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Informal Payments And TheFinancing Of Health Care InDeveloping And TransitionCountriesInformal payments to providers are often an implicit form of insuranceagainst future health care needs.

by Maureen Lewis

ABSTRACT: Informal, under-the-table payments to public health care providers are in-creasingly viewed as a critically important source of health care financing in developing andtransition countries. With minimal funding levels and limited accountability, publicly fi-nanced and delivered care falls prey to illegal payments, which require payments that canexceed 100 percent of a country's median income. Methods to address the abuse includeestablishing official fees, combined with improved oversight and accountability for publicheaith care providers, and a role for communities in holding providers accountable. [HealthAffairs 26, no. 4 (2007): 984-997; 10.1377/hithaff.26.4.984]

FINANCING OF HEALTH CARE in developing and transition countries takesmany forms. Ironically, the poorest countries have the highest out-of-pocketspending as a percentage of income.' Government commitment to finance

health care falls short in the lowest-income countries for a number of reasons, themost obvious being modest tax revenues that limit spending on public health careservices, leading to a gap between ideal investments and what can be afforded. Afrequently overlooked factor is the low quality of public services and the relatedpoor motivation of public servants that together undermine public investmentsand compromise the value of those investments.^ Despite uneven spending by thepublic sector, private spending is universal. A less apparent but important sourceof that private spending is under-the-table, or informal, payments by patients topublic-sector providers. Such payments make up a sizable amount of spending insome countries and in most cases are illegal because all citizens are meant to re-ceive free health care.

This paper provides an overview of informal payments, evidence on their fre-quency and cost, and a set of policy proposals for addressing them.

Maureen Lewis (mlc-wisl@worUhank.org) is acting chief economist. Human Development, at the World Bank inWashington, D.C.

9 8 4 J u l y / A u g u s t 2 0 0 7

DOI 10.1377/hkhaff.26.4.984 02007 Project HOPE-The People-to-People Health Foundation, Inc.

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Overview Of informal Payments• What are they? Informal payments can be defined as follows:

Payments to individual and institutional providers, in kind or in cash, that are made outside official paymentchannels or are purchases meant to be covered by the health care system. This encompasses "envelope" pay-ments to physicians and "contributions" to hospitals as well as the value of medical supplies purchased bypatients and drugs obtained from private pharmacies but intended to be part of government-financed health

Because informal payments are so often paid directly to individual providers, theyalso fall into the category of using "public office for private gain," the accepted def-inition of corruption.'*

• What do paying patients gain from them? Informal payments allow pa-tients to jump the queue, receive better or more care, obtain drugs, or simply receiveany care at all. They allow those who can pay both access to health care and oftenhigher-quality care. But in addition to the undermining of equity—purportedly therationale for subsidized health care—informal payments constitute institutional-ized bribery, which taints the system as a whole. To some extent, gratuity paymentsfrom appreciative patients are exceptions, but even in those cases, there is evidencethat such payments can serve as insurance against a future need for care, particu-larly from individual physicians.

• What conditions underiie informal payments? While informal paymentsmay be a form of corruption, they are often symptomatic of bad management, a re-sponse to underfunding, a reflection of the absence of accountability, or some com-bination. Whatever the source, what emerges from the evidence is, surprisingly,how widespread informal payments are.

Evidence On Frequency And CostLike most informal activities, informal payments go largely unreported. Infor-

mation on the level and nature of informal payments can only be obtained fromone or more of the following: observation, reports of other health providers, focusgroups, or, more commonly, reports from household surveys.

The data reported here are taken from multiple sources: (1) household surveyswith a heavy reliance on the World Bank's Living Standard Measurement Surveys(LSMS) but including other representative household surveys at local, province,or national levels; (2) the World Bank-sponsored corruption surveys that use arepresentative sample of officials, business executives, and citizens; (3) health fa-cility exit surveys; (4) corruption studies by Transparency International; and (5)other representative surveys of irregular practices conducted in specific countries.Recall periods—an important source of potential bias in the data—vary depend-ing on the survey, with the most general being the corruption surveys that typi-cally ask about experience in contact with the health care system over the pastyear. Others generally follow more standard periods of one to six months.^

A major challenge is differentiating among informal payments, payment of offi-

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cial copayments, bribes, and gifts to providers as expressions of gratitude. Whereall fees have been banned, any payment by households is clearly unofficial, but inmany countries, formal fees exist alongside informal payments, which blurs thedistinctions. Then the level, the recipient, and the timing of payment become rele-vant in distinguishing the nature of the payment as a gratuity or bribe.

Ex post financial transactions are particularly problematic in assessing infor-mality because gratitude gestures after receipt of services are common and oftenexpected. Where providers insist on direct prepayment or receive direct pay-ments for specific tasks, or payments are not made to an official cash window, in-formality of payment is likely For example, in the Kyrgyz Republic in 2001, 95percent of those who paid for services did not receive a receipt, and only 3 percentreported giving a gift to health persormel at the time of service.^ A Bolivia studyshowed that perception of corruption was associated with the size of an informalpayment.''

• Payment frequency. The range of frequency of informal payments is enor-mous: from 3 percent in Peru to 96 percent in Pakistan (Exhibit 1). Regionally, SouthAsia stands out for its heavy reliance on informal payments. East Asian experience isspht between Thailand and Indonesia, with low levels, and the former Communistcountries, with Cambodia at 55 percent and a dated estimate for Vietnam at 81 per-cent. The proportions for Latin America and Eastern Europe have a wide distribu-tion, with low levels in some countries and among the highest in others, whichmakes generalizations problematic. Recent evidence from smaller samples in Africasuggests that informal payments of various kinds are common in Uganda, Mozam-bique, and Ethiopia. In all three, patients pay pubUc providers directly for consulta-tions and drugs over and above any formal charges.

• Variety of data sources. Data sources vary, with much of the informationcoming from either household surveys or national-level governance and corruptionstudies. Some countries, such as BoUvia (2002), Moldova, Kazakhstan (1999), andPoland (2002), used dedicated health facility exit surveys. Albania (2002), Bolivia(2001), and China data emanate from province-level surveys, and the India data arefrom a district in Rajasthan state.

Where both large household surveys and smaller studies exist for the samecountry, the latter always show higher informal payments. Kazakhstan exhibitsdramatically higher payments in the smaller hospital survey (2001) over a house-hold survey in 2001. Albania's estimate of the frequency of informal payments in1996 was 22 percent but jumped to 28 percent and 60 percent, respectively, foroutpatient and inpatient care in the smaller 2001 survey. Whether this is due tothe greater attention to the issue with smaller, dedicated surveys, a focus on prob-lematic areas, or other factors, it suggests that some of the broader surveys under-estimate the extent of patient payments.

• Rationales for payment rates. Low levels of informal payment in Peru, Para-guay, Thailand, and Kosovo might reflect the existence of and reliance on private-

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EXHIBIT 1

Proportion Of Users Of Health Care Services Who Made Informal Payments, Various

Countries, By Region, Seiected Years 1992-2002

Albania (2001)Armenia (2001)

Bosnia (2002)Bulgaria (2001)Croatia (2002)

Czech Republic (2002)Hungary (2002)Kosovo (2000)

Kyrgyz Republic (2001)Latvia (1998)

Macedonia (2002)Moldova (2002)Romania (2000)

Russia (2002)Slovakia (2000)

Bangladesh (2002)India (2002)

Nepal (2002)Pakistan (2002)

Sri Lanka (2001)

Bolivia (2002)Coiombia (2001)Paraguay (1999)

Peru (2001)

Cambodia (2000)Indonesia (2001)Thailand (2000)Vietnam (1992)

Ghana (2000)

20 40 60 80 100Percent making informal payments

SOURCES: See Appendix I. online at http://content.healthaffairs.Org/cgi/content/full/26/4/984/DCl.

sector alternatives that require sizable out-of-pocket payments. Where consumershave more choices, they should be better able to influence providers' behavior. Thehigher rates reported for Colombia would question that explanation, since Colom-bia has a large private health system not too different from Peru's. The differencesmay reflect different degrees of oversight in public clinics and hospitals, but this de-serves additional attention.

Limited evidence of informal payment in the Czech Republic appears odd giventhe patterns observed elsewhere in Eastern Europe and Central Asia (ECA), but itis consistent with other findings regarding the Czech Republic as an outlier onthis issue. Public providers with a quasi-monopoly position, as is the case in muchof ECA, where competition exists only across public providers, are in a stronger

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position to charge patients for their services. Rural areas or urban populationswith limited access to alternative public or private services are particularly vul-nerable to such practices, because they are truly monopolistic providers.

• Outpatient and inpatient payments. With the exception of Bulgaria, inpa-tient care is more Kkely to be financed via informal payments, and often the dispar-ity between the two types of services is dramatic, as is the case with Bangladesh,Tajikistan, Armenia, and Albania (Exhibit 2). Evidence for four representative East-ern European countries (Czech Repubhc, Hungary, Poland, and Romania) revealsthat formal payments are associated with primary and outpatient speciahst care,and informal payments, with surgery and inpatient services.'" Either households feelthe need to pay for hospitahzations, or providers don't give them a choice, insistingon payment if services are to be rendered.

• Results of perception surveys. The perception surveys of providers or citi-zens, while not statistically representative, offer additional insights that quantita-tive surveys cannot capture. In Costa Rica, 85 percent of medical staff indicated thatunder-the-table payments to physicians were common, and half of patients said thatthey made payments in pubhc facihties roughly equivalent to 50 percent of the costof a private-sector consultation. In Bolivia, the incidence of informal payments wassignificantly correlated with perceptions of corruption in specific pubhc hospitals,and 40 percent of interviewed patients acknowledged making illicit payments for

EXHIBIT 2Proportion Of Patients IVIaking Informal Payments, By Type Of Service, SelectedCountries, Various Years 1999-2002

• Hospital inpatient D OutpatientAlbania (2001) P " " ^ ^ i — ^ ^ — — ^ I ^ I ^ ^ M ^ — ^ ^

Armenia (2001) p i ^ ^ ^ ^ ^ ^ ' ^ ^ ^ — ^ ^ ^ M i ^ ^ M ^ — •

Bangladesh (2002) , ,

Bulgaria (2001) P " ,China (no date) ^^^^^^^^m^^^^^m^^^^mm^^^m^Ghana (2000) ^ ^ ^ ^ i ^ ^ ^ i ^ n ^ ^ ^ B H

Kazai<hstan(1999) mm^^^^ma^^^^a^^^^mi^^^^m^Khazai hstan (2001) f^^^^^^^^i^m

Kosovo (2000)Poland (2002)

Romania (2000)Russia (2002)

Siovakia (2000)Tajikistan (1999)

20 40 60 80Percent making informai payments

SOURCES: See Appendix I, online at http://content.healthaffairs.0rg/cgi/content/full/26/4/984/DCl." Date of survey.

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care. This is similar to the results of a representative household survey in 106 Boliv-ian municipalities in which 45 percent of patients reported paying informally." In-terestingly, national surveys for Bolivia show that more than 60 percent of those in-terviewed considered the health sector to be corrupt.

A comparative study of citizens in five South Asian countries (Bangladesh, In-dia, Nepal, Pakistan, and Sri Lanka) found that in all but Sri Lanka, most pay-ments were to meet ex ante demands from providers. Bribes are required in all fivecountries for admission to the hospital, to obtain a bed, and to receive subsidizedmedications.'' In Bangalore, India, citizen feedback surveys revealed that informalpayments were made to ensure proper treatment, but they were typically de-manded by providers, and 51 percent of those interviewed indicated that they hadpaid bribes in government hospitals and 89 percent, in hospitals in small cities.But they also paid informally in the private hospitals (24 percent), which suggestsa cultural norm. More dramatically, bribes were paid to nurses in maternity homesso that mothers could see their infants.'

In Albania, among the 60 percent of patients who received care, 43 percent saidthat the gift was requested.'"* Using focus groups of patients and providers, citi-zens explain the virtual market for publicly provided care in Poland.' Informalpayments have become the way to obtain the services of specific physicians, withpricing reflecting reputation and demand. It is an implicit form of insurance forpossible future needs, and prices are commonly known. Thus, the process of nego-tiation and payment for health care services might be informal, but it has evolvedinto a very sophisticated market in Poland.

• Motivations of providers and patients. The motivations of health staff andpatients in relying on under-the-table payments are strong. Physicians argue thatlow pay, irregular salary payments, lack of government attention, and the need tokeep services going require drastic action, and patients' contributions offer the onlysource of funds to fill the gap.' Patients, on the other hand, also see low pay as an im-petus to contribute, but traditions of gratitude as well as concerns for some futureneed for health care also play a role.

Qualitative studies in Ethiopia with policymakers, experts, and health workersrevealed that inappropriate payments are rife in the health sector. Patients typi-cally must pay for every service and item, from hospital admittance to having a bedchanged to drugs and supplies.''' Similar reports of itemized charging emergedfrom qualitative work in Albania, Georgia, and Poland, where the public systemhas become fee-for-service.' Consumers' confusion about the official or unofficialnature of payments is common. Patients pay, but they don't always know why, andthey often do so at multiple locations or for different "services."'

• What payments buy. Multivariate analysis sheds further Hght on some of theunderlying motivations for informal payment as well as whether patient revenuesare well spent. In Kazakhstan, an econometric analysis of patients discharged fromthree hospitals in Almaty City concluded that informal payments made in the ad-

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missions department before treatment and the amounts paid subsequently at bothadmissions and hospital wards shortened admission time for surgery. " The studyfound longer lengths-of-stay associated with payments both to the admissions de-partment and directly to individual providers on the wards. Quality as perceived bypatients increased wdth the amount paid informally These results confirm the as-sumption that patients pay to receive more-attentive and "higher-quality" care, asthey perceive it. Longer lengths-of-stay do not necessarily mean better clinical care,but patients tend to value shorter waits, longer hospital stays, and attentive treat-ment by medical staff. In Kazakhstan, paying ensures that health care meets the de-mands and perceived needs of patients.

• Costs and impact on the poor. Of concern is the relative cost of the servicesto patients, and numerous studies point out the impact on the poor. Exhibit 3 sum-marizes the available data showing the average cost of an outpatient visit or hospitaladmission as a percentage of half-monthly average income, roughly equivalent tomedian income. The level of inpatient payment far exceeds the amounts paid out foroutpatient services, and numerous studies document the extent of hardship somehouseholds face in meeting these costs. Inpatient costs can exceed annual family in-come, forcing the sale of assets or the accumulation of debt. ' Selected studies inChina of "red packages" paid to providers report that payments average 140-320yuan per hospital visit (US$16-US$36), with referral hospitals averaging 400 yuan(US$44), roughly 90 percent of half-monthly income. These costs suggest the diffi-culty of affording health care. ^

• Patients' price-sensitivity. Two studies in Albania examined patients' in-comes and the size of informal payments. The analysis of a three-province surveyshowed that rural residents were more likely than urban patients to pay for servicesand that they paid roughly the same fees as patients in other income brackets. So in-come had little effect on the probability of having to pay informally ^ Estimates froma nationally representative survey showed high inelastic demand in the face of smallincreases in the price of health services, indicating again that patients in Albania arenot particularly price-sensitive. '' Thus, informal payments are highly regressive.

• Fee exemptions. Fee exemptions offer the potential for husbanding scarce re-sources for those least able to afford health care. Many systems have instituted suchprocedures to retain the benefits of copayments without unduly burdening thepoor. ^ Evidence on effectiveness, however, suggests problems with the approach. InBangladesh, data from interviews and observations in a sample of four hospitalsshowed that 75 percent of the time, those with the lowest incomes paid the leastamount both officially and unofficially In the outlier institutions, the poor paidmore than the wealthiest group but the same as or less than middle-income patients.Payments are also standardized and routinized, with specific time periods forcharging during inpatient stays rather than at discharge. ^

In Rajasthan, India, patients regularly pay for "free" outpatient care, althoughthe poorest patients pay 40 percent less than the highest-income patients. It

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EXHIBIT 3

Average Informal Payments As Percentage Of Half-Monthly Per Capita Income, By

Type Of Service, Selected Countries, Various Years 1994-2003

Albania (2001)

Albania (2002) =

Armenia (2001)

Bangladesh (2002)

Bolivia (2001)

Buigaria (2001)

Cambodia (1999)

China (1994)"

Ghana (2000)

India (2002)

India (2003)

Kazakhstan (2002) <=

Kyrgyz Rep. (2001)

Pakistan (2002)

D Outpatient Hospitai inpatient

Peru (2001) •

Russia (2002) ^

Sri Lanka (2001) ^

Tajikistan (1999) ^

Thaiiand (1999) CZ

50 100 150Percent of haif-monthiy per capita income

200

SOURCES: World Bank, Living Standards Measurement Study (study years are shown in parentheses after various countries'entries); E. Murrugarra and R. Cnobloch, "Health Status and Health Care Dimensions of Poverty in Armenia" (Washington: WorldBank, 2003); J. Falkingham, "Health, Health Seeking Behavior, and Out of Pocket Expenditures in Kyrgyzstan 2001," KyrgyzHousehold Health Finance Survey, Monograph (London: London School of Economics, 2002); P. Phongpaichit et al., "Corruptionin the Public Sector in Thailand: Perceptions and Experience of Households, Report of a Nationwide Survey" (Bangkok: PoliticalEconomy Centre, Chuiaiongkorn University, 2000); World Bank, "A Strategy to Combat Corruption in the ECA Region," IssuesPaper and Progress Report (Washington: World Bank, 2002); World Bank, "Governance and Service Deiivery in the KyrgyzRepublic-Results of Diagnostic Surveys" (Washington: World Bank, 2002); World Bank, "Albania: Poverty Assessment"(Washington: World Bank, 2003); A. Banerjee and E. Duflo, "Improving Health-Care Delivery in India," Working paper (Cambridge,Mass.: Massachusetts institute of Technoiogy, 2005); G. Bloom, L. Han, and X. Li, "How Heaith Workers Earn a Living in China,"Human Resources for Health Development Joumal 5, no. 1(2001): 25-38; R.Thompson, "informal Payments for EmergencyHospitai Care in Kazakhstan: An Exploration of Patient and Physician Behavior" (Ph.D. thesis. University of York, U.K., 2004); D.Hotchkiss et ai., "Out-of-Pocket Payments and Utilization of Health Care Services in Albania: Evidence from Three Districts,"Hearth Po/icy (forthcoming); and G.K. Thampi, "Corruption in South Asia: insights and Benchmarks from Citizen FeedbackSurveys in Five Countries," Transparency internationai Monograph, December 2002, http://unpanl.un.org/intradoc/groups/pubiic/documents/APCITY/UNPAN019883.pdf (accessed 18 April 2007)." Survey of 2,000 households in three Aibanian provinces.

"> Date of survey. Percentage caicuiated as average across various studies. Black-outlined bar indicates referrai hospitals." Based on hospitai exit surveys.

should be noted that in this part of India, everyone is poor, and poverty is relative,but on average, 7.3 percent of total household spending goes to pay for healthcare. '' In Uganda, exemptions were extended to the pohtically powerful and thoseoverseeing the local health care program—a perverse version of exemption meantto ensure equal access but, in this case, subsidizing the better-off. ^ Central Asia'sexperience has not been encouraging, either, with minimal exemptions for lower-

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income patients.^' Evidence from Kazakhstan showed that for major illnesses, thelowest-income households spent more than twice their monthly income for healthcare, while the wealthiest households spent the equivalent of half their monthlyincome, reflecting the lack of exemptions for the poor. °

These studies point up the salient characteristics of informal payment, butwork in this area is just beginning. A better understanding of the phenomenon andhow to stem its spread is critical to good governance and accessible health care.The key issues have been outlined; I now turn to policy responses.

Policy Responses To Informai PaymentAlthough the extent and size of informal payments are becoming more appar-

ent, they have flourished unacknowledged for a long time. Even where some ac-tion has been taken, the responses have differed, and few have been evaluated todetermine their relative effectiveness.

Health care in most of the developing and transition countries suffers from poorgovernance and the absence of accountability in public service delivery. Informalpayments are an outgrowth of this breakdown, as they are accompanied by irregu-lar fiduciary oversight, lack of management, limited oversight of performance, andfew if any penalties for illegal or improper behavior. Informal payments ensurethat providers are paid for services delivered and that some services actually reachpatients, but only for those who can pay, which undermines equity principles ofpublicly financed health care. The absenteeism of public-sector providers ob-served in much of the world is rare in transition economies, where informal pay-ments have become the major source of health care financing and providers cannotafford to be absent.^' However, the two often exist in parallel elsewhere.

Addressing informal payment is complex, and simply addressing specificabuses is insufficient, because the issues are often more systemic in nature. Inmany contexts, the environment more generally needs to be considered. The issueof informal payment is addressed first here, followed by discussion of some of themore generic reforms that offer solutions to the underlying problems that give riseto informal payment.

• Controlling informal payment. Few strategies exist to control informal pay-ment. Raising official fees as a substitute for under-the-table payments showed pos-itive effects on patient payment and use in pilot programs in the Kyrgyz Repubhcand Cambodia. Both programs made the financial arrangements more equitable,shifted the issue from one of corruption to equity management, and, probably mostimportantly, ensured that health care providers' earnings would remain the same.

In the Kyrgyz Republic, an experiment in two regions introduced formal feesand sharply reduced informal charges. Both multivariate analysis and administra-tive data showed that the proportion of patients making direct payments to pro-viders declined from 60 percent to 38 percent in the experimental regions, whileinformal payments for the rest of the country rose to 70 percent. In-kind spending

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by patients (for food and linens) in the pilot regions with formal fees declinedmore than 50 percent, although there was no change in similar spending in the restof the country. Formal fees combined with modest insurance payments helpedmake health care more affordable and quelled under-the-table payments. -

In a major referral hospital in Cambodia, reorganization of hospital staffingcombined with a transparent official fee policy, clearly designated exemptions,and retained fee revenue that supplemented physician salaries at levels compara-ble to those earned under the informal arrangements led to more-reliable pricing,more-stable revenue, and higher demand. Focus groups identified informal pay-ments as a deterrent to health service use, and the subsequent predictability andequity adjustments improved access without compromising use or hospital reve-nue—the latter a critical component of compensation, given salary levels." Twoinstances do not allow sweeping conclusions, nor was either initiative undertakenin isolation, but substituting legal for illegal payments and allowing the points ofservice to retain revenues proved effective, which suggests that it is a strategyworth pursuing further.

• Providing incentives for health professionais. Addressing some of the in-centives underlying informal payment provides other options for reform. Some al-ternative policies include better incentives for health care providers, increasing ac-countability for performance, and providing community oversight.

Providing appropriate incentives for providers lies more in addressing thestructure of the health care system and its financing than in limited actions thatfix specific problems. Adjustments to pay and benefits, clear criteria for hiring andpromotion, defined discipline for misconduct, and adequate training to equipworkers with needed skills foster a functioning health system. How providers arepaid has dramatic effects on performance, as evidence from the Organization forEconomic Cooperation and Development (OECD) countries attests. "* Paymentmethods are the cornerstone of incentives for productivity and performance; in-creasingly, developed countries have sought alternatives or at least complemen-tary means to reward performance and productivity.

In most developing countries, physicians are paid a salary. A review of the lim-ited literature on the effect of salary earnings on physicians' clinical behavioracross the OECD countries concluded that physicians whose earnings are basedon salary rather than fee-for-service, bonus payments, or capitation showed lowerproductivity, lower levels of care, and higher wound rates from surgery. However,salaried doctors facilitated cost control, a concern in OECD health systems. ^

Low wages represent one area of potential temptation for corruption. Whereearnings are low, individuals have second and third jobs, but they also perceivethat low wages entitle them to demand contributions from patients. Civil-servicereform is often required to address egregious structural problems related to post-ings, promotion, and pay, but the health sector could serve as a pilot to launch im-provements that stimulate better performance. Evidence from a number of coun-

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tries, however, suggests that higher pay will not necessarily address corruption byitself, but paying wages that are appropriate to existing labor-market conditions,prohibiting informal side payments, and holding providers accountable could to-gether encourage more transparent and fair transactions and offer incentives forbetter provider performance. Although it is expensive for countries to raise wagesin public health care services, a reform that regularizes and improves pay has thepotential to raise productivity. This, in turn, would make it possible to provide atleast the same level of services with fewer workers, thereby offsetting some of theexpected total wage increase. In addition, greater transparency in all fiduciaryfunctions would improve fairness and bolster effectiveness. Experimentationwith other payment arrangements also could prove effective, ^

• Increasing accountability. Increasing the accountability of public workersplays a key role in improving governance and relinquishing reliance on informal pay-ments. How that is accomplished is far from straightforward, and evidence on howto do so remains limited. For example, in Bolivia, corruption and informal paymentswere lower where management was stronger and some form of oversight of staff ex-isted—in this case, frequent written evaluations of performance, a key input for re-warding and disciplining staff.' Although a basic management tool, such assess-ments can affect performance and corruption and are often absent in the worst-performing health care systems,

A recent rigorous experiment in Tanzania assessed the importance of trainingand incentives in determining physician performance across a sample of publicand private providers, ® It concluded that although ability is important, institu-tional incentives—particularly the ability to hire and fire staff—are far more pow-erful than education or experience in explaining quality of care, which offers anempirical basis for the priority of putting in place incentives to foster improve-ments in health care. This obviously poses serious problems for many public pro-grams that rely on public servants to deliver health care, but it makes clear theneed to hold providers accountable if abuse is to be curtailed,

• Enabling community oversight. The nature of accountability and how tostructure incentives is not apparent from available evidence. In rural or isolated ar-eas, community oversight offers an option, although there are few good examples ofcountries with effective oversight and accountability. Evidence from Bolivia, Mada-gascar, the Philippines, and Uganda suggests that centralized hiring, promotion, anddeployment of public health care workers effectively neutralizes the role of local su-pervision. If the consequences of absenteeism, taking bribes, and stealing drugs arebeyond the authority of local boards or community oversight bodies, then those in-stitutions may bring the community together, but they will have no influence overcentrally managed health staffs or their responsiveness in dehvering services.

Even where local oversight arrangements exist to promote accountability, itdoes not necessarily mean that they are effective. In Jigawa state in Nigeria, hospi-tal management committees meant to oversee and advise hospital managers rarely

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met; were unclear about their responsibilities; and had little involvement withstrategic planning, targeting, or budget control. ^ In Madagascar, the fact that lo-cal committees were powerless beyond moral suasion led providers to ignore theirhollow authority and instead respond to supervisors who had a say in their des-tiny,'"' To be effective, community leaders need authority, and at the same time theyneed to be accountable to the local citizenry or to a higher level of government.

Local control, beyond simple oversight, holds promise. Under the Bamako Ini-tiative, communities in selected African countries that were given control overhealth facilities in exchange for sharing the financing burden showed impressivehealth status improvements in at least three countries,'" In Ceara, Brazil, the stateinstituted a health worker outreach program with contracted workers supervisedby the municipalities they served. Local control led to better health in the commu-nities covered by the new state program."* In Bolivia, corruption was lower wherelocal organizing groups were active,"* By contrast, local control proved ineffectivein Nigeria, Madagascar, and Uganda, leaving the issue unresolved, but more ex-perimentation and systematic evaluations can help address this.''''

Prospects For ChangeInformal payments are much more widespread than commonly thought. Do-

nors and governments have urged banning user charges in the interest of equity inaccess to health services. Sweeping removal of a reliable source of revenue from le-gitimate fees for equity reasons means that both the poor and the well-off are sub-sidized. The more serious issue is that under-the-table payments replace legalcharges. The one strategy that holds promise is the introduction of formal fees thatallow payment to be made above the table, but this reflects only preliminary evi-dence. More fundamental is a shift toward better governance in health care deliv-ery with clear lines of accountability.

Although there is some suggestion from the Kyrgyz Repubhc and Cambodiathat instituting formal fees can curtail informal payments, the impact of doing sohas not been broadly assessed. Evidence suggests that addressing informal pay-ments alone might not be effective. Given the worldwide prevalence of informalpayments and their strong negative effects on both equity and good governance,policymakers need to focus on the issue and the means to discourage such prac-tices. Private health care and private payment go hand-in-hand, but a private sys-tem is inappropriate within the confines of public health care. Not taking heedrisks sending signals that irregular financial transactions are acceptable, whichcompromises the overall public health system, if not the government more generally.

The fmdings, interpretations, and conclusions expressed in this paper are entirely those ofthe author and do notnecessarily represent the views ofthe World Bank, its executive directors, or the countries they represent.

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NOTES1. P. Musgrove, "Public and Private Roles in Health," in Hcakh Economics in Dcvdopment, ed, P. Musgrove

(Washington: World Bank, 2004), 35-76.2. M, Lewis, "Governance and Corruption in Public Health Care Systems," Working Paper no. 78 (Washing-

ton: Center for Global Development, 2005).3. M. Lewis, "Who Is Paying for Health Care in Europe and Central Asia?" Monograph (Washington: World

Bank, 2000); and M. Lewis, "Informal Health Payments in Central and Eastern Europe and the Former So-viet Union: Issues, Trends, and Pohcy Imphcations," in Funding Hcakh Care: Options for Europe, ed. J. Figueresand E. Moussiales (Buckingham: Open University Press, 2002), 184-205; and T. Ensor, "Informal Pay-ments for Health Care in Transition Economies," Social Science and Medicine, 58, no. 2 (2004): 237-246.

4. P. Bardhan, "Corruption and Development: A Review of Issues," joMnwl of Economic Literature 35, no. 3 (1997):1310-1346.

5. Lewis, "Governance and Corruption." For survey sources not footnoted in the paper, see Appendix I, on-line at http://content.healthaffairs.Org/cgi/content/full/26/4/984/DCI.

6. J. Falkingham, "Health, Health Seeking Behavior, and Out of Pocket Expenditures in Kyrgyzstan 2001,"Kyrgyz Household Health Finance Survey, Monograph (London: London School of Economics, 2002).

7 R. Gatd et al., "Determinants of Corruption in Local Health Care Provision: Evidence from 108 Municipal-ities in Bohvia," DEC Draft Paper (Washington: World Bank, 2003).

8. B. McPake et al., "Informal Economic Activities of Pubhc Health Workers in Uganda: Imphcations forQuality and Accessibihty of Care," Social Science and Medicine 49, no. 7 (1999): 849-865; M. Lindelow et al..Expenditure Tracking and Service Delivery Survey; The Hcakh Sector in Mozamhiiiuc, Final Report (Washington:World Bank, 2004); and M. Lindelow et al., "Synthesis of Focus Group Discussions with Health Workersin Ethiopia" (Washington: World Bank, 2003).

9. A sense of the range of data can be seen from the exit surveys. The Bolivia survey collected data from 2,888women in 106 municipahties; the Moldova survey consisted of 390 interviews with physicians, nurses, andpatients in the capital, Chisinau, and two provinces; the Albanian household survey surveyed three prov-inces; the Poland survey was only of Gdansk and Wroclaw cides; and the Kazakh hospital survey inter-viewed 1,508 discharged padents from three Almaty City hospitals.

10. P. BeUi, "Formal and Informal Household Spending on Health: A Muld-Country Study in Central andEastern Europe" (Unpubhshed paper, Internadonal Health Systems Group, Harvard School of PubhcHealth, 2002).

11. G. Gray-Molina et al,, "Does Voice Matter? Pardcipation and Controlling Corrupdon in Bohvian Hospi-tals," in Diagnosis Corruption Fraud in Latin America's Public Hospitals, ed. W Savedoff and R. Di Telia (Washing-ton: Inter-Amedcan Development Bank, 2001); and S. Chalcraborty et al., "When Is 'Free' Not So Free? In-formal Payments for Basic Health Services in Bolivia," DEC Draft Paper (Washington: World Bank, 2002).

12. G.K. Thampi, "Gorrupdon in South Asia: Insights and Benchmarks from Citizen Feedback Surveys in FiveCountries," Transparency Internadonal Monograph, December 2002, http://unpanl.un.org/intradoc/groups/public/documents/APCITY/UNPAN019883.pdf (accessed 13 Apdl 2007).

13. K. Gopakumar, "Citizen Feedback Surveys to Highhght Gorrupdon in Pubhc Services: The Experience ofPublic Affairs Centre, Bangalore" (Unpubhshed paper. Transparency Internadonal, September 1998).

14. World Bank, "Albania: Poverty Assessment" (Washington: Europe and Central Asia Region, World Bank,2003).

15. H. Shahriari et al., "Insdtudonal Issues in Informal Health Payments in Poland: Report on the QuahtadvePart of the Study," HNP Working Paper (Washington: World Bank, 2001).

16. G. Bloom, L. Han, and X. Ii, "How Health Workers Earn a Living in China," Human Resources for Hcakh Devel-opment ]ouma] 5, no. 1 (2001): 25-38; BeUi et al., "Insdtudonal Issues"; Lindelow et al., "Synthesis of FocusGroup Discussions"; and J. Kutzin et al., "Formalizing Informal Payments in Kyrgyz Hospitals: Evidencefrom Phased Implementadon of Financing Reforms" (Paper presented at the Internadonal Health Eco-nomics Associadon Fourth World Gongress, San Francisco, Gahfornia, 2003).

17. Lindelow et al., "Synthesis of Focus Group Discussions."18. T. Vian et al., "Informal Payments in Government Health Facilides in Albania: Results of a Quahtadve

Study," Social Science and Medicine 62, no. 4 (2006): 877-887; P BeUi, G. Gotsadze, and H. Shahriari, "Out-of-Pocket and Informal Payments in the Health Sector: Evidence from Georgia," Heakh Policy 70, no. 1 (2004):109-123; and BeUi et al., "Insdtutional Issues."

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I N F O R M A L P A Y M E N T S

19. Belli et al, "Out-of-Pocket and Informal Payments"; D. Narayan, Voices of the Poor: Can Anyone Hear Us>(Washington and New York: World Bank and Oxford University Press, 2000); and J.R. Killingsworth etal., "Unofficial Eees in Bangladesh: Pdce, Equity, and Insdtudonal Issues," Health Policy and Planning 14, no. 2(1999): 152-163.

20. R. Thompson, "Informal Payments for Emergency Hospital Care in Kazakhstan: An Exploradon of Padentand Physician Beha\ior" (Ph.D. thesis. University of York, U.K., 2004).

21. Lewis, "Who Is Paying?"; Lewis, "Informal Health Payments in Central and Eastern Europe"; Falkingham"Health, Health Seeking Behavior"; J. EaUcingham, "Poverty, Out-of-Pocket Payments, and Access toHealth Care: Evidence from Tajikistan," Socia] Science and Medicine 58, no. 2 (2004): 247-258; andKillingsworth et al., "Unofficial Eees in Bangladesh."

22. Bloom et al., "How Health Workers Earn a Using in China."

23. D.P. Hotchkiss et al., "Out-of-Pocket Payments and Udlizadon of Health Care Services in Albania: Evi-dence from Three Districts," Heakh Policy 75, no. 1 (2005): 18-39.

24. World Bank, "Albania: Poverty Assessment."25. Musgrove, "Pubhc and Private Roles in Health."26. Killingsworth et al., "Unofficial Fees in Bangladesh."

27 A. Banerjee et al., "Wealth, Health, and Health Services in Rural Rajasthan," American Economic Review Papersand Proceedings 94, no. 2 (2004): 326-330.

28. McPake et al., "Informal Economic Acdvides."29. Falkingham, "Health, Health Seeking Behavior."

30. A. Sad et al., "Affording Out-of-Pocket Payments for Health Care Services: Evidence from Kazakhstan,"Eurohcalth 6, no. 2 (2000): 37-39.

31. Lewis, "Governance and Corrupdon."

32. Kutzin et al., "Formalizing Informal Payments."

33. S. Barber et al., "Formalizing Under-the-Table Payments to Control Out-of-Pocket Hospital Expendituresin Cambodia," Healt/i Policy and Planning 19, no. 4 (2004): 199-208.

34. E. Docteur and H. Oxley "Health Systems: Lessons from the Reform Expedence," OECD Health WorkingPaper (Pads: OECD, 2003).

35. T. Gosden, L. Pedersen, and D. Torgerson, "How Should We Pay Doctors? A Systemadc ReWew of SalaryPayments and Their Effect on Doctor Behavior," Quarterly Journal ofMedidne 92, no. 1 (1999): 47-55.

36. Lewis, "Governance and Corrupdon."37. Gatd et al., "Determinants of Corrupdon."

38. K. Leonard, "Getting Clinicians to Do Their Best: Ability Altruism, and Incendves" (Unpublished paper.University of Maryland, 2005).

39. World Bank, Nigeria: Heakh, Nutrition, and Population: Country Status Report (Washington: Wodd Bank, 2006).

40. D. Brinkerhoff, "Pro-Poor Health Services in Madagascar: Decentralizadon and Accountability" (Paperpresented at Global Health Council Annual Conference, Washington, D.C, 31 May-3 June 2005).

41. V. Ridde, A.P Nidema, and M. Dadjoad, "Improve the Accessibihty of Essendal Drugs for the Populadonsof One Medical Region in Burkina Faso" (in French), Santi 15, no. 3 (2005): 175-182; and A. Soucat et al.,"Local Cost Sharing in Bamako Inidadve Systems in Benin and Guinea: Assuring the Einancial Viability ofPrimary Health Care," inteivationaljoumalofHeakhPlanningandManagement 12, no. 1 Supp. (1997): S109-S135.

42. J. Tendler and S. Ereedheim, "Trust in a Rent-Seeking World: Health and Government Transformed inNortheast Brazil," World Development 22, no. 12 (1994): 1771-1791.

43. Gatd et al., "Determinants of Corrupdon."

44. World Bank, Nigeria: Heakh, Nutrition, and Population; McPake et al., "Informal Economic Acdvides"; andBrinkerhoff, "Pro-Poor Health Ser\'ices in Madagascar."

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