Demand-side subsidies

Subsidies can be divided into two main groups supply-side subsidies and demand-side subsidies. Supply-side subsidies are linked to inputs demand-side subsidies are linked to outputs (figure 1-1). Each type of subsidy has advantages and disadvantages. The two can be used in combination to take advantage of the benefits each has to offer. 

Cash subsidies may or may not specify the inputs they subsidize They include lump-sum payments and block contracts to provide a set of services tax rebates (on the construction of health facilities in underserved areas, for example) and capitated payments based solely on a catchment population. (A capitation payment that depends on the number of patients actually using a provider regularly or a system in which patients lose access to service when they shift to a different provider is a demand-side subsidy, as it is linked to the output of service utilization.)... 

The key defining feature of a demand-side subsidy is the direct link between the intended beneficiary, the subsidy, and the desired output (such as access or utilization). The level of funding received by the provider therefore depends on the outputs produced. 

Demand-side subsidies can be consumer led or provider led. They can be provided before or after service utilization. 

Consumer-Led Demand-Side Subsidies Provided before Service Utilization Consumer-led demand-side subsidies transferred before service utilization include cash transfers to patients, contributions to or tax rebates on family medical savings schemes, and vouchers. Features of these are ... 

Vouchers are not always consumer-led demand subsidies (they can also be held by providers). Chapter 2 describes competitive voucher schemes as a form of demand-side subsidies. 

Consumer-Led Demand-Side Subsidies Provided after Service Utilization Cash refunds to patients represent consumer-led demand-side subsidies that are transferred after service utilization. This type of subsidy is commonly used by insurance companies, but it could also be used for public subsidies in a well-developed health system. The major concerns with such a subsidy scheme are the need to ensure that claims for refunds are... 

Provider-Led Demand-Side Subsidies Provided before Service Provision Provider-led demand-side subsidies transferred before service provision include cost-per-case contracts in which the provider receives a fixed subsidy for a specified number of services, capitation payments, and referral vouchers distributed by providers that entitle the recipient to goods or services provided by others. 

Advantages and Disadvantages of Demand-Side Subsidies Demand-side subsidies have several advantages ... 

Output-based remuneration. By tying the receipt of subsidy to the generation of some output, demand-side subsidies create incentives to increase those outputs and therefore raise productivity. 

The greatest disadvantage of demand-side subsidies is probably the higher transaction and administrative costs. The choice between supply-side and demand-side subsidies often therefore boils down to whether or not the expected benefits of higher productivity and quality outweigh the higher overhead costs. 

Subsidies are given to all providers competing in a market. Under this scenario, patients have a choice of providers, and a level playing field is established. The competitive environment will create incentives to increase efficiency and improve patients perceptions of quality. There is no financial incentive to improve quality that cannot be perceived by potential patients. Thus, although competition creates an incentive to improve efficiency and patient-perceived quality, supply-side—but not demand-side—subsidies have a tendency to undermine this incentive, particularly if they are large in relation to total provider revenue. 

Providers must compete for limited places in a subsidy scheme. This scenario goes a step beyond accreditation, effectively introducing an additional competitive process. Limiting places in a subsidy scheme limits choice for patients, but in many cases it lowers administrative and monitoring costs. This form of competitive subsidy may be used to avoid duplication in the supply of services that require high initial investments and services for which the number of potential beneficiaries is relatively low. Like accreditation, competition for limited places in a subsidy scheme can be used to improve quality in areas that patients are unable to perceive. It can also drive down costs. With supply-side subsidies, there is probably a stronger incentive to compete for places in the scheme than with demand-side subsidies, because once selected the provider is sure that it will receive the subsidy (with demand-side sub-... 

Contracting can be hugely beneficial, because it forces each party to a contract to specify its expectations. Contracts thus force health planners to consider precisely which services they want from providers and to identify them through detailed patient management protocols and quality specifications. At the same time, the contracting process forces providers to understand purchasers priorities. This helps them reconfigure the care they provide based on purchasers demands. Contracts can be more explicit about desired outputs and quality of care specifications under demand-side subsidies than under supply-side subsidies. 

Health vouchers are a specific type of demand-side subsidy. They have certain advantages over other types of demand-side subsidies, but they often entail higher transactions costs. In deciding whether to use a voucher scheme to deliver subsidies, policymakers must determine whether the ability to deliver subsidies more efficiently or effectively outweighs the additional administrative costs. They must also consider some of the limitations of vouchers. 

The administrative cost of voucher schemes is one of their main drawbacks. However, they can be administered more easily than other demand-side subsidies. Requiring the provider to present a voucher in order to receive the subsidy can prevent irregularities and false claims. If designed well, the voucher can serve as a receipt and a data collection form, as well as a token of exchange. 

Figure 3-2. Decision Tree for Demand-Side Subsidies...

There may also be regulatory and even legal impediments to evidence-based, cost-effective best practice, which undermine one of the main advantages of demand-side subsidies. Ministries of health frequendy have norms for treating health problems—norms that do not always represent evidence-based best practice or the most cost-effective way of addressing a problem. In some cases, the norms may not have kept up with new technologies. Ministerial norms do not always apply to the private sector. Al-... 

Administrative simplicity compared with other demand-side subsidies... 

In addition to these advantages of voucher schemes, policymakers should also consider the advantages of demand-side subsidies generally, if the alternative to the voucher scheme would be a traditional supply-side subsidy. These advantages include the fart that remuneration is based on productivity that subsidies can be restricted to evidence-based, cost-effective services that output-based monitoring and evaluation is possible and that the incentives to improve productivity and client satisfaction are greater for demand-side subsidies than for supply-side subsidies. 

Demand-side subsidies give private practitioners greater incentive to test and treat tuberculosis. Vouchers simplify the administration of these subsidies. 

Demand-side subsidies allow standardized, evidence-based, best-practice management protocols to be enforced in the private sector. 

The output-based aid (OBA) approach seeks to partially answer this question by using a demand-side subsidy delivery strategy. An OBA scheme contracts a private party to deliver services and makes disburse-... 

Description The program provides demand-side subsidies and supply-side support for... 

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