What are the benefits and limitations of using contracts for health care service delivery? What steps are key to good contract management? This guide by John Snow Inc. provides a short overview for healthcare policy makers of the benefits and limitations of contracting, focussing on performance-based contracting, and describes the steps that are key for good contract management. Contracting can only succeed if prerequisite conditions relating to political and legislative context and the public sector’s capacity to manage the process exist.
Contracting is an important tool for meeting the health needs of target populations. There are two contracting options; contracting in, where the public sector contracts with other public facilities/levels of government, and contracting out, where the public sector employs private providers. Choice of option, and the degree of specificity of the contract, will depend on contract goals and the social, political, and legal issues outlined in the paper. Contracting out is easier to implement due to public sector management issues and political environment. Done well, contracting increases governments’ accountability to the public, encourages innovation among government departments, builds regulatory capacity, and fosters collaboration rather than competition between public and private sectors.
Opportunities and problems that contracting can bring include:
- Extending coverage to underserved sectors of the population.
- Increasing efficiency in the use of public sector resources.
- Improving the quality of healthcare and increasing provision of priority services to vulnerable groups.
- A high level of supervision and monitoring is demanded.
- High administrative and transaction costs are incurred.
- Direct control over the use of public funds is decreased, while government remains responsible and accountable for those funds.
The public sector must have the capability to gather and utilise programmatic, administrative and financial data in order to properly regulate service providers. Prerequisite conditions that must exist before the public sector contracts are:
- Information systems and data collection processes must be functioning to ensure proper contract supervision and monitoring.
- Analysis of unit costs by the public sector is essential for informed service purchase to happen.
- The availability and capacity of service providers needs to be measured.
- The national legal framework needs to be considered before contracting.
- Many developing countries do not have legal frameworks geared to public contracting.
- Political and social factors must be considered before contracting. Support and opposition need to be assessed and analysed, and how the government will present contracting to the public considered.
