer modelsto help decisionmakers formulate policy in this field. The model discussed in this manual is a trainingtool that uses information about the demand and supply of health services to help make projections aboutthe effects of health care financing reform on the utilization and the financial performance of the healthsystem. It is intended to help teach the broad interrelationships of certain health policy variables and toassess their impact. In itself the model does not pretend to be complete enough to be used as adecisionmaking tool.

The model may be used to explore the implications of policies such as charging uniform user feesto all; charging differential fees based on income; implementing cross-price subsidization between curativeand preventive services; exempting certain patients from payment; and establishing different levels ofinsurance premium and co-payment. It can also be used to assess the effects on utilization andperformance of changes in a number of nonfinancial parameters such as the geographic distribution ofthe population relative to the providers; the distribution of income; the crude birth rate; population size;the incidence of acute illnesses; and the prevalence of chronic conditions.

This user-friendly computer model is flexible enough to allow the user to enter data on demandand costs from various developing country settings and to simulate various changes in health carefinancing under a broad range of circumstances. It has been used as a training tool in several seminarsorganized by the World Bank's Economic Development Institute.

Amnon GolanDirector

Economic Development Institute

vii

PREFACE

In developing this model I have tried to maintain a balance between completeness and simplicity.A complete model is one that addresses all the important aspects of the phenomenon being studied andthus simulates reality as closely as possible. Greater completeness often implies greater complexity;models grow bigger and more intricate. Yet this complexity comes at the cost of making the modelinaccessible to the intended users. In the interest of keeping the model as transparent as possible, I havemade several simplifying assumptions in the present version.

About half of this paper is devoted to explaining in detail the assumptions and theory behind themodel. The second half presents examples to illustrate how the model can be used to simulate alternativepolicy options and scenarios. Space limitations have allowed us to provide only a handful of examples.Users are, of course, encouraged to perform additional simulations.

The most important omission from the model is the qualitative side of health care services andits effect on demand. Leaving health care quality out of the model, however, is consistent with ourcurrent lack of empirical knowledge about how consumers view health care quality in poor countries andhow their perceptions affect their health-care-seeking behavior.

I have implemented the model in Lotus 1-2-3 using that program's macrolanguage. While testingthe model, several programming bugs have surfaced. Although the current version appears to beproblem-free, it is possible that some defects still remain. If so, please contact me and I will try tocorrect them.

Ricardo Bitran

ix

ACKNOWLEDGMENTS

The development of this model has been made possible thanks to the financial support of theResources for Child Health Project (REACH), the Zaire-based Basic Rural Health Project (SANRU), andthe Economic Development Institute (EDI) of the World Bank. I wish to thank David Dunlop, from theWorld Bank, and Gerald Rosenthal, from REACH, for their encouragement and for being patient enoughto sit through numerous presentations of the model. I thank Frank Baer, Manunga Mapele, StevenBrewster, and Munkatu Mpese, from SANRU, for their helpful ideas and suggestions. The field dataused to develop the model were collected in Zaire from the health zones of Kisantu, in Lower Zaire, andBokoro in the Bandundu Region. I am grateful to Dr. Kamba, from Kisantu, and Dr. Yves Heyligers,from Bokoro, for their enthusiastic collaboration. Helpful ideas were provided by Elca Rosenberg,Margaret Saunders, Mead Over, Jacques Baudouy, Ed Elmendorf, and Jean Louis Lamboray from theWorld Bank; by Drs. Paul Cartier and Mark de Freyder, from the Belgian Cooperation in Zaire; and byGlenn Post, Rhonda Smith, and William Bertrand, from USAID/Kinshasa. Leonardo Bitran helped mewith valuable mathematical insight. David Deal, of Abt Associates, did an excellent job making anearlier version of this model user-friendly.

xi

1INTRODUCTION

Developing countries are turning increasingly toward cost recovery, particularly user fees, to payfor health care services. Decisionmakers in those countries face the difficult task of developing andimplementing cost-recovery systems. Unfortunately, those who decide are often unfamiliar with healthcare financing issues and lack the necessary skills to design pricing systems and determine price levels.

In recent years health economists have begun to develop computer models of health care financingas an analytic tool for decisionmakers. Most models developed focus on either demand or supply, butfew take into account both sides of the market. Mwabu (1984) and Gertler, Locay, and Sanderson(1987), for example, use demand information to project demand as a function of price, income, and othervariables that affect demand. Their models, however, incorporate no information about the providers'cost structure, and thus say nothing about the implications of demand and price projections on theproviders' financial performance. Other models use information about the providers' costs in their modelbut do not include explicitly any behavioral model of the consumer. Cost and revenue projections arethus blind to possible demand responses to prices and other variables.

Inspiration for the present model came from earlier modeling efforts by Makinen and Block(1986) and Block, Donaldson, and Foster (1988). Although their models were mainly supply-side-based,they included a single, constant-elasticity demand function to account for price responses. The mainproperty of the present model is its ability to combine information about demand and supply. Some ofthe model's innovative features include: the interaction between the demand for health care and thefinancial performance of health facilities; the explicit inclusion of competition in the health care marketand its effects on demand and cost recovery; the ability to model demand by different groups ofindividuals, including the insured, the uninsured, and the indigent; the inclusion of several kinds of healthcare services as different health facility products, including curative, preventive, ambulatory, and inpatientcare; and the inclusion of a wide range of parameters that enable the user to represent a vast set ofsituations. Model parameters include prices of health care services; population income and geographicdistribution; epidemiological and demographic data; input costs; exchange rate; and size of the market.

Users of the model can assess the effect on health care use and health facility financialperformance of health financing policies such as: cross-subsidizing prices among any set of services ingeneral and between curative and preventive care in particular; extending health insurance coverage;modifying the premium and copayment of the insurance plan; changing the free-care policy; changingprice levels; and price discrimination (for example, based on income or distance to the facility). Themodel can also be used to study the effects of changes in other variables on demand and cost recoveryperformance, including: a devaluation or revaluation of the country's currency; changes in the degree ofcompetition in the market for a particular health service; and labor substitution within the facility amongdifferent categories of health professionals.

The intended readership of this paper and model includes health economists and health financinganalysts with a background in basic microeconomic theory. It is hoped that those individuals will usethe model as a pedagogical tool with students, technicians, and decisionmakers in developing countries.

1

2 A Supply-Demand Model of Health Care Financing

The model has been developed in Lotus 1-2-3, is contained in four spreadsheet files, can be runon any IBM-compatible microcomputer with at least 640 kilobytes of RAM memory, and has been madeuser-friendly through a menu system written in Lotus' macroprogramming language.

Chapter 2 presents an overview of the model, outlining its assumptions, capabilities, andlimitations. Chapter 3 provides an in-depth description of the model's assumptions for the case ofambulatory care, both curative and preventive. Chapter 4 describes the computer implementation of themodel and illustrates its use through a series of simulation exercises for the case of ambulatory care usingfield data collected from Zaire. Chapter 5 describes the model's inpatient component. Chapter 6 explainsthe model's aggregate projections feature, provides a summary and conclusions, and outlines areas forresearch.

2OVERVIEW OF THE MODEL

The market for health care services comprises consumers and producers. Consumers arecharacterized by their number, income, demographic traits, epidemiological data, and geographic locationin relation to all providers. Providers are classified into two groups. Group one contains a singleprovider or focus health facility, which can be thought of as being owned by the government or private,and whose utilization levels and financial performance are studied in detail through the model. Thesecond provider group contains all the other providers that compete with the focus health facility; theseare referred to as competitors. Each provider can supply several kinds of health services (for example,curative ambulatory care, obstetric care, preschool care, inpatient care, and the like). The modelcomputes demand for care from each competitor but does not assess the competitors' financialperformance.

This model is concerned with two categories of indicators: the quantity of health servicesdemanded by the population and the financial performance of the focus health facility. It is assumed thatneither the focus health facility nor its competitors are supply constrained. This means that eachindividual provider can meet any demand level by increasing production. In the case of the focus healthfacility, the model automatically computes, and shows explicitly, the production inputs required to meetdemand. Chapter 6 discusses possible strategies for relaxing this assumption and their implications.

The absence of supply constraints implies that, for each individual provider, demand is alwaysequal to utilization. Utilization is the health system's output and is a proxy for the system's healthoutcome that consists of the deaths and illnesses averted or cured. The focus facility's financialperformance is measured by its revenue from cost recovery, its costs, and the associated net income (orprofit), which is the difference between total revenue and costs.

The model has three additional limitations. First, it does not provide any direct measures ofwelfare. Users are expected to judge on their own the merits of alternative scenarios. Second, becauseof the lack of empirical knowledge about the way health care quality is perceived by consumers and howit affects demand, the model does not include any explicit measures of health care quality and its effecton demand.' Third, although the model automatically adjusts inputs to meet demand, it does not haveany other built-in rules of provider behavior. This means, for example, that the model does not havecost-minimizing routines or endogenous rules about the response of a given provider to changes in itscompetitors' prices.

The model's main feature is its ability to take account simultaneously of the relationship among:

Demand determinants (for example, out-of-pocket price, household income, population sizeand distribution) and demand

1. Strategies for relaxing this assumption are discussed in chapter 6.

3


* Demand and focus health facility revenue

* Demand and focus health facility costs.

Figure 2-1 provides a simplified description of the model's logic. At the top of the figure area series of exogenous, or user-defined, variables that have been shown to influence demand for healthcare (M = population size; G = population geographic distribution; I = illness incidence; Y =population income; and P = price). 2 With this information the model computes demand for the focushealth facility (Q) and for each of its competitors. Once Q is known the model calculates the focus healthfacility's total revenue (TR) by multiplying demand (Q) times price (P). At the same time, demand,which is equal to the amount of services produced by the facility, determines the facility's total cost (TC).As shown in the figure, however, cost not only depends on Q, but is also a function of other factors suchas the exchange rate (FX), which directly affects the costs of drugs and fuel; the cost of labor (L); andother variables. The difference between total revenue and total cost is the facility's net income (NI), orprofit.

Figure 2-1. Interaction between Demand and Supplyand the Effect on a Health Facility's Financial Performance

Q = f(M,G,1,Y,P) = quantitydemanded

Total revenue Total costTR = P.Q TC = C(Q,FX,L,.)

Net incomePrice (P) NI = TR-TCincrease

NI <0 NI=0 N>(loss) (break-even) (rft

To understand the model's logic, suppose that it predicts a negative net income (NI < 0 in thefigure). If the aim of the user is to achieve break-even, he or she might consider, say, a price increase. 3

Everything else being constant, a higher price will translate into a lower quantity demanded and, giventhe existence of variable costs, into a lower total cost. A higher price times a lower quantity demandedmay result in either a higher or lower revenue, depending upon the magnitude of the demand responseto the price change, that is, consumers' price elasticity of demand, ep. Thus, the effect of a price change

2. Recent empirical studies of health care demand in developing countries include Gertler, Locay, and Sanderson1987 and Dor, Gertler, and van der Gaag 1987.

3. Other measures are also possible.

Overview of the Model 5

on focus facility financial performance cannot easily be anticipated. A complete discussion of the effectsof a price change on total revenue, total cost, and net income is provided in the section entitled"Comparative Statics, " below.

Demand is modeled through a two-stage probabilistic demand equation using McFadden's nestedlogit specification (McFadden 1981). This specification of demand has been widely used in the empiricalliterature on health care demand in recent years.4 According to the nested logit specification, in the firststage the model computes the proportion of people who seek care from the focus health facility and fromeach competitor among those who decide to seek care outside the home. In the second stage, the modeluses the first-stage information to compute the proportion of people with a medical problem who decideto seek care outside the home. Thus, the demand for health care from provider i for each unit of time(Qi) includes the product of two probabilities or proportions as follows:

(2-1) Qi = H - Prs Pri

where H is the number of people with a health problem for each unit of time (for example, one month),Prs denotes the proportion of people seeking care outside the home among those with a health problem,and Pri is the proportion of people who choose provider i among those who seek care outside the home.Both Prs and Pri are assumed to be functions of the out-of-pocket price faced by the consumer, the traveldistance to the provider, and the consumer's income. 5

Linear (in utilization) total cost functions have been used to model the costs of producing andproviding health services. The model includes both fixed costs (such as depreciation of facilities andequipment and salaries) and variable costs (for example, pharmaceutical products and fuel). The totalcost (TC of the health facility can therefore be written as:

(2-2) TC = FC + MC*Q

where FC is fixed costs (those that do not vary with the level of production Q) and MC is marginal costor variable cost for each unit of output. For simplicity, MC is assumed to be constant.

The model's logic can be presented more formally as follows: let Q (P, Z) be the quantity ofservices demanded by the population from the focus health facility where P is the facility's price and Zrepresents all the other model-exogenous variables affecting demand, such as competitors' prices andlocation, size of the population, illness incidence, and so on. The total revenue of the facility, denotedby TR, can be expressed as follows:

4. See, for example, Gertler, Locay, and Sanderson 1987, Dor, Gertler, and van der Gaag 1987, and Bitran1990.

5. Prs and Pri are obviously a function of many other variables, such as education, type of health problem, andothers. In order to keep the model simple, however, only the three variables mentioned in the main text have beenincluded explicitly in the demand function.


(2-3) TR = P Q (P, Z).

The model's main relationship can thus be represented through the following reduced-formexpression:

(2-4) NI = TR - TC

or

NI=P-Q(P,Z)-FC-MC Q(P,Z).

Expression 2-4 allows one to understand the main forces underlying the model. The next sectionis a discussion of possible pricing strategies for the focus health facility; it is followed by a discussionabout strategies for and feasibility of breaking-even. The next section comments on the size of thefacility's loss, if any, and external subsidization; we then briefly discuss the model's comparative statics.

Pricing

How much should the focus health facility charge for its services? A well-known tenet of welfareeconomics is that to maximize welfare in a perfectly competitive market selling private goods and withwell-informed consumers, price should be equal to marginal cost. In the health care market price maydepart optimally from marginal cost for several reasons. First, the presence of externalities in theconsumption of some health care services (for example, immunizations) may warrant an optimal pricethat is below marginal cost. Second, if the service produced is a merit good, a price below marginal costmay be desirable. Third, that price equals marginal cost is a result that is oblivious to equityconsiderations. If price is set at marginal cost for all, the poor will demand less (per capita) than therich, a situation that is inequitable and that may be morally unacceptable. Given different income groupsand a fixed subsidy, the price of a product may be set differentially by income above or below marginalcost. Third, in the absence of external subsidies, or in the presence of a small (that is, less than fixedcosts) subsidy, a facility with constant marginal cost will be unable to break even if it sets its price equalto marginal cost. As is shown in figure 2-2a, this facility will operate under declining average costs andmarginal cost will be less than average cost. The need to break even thus forces the facility to departfrom the marginal cost pricing rule, as is discussed below. A popular welfare economics result is thatin such a case the facility will charge a price that is proportional to the marginal cost and inverselyproportional to the price elasticity of demand. Thus, if there are, say, two population groups, the richand the poor, in order to break even the facility may charge a higher price to the rich and a lower oneto the poor.6

6. This result for pricing parallels the Ramsey principle for taxation. It is assumed that the price elasticity ofdemand for the focus facility services by the rich will be lower than that of the poor since the focus facility servicesare assumed to be normal goods. For a discussion of optimal pricing under a budget constraint see Atkinson andStiglitz 1980.


Figure 2-2a. Public Facility Pricing with Break-EvenConstraint and Declining Average Cost7

P

AC

Marginal ost MCpIricing

Demand

QA OB

Break-Even Analysis

Given a fixed external subsidy, or no subsidy at all, will the facility be able to break even?8

Consider, for simplicity, a facility that produces a single service such as curative ambulatory visits. Twopossible cases arise. In the first case, illustrated in figure 2-2b, the demand curve for visits crosses thefacility's average cost curve at two points, (Qj, Pj) and (Q2, P2)-

Figure 2-2c. Case 2: Single-ProductFigure 2-2b. Case 1: Single-Product Facility---Break-Even Not Possible,

Facility---Two Break-Even Solutions Exist External Subsidy is Needed

Price, PriceAverage Cost Average Cost

P1PPI ~AC "

P Subsidy A

P2 - AC\D AC

Q1 Q2 Quantity Q Quantity

7. From Atkinson and Stiglitz 1980, p. 463.

8. With an external subsidy, breaking even is defined here as the ability to generate sufficient revenue to covertotal costs net of subsidy.


Both points meet the break-even condition because total revenue (price times quantity demanded)equals total cost (average cost times quantity demanded). The facility chooses point (Q 2, P2) because itprefers to deliver more (Q2) rather than less (Qj) services, as long as it breaks even.9 In the secondcase, depicted in figure 2-2c, the demand curve lies below the average cost curve, and thus break-evencannot be achieved. At any price P the facility needs an external subsidy, equal to the shaded area, toremain in business.

This analysis can be extended to the case of a multiservice facility with two differences: (1) thesearch for a break-even point may involve changes in the prices of several services and (2) there may bea multitude of price combinations that satisfy the break-even constraint. More formally, suppose that thefacility produces and sells n services at prices (PI, P2, . . . Pn). A break-even solution is a set of prices(P P2*, ,P*) that satisfies the condition NI = 0. Dependin on supply and demand conditions,there may be S such solutions, each denoted by (P,*, P2* . P, )s, for s = 1 to S.

To illustrate the practical relevance of this discussion, consider the example of a facility thatchooses to price preventive services slightly below average cost to promote consumption of preventivecare (because of positive externalities or misinformation about consumption benefits) and that, tocompensate for this subsidy while breaking even, it prices curative services above average cost. Thissame facility could also break even by providing preventive services at no charge while charging pricesmuch higher than average cost for curative care. Depending on the health goals of the provider, it couldchoose between these two options; each would allow the facility to break even.

As in the single-product case, it is possible that a break-even solution may not exist; that is, thereis no combination of prices (PI, P2 , . . . ,P,) that will satisfy NI = 0. Nevertheless, as alreadymentioned, it is likely that if break-even is at all possible, there may be multiple solutions. Welfareconsiderations should determine which set of prices is the most desirable.

The model does not automatically calculate break-even points but allows the user to search forsolutions with ease through successive iterations. In many cases the user will fix a few prices to reflectpolicy goals (for example, zero or low prices for certain chronic and preventive care) and will search forprices for the other services (such as curative care) that may allow it to break even.

Health Facility Loss and External Subsidization

Should the health facility be allowed to take a loss if it is a government-owned facility? Supposethat losses are allowed for two reasons. First, for equity reasons the government decides to subsidizethe facility so that the poor can be charged subsidized prices, thereby increasing the financial accessibilityof services. Second, the government recognizes the existence of positive externalities in the consumptionof certain preventive services, such as immunizations. These externalities may accrue to society beyondthe facility's market, and thus a subsidy is warranted. To simplify, suppose that the government has afixed subsidy to allocate among several facilities; that is, the government has already allocated subsidies

9. The implicit assumption that leads to preference for point (Q2, P2) over (Qj, Pj) is that consumption ofservice at level Q1 is below the socially desired level of consumption; that is, at level Q, there is underconsumptionof the service.


among competing sectors (health, education, and so forth). How should it go about deciding how muchto allocate to each facility? A precise answer to this question is beyond the scope of this study, but itis safe to say that subsidy allocation criteria will depend on equity considerations, externalities, and sizeof the market.

Comparative Statics

The remainder of this section explores how changes in model-exogenous variables affect demandand focus health facility financial performance.

A Change in the Price of the Focus Health Facility

The effect of a change in the price of the focus facility on its total revenue depends on the sizeand the direction of the price change, the magnitude of the price elasticity of demand, and the relationshipbetween the facility's price and its marginal cost (MC), as shown in table 2-1.

Table 2-1. Effect of a Focus Facility Price Change on the Facility's Total Revenue,Total Costs, and Net Income

Price Elasticity of Demand for Focus Facility Care, EP

EP < -1 eP = -1 -1 < EP < 0 Ep = 0

Meaning Demand is elastic: quantity Demand is unit- Demand is in- Demand isdemanded changes propor- eLastic: elastic: perfectLytionateLy by more than price quantity quantity ineLastic:

demanded demanded quantitychanges in the changes demandedsame proportion proportionately does notas price less than price change with

price

Price is TR goes DOWN TR UNCHANGED TR goes UP TR goes UPincreased TC goes DOWN TC goes DOWN TC goes DOWN TC UNCHANGED

NI UNCHANGED if MC/P = 1+1/EP NI goes UP NI goes UP NI goes UPNI goes UP if MC/P > 1+1/EpNI goes DOWN if MC/P < 1+1/E_

Price is TR goes UP TR UNCHANGED TR goes DOWN TR goes DOWNdecreased TC goes UP TC goes UP TC goes UP TC UNCHANGED

NI UNCHANGED if MCIP = 1+1/6p NI goes DOWN NI goes DOWN NI goes DOWNNI goes DOWN if MC/P > 1+1/cpNI goes UP if MC/P < 1+1/ep

Note: TR = totaL revenue; TC = total costs; NI = net income.

If demand is unit-elastic (e = -1) the price increase will result in an unchanged total revenue,lower total costs, and higher net income. If demand is inelastic (c-P > -1), the price increase will bring


about an increase in total revenue, a drop in total costs, and a higher net income. If demand is elastic(c- < -1), the price increase could result in either an increase or a decrease depending on both themagnitude of the elasticity and the relationship between the facility's marginal cost and its price.oFinally, if demand is perfectly inelastic with respect to price, a price increase (decrease) will result in ahigher (lower) revenue.

A Change in a Competitor's Price

A competitor's health care services are assumed to be substitutes for those of the othercompetitors as well as for those of the focus health facility. Changes in the price of one competitor affectthe demand for and the financial performance of all providers." For example, if a competitor raisesits price, two simultaneous effects take place. First, fewer people seek care in the market (Prs inexpression 2-1 goes down). Second, among those seeking care, a smaller proportion chooses the providerthat raised its price. If the drop in the proportion of people seeking care outside the home is small, theproviders other than the one who raised its price, including the focus health facility, may find themselvesfacing a higher demand. If the focus health facility's price is greater than its marginal cost, this higherdemand will result in an improvement in the facility's net income. Otherwise, if P < MC, the facilitywill need a larger external subsidy (or will need to raise the price of other services, or take othermeasures) to meet this greater demand while balancing its finances.

A Change in the Number of Competitors

If a new competitor enters the market of health care services, some share of the demand for theservices of the focus facility may be diverted toward the new producer. The effect on utilization and NIof the focus health facility will parallel the effect of a price reduction on the part of a competitor.Conversely, if one or more competitors exit the market, some patients may be diverted toward the focusfacility, increasing Q, TR, and TC. This effect will be similar to that of a price increase by thecompetitors in the direction of the changes in TR, TC, and NI.

A Change in the Illness Incidence Rate

In the case of curative care, illness incidence is obviously an important determinant of demand.Changes in illness incidence will result in proportionally identical changes in demand for all providers.

10. Using expression 2-4 for NI, and the definition of price elasticity of demand, Ep = (aQ/P) . (P/Q), onecan easily show that the expression for a change in net income as a result of a small price change is

8NI MC=p Q -[1+ E*(10- )]A.

Using this last relationship, it is easy to show that net income will move in the same direction as price if eP 2 -1.If ep < -1 the change in net income induced by a small change in price will depend on the magnitude of eP as wellas on the relationship between MC and P as is summarized in table 2-1.

11. This is true, of course, if the demand for that provider's services is not perfectly inelastic.


If the focus health facility's price exceeds its marginal cost, a higher illness incidence will translate intoa higher net income; otherwise it will result in a greater loss.

A Change in Population Size

A higher (lower) population will bring about a proportionally higher (lower) demand from allproviders. Its effect on the direction of the change in Q, TR, and TC will be equivalent to that of achange in the illness incidence rate.

A Change in Household Income

Health services of all providers are assumed to be normal goods, which means that, other thinsbeing equal, changes in household income will result in changes in the same direction in demand.As in the preceding cases, the effect on the focus facility's NI will depend on the relative magnitude ofMC and P.

A Change in the Geographic Distribution of the Population

Travel time to a health facility has been shown to have a negative effect on demand. 13 If theaverage distance from a representative household to the focus health facility increases, so will travel time.Demand for care from that facility will thus go down, affecting both TR and TC. 14 In contrast, if ahigher number of people is located in the vicinity of the focus facility, demand will be higher. The modelparametrizes the population distribution to study its effect on demand and health facility performance.For example, through the model it can be seen that, everything else being equal, health providers locatedin areas of high population density have a greater ability to be financially self-sustaining than thoselocated in sparsely populated areas.

Changes in Costs

A devaluation (revaluation) of the currency, manifested by a higher exchange rate, translates intohigher (lower) fixed and marginal costs expressed in local currency. Everything else being constant, adevaluation unambiguously increases total cost and reduces NI, while a revaluation has the opposite effect.Changes in other fixed or variable costs will affect total costs and net income.

12. Normal goods are those that are demanded in greater quantity as people's incomes increase.

13. For example, see Dor, Gertler, and van der Gaag 1987.

14. Some may argue that a greater distance may not necessarily translate into a higher travel time because moredistant consumers choose faster means of transportation. While that is possible, it is assumed here that people'stravel speed is constant regardless of their location. Hence a greater distance is assumed to result in a longer traveltime.

3AMBULATORY CARE

The last section provided an overview of the model's logic. This segment describes in detail theambulatory care component of the model.

Structure of the Market

The market for ambulatory health care services, both curative and preventive, is composed ofconsumers and producers. Consumers are characterized by their number, income, demographic traits,epidemiological data, and geographic location in relation to the providers. Providers consist of a healthcenter (focus health facility), with utilization levels and financial performance that are studied in detailthrough the model, and its competitors.

The health center provides five kinds of ambulatory services:

* curative care for people with acute health problems

* curative care for people with chronic problems

* preschool preventive care for children under five years of age, including immunizations

* prenatal preventive services for pregnant women

* obstetric services.

Competitors can also provide all or some of these services.

Figure 3-1 depicts the market for ambulatory care. The health center is located at the center ofan imaginary circular region (referred to as the health center's market). Its competitors, as well as theconsumers, are located within the region. The health center and the competitors are characterized bytheir prices. In addition, each competitor is characterized by its distance from the health center. Theuser of the model must specify the radius of the market, the providers' prices, and the distance from eachcompetitor to the health center.

The population is assumed to be distributed uniformly within five population rings, as shown infigure 3-1. The user of the model must specify the total population living in the market as well as thepercentage living within each of the five population rings in order to allow simulations based on differentassumptions about the population density and the travel distance. Based on the location of the competitors

13


and the distribution of the population, the model computes the average distance between the populationliving in each population ring and each competitor.1

Figure 3-1. Market for Ambulatory Care

Population Marketrings

DIK PK

Radius

* = Health Center P = Pricem = Competitor D = Distance

Health Care Demand

Curative Care

People with a health problem must decide whether or not to seek care outside the home; thosewho decide to seek outside care must choose a provider. The consumer's decision tree is illustrated infigure 3-2.

Figure 3-2. Consumer Decision Tree

- Health center

Seek - Competitor 1

care_ Competitor 2

Personwith a Competitor Jhealthproblem

Do notseekcare

The number of people in population ring r choosing provider j for a given health service (forexample, curative care) (Qrj) can be computed by multiplying the number of people with a health problemwithin a given time period living in r (Hr) times the proportion (or probability of) seeking care(ProbSeek)r times the proportion seeking care that chooses that particular provider (ProbChoose)d. Q4

1. See Technical Appendix A for a derivation of an expression to compute the travel distance.

Ambulatory Care 15

can be viewed as the demand for first visits in the case of curative care, or as the number of deliveriesin the case of obstetric care.

(3-1) Qrj = Hr -(ProbSeek)r -(Probchoose)rj.

The parameter Hr, which denotes the number of people in r who experience a health problemwithin a certain time period (for example, one month), is in turn equal to the number of people livingin r (Mr) times the annual illness plus injury incidence rate. The total demand for first visits fromprovider j is therefore equal to the sum of the demand across all five population rings.

5(3-2) Q. = EiQr

r=1

Once the patient chooses a provider, the quantity of visits demanded from provider j by thepeople in ring r is assumed to be a linear function of the out-of-pocket price of a visit (P), the distanceto the provider (Dj), and the income of the patient (Y'j).2

According to figure 3-2, each consumer faces a set of discrete choices (no care, care from thehealth center, care from competitor 1, and so forth). It is assumed that individuals rank the choicesaccording to the amount of utility that they can obtain from consuming the services of each provider.Utility, as understood by economists, is an individual-specific measure that reflects the amount ofsatisfaction that individuals draw from the consumption of various goods and services.

This model assumes that individual utility is a function of the option's price (Pj), the individual'stravel distance (Drj), and his or her household income (yr)- 3 An interaction term equal to the productof price times income, P. Yr, has been included to permit different price responses by income group.

Each consumer chooses the option that brings him or her the highest utility. Both P. and Drjreduce utility, and thus have negative coefficients. The coefficient on P. Yr is positive to be consistentwith the assumption that health care is a normal good, as well as with the lower sensitivity of higher-income people to price changes. If VrJ denotes utility of a representative individual living in populationring r associated with optionj, then

2. Dor, Gertler, and van der Gaag (1987) have used a similar specification for the quantity of visits demandedin their study of demand in CMte d'Ivoire. These authors first model the decision to enter the market by the peoplewith a health problem. Then, conditional on seeking care, they model the choice of provider. Finally, among thosechoosing a particular provider, they estimate a linear demand equation for the quantity of visits.

3. This is indirect utility.


(3-3) Vj = 0oj + 013'j + 02'pj'yr + 03 -Dr

whereP = consumer's out-of-pocket price at provider j's facility

Yr = household income of people living in population ring rDrj = weighted average distance between the people in population ring r and provider j0j = constant that captures the effect on consumer utility of all the variables affecting utility

other than price, income, and distance (quality perceptions, for example, are imbeddedin this coefficient)

01 = coefficient associated with the variable price (1 < 0)02 = coefficient associated with the product of the variables price and income

(02 > 0)

03 = coefficient associated with the variable travel distance (03 < 0).

Technical Appendix B shows how health care demand is derived as a function of consumer utility.Briefly, in order to compute demand, the model expresses both (ProbSeek)r and (ProbChoose),, as afunction of utility (Vrj), as defined above. 4

Preventive Care

The demand for preventive care services is similarly specified, except that the relevant populationgroups are either children under five (for preschool care) or pregnant women (for prenatal care) insteadof people with a health problem.

Consumer Categories

Three categories of consumers are included in the model: the uninsured people who pay theproviders' full price; the people who are insured at the health center through the payment of an annualinsurance premium and who pay a copayment (that is, a proportion of the full health center price) whenobtaining care at the health center; and the uninsured people who are given free care at the health center,referred to as the nonpaying.

The user must specify the percentages of the population that fall within each of these threegroups. It is assumed in the model that those percentages are the same across population rings. Usingequations 3-1 through 3-3 and the equations for ProbSeek and ProbChoose of Appendix B, the modelcomputes demand for each service and provider by each category and population ring. The model allowsfor household income to differ between the insured and the uninsured. Generally, the former have higherincome than the latter.

4. See Technical Appendix B for a derivation of the expressions for the demand equations.

Ambulatory Care 17

The demand by the uninsured who pay the full price is computed through the model by plugginginto the demand formulas the full price of each provider, the household income, and the averagehousehold travel distance. The demand by the insured people is computed similarly, although a lowerout-of-pocket price, the copayment, is entered as the health center price. Thus, at the same householdincome level, the demand for health center care by an insured person will be greater than that of someonewithout health insurance, as shown in figure 3-3. Finally, demand by the nonpaying is assumed to berationed by the health center personnel (for example, through longer waiting time) to a level equal to thatof the paying, on a per capita basis (see figure 3-4).

Figure 3-3. Demand by the Insured Who Pay a Copayment C (C< 1)and the Uninsured Who Pay the Full Price

Price

P D insured

C-P uninsured

Quantity

Figure 3-4. Demand by the Nonpaying with and without Rationing

Price (P)

Demandby paying

Demand bynon-paying

P with withoutrationing rationing

/ Quant.(P=P) (P=O) Dem.


Health Center Finances

This section explains how health center revenue and costs are computed in the model.

Health Center Revenue

Monthly health center total revenue (TR) is computed by adding up annual health insurancepremium payments; copayments, if any, made by the insured; and direct payments made by the payinguninsured. Thus:

(3-4) TR = Prem + P-QU + P*C*QI12

where Prem is annual premium payments by the insured (Prem = M . i . R, where M is the totalpopulation of the market, i is the proportion of people insured, and R is the annual insurance premium),P is health center full price, QU is monthly demand for health center care by the uninsured, C is thecopayment rate (for example, C = 0.2 means that the insured must pay 20 percent of the health center'sfull price when obtaining care), and QI denotes monthly demand for health center care by the insured.

Health Center Costs

Total monthly health center costs are the sum of fixed and variable costs. Fixed costs includelabor, depreciation of buildings, equipment, vehicles, office supplies, refrigerator fuel, and othermiscellaneous fixed costs. Variable costs consist mainly of drugs and medical supplies and supervisionfees.

FIXED COSTs: LABOR, DEPRECIATION, AND FUEL

Labor costs are modeled as step-fixed costs; that is, costs that are fixed within a certain range ofoutput but that increase or decrease to a new plateau as output expands or contracts. Health center laborcosts are depicted in figure 3-5 as a function of the amount of health services produced by that provider.Labor costs are computed with the model by type of health service (deliveries, for example) and by typeof medical provider (such as a nurse). For example, to compute monthly nurse costs associated withdeliveries, the model proceeds as follows. First, it computes the daily demand for deliveries. Second,based on the amount of time spent by a nurse per delivery, it computes the total number of nurse-minutesrequired daily to satisfy demand. Third, based on the number of hours worked daily by a nurse, itcomputes the number of nurses required daily to satisfy demand. If the number of nurses is not aninteger, the figure is rounded up (for example, if 4.4 nurses are required the model assumes that 5 nursesare needed). Finally, by multiplying the results times the monthly salary of a nurse, the model obtainsthe monthly nurse labor costs for deliveries. This type of calculation is done by the model for all fiveservices provided by the health center and for the following personnel categories: medical doctor, nurse,midwife, and laboratory technician.

Ambulatory Care 19

More formally, monthly health center labor costs of health personnel type m (nurse) for healthcare service i (LCim) (deliveries) are computed according to the following formula:

(3-5) LCim = INTG( ) -SmTm 6

where INTG denotes the integer function, Qi is daily demand for health center service i, tim is the time(in minutes) spent by employee type m producing one unit of service i, Tm is the total number of hoursworked by employee type m in one day, 60 is the number of minutes in one hour, and Sm denotes themonthly salary of personnel m, expressed in local currency.

Figure 3-5. Labor Costs Modeled as Step-Fixed Costs

Laborcost

Quantity produced

Total monthly labor costs of the health center are computed by calculating the sum of labor costsacross the five health care services and the four types of medical personnel:

54(3-6) LC = LCim.

i=1 m=1

Although labor is treated as a fixed cost in the above specification, it could easily be convertedinto a variable cost by eliminating the integer function from the above formula. In such a case, thenumber of minutes of each category of employee would continually be adjusted up or down with demand.

The model also requires specification of the types of investments made at the health center,including buildings, medical equipment, and vehicles, as well as their years of useful life and the initial


investment, specified in U.S. dollars.5 The monthly depreciation cost of asset a (DCa) is computed inlocal currency, using straight-line depreciation, according to the following expression:

(3-7) DC Fa L 12

where la is the investment cost of asset a, expressed in U.S. dollars, FX denotes the current exchangerate (units of local currency per US$), L is the useful life of the asset (in years), and 12 is the numberof months in a year.

Fuel is used to power refrigerators and to sterilize vaccination equipment. For simplicity, thesefuel costs are treated as fixed in the model. The user is simply required to specify the number of litersof fuel used monthly and the price of a liter, expressed in U.S. dollars.

VARIABLE COSTS: DRUGS AND MEDICAL SUPPLIES

In order to compute variable costs for drugs and medical supplies, the user of the model mustspecify the average cost to the health center of a typical prescription, laboratory exam, and otherpharmaceutical products associated with each type of health service. The user must also specify theamounts of prescriptions, exams, and other supplies used in each type of intervention. The monthlyvariable labor costs of drugs and medical supplies for service i (for example, curative visits), ECi, iscomputed by multiplying the average cost of each production input times the quantity used for eachcategory of service or:

(3-8) ECi = (Gi - ACG + Xi * ACX + Oi * ACO) * Qi

where Gi, X,, and Of are the number of prescriptions, laboratory exams, and other supplies, respectively,used to produce one unit of service i; ACk is the average cost to the health center (expressed in localcurrency) of a prescription (k = G), laboratory exam (k = X), and other medical supplies (k = 0); andQi is monthly demand for service i.

5. The market value of many investments is tied to the rate of foreign exchange. Investments must be specifiedin U.S. dollars even if they were paid for in local currency. This is done to adjust upward or downward the valueof the investments in order to reflect their real replacement value.

4DEMAND, COSTS, AND HEALTH CENTER FINANCIAL

PERFORMANCE: SIMULATIONS

Chapter 3 was an explanation of the model's logic and basic assumptions. This chapter brieflydescribes the structure of the computer model and provides examples, for the case of ambulatory care,to illustrate some of the model's capabilities. The examples use case study data collected in 1987 by theauthor and a team of researchers (sponsored by the REACH and SANRU projects) in the Kisantu andBokoro health zones of Zaire.

Structure of the Health Center Component of the Model

The health center component of the model offers two menus: the reduced menu, which containsonly two tables, one with basic input data and one with basic output data, and the expanded menu, madeof about two dozen tables. The input table of the reduced menu contains key exogenous variables thatcan be modified by the user to analyze a wide range of policy issues. The output table of the reducedmenu provides basic utilization indicators and a condensed health center income statement. The expandedmenu contains more detailed input and output information. The examples of this section deal mainly withthe reduced menu. The complete menu structures of the health center and hospital components of themodel can be found in Appendix C. The full set of tables contained in the health center component canbe found in Appendix D, and the hospital components of the model are contained in Appendix E.Finally, a user's manual for the model is in Appendix F.

Exhibit 4-1 shows the input table (table B. 1) and the output table (table B.2) of the health center'sreduced menu. A description of the input information required by table B. 1 as well as the outputinformation shown in table B.2 follows exhibit 4-1.

Simulations

The Base Scenario

Exhibit 4-1 constitutes the base scenario. As can be seen from table B. 1, the base consists of amarket of 10,000 people, with 60 percent living within 2 kilometers of the health center. The radius ofthe market is 10 kilometers (area = 314 Km 2 ). The currency of the country is the zaire and the currentexchange rate is 350 zaires per U.S. dollar. Health center total prices range from a low of Z150 forprenatal and preschool care to a high of Z1,019 for deliveries. Health center total price for prenatal care,preschool care, and chronic care is below the actual cost to the health center of drugs used for thoseservices. Ten percent of the population (1,000 people) is insured at the health center through an annualpremium payment of Z1,500 and a direct copayment of 20 percent. The monthly household income ofthe uninsured of Z20,000 is equal to that of the insured. Five percent of the population is entitled to freecare at the health center. The health center competes with two other providers in the market (see list of

21


Exhibit 4-1. Health Center, Reduced Menu, Base Scenario

(M)-(P) - (L) - (0)

Table B.1_ Population distribution _ _

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5Km Total B H-- Cot o o | -A E

Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100% drugs, jS A!Number 3500 2500 2000 1500 500 10000 ab.exams| I L

I C TFirst Repeat Total & other I H

PRICE visit visits Drugs expend phar.prdl------ ------- ------- - (N)

jCurative Care 200 0 558 758 558 1 C|DeLiveries 200 --- 819 1019 819 N E!Pre-Natal Care 0 --- 150 150 183 P N|Pre-SchooL Care 0 --- 150 150 441 U T!Chronic Care 0 --- 200 200 456 T E

j R(A) *Radius health area(Km): 10 *Ins.premiumi/yr.(Zaires) 1500 (G)(B) *Population: 10000 *Percentage insured: 10% (H)(C) *Currency: Zaire *Copayment insured: 20% (I)(D) *Exchge.rete(Zaire/USS): 350 *Percent non-paying: 5% (J)(E) *HousehoLd income/month: 20000 *Superv.exp.(% rev.HC): 10% (K)(F) *Had.inc.insured/non-ins 1.00

-TABLE B.2 ALL INFORMATION IS MONTHLY_ (R)--------- New cases------ ------ Total visits--...% mar-

Non-inar Insured Total Non-inard. Insrd. Total k t HC B HA E

Cur.Ce 505 101 606 1285 437 1722 68% *S ADeliv. 23 3 26 --- ... --- 78% I L

(0) P-N Ca 13 2 15 124 16 140 72% C TP-S Ca 14 2 16 237 30 267 72% NChr.Ca 0 0 0 27 4 31 67% 0

000s Zair U C(1) REVENUE Services 229 HC utiliz.rates T E

Drugs 300 528 --------------- P N(2) EXPENSES Personnel 205 Non-inar Insrd U T

(T) Drugs 370 ------T ----- T EOther 31 605 17% 30% R

(3) PROFIT C(1)-(2)] (77) 64% 82% T(4) SUPERVISION EXPENSES 23 37% 43% A(5) DEPRECIATION 79 41% 47% B(6) PROFIT [(3)-(4)-(5)3 (178) 36% 44% L

E

(S)

Demand, Costs, and Health Center Financial Performance: Simulations 23

TABLE B.1: INPUT DATA TO BE SPECIFIED BY (0) Total patient expenditure at the healthTHE USER center: (i) per episode of acute illness;

(ii) per delivery; (iii) per prenatal(A) Radius of the health center's market (in care registration; (iv) per preschool

kilometers) care registration; and (v) per year'sworth of treatment for chronic illnesses

(B) Total population of the health center'smarket (P) Number of people Living in each

population ring.(C) Name of the country's currency() Country's current exchange rate TABLE B.2: OUTPUT DATA CALCULATED BY THE

(E) Average monthly household revenue for the MODEL, INCLUDING HEALTH CENTERunns)e Averag e UTILIZATION. MARKET SHARE, ANDuninsured peopleFIACLPEORNE

(F) Ratio between the average monthly FINANCIAL PERFORMANCE

household revenue of the insured and the (0) Utilization at the health center by theuninsured (for example, a ratio of 1.2 uninsured (both the paying and themeans that those who are insured have a nonpaying), the insured, and totalhousehold revenue 20 percent higher than utilization. The top three columns atthe uninsured) the left of table B.2 show new patients

(those who registered during the month)(G) Annual per capita insurance premium treated at the health center, whereas the(H) Percentage of the population insured at following three columns show the number

the health center of visits originating from the new

(1) Copayment paid directly by the insured to patients as well as from old patientsthe health center (those who registered in previous

(J) Percentage of the total market population montns). In the case of acute curative

that is given free care at the health care and deliveries, illness episodes are

center assumed to last a month or less;therefore, alt acute care and delivery

(K) Supervision fees, expressed in patients treated at the health center in

percentage, paid by the health center to any given month are new patients. Fora central administrative office the three other categories of service,

care is assumed to last more than a month

(1) Health center's prices for the first (six months for prenatal care, five yearsfor preschool care, and one year for

visit, for each repeat visit, and for chronic illnesses); thus, the patientsdrugs, and totaL patient expenditure for for these categories include both new andeach iLLness episode old patients

(M) Percentage of the market population (R) Percentage of the ambulatory care marketLiving within each population ring. captured by the health center. For

in example, the 78 percent figure forWith these, and other data specified ndeliveries indicates that 78 percent of

the expanded menu (see Appendix F), the model aLL deliveries taking place outside thecalculates the information of (N)-(P) of table home are assisted at the health center,B.1 and (0)-(T) of table 2. whiLe the remaining 42 percent take place

TABLE B.1: OUTPUT DATA CALCULATED BY THE in competing facilities

MODEL (S) Percentage utilization by the uninsured

(N) Marginal cost (drugs and medical and the insured. These percentages show,for both curative and preventive care,

supplies): (i) per episode of acute the proportion of individuals who chooseillness; (ii) per delivery; (iii) per to seek care outside the home and who gowoman registered in the prenatal to the health center (referring back topreventive program (prenatal care) expression 2-4 of these percentagesthroughout her pregnancy; (iv) per child correspond to the productregistered in the preschool preventive (ProbSeek)-(ProbChoose). For example,program (preschool care) throughout the the 37 percent for prenatal carechild's first five years of Life; and (v) indicates that 37 percent of theper chronic patient, annually. The health uninsured pregnant women seek prenatalcenter's cost of drugs and medical care from the health centersupplies is provided to help the user ofthe model to price the services, although (T) Health center's income statement. TheP = MC is not implied. In the example, revenue is broken down into revenue fromdrugs are priced at marginal cost for payments other than drugs and paymentsacute illnesses and deliveries and below for drugs. Costs are broken down intocost for prenatal care, preschool care, labor costs, drugs, and other costs,and chronic care including fuel, office supplies, and

supervision fees.


providers with their prices and location in tables A.3.1 through A.3.5 of Appendix D). One competitoris located at 2 kilometers from the health center and charges the same prices as the health center; asecond competitor is situated at 5 kilometers and charges prices 30 percent lower than those of the healthcenter.

As shown in table B.2 of exhibit 4-1, with the above-specified input variables, the health centerhas a negative monthly net income of -Z77,000 before paying for supervision fees and depreciation, andnegative net income of -Z178,000 after supervision fees and depreciation. According to the basescenario, this implies that the health center needs external subsidies not only to pay for supervision anddepreciation but also to cover part of its recurrent costs. This was a common situation in Zaire in 1987.

Exhibit 4-2 shows the baseline elasticities of demand with respect to price, income, and distance,all computed at a distance of 500 meters to the respective provider (table A. 10 of the model's expandedmenu). The curative care elasticities resemble those obtained empirically in a separate, household-basedstudy of curative ambulatory health care demand conducted in Bokoro and Kisantu (Bitran 1990).

Exhibit 4-2. Price, Income, and Distance Elasticitiesof Demand, Health Center and Competitorsa

A.10- Price, Income, and Distance ELastic"ties of Demand

Curativ DeLiv. P-N CarP-S Care Chronic

H.Center Price -0.79 -0.33 -0.17 -0.16 -0.24Income 0.26 0.06 0.03 0.02 0.04Distan -0.18 -0.07 -0.13 -0.12 -0.14

Compet.1 Price -1.30 -1.33 -0.37 -0.36 -0.49Income 0.26 0.06 0.03 0.02 0.04Distan -0.30 -0.30 -0.28 -0.28 -0.29

Compet.2 Price -1.00 -1.18 -0.36 -0.36 -0.46Income 0.03 -0.15 0.00 -0.01 0.00Distan -0.33 -0.34 -0.35 -0.35 -0.34

Compet.3 Price -- -- --Income -- -- --Distan -- -- --

a. ALL eLasticities computed at a distance of 500meters from the provider.

In the remainder of this section a series of simulation exercises is presented to illustrate howutilization and financial performance variables are affected by changes in selected exogenous variables.The outcome of each simulation exercise must be compared with that of the base scenario.

An Increase in the Price of Curative Care at the Health Center

The first simulation exercise, shown in exhibit 4-3, consists of a Z100 price increase for curativecare on the part of the health center, from Z758 to Z858. The price increase translates into a newsituation that differs from the base scenario in several ways.


Exhibit 4-3. An Increase in the Price of Curative Visitsat the Health Center

Table B.1 _ Population distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total B H

------- ------- ------- ------- ------- -------- |Cost of A E!Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%j drugs, S A

jNunber 3500 2500 2000 1500 500 10000 Lab.exams I LFirst Repeat Total |& other C Tvisit visits Drugs expend.|phar.prdi H

PRICE ------- ------- -------- ------ -------- iI!Curative care 300 0 558 858 | 558 | N C!Deliveries 200 --- 819 1019 1 819 | P EPre-nataL Care 0 --- 150 150 | 183 U N!Pre-SchooL Care 0 --- 150 150 1 441 1 T T:Chronic Care 0 --- 200 200 456 | E

T R*Radius health area(Km): 10 -Ins.premium/yr.(Zaires) 1500 A-Population: 10000 -Percentage insured: 10% B-Currency: Zaire -Copayment insured: 20% L*Exchge.rate(Zaire/US$): 350 -Percent non-paying: 5% E-Household income/month: 20000 -Superv.exp.(% rev.HC): 10%*Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-'Non-insr Insured Total Non-insrd. Insrd. Total ket HC: B H-------- ------- ------- -------- ------- ---- ------ | A E

!Cur.Ca 449 99 548 1125 428 1553 64%| S A,Deliv. 23 3 26 --- --- --- 78%| 1 L'P-N Ca 13 2 15 124 16 140 72%1 C TIP-S Ca 14 2 16 237 30 267 72%: HjChr.Ca 0 0 0 27 4 31 67%| 0

000s Zaires | U C(1) REVENUE Services 263 | HC utiliz.rates| T E

Drugs 270 532 N---------------| PN1(2) EXPENSES Person[. 205 | Non-insr Insrd| U T

Drugs 337 -------- ------ | T EOther 34 577 | Cur.Ca 15% 30%| R

1(3) PROFIT 1(1)-(2)] (44) Detiv. 64% 82%1 T|(4) SUPERVISION EXPENS. 26 1 P-N Ca 37% 43%| A|(5) DEPRECIATION 79 | P-S Ca 41% 47%: B1(6) PROFIT[(3)-(4)-(5)1 (149)| Chr.Ca 36% 44%| L

I |E

First, utilization by the uninsured drops in an important way. For example, the number of newcurative care acute patients goes down from 505 to 449, or an 11 percent fall. The implied arc-priceelasticity of demand for this service is -0.84.1 Second, utilization by the insured also goes down,although by a much smaller percentage because the out-of-pocket price of the insured only increases by20 percent of the price increase to the uninsured. Third, the financial performance of the health centerimproves---its recurrent cost gap drops to -Z44,000 from -Z77,000 in the base scenario. Both drugrevenue and costs go down in relation to the base scenario because of lower demand. Also, despite thereduction in demand, the nondrug revenue goes up because of the price increase. Fourth, while thehealth center's financial performance improves after a price increase, its market share for acute curativecare drops from 68 percent to 64 percent as a larger proportion of those seeking care outside the homechoose the cheaper care supplied by the competitors. Fifth, the health center price increase has a negative

1. The elasticity is computed by dividing the percentage reduction in utilization (11.1 percent) by the percentageincrease in price (13.2 percent).


effect on total market demand for curative care. At the base price of Z758, the demand for health centercurative care was 606 episodes a month and the total market demand was 891 episodes (this last figureis computed by dividing the health center's demand of 606 episodes by the health center's market shareof 68 percent). In contrast, at the higher price of Z858, total market demand for curative care is 856episodes (548/64 percent). Thus, in spite of substitution among providers on the part of consumers, aprice increase by one provider translates into lower overall demand for that service because someconsumers drop out of the market. Finally, labor costs remain unchanged at Z205,000. A reduction inthe price has the opposite effect of a price increase. For example, if the health center lowered its priceof curative care, health center utilization would go up and the facility's financial performance woulddeteriorate: its net income would drop, and its market share would rise.

A Change in a Competitor's Price

Price changes on the part of a competitor mirror price variations by the health center. Exhibit4-4a, drawn from the expanded menu (see table A.3. 1 in Appendix D), shows how the first competitor'sprice for curative care is changed from Z758 in the base scenario to Z500 in the new scenario.

Exhibit 4-4a. Health Center's Expanded Menu---A Reductionin a Competitor's Price of Curative Care

A.3.1- Curative care: Prices and distances HC and competitors (Zaires)

Price Price Price of Averagefirst repeat drugs distancevisit visit per Total to HC

episode price (metrs)

Base scenario IHealth Center 200 0 558 758 0lCompetitor 1 758 2,000lCompetitor 2 526 5,000lCompetitor 3

price change


Price Price Price of Averagefirst repeat drugs distancevisit visit per Total to HC

episode price (metrs)

New scenario IHealth Center 200 0 558 758 0Competitor 1 500 2,000lCompetitor 2 526 5,000Competitor 3


Exhibit 4-4b shows the impact that this change has on health center utilization and financialperformance. As can be seen, the center's finances deteriorate (although slightly) as its level of utilizationdecreases along with its market share. This exercise illustrates how non-governmental competition, whichin countries like Zaire is often important, can capture an important part of the market, especially forcurative care, and affect negatively the financial performance of the health center.

Exhibit 4-4b. A Reduction in a Competitor's Price of Curative Care

Table B.1 Population distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total I B H

------- ------- ------- ------- ------- -------- Cost of IA E,Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%| drugs, I S AlNumber 3500 2500 2000 1500 500 10000 Lab.examsl I L

First Repeat Total I& other I C Tvisit visits Drugs expend.lphar.prd| H

PRICE ------- ------- -------- ------ -------- | IlCurative care 200 0 558 758 558 1 N CIDeliveries 200 --- 819 1019 819 jP EPre-natal Care 0 --- 150 1501 183 U NPre-School Care 0 --- 150 1501 441 IT TChronic Care 0 --- 200 200 456 1 E

I T R-Radius health area(Km): 10 *Ins.premium/yr.(Zaires) 1500 A-Population: 10000 *Percentage insured: 10% B-Currency: Zaire -Copayment insured: 20% L*Exchge.rate(Zaire/USS): 350 -Percent non-paying: 5% E-Household income/month: 20000 -Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-:Non-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ A E

,Cur.Ca 457 96 554 1165 411 1,576 59% S A:Deliv. 23 3 26 --- --- --- 78%: I LP-N Ca 13 2 15 124 16 140 72% C TIP-S Ca 14 2 16 237 30 267 72%I HlChr.Ca 0 0 0 27 4 31 67% 0

000s Zaires 1 U C(1) REVENUE Services 220 HC utiliz.ratesl T E

Drugs 274 494 --------------- PN1(2) EXPENSES Persont. 205 ' Non-insr Insrdl U T

Drugs 341 -------- ------ | T EOther 30 576 1 Cur.Ca 15% 29%| R

I(3) PROFIT [1)-(2)] (82)1 Deliv. 64% 82% T(4) SUPERVISION EXPENS. 22 | P-N Ca 37% 43%| A(5) DEPRECIATION 79 | P-S Ca 41% 47%| B1(6) PROFIT[(3)-(4)-(5)] (182)1 Chr.Ca 36% 44%| Li_ IE

Price Cross-Subsidization between Curative and Preventive Care

In this simulation (exhibit 4-5), the price of preventive care (prenatal and preschool care) is variedfrom a price equal to marginal cost (MC) to a price of zero. The purpose of lowering the price belowMC is to promote consumption of preventive care. In order to finance this policy, the price of curativecare is increased with the goal of maintaining a recurrent cost gap of Z77,000, as in the base scenario,


and thus keep the need for external subsidies unchanged. Partial or full price cross-subsidization ofpreventive care is a common policy in Zaire's health zones.

Exhibit 4-5. Cross-Subsidization of Preventive by Curative Care---Prices and Quantity Demandeda

Price Level Prenatal and Preschool Care

P =MC P =A.Mc P= 12.MC P = 4.Mc P = 0

PRICE OF PricepN care 183 137 92 46 0PREVENTIVE CARE

Priceps care 441 331 221 110 0

PRICE OF Pricecur. care 745 751 758 764 774CURATIVE CAREREQUIRED TOBREAK-EVEN

QUANTITY Q.Dem.PN care 119 126 133 140 147DEMANDED(NUMBER OF Q.Dem.pS care 155 185 217 249 279

VISITS PERMONTH) Q.Dem-Cur.care 1306 1296 1285 1275 1258

PRICE EPN care -0.21 -0.15 -0.09 -0.04 0ELASTICITY OFDEMAND EPS care -0.70 -0.46 -0.26 -0.11 0

ECur.care -0.77 -0.78 -0.79 -0.80 -1.00

(a) Prices in Zaires of March 1987; quantity demanded is monthly visits to the health center.

The above simulation shows that, based on the assumed coefficients of the demand equations forcurative and preventive care, only a modest price increase of curative care (3.9 percent from Z745 toZ775) is sufficient to subsidize preventive services fully. Curative care demand would obviously dropas a result of the price increase, from 1,306 visits a month when preventive care is priced at MC to 1,250visits when preventive care is provided free of charge. Policymakers should judge whether the drop incurative care demand would be worth the increase in demand for preventive services.

Price Discrimination by Income

Other things being equal, a single price will result in higher per capita demand by the rich andlower demand by the poor. A policy of price discrimination, common in Zaire's health zones, can helppromote equity by charging prices that are inversely related to people's income. Further, pricediscrimination, the strategy used by the profit-maximizing private monopolist, can allow the public healthcenter to improve its financial performance while fostering equity, with little harm to the higher incomegroups. In this simulation (exhibit 4-6), the model is used first to show how a strategy of a single price


results in an inequitable demand configuration among income groups. For example, the fifth of thepopulation that belongs to the highest income quintile would demand 136 new episodes of curative careper month, or 46 percent more than those in the lowest income group. Second, the model is used tocalculate, for each income quintile, the price P (first row at the bottom section of the table) necessaryto achieve a demand equal to that of the third quintile. 2

Exhibit 4-6. Comparison between a Single-Price Policy and a Policyof Price Discrimination Based on Income, Curative Ambulatory Care

Income QuintiLe (Zaires 3/87)

0-7000 7001- 14001- 20001- 27001- TotaL14000 20000 27000 34000

PopuLation 2000 2000 2000 2000 2000 8000

POLICY OF Price (P) 758 758 758 758 758 --

A SINGLEPRICE Demand (Q) 93 103 112 124 136 489

Revenue = 70,494 78,074 84,896 93,992 103,088 430,544P. Q

VC=MC. Q 43,314 57,474 62,496 69,192 75,888 308,364

Revenue-VC 27,780 20,600 22,400 24,800 27,200 122,180

Ep -1.09 -0.93 -0.79 -0.63 -0.49 --

CY 0.10 0.19 0.26 0.34 0.40 --

POLICY OF Price (P ) 635 695 758 865 1,010 --

PRICEDISCRIMIN- Demand (Q) 112 112 112 112 112 560ATIONBASED ON Revenue 71,120 77,840 84,896 96,880 113,120 443,856INCOME p* Q

VC=MC.Q 62,496 62,496 62,496 62,496 62,496 312,480

Revenue-VC 8,624 15,344 22,400 34,384 50,624 131,376

The above exercise shows that, based on the implicit price and income elasticities of demand, astrategy of price discrimination by income can promote equity, improve financial performance, and haveonly a modest negative effect on demand by those in the highest population group.

Price Discrimination by Distance to the Health Center

This simulation is similar to the one above, except that distance to the facility is used as thecriterion to discriminate by price. With a uniform price, those living within one kilometer of the facilityrepresent 35 percent of the population in the market yet account for 50 percent of total demand (exhibit4-7); those living beyond 5 kilometers represent 5 percent of the population but account for only 1

2. To simplify, it is assumed in this simulation that there are no people insured and that no free care is availableat the health center.


percent of total demand. The bottom part of the table shows the price necessary to ensure that thedemand by the population within each distance group is equal to the group's share of the total population,and equal, on a per capita basis, to the demand by those living within 1 kilometer of the health center.The table shows that, for those living beyond 3 kilometers, the price would have to be negative (that is,those living beyond 3 kilometers would have to be paid to come to the health center) in order to equatetheir per capita demand with that of those living closer to the center. A total monthly subsidy greaterthan Z140,377 (see bottom-right cell of the table) would be necessary to sustain this policy!

Exhibit 4-7. Comparison of a Policy of a Single Price and a Policy of Differential PricesAccording to Distance to the Health Center---Curative Ambulatory Care

Distance Household - Health Center (Km) Total

0-1 1-2 2-3 3-5 5-10 -

Population 3,500 2,500 2,000 1,500 500 10,000

% of population 35% 25% 20% 15% 5% 100%

SINGLE Price (P) 758 758 758 758 758 -PRICE

Demand(Q)a 304 159 94 44 5 606

% 50% 26% 15% 7% 1% 100%

DIFFE- Price (P) 758 580 265 <0 <0 -RENTIALPRICE Demand 304 217 174 130 43 868

(Q)a

% 35% 25% 20% 15% 5% 100%

P-MC 200 -123 -448 <-558 <-558 -

Subsidyneeded b -60,800 26,691 77,952 >72,540 >23,994 >140,377

a. Quantity demanded (first visits).b. Calculated as Q.(P-MC), or utilization times the price minus the marginal cost. A surplus

of 60,800 zaires would be generated from those living within 1 Km. of the health center.ALL other distance groups would require a subsidy, as shown.

A Change in Insurance Enrollment and Premium

In this simulation, the model is used to study the effect of (1) expanding the insurance coverage;(2) reducing the insurance premium; and (3) both (1) and (2) simultaneously. The insurance coverageis increased from 10 percent to 20 percent of the population (simulation shown in exhibit G1 ofAppendix G). The facility almost breaks even before supervision fees and depreciation, compared witha loss of Z77,000 in the base scenario. This indicates that the annual cost of providing care to theinsured is less than the premium. The percentage insured is then restored to 10 percent and the premiumreduced from Z1,500 to Z800 (exhibit G.2). As expected, the facility's finances worsen in relation tothe base, with a monthly loss of Z135,000. Suppose that, as could be expected, the reduction in theinsurance premium brings about a rise in enrollment from 10 percent to 20 percent (exhibit 4-8).3

3. The assumed elasticity of insurance with respect to the premium is approximately -1.0.


Exhibit 4-8. A Drop in the Insurance Premium Coupled with a Risein the Proportion of People Insured

Table B.1 Population distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total | B H

------- ------- ------- ------- ------- -------- Cost of IA E!Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100% drugs, I S ANumber 3500 2500 2000 1500 500 10000 Lab.examsl I L

First Repeat Total I& other C Tvisit visits Drugs expend.|phar.prdl H

PRICE ------- ------- -------- ------ -------- ICurative care 200 0 558 758 | 558 N CDeliveries 200 --- 819 1019 1 819 1 P EPre-natal Care 0 --- 150 150| 183 U N,Pre-School Care 0 --- 150 150 441 j T TIChronic Care 0 --- 200 200 | 456 E

T RRadius health area(Km): 10 lIns.premium/yr.(Zaires) 1075 A-Population: 10000 'Percentage insured: 20% B-Currency: Zaire 'Copayment insured: 20% L*Exchge.rate(Zaire/USS): 350 'Percent non-paying: 5% E'Household income/month: 20000 -Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLYS --------- New cases------ ------ Total visits------ % mar-INon-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ A E

1Cur.Ca 449 202 650 1142 704 1846 70%1 S ADeliv. 20 6 27 --- --- 80% I L

IP-N Ca 12 3 15 110 32 142 T3%1 C TIP-S Ca 13 4 16 211 60 271 73%| HjChr.Ca 0 0 0 24 7 31 68%| 0

000s Zaires | U C(1) REVENUE Services 275 HC utiliz.rates| T Ei Drugs 278 553 --------------- | P N(2) EXPENSES Persont. 205 | Non-insr Insrdj U T

Drugs 395 ' -------- ---- T EOther 30 630 | Cur.Ca 17% 30%| R

(3) PROFIT [1)-(2)] (77): DeLiv. 64% 82%| T1(4) SUPERVISION EXPENS. 28 1 P-N Ca 37% 43%| A:(5) DEPRECIATION 79 i P-S Ca 41% 47% B1(6) PROFIT[(3)-(4)-(5)] (183): Chr.Ca 36% 44%| L

IE

Exhibit 4-8 shows that the health center's profit remains unchanged after cutting in half itsinsurance premium and doubling insurance enrollment. At the same time, total utilization of curative caregoes up at the health center because the insured face a lower out-of-pocket price. The above simulationillustrates the advantages of health insurance. First, by lowering its insurance premium the facilitystimulates the demand for health insurance, enabling more people to benefit from the health,psychological, and financial advantages of insurance. Second, the increase in enrollment and utilizationdo not affect fixed costs. 4 The health center can thus benefit from economies of scale and can providemore care at a lower price, while maintaining its financial position.

4. Notice, however, that the model does not take into account the administrative costs of health insurance.


An Increase in the Insurance Copayment

Exhibit 4-9 shows the effect of an increase in the copayment from 20 percent of the full healthcenter price in the base scenario to 40 percent. Demand by the insured goes down as their out-of-pocketprice is doubled. At the same time, the health center enjoys a higher net income in the new scenariobecause its revenue arising from the copayments by the insured goes up while its costs drop. A higherout-of-pocket price to the insured reduces moral hazard to the benefit of the insurer, although it makesinsurance a less attractive option to the client.

Exhibit 4-9. An Increase in the Insurance Copayment

Table B.1 Population distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total B H

------- ------- ------- ------- ------- -------- Cost of A E

|Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%j drugs, S ANumber 3500 2500 2000 1500 500 10000 Lab.exams I L

First Repeat Total & other C Tvisit visits Drugs expend.lphar.prdl H

PRICE ------- ------- -------- ------ I--------i ICurative care 200 0 558 758 558 | N CDeliveries 200 --- 819 1019 819 1 P EPre-natat Care 0 --- 150 150 183 | U NPre-School Care 0 --- 150 150 441 1 T T!Chronic Care 0 --- 200 200 456 1 E

_ T R-Radius health area(Km): 10 -Ins.premium/yr.(Zaires) 1500 A*Population: 10000 -Percentage insured: 10% B-Currency: Zaire -Copayment insured: 30% L-Exchge.rate(Zaire/US$): 350 -Percent non-paying: 5% E-Household income/month: 20000 *Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-:Non-insr Insured Total Non-insrd. Insrd. Total ket HC1 B H-------- ------- ------- -------- ------- ---- ------ IA E

,Cur.Ca 505 95 600 1285 394 1678 67%1 S ADeliv. 23 3 26 --- --- --- 78%1 1 LP-N Ca 13 2 15 124 16 140 72%: C TIP-S Ca 14 2 16 237 30 267 72%j HChr.Ca 0 0 0 27 4 31 67% 0

i _ _ _000s Zaires I U C(1) REVENUE Services 231 HC utiliz.rates T E

i Drugs 304 535 --------------- IP N(2) EXPENSES PersonL. 205 i Non-insr Insrdl U T

Drugs 366 -------- ------ T EOther 31 602 | Cur.Ca 17% 28%1 R

1(3) PROFIT E(1)-(2)] (67) Deliv. 64% 80% T(4) SUPERVISION EXPENS. 23 | P-N Ca 37% 43% A(5) DEPRECIATION 79 1 P-S Ca 41% 46% B(6) PROFITE(3)-(4)-(5)] (169); Chr.Ca 36% 43%| L


An Increase in the Amount of Free Care

Exhibit 4-10 shows the effect of a more generous free care policy (10 percent of the populationis entitled to free care, as opposed to 5 percent in the base scenario).

Exhibit 4-10. A Rise in the Proportion of People ReceivingFree Care at the Health Center

Table B.1 ______PopuLation distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total B H

------- ------- ------- ------- ------- -------- cost of A E'Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%: drugs, S A'Number 3500 2500 2000 1500 500 10000 Lab.examsi I L

First Repeat Total |& other C Tvisit visits Drugs expend.|phar.prdl H

PRICE ------- ------- -------- ------ -------- iICurative care 200 0 558 758 : 558 N CDeliveries 200 --- 819 1019 819 | P E|Pre-natal Care 0 --- 150 150 183 | U N|Pre-School Care 0 --- 150 150 441 T T|Chronic Care 0 --- 200 200 456 E|,T R-Radius health area(Km): 10 -Ins.premium/yr.(Zaires) 1500 A*PopuLation: 10000 -Percentage insured: 10% B*Currency: Zaire -Copayment insured: 20% L-Exchge.rate(Zaire/USS): 350 *Percent non-paying: 10% E-Household income/month: 20000 *Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ TotaL visits------ % mar-iNon-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ A E

Cur.Ca 505 101 606 1285 437 1722 68% S ADeliv. 23 3 26 --- --- --- 78% I L

P-N Ca 13 2 15 124 16 140 72% C T'P-S Ca 14 2 16 237 30 267 72%| HChr.Ca 0 0 0 27 4 31 67% 0i _ _ 000s Zaires I U C(1) REVENUE Services 223 HC utiLiz.rates| T E

Drugs 283 506 |' --------------- P N(2) EXPENSES PersonL. 205 Non-insr Insrd: U T

Drugs 370 -------- ------ | T EOther 30 605 Cur.Ca 17% 30% R

|(3) PROFIT [(1)-(2)] (99)1 DeLiv. 64% 82%j T|(4) SUPERVISION EXPENS. 22 P-N Ca 37% 43%| A|(5) DEPRECIATION 79 : P-S Ca 41% 47%| B'(6) PROFIT[(3)-(4)-(5) (200) Chr.Ca 36% 44%| Li I E

As shown above, utilization remains unchanged because it is assumed that the indigents' percapita utilization is equal to that of the paying uninsured as a result of nonprice rationing (see chapter 3).Total revenue drops, however, as the number of people who are given free care doubles. Monthly netincome drops by Z22,000 in light of lower revenue and constant costs. Thus, in order to finance thismore generous free-care policy, the health center would have to receive additional external subsidiesworth Z22,000 a month.


A Devaluation of the Country's Currency

A devaluation of the country's currency has a perverse effect on the providers' financialperformance. This simulation assumes an increase in the value of the dollar from Z350 to Z400(simulation shown in exhibit G.3). As long as the price of care is not increased, utilization and revenueremain unchanged. Costs do increase, however, particularly for drugs, which rise in price in proportionto the devaluation. Net income drops to -Z131,000 a month compared with a loss of Z77,000 in the basescenario. Suppose that, in order to offset this loss, the health center raises the price of curative care.Exhibit G.4 shows that the facility would have to increase the price per episode of curative care to Z918in order to offset the effect of the devaluation. This higher price would result in a 15 percent drop indemand for curative care, from 606 episodes a month before the devaluation to 515 episodes after boththe devaluation and the price increase.

A Change in the Population Distribution

Changes in the population's geographic distribution also affect demand and the financialperformance of providers, although the effect on each individual provider will depend upon its geographiclocation within the market. In this final simulation (exhibit G.5) it is assumed that all the population liveswithin 2 kilometers of the health center, with three-quarters living within 1 kilometer. With more peopleliving in the vicinity of the health center, its utilization increases substantially. For example, the monthlynumber of curative illness episodes treated at the health center goes up from 606 to 810, a 34 percentincrease. The center's net income deteriorates, however, as the marginal cost of providing more servicesexceeds the marginal revenue from cost recovery.

5HOSPITAL CARE

Main Features of the Hospital Component of the Model

This chapter presents the hospital component of the model. In general, the health center and thehospital components are very similar in their logic: demand and costs are modeled using the same kindsof functions; the hospital also serves a circular market with the inhabitants uniformly distributed aroundpopulation rings and with competition from other providers.

Because of the conceptual similarities of both model components, this section describes thefeatures that are unique to the hospital module. They are: (a) the kinds of services produced; (b) the useof bed-days as a measure of utilization; (c) the need for hospital beds; (d) the inclusion of administrativeand support personnel; and (e) the category of medical personnel considered. These features aredescribed below.

Inpatient Services

The hospital is assumed to produce three categories of service: hospitalizations that do not requiresurgery, hospitalizations with surgery, and deliveries. Each of these services can consume any of thefollowing production inputs: drugs, laboratory exams, x-rays, other pharmaceutical products, and labor.As in the case of the health center, the user of the model must specify the amounts of inputs used for eachservice as well as the cost of the inputs to the hospital. Exhibit 5-1 shows the reduced hospital tables(table E. 1 for basic input and table E. 2 for basic output).

Bed-Days as a Measure of Utilization

As shown in the sixth column of table E. 1, the user must specify the patients' average length ofstay (ALOS), in days, for each type of service. For example, an assumption made in the table is thatpeople who get hospitalized and undergo surgery spend an average of ten days in the hospital.

The model's direct measure of demand for inpatient care is the number of people who becomehospitalized to obtain each of the three categories of service offered by the hospital. Such number iscomputed through three separate demand equations, similar to the ones used by the health centercomponent of the model, and varies according to the prices and location of providers and to people'sincome. The total number of bed-days utilized is computed by multiplying the number of hospitalizationsdemanded (calculated by the model) times the ALOS, which is a fixed quantity and is user-defined. Inmathematical notation:

(5-1) DAYSi = Q*.ALOS

35


where DAYSi, is the number of bed-days of service i demanded, Qj is the number of service ihospitalizations demanded, and ALOS is average length of stay (in days) for service i.

Exhibit 5-1. Hospital, Reduced Menu, Base Scenario

Table E.1 Population distribution0-1 Km 1-5 Km 5-20 Km 20-50 Km >50 Km Total

!Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%lCost of ANumber 35000 25000 20000 15000 5000 100000 drugs, S

Drugs, Total Average ILab.exmsl IMedical exams, patient Length & other C

fees & other expend. stay(ds)lphar.prdl HPRICE ------- ------- ------ -------- -------- I 0

IHosp. without surgery 3000 3500 6500 6.0 4403 N SlHosp. with surgery 4000 5500 9500 10.0 6136 1P PDeLiveries 2500 2500 5000 6.0 3707 j U I

_T T-Radius health area(Km): 10 -Ins.premium/yr.(Zaires) 1000 A-Population: 100000 -Percentage insured: 10% T L-Currency: Zaire -Copayment insured: 10% A-Exchge.rate(Zaire/US$): 350 -Percent non-paying: 5% B-Household income/month: 20000 -Superv.exp.(% rev.HC): 5% L-Hsd.inc.insured/non-ins 1.00 -Other pers./100 beds: 30 E

*Percent occupancy beds: 80%

TABLE E.2 ALL INFORMATION IS MONTHLY------- Utilization------ Nbr.bds % mar-INon-insr Insured Total Bed-days necessa ket Ho B-------- ------- ------- -------- ----- ------ A

lHosp. without s 80 14 95 570 23 74%1 SIHosp. with surg 69 15 84 838 34 79%j 1Deliveries 103 17 120 720 30 75%j C

1 H000s Zaires- 87 1 0 0

(1) REVENUE Services 1,582 U SDrugs 887 2,469 T P

(2) EXPENSES Person[. 2,190 Utiliz'n rates P IDrugs 1,381 --------------- UTother 10 3,581 Non-insr Insrdl T A

1(3) PROFIT [(1)-(2)J (1,112) -------- ------ L1(4) SUPERVISION EXPENS. 79 IH.w/o s. 27% 43% T1(5) DEPRECIATION 326 IH.wth s. 23% 45% A(6) PROFIT[(3)-(4)-(5)J (1,517)lDeliver. 29% 43%I B

LE

The first three columns at the top of table E.2 show model-predicted demand (number of peoplehospitalized) by the uninsured, the insured, and the total. The fourth column provides the number of bed-days, which is the product of column three of this table times the ALOS column of table E. 1.

Hospital Beds Needed

Based on the number of bed-days provided by the hospital, the model computes the total numberof beds required, assuming that the actual occupancy of the beds is that specified at the bottom of table

Hospital Care 37

E. 1. For example, with an 80 percent overall bed occupancy, the hospital would need 87 beds toaccommodate all of its patients. The number of beds needed is computed as follows:

DAYS,-12(5-2) BEDSi -DYS-1

'OCC-365

where BEDSi is the number of beds required in the hospital to satisfy demand for service type i at theoccupancy level OCC, DAYSi is the monthly number of bed-days required to satisfy demand for servicetype i (see computation of DAYSi above), the number 12 is the number of months a year, OCC is theoverall hospital occupancy rate, and 365 is the number of days in a year.

Administrative and Support Personnel

Hospitals usually employ a number of administrative personnel, such as accountants, cashiers,pharmacists, and managers. In addition, hospitals hire auxiliary personnel and other people who cleanand maintain the premises. The model assumes that the number of administrative and support personnelneeded by the hospital is proportional to the hospital's number of beds and, therefore, to demand.

The bottom section of table E. 1 in exhibit 5-1, shows that the number of administrative andsupport personnel has been set by the user at 30 people for each 100 hospital beds. Based on the actualnumber of beds required, as predicted by the model, and on the peoples' salaries, specified in a separatetable of the expanded hospital menu (see tables D.5.1 and D.5.2 of Appendix E), the model computesthe monthly labor cost for this category of personnel using the following relationship:

(5-3) OTHPERS = BEDS OP100

where OTHPERS is the administrative and support personnel needed in the hospital, BEDS is the totalnumber of hospital beds needed to meet demand, and OP is the number of administrative and supportpersonnel needed per 100 beds in the hospital.

Medical Personnel

The health center component of the model considered four categories of medical or paramedicalpersonnel. The hospital module considers additional personnel categories as follows: medical doctor,nurse, midwife, laboratory technician, x-ray technician, and other medical or paramedical personnel (seetables D.5.1 and D.5.2 of Appendix E). As in the case of the health center, the number of personnel ofeach kind required is determined based on the model-predicted demand for each service and the amountof time spent by each kind of professional on each service category.

Because of the correspondence between the health center and the hospital components of themodel, a series of simulation exercises that illustrate the use of the hospital module is not warranted. Thereader is encouraged to do similar exercises with the attached version of the model.

6AGGREGATE PROJECTIONS AND CONCLUSIONS

The model can be used to obtain aggregate projections of resource needs at the district or countrylevel. In order to do this, the model combines health center and hospital output information on projectedresource use in a table. The procedure followed for obtaining aggregate projections consists of specifyingin the model the number of health centers and hospitals, as characterized by the user in both componentsof the model, that exist in the region or country. The model then extracts selected output informationfrom the two model components, multiplies this information by the number of facilities of each type, andcombines this information into a table.

Aggregate information corresponding to the health center and hospital models, as defined in theexamples of this paper, are shown below.

Exhibit 6-1. Aggregate ProjectionsDistrict of country monthly projections (US$ 000's & Zaires 000,000's)

Number of hospitals 50 Number of health centers 1000i ---HOSPITALS--- -HEALTH CENTERS-' ----- TOTAL----LABOR -Number- -Cost----Number- -Cost--- -Number- -Cost----'Doctors 100 15.0 0 0.0 100 15.0Nurses 600 27.0 2,000 100.0 2,600 127.0Midwives 50 2.3 1,000 80.0 1,050 82.3Lab.technicia 50 2.3 1,000 25.0 | 1,050 27.3

X-Ray technic 50 2.3 0 0.0 | 50 2.3Other personn 1,350 60.8 0 0.0 1,350 60.8 |

TOTAL (Zaire) 2,200 109.5 4,000 205.0 6,200 314.5TOTAL (US$) 312.9 585.7 898.6

|TOT.RECUR.COSTS(Zaires) 183.0 628.3 1 811.3 ||TOT.REVENUES (Zaires) 123.4 528.3 651.8|DEFICIT/SURPLUS(Zaires) (59.6) (100.0)1 (159.5)|FOREIGN.EXCH.NEEDS(USS) 126.7 1,055.8 1,182.5|Number of hospital beds 4373 --- 4,373

The aggregate projections table shows: the total health-facility-level (hospital and health centerlevels) manpower requirements at the district or country level; the total manpower costs, in both localcurrency and in U.S. dollars; the total recurrent costs (which include all costs except depreciation ofbuildings and equipment); the total health facility revenues from user fees, insurance premiums, andinsurance copayments; the recurrent cost gap, calculated as the difference between the two precedingfigures; the total foreign exchange needs (calculated as the cost of all pharmaceutical products, expressedin U.S. dollars); and the hospital beds required to satisfy demand.

Conclusions

This paper has presented a computer-implemented model of health care financing. The modelis a useful, user-friendly analytical tool for studying the effects of policy decisions (such as pricing andsubsidization), management strategies (such as the use of personnel), and external shocks (a devaluation

39


of the currency, for example) on both health facility financial performance and utilization of healthservices.1

The analysis illustrates the importance of knowledge about health care demand information fordecisionmaking. Specifically, the model demonstrates how information about the elasticity of demand withrespect to price, income, and time costs can be used to assess the likely impact on the market of alternativehealth care financing policies.

The model has also conveyed the importance of knowledge about the supply side of the market,including the number, types, location, and price levels of competitors as well as the cost structure offacilities.

Further, it has been shown that in most cases, a responsible assessment of health care financingpolicies requires the simultaneous use of information about supply and demand. The use of information oneither side of the market in isolation provides a partial, sometimes unfeasible, outlook of the effects ofpolicy. For example, price decisions that are based solely on demand information may result in fees thatimply health facility losses that are inconsistent with existing government budgets for health.

As discussed earlier, the model has several limitations. First, it assumes an absence of supplyconstraints; that is, providers always meet demand. Second, the model does not provide direct measuresof welfare. Third, explicit measures of health care quality and their effect on demand are not included inthe model. Fourth, the model does not incorporate endogenous information about provider behavior,including production (or cost) functions, and pricing rules.

Some of these constraints can be overcome with relative ease and this will be done in future versionsof the model. For example, supply constraint could easily be built in the model by entering maximum,short-term capacity information for each provider. This would bound utilization to an upper limit equal toeach provider's capacity. The existence of capacity constraints would imply a rationing of demand.Rationing effects could also be incorporated, although this would involve more complex assumptions andprogramming. For example, waiting time could increase as a function of demand, which in turn woulddepress demand to an equilibrium point. Welfare measures could also be added in the model by adoptingwelfare measures such as compensating variations, derived for the discrete choice case by Small and Rosen(1981) and used by Gertler, Locay, and Sanderson (1987) in their study of health care demand in Peru.

The inclusion of endogenous information about provider behavior poses more difficult challenges.Although pricing rules could be incorporated without to much difficulty, these would not be substantiatedby any empirical evidence because of the lack of studies in this area. Similarly, production rules could beincorporated endogenously (for example, cost-minimizing rules), although such rules would be arbitrarygiven the absence of empirical information on this subject.

Finally, adding explicit measures of quality and their effect on demand poses the most difficultchallenge, again because of the lack of empirical data on this aspect of the problem. Refinement of themodel on this front may have to wait until better data on both quality and user behavior become available.

1. The model allows the user to substitute health care personnel, such as nurses and physicians, and to assessthe effect of such changes on health facility costs, given demand. For space considerations, examples about thisfeature have not been provided.

TECHNICAL APPENDIX AComputation of Weighted Average Distance between the Population

in Ring r and a Competitor

Under the assumption that the population is uniformly distributed within a population ring ofradius R, the weighted average distance <d> between that population and a given competitor locatedat a distance D from the health center can be expressed through the following integral (see figure A-1):

7r2

<d> = () VR2 + D 2 - 2 * R - D * cosO - dO

This integral cannot be solved analytically and has been approximated numerically in the model.

Figure A-1. Computation of Distance betweenPopulation in Ring r and a Competitor

Household 1 Household n

dndi

D HealthCompetitor Center

Populationring r

41

TECHNICAL APPENDIX BDemand Equations and Elasticities

Using McFadden's nested logit formulation (McFadden 1981), ProbSeek and ProbChoose canbe expressed as follows:

N

(ProbSeek)r k=1N

eA+( Ee Vak=1

and

V(ProbChoose)r

Ee Vk

k=1

where A is indirect utility associated with the no-care option, sigma is 1 minus the correlation coefficientof the provider options, N represents the total number of providers, and e is the base of the naturalexponential function.

The proportion of people who choose not to seek care outside the home is equal to 1-(ProbSeek)r,or one minus the proportion of people who seek outside care. Among those who decide to seek careoutside the home, the sum of the probabilities of choosing a given provider r equals one, or:

NE (ProbChoose)rk = 1, for all r.

k=1

All the coefficients and parameters included on the right-hand side of the above demand equations areuser-specified, while demand is computed by the model.

42

Technical Appendix B 43

With the above specification of demand, the price elasticity of demand is

aProb. P. 1 e VkEP = -a = [Pj. -(01 + 02 *Y)] e ( + Ee Vk- e ).

P1 pTo 1 W, Ee Vk eIA + (EeVk )y k

k k

The distance elasticity of demand has a similar expression, except that the term in the square bracketbecomes [D * 031. The income elasticity of demand is

( Ee k)oY Vk k + V

E e Vk (eA+( EeVk k

k k

These three elasticities are computed automatically by the model and shown in the model's expandedmenu (table A. 10). When a= 1, nested logit reduces to conditional logit. The expression for the priceelasticity becomes

ep = [P (1 + 02 - 1 1-Probj)

and that for income elasticity

ey1 = 02 k - Probk + Pj )k

Expressions for cross-elasticities are more involved and have not been derived here. The currentspecification of demand implies that demand becomes less price- and distance-elastic as income goes up,and more price- and distance-elastic as price and income increase.

APPENDIX CMenu Structure of Computer Model

Initial Menu

HealJth Center Hospita

Expanded Reduced Exadd Reduced

MeuI en Menu Menu

EiDemogra cal Basic Input Basi Out0- pu t &Demiolaoica B Bsic Input BscOtu

Table Table Table Table T ableTal

2. Cost of 2. Cost ofInvestments Table Investments Table

3. Price of Care 3 Price of Carea,nd Location of -and Location of -Providers TalsProviders Tables

4. Cost and Use of 4. Cost and Use ofPharnaceutical -PharmaceuticalProducts Tables Prod ucts Tables

5. Cost and Use 5 Cost and Useof Labor Tables of Labor Tables

6. Utilization 6 UtilizationTables Tables

7. Utilization and 7. Utilhzation andRevenue Tables Revenue Tables

8. Income 8. IncomeStatement Statement

9 Demand 9DmnEquation - qato.Coefficets Coefficients

44

APPENDIX DComputer Model, Health Center Component

Table B.1 Population distribution0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Total | B H

------- ------- ------- ------- ------- -------- jCost of A EPercent 35.0% 25.0% 20.0% 15.0% 5.f)% 100% drugs, S A!Number 3500 2500 2000 1500 500 10000 lab.examsj I L

First Repeat Total & other C Tvisit visits Drugs expend.lphar.prd H

PRICE ------- ------- -------- ------ -------- ICurative care 200 0 558 758 558 N CDeliveries 200 --- 819 1019 1 819 P EPre-natal Care 0 --- 150 150 183 U N!Pre-School Care 0 --- 150 150 1 441 T T|Chronic Care 0 --- 200 200 456 1 E| T R-Radius health area(Km): 10 *Ins.premium/yr.(Zaires) 1500 A-Population: 10000 -Percentage insured: 10% B-Currency: Zaire -Copayment insured: 20% L*Exchge.rate(Zaire/US$): 350 *Percent non-paying: 5% E*Household income/month: 20000 -Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-'Non-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ AE

!Cur.Ca 505 101 606 1285 437 1722 68%1 S A,Deliv. 23 3 26 --- --- --- 78%j 1 LP-N Ca 13 2 15 124 16 140 72% C TP-S Ca 14 2 16 237 30 267 72% HChr.Ca 0 0 0 27 4 31 67%1 0i _ _ _ _ 000s Zaires I U C(1) REVENUE Services 229 HC utiliz.ratesl T E

Drugs 300 528 --------------- PN(2) DEPENSES Persont. 205 Non-insr Insrd U T

Drugs 370 -------- ------ T EOther 31 605 Cur.Ca 17% 30%1 R

1(3) PROFIT C(1)-(2)] (77) Deliv. 64% 82%1 T1(4) SUPERVISION EXPENS. 23 P-N Ca 37% 43% A1(5) DEPRECIATION 79 P-S Ca 41% 47%1 B1(6) PROFIT[(3)-(4)-(5)] (178)1 Chr.Ca 36% 44% L

E

45


A.1- Epidemiological and demographic data

|Prevalence of chronic illnesses (cases per 1000 peopLe.yr.) 50

lCurative illness episodes per person per year 4

lNet population growth 3.0%

|Crude birth rate (per 1000 inhabitants) 47

Percentage of the population between 0-5 years 20%|

A.2- Investment and some recurrent costs at health center

Invest- Invest-(These Labels can be Useful ment mentchanged by the user) Life (USS) (000 Zai)

*Building 10 10,000 3,500-Medical equipment 5 2,500 875!Refrigerator 0 0 0-X-Ray Machine 2 1,000 350-Bicycles 0 0 0:-Furniture 5 960 336:-Sterilization kits 0 0 0-Cold chain equipment 5 2,500 875

- 0|

TOTAL 16,960 5,936*Monthly depreciation (Zaires): 78,517

1*Petrol cons./month (Lt): 30 *USS/Lt: $1.00

Appendix D 47


Price Price Price of Averagefirst repeat drugs distance

consul- consul- per Total to HCtation tation episode price (metrs)

Health Center 200 0 558 758 0|Competitor 1 758 2,000|Competitor 2 526 5,000|Competitor 3

I-

ICost of drugs to HC 503;Cost of tab.exams to HC 50 1:Cost of o.ph.prds.to HC 6 1TOTAL 558 1

i i

A.3.2- Deliveries: Prices and distances HC and competitors (Zaires)

AveragePrice Price distanceof of Total to HC

delivery drugs price (metrs)

Health Center 200 819 1,019 0Competitor 1 1,019 2,000Competitor 2 815 5,0001

|Cost of drugs to HC 756|Cost of Lab.exams to HC 10|Cost of o.ph.prds.to HC 53 1|TOTAL 819 |


A.3.3- Pre-natal care: Prices and distances HC and competitors (Zaires)

AveragePrice Price distance

of regis- of Total to HCtration drugs price (metrs)

Health Center 0 150 150 0Competitor 1 150 2,000ICompetitor 2 120 5,000

jCost of drugs to HC 100ICost of lab.exams to HC 30|Cost of o.ph.prds.to HC 53TOTAL 183

i i

A.3.4- Preschool care: Prices and distances HC and competitors (Zaire)

AveragePrice Price distance

of regis- of Total to HCtration drugs price (metrs)

Heaith Center 0 150 150 0lCompetitor 1 150 2,000ICompetitor 2 120 5,000

ICost of drugs to HC 425 1Cost of Lab.exams to HC 10Cost of o.ph.prds.to HC 6TOTAL 441

A.3.5- Chronic illnesses: Prices and distances HC and compets.(Zaires)

Price Price Averageper of drugs distance

consul- per Total to HCtation episode price (metrs)

IHealth Center 0 200 200 0lCompetitor 1 200 2,000Competitor 2 160 50,000Competitor 3

|Cost of drugs to HC 400ICost of Lab.exams to HC 50lCost of o.ph.prds.to HC 6ITOTAL 456 1

Appendix D 49

A.4.1- Pharmac. products and tab. exams: Avge. purchase price (Zaires)

-EXCHANGE RATE: 350 EXCH.RATE: 350:1. DRUGS Curative cons. 251.4 251.4

Delivery 378.0 378.0Pre-Natal Cons. 100.0 100.0Pre-School Cons. 425.2 425.2Chronic ILLness 200.0 200.0

:2. LAB. EXAMS Curative cons. 100.0 100.0Delivery 100.0 100.0Pre-Natal Cons. 100.0 100.0Pre-School Cons. 100.0 100.0Chronic ILlness 100.0 100.0

13. OTHER PRODS.Curative cons. 5.7 5.7Delivery 52.9 52.9Pre-NataL Cons. 52.9 52.9Pre-SchooL Cons. 5.7 5.7Chronic ILLness 5.7 5.7

A.4.2- Number of laboratory exams and prescriptions per service at HC

Average Average |number number

of of JLaboratory prescriptions |

exams (*)

!Curative consuLtation(per episode) 0.5 2.0'Delivery 0.1 2.0 j|Pre-NataL Consultation 0.3 1.0|Pre-SchooL Consultation 0.1 1.0|Chronic ILLness Consultation 0.5 2.0 |

(*): One prescription = 1 type of drug prescribed


A.5.1- Minutes of personnel required by service, by personnel category

Minutes of pers. required per service

Birth Laborat.Doctor Nurse Attendant Technic.

ICurative ConsultationFirst Consultation 15Repeat Consultation 5

'Delivery 150:Pre-Natal Consultation 10:Pre-School Consultation 10Chronic Illness Consultation 20|Laboratory Exam 15 |

A.5.2- HC: Personnel necessary to meet demand, salaries, Labor costs

Hours Monthly salaryper day -------------------------------------required By employee I Total

to --------------------------- ---------satisfy Personnel % of doctor's 000sdemand necess. Zaires salary US$ Zair- - - ---- - ---- - - - - - - - - - - - - - - - - - -

Doctor 0.0 0 100,000 100% 286 0'Nurse 11.5 2 50,000 50% 143 I 100 I:Birth A 3.4 1 80,000 80% 229 | 80ILab.Tec 3.1 1 25,000 25% 71 | 25 |

I III I

|Work hours per day:|Doctor 8 1INurse 8 |Birth Attendant 8 1ILab.Technician 8 1 Total salaries: I 205

Appendix D 51

A.6.1- Monthly demand at health center: Summary table

Non- Non-Insured Insured Paying Totall

Curative ConsultationsNumber of Episodes 477 101 28 606 jFirst Consultations 477 101 28 606 1Repeat Consultations 736 336 43 1116Total consultations 1213 437 71 1722 1

jDeliveries 21 3 1 26 jIPre-NataL Care Registrations 12 2 1 15 1IPre-Natal Care Consultations 117 16 7 140Pre-SchooL Care Registrations 14 2 1 16 1|Pre-School Care Consultations 224 30 13 267 1IMaladies chroniques nouveaux cas 0.4 0.1 0.0 0.5 1jMaladies chroniques consultations 25 4 1 31 |jLaboratory Exams 258 53 15 327 1jPrescriptions 1,073 219 63 1,356 |

A.6.2.1- Curative Episodes Demanded Per Month

|Demand (episodes) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC I TOTAL %

:HCenter 304 159 94 44 5 | 606 67.7%1jComp.1 81 59 41 21 3 1 205 22.9%1|Comp.2 27 22 19 13 3 84 9.4%1Comp.3

-- - -- - ----- - ----- ---- -- - -- - -- - ---I

411 241 154 78 11 I 894 100.0%11

A.6.2.2- Consultations Demanded per Curative Episode

IDemand (consultations) as a function of price and j|distance, originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC

iHCenter 3.26 2.64 2.29 1.98 1.66Comp.1 2.84 2.41 2.14 1.89 1.61Comp.2 2.98 2.49 2.19 1.92 1.63Comp. 3

I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _I


A.6.2.3- TotaL Curative Consultations Demanded per Month

IDemand (consuLtations) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC TOTAL %-- - -- - ----- - ---- -- - -- - -- ----I- - -

IHCenter 991 422 214 86 9 1,722 70.8%11Comp.1 229 143 88 40 5 504 20.7%|Comp.2 80 55 41 26 4 206 8.5%1|Comp.3 I

1,300 619 344 152 18 2,432 100.0%1

A.6.3- DeLiveries Demanded per Month

IDemand (deLiveries) originating between:I I

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC TOTAL %- - - -- - - ---- -- - - ------ - - -- --I- - -

HCenter 10 7 5 3 1 26 78.0%,Comp.1 2 1 1 1 0 5 15.9%1jComp.2 0 0 0 0 0 2 6.1%1

12 9 7 4 1| 33 100.0%1

Appendix D 53

A.6.4.1- New Cases of Pre-Natal Care Registered per Month

:Demand (number of new clients) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km |from HC from HC from HC from HC from HC TOTAL %- - - - - - - - - - - - - - - - - ---- - ---- - ---- - -

HCenter 7 4 3 1 0 15 72.4%:Comp.1 2 2 1 1 0 6 27.6%Comp.2 0 0 0 0 0 0 0.0%

- - - - - - - ---- - - - - - ---- - - - - - ---- - -

9 6 4 2 0 21100.0%|

A.6.4.2- Number of Pre-Natal Care Consultations per Pregnancyper woman registered

:Demand (consultations) as a function of distance:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC

ConsuLt 2.4 1.7 1.3 1.0 0.7

A.6.4.3- Pre-Natal Consultations Demanded per Month

Demand (consultations) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Kmfrom HC from HC from HC from HC from HC TOTAL %

IHCenter 82 34 17 7 1 | 140 73.8%IComp.1 24 14 8 4 0 50 26.2%:Comp.2 0 0 0 0 0| 0 0.0%|

105 47 25 11 1 190 100.0%|


A.6.5.1- Pre-Natal care: Number of new cases (children registering)during the month

'Demand (children registering) originating between:


IHCenter 7 4 3 2 0 16 72.3%1Comp.1 2 2 1 1 0 6 27.7%Comp.2 0 0 0 0 0 0 0.0%

9 6 4 2 0 22 100.0%1

A.6.5.2- Pre-Natal Care: Total number of children registered

,Demand (children registered) originating between:

I I

0-1 Km 1-2 Km 2-3 Kmn 3-5 Km > 5 KmIfrom HC from HC from HC from HC from HC I TOTAL %

HCenter 411 241 159 88 14 | 913 72.3%1Comp.1 118 98 77 48 8 349 27.7%jComp.2 0 0 0 0 01 0 0.0%

I I529 339 237 136 22 1262 100.011'

A.6.5.3- Pre-Natal Care: Annual nutber of consultations demanded atthe HC as a function of distance and age of the child

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km |Age from HC from HC from HC from HC from HC I

1 an 10.4 8.2 6.4 4.4 1.9|2 ens 5.9 4.6 3.5 2.3 1.013 ans 3.2 2.4 1.8 1.2 0.514 ans 1.6 1.2 0.9 0.6 0.2|5 ans 0.8 0.6 0.5 0.3 0.1

Appendix D 55

A.6.5.4- Pre-Natal care: Total number of consuLtations demandedper month

:Demand (consultations) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km :from HC from HC from HC from HC from HC : TOTAL %

HCenter 150 69 35 13 1 1 267 73.7%lComp.1 43 28 17 7 0 95 26.3%Comp.2 0 0 0 0 0 1 0 0.0%

194 96 52 20 1 363 100.0%j

A.6.6.1- Chronic ILLnesses: Number of new cases demanded per month

IDemand (new cases) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km :from HC from HC from HC from HC from HC TOTAL %

- - - - ----------------I ----I-- -

:HCenter 0.2 0.1 0.1 0.0 0.0 i 0.5 67.2%:Comp.1 0.1 0.0 0.0 0.0 0.0 0.2 25.2%:Comp.2 0.0 0.0 0.0 0.0 0.0 : 0.1 7.5%:Conc.3

0.3 0.2 0.1 0.1 0.0 1 0.7 100.0%:

A.6.6.2- Chronic Illnesses: TotaL number of patients registered

:Demand (patients registered) originating between:


:HCenter 85 49 31 17 2 1 184 67.2%:Comp.1 24 20 15 9 1 69 25.2%lComp.2 6 5 5 4 1 21 7.5%1Comp.3 i

I II 11I3 5 9 5 ~ 230.%


A.6.6.3- Chronic ILLnesses: Total number of consuLtations demandedper month (*)

|Demand (consultations) originating between:

* 0-1 Km 1-2 Km 2-3 Km 3-5 Km > 5 Km Ifrom HC from HC from HC from HC from HC TOTAL %

jHCenter 14 8 5 3 0 31 67.2%1lComp.1 4 3 2 1 0 11 25.221Comp.2 1 1 1 1 0 3 7.5%1IComp.3

- - - -- - ----- - ---- - - - - - - - - - ----- - -

19 12 8 5 1: 46 100.0%1

(*) Assumption: two consultations per patient registered per year.

A.7.1- Monthly revenue from services HC -- Summary table (000s Zaires)

11.SERVICES-----DEMAND -------- (5) (6) (7) 1(1) (2) (3) (4) Revenue Revenue PercentNon- Non- Price non-insr insured monthlyInsurd Paying Insured paying(1)x(4) co-pmt. revenue

jCur.Ca,lv 477 28 101 200 95 4 18.8%!Cur.Ca,rv 736 43 336 0 0 0 0.0%iDeliverie 21 1 3 200 4 0 0.8%1CPN regis 12 1 2 0 0 0 0.0%i1CPN visit 117 7 16 0 0 0 0.0%!CPS regis 14 1 2 0 0 0 0.0%i!CPS visit 224 13 30 0 0 0 00%1Ch.ca.reg 0 0 0 0 0 0 0.0%Ch.ca.vis 25 1 4 0 0 0 0.0%j

SUB-TOTAL DIRECT PAYMENTS 100 4 19.7%SUB-TOTAL PREMIUM PAYMENTS 125 23.7%1!TOTAL REVENUE SERVICES 229 43.3%

Note: Cur Ca 1v = curative care, first visits; Cur Ca rv =curative care repeat visits; PNS = prenatal care registration; CPNvisit = prenatal care visits; CPS regis = preschool registration;CPS visit = preschool visits; Ch. ca. reg. = chronic careregistration; Ch. ca. vis = chronic care visits.

A.7.2- Monthly revenue from drugs HC -- Summary table (000s Zaires)

|2.DRUGS ------ DEMAND -------- (5) (6) (7) 1(1) (2) (3) (4) Revenue Revenue PercentNon- Non- Price non-insr insured monthly

Insurd Paying Insured paying(1)x(4) co-pmt. revenue

Cur.visit 477 28 101 558 266 11 52.5%1IDeLiverie 21 1 3 819 18 1 3.4%j,P-N care 12 1 2 150 2 0 0.4%IP-S care 14 1 2 150 2 0 0.4%1jChr.iLLn. 0 0 0 200 0 0 0.0%j

SUB-TOTAL DRUGS 288 12ITOTAL REVENUE DRUGS 300 56.7%1TOTAL REVENUE (TabLe A.7.1 + Table A.7.2) 528 100.0%1

Appendix D 57

A.8- Health center monthly income statement (000s Zaires)

|RevenueServices (direct payments) 104Drugs 300Premiums from the insured 125 528

lExpensesPersonnel 205Drugs 370PetroL 11Office supplies 10Supervision expenses 10 605

IProfit (Loss) (77)Depreciation 79

jProfit (Loss) after depreciation (156)

A.9- Demand Equations: Coefficients

CONSTANT-------------- PriceHealth Compe- timescenter titors Price Distance income Sigma

lCurative Care 1.00 0.60 -3E-03 -7E-04 5.OE-08 0.50iDeliveries 5.00 4.00 -3E-03 -7E-04 5.OE-08 0.50jPre-NataL Care 1.00 0.60 -4E-03 -7E-04 5.OE-08 0.501Pre-SchooL Care 1.00 0.60 -4E-03 -7E-04 5.OE-08 0.50Chronic Care 1.00 0.60 -4E-03 -7E-04 5.OE-08 0.50

A.10- Price, Income, and Distance Elasticities of Demand

Curativ Detiv. P-N CarP-S Care Chronic:

IHCenter Price -0.79 -0.33 -0.17 -0.16 -0.24Income 0.26 0.06 0.03 0.02 0.04Distan -0.18 -0.07 -0.13 -0.12 -0.14

jCompet.1 Price -1.30 -1.33 -0.37 -0.36 -0.49Income 0.26 0.06 0.03 0.02 0.04Distan -0.30 -0.30 -0.28 -0.28 -0.29

jCompet.2 Price -1.00 -1.18 -0.36 -0.36 -0.46* Income 0.03 -0.15 0.00 -0.01 0.00 1| Distan -0.33 -0.34 -0.35 -0.35 -0.34 |

jCompet.3 Price -- -- --Income -- -- --Distan -- -- --

APPENDIX EComputer Model, Hospital Component

Table E.1 Population distribution0-1 Km 1-5 Km 5-20 Km 20-50 Km >50 Km Total

:Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%lCost of I ANumber 35000 25000 20000 15000 5000 100000 drugs, S

Drugs, Total Average lLab.exms IMedical exams, patient length I& other I C

fees & other expend. stay(ds)lphar.prdl HPRICE ------- ------- ------ -------- |-------- 1 0

Hosp. without surgery 3000 3500 6500 6.0 4403 N S

Hosp. with surgery 4000 5500 9500 10.0 6136 P PDeLiveries 2500 2500 5000 6.0 | 3707 U Ii_ |T TRadius health area(Km): 10 -Ins.premium/yr.(Zaires) 1000 A-Population: 100000 'Percentage insured: 10% T L-Currency: Zaire -Copayment insured: 10% A-Exchge.rate(Zaire/USS): 350 -Percent non-paying: 5% B*Household income/month: 20000 -Superv.exp.(% rev.HC): 5% L-Hsd.inc.insured/non-ins 1.00 -Other pers./100 beds: 30 E

-Percent occupancy beds: 80%

TABLE E.2 ALL INFORMATION IS MONTHLY------- Utilization------ Nbr.bds % mar-'Non-insr Insured Total Bed-days necessa ket Ho| B-------- ------- ------- -------- ----- ------ | A

!Hosp. without s 80 14 95 570 23 74%1 S

Hosp. with surg 69 15 84 838 34 79%1 IDeliveries 103 17 120 720 30 75%1 C

I H000s Zaires_ 87 1 0 0

1(1) REVENUE Services 1,582 U SDrugs 887 2,469 | T P

1(2) EXPENSES Persont. 2,190 Utiliz'n rates P IDrugs 1,381 '--------------- UTOther 10 3,581 1 Non-insr Insrdl T A

(3) PROFIT [(1)-(2)] (1,112) -------- ------ L(4) SUPERVISION EXPENS. 79 |H.w/o s. 27% 43%1 T

:(5) DEPRECIATION 326 |H.wth s. 23% 45%| A(6) PROFIT[(3)-(4)-(5)] (1,517):Deliver. 29% 43%| BIL

E

58

Appendix E 59

D.1- Epidemiologic and demographic data

IILLness episodes that require hospitalization without surgery,I(cases per 100 inhabitants per year) 4.0II

|ILLness episodes that require hospitalization with surgery,:(cases per 100 inhabitants per year) 4.0

|Crude birth rate (per 1000 inhabitants) 47

D.2- Investment and some recurrent costs at hospital

Invest- Invest-(These Labels can be Useful ment mentchanged by the user) Life (US$) (000 Zai)

-BuiLding 30 80,000 28,000j-Medical equipment 5 20,000 7,000j*Refrigerator 0 5,000 1,750|*X-Ray Machine 2 3,000 1,050|*BicycLes 0 3,000 1,050|*Furniture 5 15,000 5,250ISterilization kits 0 5,000 1,750|- 0j1.0

TOTAL 131,000 45,850[-Monthly depreciation (Zaires): 325,694


D.3.1- Hosp. w/o surgery: Prices and distances Ho and compet's (Zaires)

AverageDrugs, distance

Medical exams, and Total to Hosp.fees other expend. (metrs)

Hospital 3,000 3,500 6,500 0Competitor 1 5,000 5,000Competitor 2 4,000 20,000

:Cost of drugs to Hosp. 503 |:Cost of lab.exams to Ho 150ICost of X Rays Hosp. 1750ICost of o.ph.prds.to Ho 2,000ITOTAL 4,403 |

D.3.2- Hosp.with surgery: Prices and distances Ho and compet's (Zaires)


Medical exams, and Total to Hosp.fees other expend. (metrs)

|Hospital 4,000 5,500 9,500 0|Competitor 1 9,000 5,000|Competitor 2 7,000 20,000

ICost of drugs to Hosp. 756 |:Cost of Lab.exams to Ho 30 |:Cost of X Rays Hosp. 350 ||Cost of a.ph.prds.to Ho 5,000 ||TOTAL 6,136

Appendix E 61

D.3.3- Deliveries: Prices and distances Hosp. and competitors (Zaires)


MedicaL exams, and TotaL to Hosp.fees other expend. (metrs)

lHospitaL 2,500 2,500 5,000 0lCompetitor 1 4,000 5,000lCompetitor 2 2,000 20,000

|Cost of drugs to Hosp. 567|Cost of Lab.exams to Ho 90jCost of X Rays Hosp. 1050lCost of o.ph.prds.to Ho 2,000 |1TOTAL 3,707 |i i

D.4.1- Pharmac. products and Lab. exams: Avge. purchase price (Zaires)

EXCHANGE RATE: 350 EXCH.RATE: 350

:1. DRUGS Hosp. w/o surgery 251.4 251.4Hosp. with surgery 378.0 378.0Deliveries 567.0 567.0

2. LAB. EXAMS Hosp. w/o surgery 300.0 300.0Hosp. with surgery 300.0 300.0Deliveries 300.0 300.0

13. X RAY EXAMS Hosp. w/o surgery 3,500.0 3,500.0Hosp. with surgery 3,500.0 3,500.0DeLiveries 3,500.0 3,500.0

14. OTHER PRODS.Hosp. w/o surgery 2,000.0 2,000.0Hosp. with surgery 5,000.0 5,000.0Deliveries 2,000.0 2,000.0


D.4.2- Nbr.of tab.exams, X rays, and prescriptions per service at Hosp.

Average Average Averagenunber number number

of of ofLaboratory X ray prescriptionsexams exams (*)

H-ospitalization without surgery 0.5 0.5 2.0lHospitalization with surgery 0.1 0.1 2.0jDelivery 0.3 0.3 1.0

(*): One prescription = 1 type of drug prescribed

D.5.1- Minutes of personnel required by service, by personnel category

Minutes of pers. required per service

Laborat. X RayDoctor Nurse Midwife Technic. Technic. Otherl

jHosp.w/o surgery 60 360 10!Hosp.with surgery 180 720 10 (jDelivery 360 60 20 10jLaboratory exam 20 10jX Ray exam 20 10|

D.5.2- Hosp.: Personnel necessary to meet demand, salaries,labor costs

Hours Monthly salaryper day -------------------------------------required By employee I Total

(to --------------------------- ---------satisfy Personnel % of doctor's j 000sdemand necess. Zaires salary US$ Zair

IDoctor 13.3 2 150,000 100% 429 300|Nurse 88.3 12 45,000 30% 129 540'Midwife 4.6 1 45,000 30% 129 45 1!Lab.Tec 2.7 1 45,000 30% 129 45 j1XRey T. 1.2 1 45,000 30% 129 45 1!Other 3.1 1 45,000 30% 129 45 |'Additional Pers 26 45,000 30% 129 1,170

II II_ _ _ _ _ __ _ _ _ _ _I I,Work hours per day: j j'Hospital 8 Total salaries: 1 2,190 |1 I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I

Appendix E 63

D.6.1- Monthly demand at Hospital: Summary table

Non- Non-Insured Insured Paying Total--

:Hospitalization without surgery 76 14 4 95Hospitalization with surgery 64 15 4 84,Deliveries 99 17 4 120Laboratory exams 74 14 4 92X Ray exams 74 14 4 92:Prescriptions 380 76 22 478

D.6.2- Hospitalizations without surgery demanded per month

|Demand (hospitalizations) originating between:

0-1 Km 1-5 Km 5-20 Km 20-50 Km >50 Kmfrom Ho from Ho from Ho from Ho from Ho Total %

IHosp. 39 25 18 11 3 95 74.3%|Comp.1 10 8 7 5 1 31 24.6%1jComp.2 0 0 0 0 0 1 1.1%j

50 33 25 16 4 128 100.0%1

D.6.3- Hospitalizations with surgery demanded per month

|Demand (hospitalizations) originating between:

0-1 Km 1-5 Km 5-20 Km 20-50 Km >50 Kmfrom Ho from Ho from Ho from Ho from Ho Total %

Hosp. 34 22 15 10 2 83 78.6%comp.1 7 5 5 3 1 21 20.3%1Comp.2 0 0 0 0 0 1 1.1%1

42 27 20 13 3 | 106 100.0%|


D.6.4- Deliveries demanded per month

IDemand (number of deliveries) originating between:

0-1 Km 1-2 Km 2-3 Km 3-5 Kn > 5 Knfrom HC from HC from HC from HC from HC | TOTAL %-- - -- - ----- - ---- -- - -- - -- ---- - - -

|HCenter 50 32 23 14 3 122 75.5%1|Comp.1 12 10 8 6 2 1 38 23.2%1|Comp.2 1 0 0 0 0| 2 1.3%1

i --- --- I- ---63 42 31 21 5 162 100.0%1

D.7.1- Monthly revenue from services Hos.---Summary table (000s Zaires

11.SERVICES-----DEMAND -------- (5) (6) (7) 1(1) (2) (3) (4) Revenue Revenue PercentNon- Non- Price non-insr insured monthlyinsurd paying Insured paying(1)x(4) co-pat. revenue-- - - -- - - - -- - - - -- - - - - - - --I- - - -

1H.w/o sur 76 4 14 3000 228 4 9.4%11H.wth sur 64 4 15 4000 258 6 10.7%IDeliverie 99 6 17 2500 249 4 10.2%1

ISUB-TOTAL DIRECT PAYMENTS 734 14 30.3%ISUB-TOTAL PREMIUM PAYMENTS 833 33.8%1ITOTAL REVENUE SERVICES 1,582 64.1%1

D.7.2- Monthly revenue from drugs Hos.---Summary table (000s Zaires)

12.DRUGS ------ DEMAND -------- (5) (6) (7) 1(1) (2) (3) (4) Revenue Revenue PercentNon- Non- Price non-insr insured monthlyinsurd paying Insured paying(1)x(4) co-pmt. revenue

1H.w/o sur 76 4 14 3500 266 5 11.0%1IH.wth sur 64 4 15 5500 355 8 14.7%1IDeliverie 99 6 17 2500 249 4 10.2%1

SUB-TOTAL DRUGS 869 17ITOTAL REVENUE DRUGS 887 35.9%8ITOTAL REVENUE (Table D.7.1 + Table D.7.2) 2,469 100.0%1

Appendix E 65

D.8- Hospital monthly income statement (000s Zaires)

IRevenueServices (direct payments) 749Drugs 887Premiums from the insured 833 2,469

lExpensesPersonneL 2,190Drugs 1,381Office supplies 10Supervision expenses 79 3,660

IProfit (Loss) (1,191)Depreciation 326

jProfit (loss) after depreciation (1,517)

D.9- Demand Equations: Coefficients

CONSTANT------------- PriceHosp- Compe- timesitaL titors Price Distance income Sigma Mu

-Hsp /sr 15 . --0- -3E- 2.5E- 0.50 .50(Hosp. w/o surg. 1.50 1.00 -7E-04 -3E-04 2.5E-08 0.50 0.50jHosp. wth surg. 1.50 1.00 -7E-04 -3E-04 2.5E-08 0.50 0.50|DeLiveries 1.50 1.00 -7E-04 -3E-04 2.5E-08 0.50 0.50

D.10- Price, Income, and Distance ELasticities of Demand

| H.w/o s H.wth s Deliv.

jHospitaPrice -0.60 -0.89 -0.43Income 1.08 1.61 0.78 1Distance -0.07 -0.07 -0.07

jCompet.Price -0.84 -1.57 -0.68 |Income 0.33 1.36 0.28 |Distance -0.13 -0.13 -0.13

ICompet.Price -0.79 -1.39 -0.40 |Income -0.17 0.36 -0.72Distance -0.15 -0.15 -0.15 |

APPENDIX FUser's Manual

The Program

The model has been developed using Lotus 1-2-3 release 2.01. The model is interactive and isrun through a system of menus written in Lotus' macroprogramming language; it is contained on fourLotus 1-2-3 worksheets.

Software and Hardware Requirements

To run the model you need the to have an IBM-compatible microcomputer with at least 640kilobytes of RAM memory, Lotus 1-2-3, release 2.01 or higher, and a hard disk with about 1 megabyteof free space. Lotus 1-2-3 and the model occupy about 87 percent of a 640-K RAM memory. Thus, ifyou have a computer with 640-K RAM you should make sure that the RAM memory does not have anyresident program prior to loading 1-2-3 and the model. Any program residing in the RAM memory,however small, may leave you with insufficient RAM space to load the model.

If you have a printer connected to your computer you can print the model's tables through theprogram. The print defaults of 1-2-3 have been set to the following: left margin: 20; right margin: 240;top margin: 0; and page length: 80. It is convenient (but not necessary) to print in portrait condensedmode by appropriately defining the setup string. Check the appropriate setup for your printer. If youwish to change any of the above setups, you need to interrupt the execution of the model (see Interruptingand Restarting the Model) and change the setups using the usual 1-2-3 commands.

Installing the Program

The diskette containing the program has four files. Their original names and content are asfollows:

File Name File Content

OPEN.WK1 Opening menu that provides access to the health centermodel, the hospital model, and the aggregate projections

COMBINE.WK1 Aggregate projections spreadsheet

HCMODEL.WK1 Health center model

INMODEL.WK1 Hospital model

To install the program follow the steps below.

66

(1) On the C partition of the hard drive create a directory called "model". To create the directory,proceed as follows:

(a) Get the DOS prompt

(b) Go to the root directory of the C partition of your hard disk

(c) At the prompt (which will look like C:\>), type

md model

and then press the Enter key

(make sure that you leave a space between md and model)

(2) Go to the model directory by typing

cd model

followed by Enter

(make sure that you leave a space between cd and model)

(3) Copy all four program files on the model directory of drive C. To do this, insert the programdiskette in drive A of your computer, type

copy a:*.*

and then press the Enter key

(make sure that you leave a space between COPY and a:*. *)

(4) Wait until all four files are copied. You will know that they have been copied when you see thefollowing DOS message on the screen:

4 file(s) copied

Executing the Program

To execute the program proceed as follows:

(1) Invoke Lotus 1-2-3 by typing 123 followed by Enter

67

(2) Make model on the C drive your default directory for Lotus 1-2-3. To do this, type the Lotuscommands Worksheet Gobal Default Directory , or

/WGDD

If a different directory is the default, press the Escape (ESC) key until you see in the commandline the following message:

Default directory:

Then type

c:\model\

followed by Enter. Then press the command Quit (Q) to return to the main command menu.

(3) Detach all Lotus 1-2-3 Add-Ins, if any, such as WYSIWYG. Consult your Lotus manual on howto do this.

(4) Load the model by using the File Retrieve command (OR) and by typing the file name open.The command line should look as follows:

Name of file to retrieve: c:\model\open

then press Enter. Execution will start automatically.

Saving your Work

After having worked with the health center or the hospital model, you may want to save yourwork. Both HCMODEL and INMODEL offer you this option. For example, if you are working withINMODEL and want to save your worksheet, choose option (0) of the opening hospital menu, below,by entering the number 0.

(1) Hospital(2) Summary table(0) QUIT or SAVE

You will then be presented with the following menu:

(1) END session WITHOUT saving worksheet(2) SAVE worksheet(0) PREVIOUS MENU

68

Enter the number 2 to save your file as it is. Beware that the file will be saved with the samename INMODEL on top of the previous version of INMODEL. That is, the new INMODEL file withthe updates you made during the session will replace the old INMODEL file. If you want to conservethe old INMODEL file, you may want to save it elsewhere, for example on a diskette, prior to startingthe current session.

Moving around Menus and Submenus

The model provides you with an extended system of menus and submenus. The model's menustructure is shown in Appendix C. There are two types of menu in the model: those that appear in arectangular box in the middle of the screen and those that appear on a single line at the top of the screen.

Rectangular menus always appear alone on the screen. Single-line menus always accompany amodel table (see description of tables in Input, Output, and Input-Output Tables, below).

Rectangular menus offer a series of numbered options. To go to the desired menu, you must hitthe number shown in parentheses on the left of the option's name. If you hit a number that falls outsidethe range of the menu or type any non-numerical character, the program will beep while giving you anerror message and will then return to the same menu. The number zero (0) always takes you to thepreceding menu.

Single-line menus offer a series of options that are not numbered. To execute the desired option,you have two possibilities: (1) hit the first character of the option (for example hit the letter "C" if youwish to calculate); or (2) highlight the desired option using the right and left arrows of your keyboardand hit Enter.

Input, Output, and Input-Output Tables

The model's information is presented in tables. Most tables fit on one 24-line screen, althougha few are bigger (vertically). Tables are always accompanied by a single-line menu that allows you toenter data into the table (if applicable, see below), return to the previous menu, recalculate thespreadsheet, or execute other options. There are three types of tables: (1) input tables; (2) output tables;and (3) input-output tables.

Input tables are those that contain only information given by the user and do not provide anymodel-calculated result. Output tables are the ones that contain only information calculated by the model.Finally, input-output tables are the ones which contain some input and some output information.

Input and input-output tables allow the user to move the cursor into the table to add or modifyany input variable. To do this, you must hit the letter "E" or highlight the "ENTER DATA" optionfollowed by Enter. To move around the table use the four arrows of your keyboard. To preventproblems, the cursor is only allowed to move within the input cells. If you cannot move into a desiredcell it means that it is an output cell and you should not try to get in there. If you have a color monitor,Lotus will display input cells in a different color.

69

Output tables are also accompanied by a single-line menu, although the menu does not allow youto move the cursor into the table.

Entering Data in the Model

To input data into a given input or input-output table proceed as follows: (1) Identify theappropriate model table. If you are unfamiliar with the model structure, refer to Appendix C, AppendixD, or Appendix E to learn what types of tables are in the model, where they are, and what informationthey contain; (2) using the appropriate sequence of menus, go to the desired table; (3) once the tableappears on the screen, move the cursor into the table by hitting the letter "E" or by highlighting the"ENTER DATA" option followed by Enter; (4) position the cursor in the cell where you want to enterinformation; (5) type the entry normally; and (6) hit the Enter key twice to return to the table's menu.If you did not enter any information hit Enter only once to return to the menu. AVOID HITTING THEESCAPE KEY AT ALL TIMES. Under certain circumstances, hitting the Escape key may interrupt theoperation of the model.

Recalculating the Model

THE MODEL DOES NOT DO AN AUTOMATIC RECALCULATION AFTER YOU INPUTDATA. The model consists of hundreds of interrelated mathematical formulas. If you change an entryof the model all the formulas that are directly or indirectly related to that entry will be affected. This,however, will not occur automatically. After you modify an input entry and return to the single-linemenu associated with that table (see Entering Data in the Model), you must ask the model to recalculateitself. To do this, hit the letter "C" or highlight the option "CALCULATE" with the cursor and hitEnter. While the model is recalculating, the single-line menu will disappear. When the model hasfinished recalculating, the menu will reappear at the top of the screen. If any of the values contained inthe table are affected by the change(s) you made, you will see changes occurring while the recalculationtakes place. DO NOT HIT ANY KEY WHILE RECALCULATION TAKES PLACE.

Saving Your Work or Quitting

After using the model and doing some simulations you may want to save your work, especiallyif you have spent some time modifying several of the model variables to characterize a particular situation(for example, health financing at the district level in rural Mali). To save the spreadsheet go to theopening menu and choose option (0) ("QUIT or SAVE"). To save your file, select option (2) ("SAVEworksheet"). The program will automatically save the current worksheet on top of the older version onyour disk. This means that you will lose what was on the older version. Make sure that you really wantto replace the old version before choosing option (2). Notice that you can also quit the program withoutsaving. To do so, choose option (1) ("END session WITHOUT saving worksheet"). The program willask you to confirm that choice in order to make sure that you really want to quit without saving yourwork.

70

What to do if ERROR Messages Appear

Errors can occur for several reasons, including bugs in the program or user mistakes whenentering data. If one or more ERROR message appears on the tables or at the top-right or bottom-leftof the screen, hit the keys Control and Break simultaneously, followed by the Enter key. This will allowyou to interrupt the execution of the model. You may then want to restart model execution by hittingthe Alternate (Alt) key and the letter "A" simultaneously. Go back to the last table where you entereddata and see if you made data entry mistakes there (for example, you entered a letter instead of anumber). If you find such an error, correct it by entering the right value in the appropriate cell and askthe model to recalculate. If the ERROR message continues to appear, interrupt the model by hitting theControl and Break keys simultaneously, followed by Enter and exit the model. To exit, use Lotus'command /QY. DO NOT SAVE A MODEL WORKSHEET THAT HAS ERRORS ON TOP OF THEPREVIOUS VERSION. Retrieve the previous version of the model and try again. If errors reappear,it may be an indication of a programming error. In such cases, please let me know.

In the case of programming errors and other types of error, the Lotus macro routines may providean error message at the bottom of the screen. Please write down the message, if any. This will help medebug the program.

Interrupting and Restarting the Program

Sometimes you may want to interrupt the execution of the program to change the printer defaultsor for other reasons. In that case, proceed as specified above: press the Control and Break keyssimultaneously and the press the Enter key. This will take you to the Lotus-Ready mode. To return tothe program execution mode, hit the Alternate (Alt) key and the letter "A" simultaneously to go back tothe opening menu.

Printing the Model Tables

To print one or more model tables, select option (3) ("PRINT") from the main health center orhospital menus. Once on the print table, move up or down with the keyboard arrows to select the tableor group of tables you wish to print. To make the selection, enter the letter "I" in the appropriate boxand then hit Enter twice. The program will print the chosen table(s) automatically. Prior to printing,make sure the printer is connected and on-line and also that you have enough paper. If an error occursat this point interrupt the program (see Interrupting and Restarting the Program) and check your printerand the computer-printer connection. Try to print again by restarting execution and returning to thecorresponding print menu.

Entering Data: Where to Start?

The original copy of the model that you will receive will already have data in it. These data wereentered by me and correspond to the examples shown in the text. You will most likely want to changesome of these data to adequately represent your desired scenario. You can enter new data in any order;that is, you can start with any table and, through the menu system, follow any desired path. It is usually

71

helpful to know in advance which entries you are going to modify. To do this, you may want to printthe entire set of tables of the model or study the sets of tables of Appendixes D and E. That will allowyou to identify the entries that need to be changed. Also, become familiarized with the structure of themenu system shown in figure C. 1 to know the adequate menu path that you must follow to reach therequired tables.

Special Features of the Model

(A) ERASING COMPETITORS

As you will see, the menus of the prices-distances tables (tables A.3.1 --- A.3.5 for the healthcenter and tables D.3. 1---D.3.3 for the hospital) allow you to add new or erase existing competitors. Toadd competitors, simply use the "ENTER DATA" option and enter their price and distance from thehealth center (in meters). To erase a competitor, select the option "DELETE" of the menu associatedwith then simply specify the sequential number of the competitor that you wish to erase.

(B) THE REDUCED AND EXPANDED MENUS

The reduced menu of the health center and hospital components was designed to help you toquickly perform simulations without the use of multiple tables. As can be seen from the input and outputtables of the reduced menu, only basic input and output information has been included. The input tablecontains primarily the prices of the health center (or hospital), the population size and distribution, themarket size, the insurance parameters, and so on. Those variables can only be modified through the inputtable of the reduced menu and do not reappear as input variables elsewhere in the expanded menu.Conversely, none of the exogenous variables of the expanded menu are repeated in the input table of thereduced menu. Thus, in most cases, you will have to switch from the reduced menu to the expandedmenu to change certain exogenous variables. Also, you will typically have to switch from the reducedmenu to the expanded menu if you wish to see more aggregated or disaggregated output data.

(c) SPECIFYING DEMAND COEFFICIENTS AND ASSOCIATED DEMAND ELAsTICrrIEs

Tables A.9 and D.9, of the health center and hospital components of the model, respectively,allow the user to enter the coefficients of the nested logit demand equations. Because of the highlynonlinear nature of logit, it is difficult to interpret both the sign and the magnitude of the coefficients.The implied elasticities of demand have more intuitive meaning, however. Unfortunately, because of thenonlinear nature of the demand equations, the elasticities cannot be entered by the user directly. Instead,the user must enter the demand coefficients. After doing so, the user can move to table A. 10 (for thehealth center, or table D. 10 for the hospital) and ask the model to recalculate the elasticities, using therecently entered demand coefficients. If the implied elasticites of demand do not match the user needs,he or she can go back to the coefficients table, change the coefficients, and reiterate until the desiredprice, income, and distance elasticities are obtained. This process usually will take only a few minutes.

72

APPENDIX GAdditional Simulation Results

Exhibit G.1. An Increase in Insurance Coverage


------- ------- ------- ------- ------- -------- Cost of AE:Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%1 drugs, 1 S ANumber 3500 2500 2000 1500 500 10000 tab.examsl IL

First Repeat Total & other I C Tvisit visits Drugs expend. pher.prd, H

PRICE ------- ------- -------- ------ --------

|Curative care 200 0 558 758 558 1 N C,Deliveries 200 --- 819 1019 819 1P EjPre-natal Care 0 --- 150 150 183 U NlPre-Schoot Care 0 --- 150 150 1 441 1 T TjChronic Care 0 --- 200 200 j 456 1 Ei IT R-Radius health area(Km): 10 *Ins.premium/yr.(Zaires) 1500 A-Population: 10000 -Percentage insured: 20% B-Currency: Zaire -Copayment insured: 20% L-Exchge.rate(Zaire/USS): 350 -Percent non-paying: 5% E*Household income/month: 20000 'Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-'Non-insr Insured Total Non-insrd. Insrd. Total ket HCj B H-------- ------- ------- -------- ------- ---- ------ A E

ICur.Ca 449 202 650 1142 704 1846 70%1 S AIDeLiv. 20 6 27 --- --- --- 80%j I LIP-N Ca 12 3 15 110 32 142 73%1 C TIP-S Ca 13 4 16 211 60 271 73%1 HlChr.Ca 0 0 0 24 7 31 68%1 0

000s Zaires U C1() REVENUE Services 346 HC utiliz.rates| T E

Drugs 278 624 | --------------- P N1(2) DEPENSES PersonL. 205 1 Non-insr Insrdl U T

Drugs 395 -------- ------ I T EOther 30 630 1 Cur.Ca 17% 30%1 R

1(3) PROFIT [(1)-(2)] (7)1 Deliv. 64% 82%1 T1(4) SUPERVISION EXPENS. 35 1 P-N Ca 37% 43%1 A(5) DEPRECIATION 79 ' P-S Ca 41% 47%1 B

1(6) PROFIT[(3)-(4)-(5)] (120)1 Chr.Ca 36% 44%| LjE

73


Exhibit G.2. A Drop in Insurance Premium


------- ------- ------- ------- ------- --------- Cost of IA EPercent 35.0% 25.0% 20.0% 15.0% 5.0% 100%1 drugs, I S AINumber 3500 2500 2000 1500 500 10000 lab.examsj I L

First Repeat Total I& other C Tvisit visits Drugs expend.Iphar.prdl H

PRICE ------- ------- -------- ------ -------- IlCurative care 200 0 558 758 558 1 N C,Deliveries 200 --- 819 1019 819 P EIPre-natal Care 0 --- 150 150 183 U NIPre-School Care 0 --- 150 150 441 T TIChronic Care 0 --- 200 200 456 E

T RRadius health area(Km): 10 *Ins.premium/yr.(Zaires) 800 APopulation: 10000 -Percentage insured: 10% B-Currency: Zaire -Copayment insured: 20% L-Exchge.rate(Zaire/USS): 350 -Percent non-paying: 5% E-Household income/month: 20000 -Superv.exp.(% rev.HC): 10%-Hsd.inc.insured/non-ins 1.00

TABLE 8.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-INon-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ A E

iCur.Ca 505 101 606 1285 437 1722 68%1 S AIDeLiv. 23 3 26 --- --- --- 78%j I LIP-N Ca 13 2 15 124 16 140 72%1 C TIP-S Ca 14 2 16 237 30 267 72%j HjChr.Ca 0 0 0 27 4 31 67%.10i _ _ 000s Zaires I U C

j(1) REVENUE Services 170 HC utiliz.rates! T EDrugs 300 470 --------------- P N

1(2) DEPENSES Person[. 205 Non-insr Insrdl U TDrugs 370 -------- ------ T EOther 31 605 Cur.Ca 17% 30%, R

I(3) PROFIT [(1)-(2)] (135)1 Deliv. 64% 82%1 T1(4) SUPERVISION EXPENS. 17 | P-N Ca 37% 43% AI(5) DEPRECIATION 79 1 P-S Ca 41% 47%1 B,(6) PROFIT[(3)-(4)-(5)] (231)1 Chr.Ca 36% 44% L

E

Appendix G 75

Exhibit G.3. A Devaluation of the Country's Currency


------- ------- ------- ------- ------- -------- Cost of | A EIPercent 35.0% 25.0% 20.0% 15.0% 5.0% 100% drugs, IS ANumber 3500 2500 2000 1500 500 10000 tab.exams I L

First Repeat Total & other C Tvisit visits Drugs expend.lphar.prd H

PRICE ------- ------- -------- ------ -------- ICurative care 200 0 558 758 638 1 N CIDeliveries 200 --- 819 1019 936 P EjPre-natal Care 0 --- 150 150 209 U NjPre-School Care 0 --- 150 150j 504 T TChronic Care 0 --- 200 200 I 521 1 Ei_ I T RRadius health area(Km): 10 -Ins.premium/yr.(Zaires) 1500 A-Population: 10000 *Percentage insured: 10% B-Currency: Zaire *Copayment insured: 20% L-Exchge.rate(Zaire/USS): 400 -Percent non-paying: 5% E-Household income/month: 20000 *Superv.exp.(% rev.HC): 10%*Hsd.inc.insured/non-ins 1.00

TABLE 6.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-iNon-insr Insured Total Non-insrd. Insrd. Total ket HC B H-------- ------- ------- -------- ------- ---- ------ A E

ICur.Ca 505 101 606 1285 437 1722 68%1 S AIDeLiv. 23 3 26 --- --- --- 78% I LP-N Ca 13 2 15 124 16 140 72%1 C TP-S Ca 14 2 16 237 30 267 72% HChr.Ca 0 0 0 27 4 31 67% 0i _ _ _ _ 000s Zaires I U C(1) REVENUE Services 229 HC utiliz.rates T E

i Drugs 300 528 --------------- PN1(2) DEPENSES Persont. 205 i Non-insr Insrd U T

Drugs 422 -------- ------ IT EOther 32 660 1 Cur.Ca 17% 30%j R

(3) PROFIT [(1)-(2)] (131): DeLiv. 64% 82% TI(4) SUPERVISION EXPENS. 23 1 P-N Ca 37% 43%1 A(5) DEPRECIATION 90 1 P-S Ca 41% 47% B(6) PROFIT[(3)-(4)-(5)] (244)1 Chr.Ca 36% 44% L

E


Exhibit G.4. A Devaluation of the Country's Currency Coupledwith a Curative Care Price Increase


------- ------- ------- ------- ------- -------- |Cost of | A E|Percent 35.0% 25.0% 20.0% 15.0% 5.0% 100%| drugs, S AINumber 3500 2500 2000 1500 500 10000 Lab.exams| I L

First Repeat Total |& other | C Tvisit visits Drugs expend.jphar.prdl H

PRICE ------- ------- -------- ------ -------- ICurative care 360 0 558 918 638 I N CDeLiveries 200 --- 819 1019 936 P EPre-nataL Care 0 --- 150 150 209 U NIPre-SchooL Care 0 --- 150 150 504 T TChronic Care 0 --- 200 200 I 521 Ei IT RRadius health area(Km): 10 -Ins.premium/yr.(Zaires) 1500 APopulation: 10000 -Percentage insured: 10% BCurrency: Zaire -Copayment insured: 20% L*Exchge.rate(Zaire/USS): 400 -Percent non-paying: 5% EHousehold income/month: 20000 -Superv.exp.(% rev.HC): 10%*Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-'Non-insr Insured TotaL Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ | A E

ICur.Ca 417 98 515 1036 421 1457 61%: S AIDeliv. 23 3 26 --- --- --- 78% I LP-N Ca 13 2 15 124 16 140 72%: C T'P-S Ca 14 2 16 237 30 267 72%1 HIChr.Ca 0 0 0 27 4 31 67% 0i _ _ _ 000s Zaires 1 U C(1) REVENUE Services 278 HC utiliz.ratesi T E

Drugs 253 531 --------------- | P N1(2) DEPENSES Persont. 205 | Non-insr Insrd| U T

Drugs 364 | -------- ------ | T EOther 37 607 1 Cur.Ca 14% 29%| R

1(3) PROFIT [(1)-(2)] (76)1 DeLiv. 64% 82% TI(4) SUPERVISION EXPENS. 28 | P-N Ca 37% 43% A1(5) DEPRECIATION 90 1 P-S Ca 41% 47% B:(6) PROFIT[(3)-(4)-(5)] (193)1 Chr.Ca 36% 44% L

|E

Appendix G 77

Exhibit G.5. A Change in Population Distribution

Table B.1 Population distribution0-1 Km 1-2 Km 2-3 Kin 3-5 Km > 5 Km Total B H

------- ------- ------- ------- ------- -------- ACost of AEPercent 75.0% 25.0% 0.0% 0.0% 0.0% 100%1 drugs, jS AINuiber 7500 2500 0 0 0 10000 Lab.examsl I L

First Repeat Total I& other | C Tvisit visits Drugs expend.|phar.prdl H

PRICE ------- ------- -------- ------ --------lCurative care 200 0 558 758 | 558 N C'Deliveries 200 --- 819 1019 | 819 1 P EPre-nataL Care 0 --- 150 150 183 1 U NjPre-SchooL Care 0 --- 150 150 1 441 1 T TlChronic Care 0 --- 200 200 | 456 I Ei I T R*Radius health area(Kan): 10 *Ins.premium/yr.(Zaires) 1500 A*Population: 10000 *Percentage insured: 10% B*Currency: Zaire *Copayment insured: 20% L*Exchge.rate(Zaire/USS): 350 *Percent non-paying: 5% E*Household income/month: 20000 *Superv.exp.(% rev.HC): 10%*Hsd.inc.insured/non-ins 1.00

TABLE B.2 ALL INFORMATION IS MONTHLY--------- New cases------ ------ Total visits------ % mar-'Non-insr Insured Total Non-insrd. Insrd. Total ket HCI B H-------- ------- ------- -------- ------- ---- ------ AE

|Cur.Ca 681 129 810 1877 668 2544 72%| S A'DeLiv. 26 3 29 --- --- --- 82%j I LIP-N Ca 16 2 18 185 23 208 76%| C TjP-S Ca 18 2 20 347 44 390 76%| H'Chr.Ca 1 0 1 34 4 38 72%| 0

000s Zaires U C(1) REVENUE Services 264 HC utiliz.rates! T E

Drugs 399 662 | --------------- P N(2) DEPENSES PersonL. 255 Non-insr Insrd U T

Drugs 489 |-------- ------ T EOther 34 778 | Cur.Ca 23% 39%j R

(3) PROFIT [(1)-(2)] (116)1 DeLiv. 73% 88%: T(4) SUPERVISION EXPENS. 26 1 P-N Ca 47% 53%j A(5) DEPRECIATION 79 P-S Ca 50% 56%| B(6) PROFITE(3)-(4)-(5)] (221) Chr.Ca 45% 54%| LI__IE

BIBLIOGRAPHY

Atkinson, A., and J. Stiglitz. 1980. Lectures on Public Economics. New York: McGraw-Hill.

Bitran, R. 1988. Health Care Demand Studies in Developing Countries: A Critical Review andAgenda for Research. Arlington, Va: Resources for Child Health Project.

.. 1990. A Household Health Care Demand Study in the Bokoro and Kisantu Zones of Zaire,vol. 3, Determinants of Health Care Demand. Arlington, Va.: Resources for Child HealthProject.

Block, S., D. Donaldson, and S. Foster. 1988. "Cost Recovery for Recurrent Costs of PublicHealth Care in Guinea-Bissau." Cambridge, Mass.: Abt Associates.

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Gertler, P., L. Locay, and W. Sanderson. 1987. "Are User Fees Regressive? The WelfareImplications of Health Care Financing Proposals in Peru." Journal of Econometrics 36: 67-88.

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McFadden, D. 1981. "Econometric Models of Probabilistic Choice." In C. Manski and D.McFadden, eds., Structural Analysis of Discrete Data with Econometric Applications.Cambridge, Mass.: MIT Press.

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Small, K., and H. Rosen. 1981. "Applied Welfare Economics with Discrete Choice Models."Econometrica 1: 105-30.

78

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