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date: 18 October 2019

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic Perspective

Summary and Keywords

Latin American and Caribbean (LAC) countries have experienced a long-term process of improvement in populational health conditions, shifting their health priorities from child–mother care and transmissible diseases to non-communicable diseases (NCDs). However, persistent socioeconomic inequalities create barriers to achieve universal health coverage (UHC). Despite a high level of governmental commitment to UHC, and rising coverage, approximately 25% of the population does not have access to healthcare, particularly in rural and outlying areas.

Health system quality issues have been largely ignored, and inefficiency, from health financing to health delivery, is not on the policy agenda. The use of incentives to improve performance are rare in LAC health systems and there are political barriers to introduce reforms in payment systems in the public sector, though the private sector has opportunity to adapt change.

Fragmentation in the financing of healthcare is a common theme in the region. Most systems retain social health insurance (SHI) schemes, mostly for the formal sector, and in some cases have more than one; and parallel National Health System (NHS)-type arrangements for the poor and those in the informal labor market. The cost and inefficiency in delivery and financing is considerable.

Regional health economics literature stresses inadequate funding—despite the fact that the region has the highest inequality in access and spends the most on healthcare across the regions—and analyzes multiple aspects of health equity. The agenda needs to move from these debates to designing and leveraging delivery and payment systems that target performance and efficiency.

The absence of research on payment arrangements and performance is a symptom of a health management culture based on processes rather than results. Indeed, health services in the region remain rooted in a culture of fee-for-service and supply-driven models, where expenditures are independent of outcomes.

Health policy reforms in LAC need to address efficiency rather than equity, integrate healthcare delivery, and tackle provider payment reforms. The integration of medical records, adherence to protocols and clinical pathways, establishment of health networks built around primary healthcare, along with harmonized incentives and payment systems, offer a direction for reforms that allow adapting to existing circumstances and institutions. This offers the best path for sustainable UHC in the region.

Keywords: health financing, Latin America and Caribbean, health economics, universal health coverage, provider payment systems, equity and efficiency in healthcare

Introduction

Latin American research on health economics and finance has focused heavily on issues of funding sources, spending, access, and equity, reflecting political and economic priorities. Issues in healthcare delivery, efficiency, payment systems, and economic tradeoffs have received far less attention, despite the importance of these topics to fiscal health and the effectiveness of resource use, both critical considerations in resource-constrained settings. Additionally, the focus on empirical analysis of public sector programs and spending eclipses work on the private health sector, although, on average, the latter represents just under half of all health spending in Latin America and Caribbean (LAC) countries, and in some countries, private spending exceeds public investment.

The aim of this article is to analyze the health policy challenges to achieving universal health coverage (UHC) in LAC using the lens of health economics, drawing on the research of the last few decades to demonstrate the trends in financing priorities and economic solutions in addressing shortcomings. It is divided into five sections. After the Introduction, the next section provides an overview of healthcare access, equity, financing, and quality-of-care challenges in the region. The third discusses regional patterns of healthcare financing. The fourth section summarizes and analyzes health economics and research in LAC since the 1980s, drawing on the English-language literature, but with some references in regional languages. The article concludes with an analysis of current directions for future research based on regional challenges and the area’s political economy.

Access to affordable and comprehensive healthcare services is a crucial dimension of quality of life in any country, and the governments in the LAC region adopted this as a responsibility early in the 20th century, building on European models that guaranteed equal access to healthcare. In the 1980s, LAC governments restated their commitment to principles of equity, solidarity, and collective action by expanding services to ensure that all citizens have access to healthcare (Cotlear et al., 2015; Dmytraczenko & Almeida, 2015; Medici, 2009). During this decade, health emerged as a fundamental human right and entitlement in most of Latin America (Atun et al., 2014); indeed, many constitutions have enshrined healthcare as a right of citizens (Yamin & Frisancho, 2015).

Commitment to access and equity continues to figure prominently in legal and policy structures, and is constantly being reinforced in public statements, resource allocations, and actions. Most recently, UHC was internationally endorsed through the September 2015 United Nations General Assembly agreement to the Sustainable Development Goals (SDGs), which committed signatory countries to meeting a set of 17 goals by 2030; the third SDG includes 10 targets, among them achievement of UHC. This commitment has been previously embraced by many LAC countries and translated into action in much of the region (Atun et al., 2014).

UHC means, at the very least, the right of citizens to access healthcare that guarantees health promotion and prevention and provides geographically accessible care. Improving access to healthcare services requires that citizens have a source of healthcare providing integrated services to families and communities. These services must include access to early detection and treatment of communicable and non-communicable diseases (NCDs) as well as emergency and elective healthcare to meet basic health needs. The system should help patients avoid catastrophic expenditures that compromise ability to access care and weaken financial stability.

However, the distance between these aspirations and effective UHC implementation is considerable, especially among low- and middle-income countries (LMICs)—including much of LAC—due to resource and institutional challenges. Sustained adherence to UHC is further complicated by the constant discovery and dissemination of new medical technologies, drugs, and therapies, which have implications for healthcare costs, and confront governments in all countries with challenges in meeting UHC goals.

In LAC countries specifically, the barriers to achieving UHC include not only the level of health spending, but also inefficiencies in the use of public and private health funding. Health spending constraints limit the scope and depth of services needed to meet the commitment to UHC, but poor quality and weak public sector management of healthcare delivery undermine the efficient and effective use of existing public resources. Yet these topics, despite their importance, have received far less attention in policy discussions, or in the literature. Instead, much of the health economics research in LAC is biased toward analysis of equity and access, reflecting policy and financing priorities.

The next sections seek to analyze the health policy challenges to achieving UHC in LAC through the lens of health economics and finance. Drawing on research since the 1980s, it is possible to identify trends in financing priorities and offer economic solutions to address shortcomings.

LAC Challenges in Terms of Healthcare Access, Equity, Financing, and Quality of Care

Most of the existing literature indicates that LAC has been successful in expanding health coverage over the last two decades of democracy, reducing inequality and ensuring stable economic growth (Titelman, Centrágolo, & Acosta, 2014). Since the early 1990s, governments expanded services to millions of people, mostly achieved through subsidizing the poor and offering free reproductive, maternal, and child health services, and thus narrowing the gap in access to services. For example, the percentages of pregnant women receiving antenatal care and births attended by skilled health personnel (Figures 1 and 2) do not vary much between the poorest and the richest quintiles across most LAC countries.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 1. Percentage of pregnant women receiving antenatal care in some LAC countries (last data available).

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 2. Percentage of births attended by skilled health personnel in some LAC countries (last data available).

Source: Demographic and Health Surveys (DHS), several countries and years.

Note: AR—Argentina; BE—Belize; BO—Bolivia; CO—Colombia; CR—Cost Rica; DR—Dominican Republic; ES—El Salvador; GU—Guatemala; GY—Guyana; HA—Haiti; HO—Honduras; JA—Jamaica; ME—Mexico; PR—Paraguay; PE—Peru.

Nevertheless, inefficiencies in health services supply persist. For example, some LAC countries often hospitalize patients whose treatment could be more effective and costless at a primary care services level, increasing health spending with poor results (Guanais, Gómez-Suárez, & Pinzón, 2012).

Additionally, substantial socioeconomic inequalities in health coverage remain, especially in the poorest countries such as Haiti, Bolivia, Honduras, Guatemala, and Guyana. There are still persistent coverage gaps between the poorest and richest quintiles for other indicators of access to preventive and curative health services, such as treatment for childhood infections (e.g., diarrhea and acute respiratory problems), access to contraception, and immunizations.

One example of inequality in health access is the healthcare utilization differential for individuals living with NCDs, measured by the “ratio of NCD health services utilization.” This ratio is defined as the percentage of persons living with NCDs who utilize health services divided by the percentage of persons without NCDs who utilize services. It is expected that people with NCDs visit doctors more times than people without NCDs, given that this indicator is sensitive to differences in how health services screen and provide healthcare options for populations living with NCDs. In countries such as Peru and Nicaragua (according to household surveys for 2008), the ratio in the poorest quintile is only 1.5 and 2.68, compared with 2.3 and 3.5 in the richest quintiles of these two countries, respectively (Medici, 2016).

NCD represents the predominant disease burden across LAC and it has risen across all socioeconomic groups, over time and across countries, but access to appropriate preventive and treatment services is lagging in much of the region. For example, in Brazil, over 60% of cancer cases are detected at stages 3 or 4, when the cost of treatment is several times greater than at stages 1 and 2, and the probability of death is much higher (Medici, 2018). Challenges of access to these services are not universal, however. In the highest income groups, access to prevention, early detection, and treatment meets international standards, especially for those who are covered by private health insurance; but in the public system, early detection is rare and treatment typically begins two months after detection (Equipe Oncoguia, 2015). This has negative implications for the poor, who disproportionately rely on public services for diagnoses and treatment.

This disparity in access to early diagnosis and prevention for NCDs is representative of a broader divide in health access between the poor and the middle/upper classes in LAC. The poor face more difficulties in accessing health services than do the rich and middle classes. As Figure 3 shows, over 90% of the population in the poorest income quintile faced problems accessing health services in Bolivia, Haiti, and Peru, while the population in the richest quintiles had far fewer problems.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 3. Percentage of persons with problems accessing health services in some LAC countries (Last Data Available).

Source: DHS, several countries and years.

The remaining challenge in LAC countries is how to transform UHC commitments into reality with resource constraints and rigidities in public financing and delivery. The World Health Organization (WHO) and the World Bank have constructed a set of indicators to follow the achievement of UHC: SDG indicator 3.8.1. Known as the “UHC Service Coverage Index,” it is a composite index of the following: (a) reproductive, maternal, newborn, and child health; (b) infectious diseases; (c) non-communicable diseases; and (d) service capacity and access (World Bank and WHO, 2017). The index is a proxy of the number of people who receive all these essential services according their affiliation with a health service scheme. It is comprised of 16 tracer indicators, which track population coverage by essential health services and are selected based on data regularly collected and published for a majority of countries. More details on the methodology and the description of each one of the 16 used indicators can be found in World Bank and WHO (2017).

Figure 4 shows the percentage of achievement of the UHC Service Coverage Index by region; LAC is ahead of all other developing regions, and above the global average.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 4. Percentage of achievement of the UHC service coverage composite index by world region: 2017.

Source: World Bank and WHO (2017).

Where populations do not qualify for publicly financed coverage, out-of-pocket (OOP) payments for healthcare can cause households to incur catastrophic expenditures for major illnesses, which in turn puts them at risk of falling into poverty. Subsidized services can in theory prevent families from incurring catastrophic health expenditures and/or bankruptcy. The incidence of catastrophic health expenditure (SDG indicator 3.8.2) is measured by WHO and the World Bank at two expenditure thresholds: 10% and 25% of total family spending. In other words, these two indicators measure the portion of the population that spends more than 10% and 25%, respectively, of total household expenditure on health-related costs as a measure of the constraints introduced by health spending that could lead families into the poverty. Table 1 shows the percentages of the population at risk of impoverishment due to these catastrophic health payments over time, by region.

Table 1. Percentage of the Population at Risk of Impoverishment Due to Catastrophic Health Costs

Regions

2000

2005

2010

10% Threshold

25% Threshold

10% Threshold

25% Threshold

10% Threshold

25% Threshold

Global

9.7

1.9

11.4

2.4

11.7

2.6

Africa

8.7

1.5

10.3

1.9

11.4

2.5

Asia

10.4

2.1

12.2

2.8

12.8

3.1

LAC

13.4

2.6

17.5

3.2

14.8

2.5

North America

5.5

1.0

5.3

0.9

4.6

0.8

Europe

3.5

0.9

7.0

1.0

7.2

1.0

Oceania

3.5

0.5

3.4

0.4

3.9

0.5

Source: World Bank and WHO (2017).

In 2010, LAC had the highest level of catastrophic spending at the 10% threshold, and is tied for the second highest at the 25% threshold. This finding aligns with the inequality that persists in the region, despite progress in improving income distribution over the last decade.

The lack of practical solutions based on targeting the poor is problematic. It is easy to say that social inequities in health exist because the society is unequal, and that resolving those inequalities is the only way to respond. However, governments in LAC countries have tried to address social inequalities in health by implementing populist policies such as free health services for all, but these have neither resolved the social inequalities nor achieved health equity. Households in the poorest quintile are most likely to experience catastrophic health spending in all countries, hence targeted public (based or not in insurance) subsidies for these groups could be an alternative. However, providing access to services at a higher level of quality, efficiency, and effectiveness poses the real challenge to LAC governments. Access is adequate in terms of spending and geography, but services seem to fall short in financial protection and in targeting priority health conditions.

Regional Patterns of Health Financing in LAC

Health expenditures are highly correlated and associated with income. Countries in the Organisation for Economic Co-operation and Development (OECD) have higher incomes and greater public health spending, but they also benefit from stronger governance and effective tax systems, leading the public sector to provide more and better services (World Bank and WHO, 2017). By contrast, LMICs often offer inadequate health coverage, forcing citizens to rely on private insurance or OOP spending.

While the European model relies heavily on public funding, other high-income countries, such as the U.S., employ a mix of private insurance largely provided through employers, earmarked taxation (in the U.S., Medicare for the elderly and Medicaid for the poor), state-level subsidies, and OOP spending. In the U.S., the public sector finances roughly half of all healthcare. According to the U.S. Current Population Survey, as of 2016, 9% of the population remained without any insurance coverage; as in LAC, this is a consequence of the inequities in society. As will be discussed, LAC countries generally aspire to European systems, but in fact better reflect the U.S. model, with a mix of public and private financing and delivery.

As shown in Figure 5, the LAC region spent 7.4% of gross domestic product (GDP) on health in 2014, below that of North America and ECA (encompasses Western and Eastern Europe, and Central Asia), but above the East Asia Pacific (EAP) and Middle East and North Africa (MENA) regions. LAC, EAP, and MENA could be considered the “world middle class” in terms of health spending, having spent US$1,057, US$960, and US$1,981, respectively, per capita at purchasing power parity on health in 2015.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 5. Total health spending as % of GDP: World Bank regions 2015.

Source: World Bank (2018).

Figure 6 compares per capita health expenditure with per capita income in 2015. ECA health spending was two and a half times higher than that of LAC, reflecting the rapidly rising incomes in Eastern Europe and the high incomes of Western Europe. On a per capita basis, the U.S. and Canada (North America: NA) spent more than nine times what LAC countries spent.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 6. Total per capita health spending and per capita income: World Bank regions 2015.

Source: World Bank Indicators (2018).

According to the data in Figure 7, just over half of total health spending in LAC is public. This is much higher than in the poorest regions (South Asia, SA; sub-Saharan Africa, SSA), where 26% to 35% of funding is public, but pales in comparison to the 78% of public funding in ECA. The participation of the public sector in health spending in LAC is almost identical to that of NA, though the composition of that spending is quite different.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 7. Percentage distribution of the total health expenditures by source of financing: World Bank regions 2015.

Source: World Bank Indicators (2018).

Most concerning is the high percentage of OOP payments in LAC: over 30% of healthcare is financed by OOP spending. This is significantly higher than the 11% in NA and 18% worldwide. It reflects the high levels of income inequality in LAC, and is driven by uneven coverage and access, as well as shortcomings in the public delivery systems. Even LAC countries with nominal universal coverage exhibit high average levels of private insurance coverage and OOP payments. For example, over 25% of Brazilians have private insurance and over 25% pay OOP, reducing the public contribution to total health expenditure to less than half, despite constitutional and legal guarantees to universal access and UHC (see Figure A3). Rounding out the total health financing in LAC is financing from all external sources, which is negligible at 1%.

These regional trends in health spending mask considerable variation within the LAC region itself. While the average health spending across the LAC region as a whole is 7.4% of GDP, individual country spending ranges between 3.2% of GDP in Venezuela to 9.2% of GDP in Uruguay. Only 10 countries spent more as a percentage of GDP than the regional average. The range of per capita health expenditures (at purchasing power parity) varied from US$120 (Haiti) to US$2,204 (Trinidad and Tobago) and again, 10 countries spent above the regional average. Figure 8 shows the range of health spending in LAC countries in 2015 relative to national per capita income. Chile, Brazil, Uruguay, and Costa Rica spend more on health adjusting for per capita income; others, like Mexico, Colombia, and Peru, are spending less than the adjusted regional average.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure 8. Per capital health spending and health per capital income in LAC countries: 2015.

Source: World Bank Indicators (2018).

The percent of total government spending devoted to health also varies from country to country, and by a significant amount. In 2015, it ranged from 3% in Haiti and Venezuela up to 20% in Uruguay and Chile, with the average hovering just below 11%. Thus, expenditure across the region varies in many dimensions, and ranges are dramatic, reflecting heterogeneity across LAC.

The mixed health systems structure in the region are a legacy of colonial pasts, and an evolution of coverage and spending in response to evolving policies and programs at the national and sectoral levels. Spanish- and Portuguese-speaking countries established social security systems, effectively social health insurance (SHI) systems, in the first half of the 20th century that were financed by mandatory employer and employee contributions, and designed to meet the needs of formal sector workers and their families. Parallel systems for those categorized as “informal workers”—those who are self-employed, in agriculture, irregularly employed, and not contracted by formally registered companies—were effectively left to self-finance their care until subsequent UK National Health Service (NHS)-type systems, with public provision and financing, were phased in by governments to cover those outside the SHI system. Reliance on an NHS-style system among the English-speaking Caribbean countries from the onset offered their populations a comprehensive, single-payer, publicly delivered healthcare system.

Brazil, Chile, Colombia, and Costa Rica have since either merged or restructured their parallel SHI and NHS systems, which has changed the face of healthcare and its financing in those countries. In the case of Brazil, the 1988 constitution extinguished the existing predominant SHI system, creating the larger and regionally decentralized NHS in the region (the unified health system called Sistema Único de Saúde (SUS)); however, a large private health insurance system arose from the 1990s to early 2000s offering health plans for one quarter of the Brazilian population (Medici, 2002). Costa Rica merged all small SHI in a large and monopolist SHI with recent reforms to enhance primary care access (Cercone, Pinder, Jimenez, & Briceno, 2010). Chile pioneered health reforms in the region in the early 1980s, extinguishing the old SHI and creating public health insurance for low-income formal workers and their families and a competitive private health insurance system for middle-class and higher-income families (Bitran, Munoz, Aguad, Navarrete, & Ubilla, 2000). Colombia made a huge reform in 1992 (by the Law 100) creating a two-tier competitive SHI: one contributive, addressing the formal labor market, and another subsidized, focused on the informal sector and the poorest families (Miller, Pinto, & Vera-Hernández, 2009). In the next section, “Health Economics and Finance Research on LAC,” the reforms of Brazil, Chile, Colombia, and Costa Rica will be analyzed in detail.

Other countries have adjusted their health systems in recent years, but without disruptive health reforms. Argentina implemented changes in its three main health subsystems (a predominant SHI, a public-funded system, and private health insurance) as a way to adapt to the economic crises’ context. Argentinean’s SHI is highly fragmented, spread among over three hundred institutions (obras sociales) covering specific groups of formal workers and responding to more than one third of the total health financing. Since 2008, almost 10% of the population lost SHI protection due to the economic crises. Some of them changed to private health insurance schemes, since the health reforms implemented during the 1990s allowed some employees to do so, but the majority of the population affected by the crises and informality switched from SHI to public coverage (Cavagnero & Bilger, 2010).

Uruguay, which has another predominant SHI system, launched a new health law in December 2007, creating a National Integrated Health System (SNIS) and National Health Insurance (NHI) prioritizing equity, financial protection, and changes in the healthcare model. The law established adjustments premiums, inclusion of new services, and reduction of co-payments, as well as improvements in system efficiency (Arbulo, Castelao, Oreggioni, & Pagano, 2015). Mostly, the Uruguayan reform was based on new institutional arrangements for improving efficiency (such as enabling strategic purchasing and use of incentives to change the healthcare model) to allow better sectoral governance, combining innovation with a new relationship formed among the state, the health market, and society. The new SNIS and NHI are based on cooperation and healthcare complementarity, overseen by a new National Board of Health.

A vibrant private sector of both payers and providers exists in parallel with public investments in the LAC region, and most citizens select to use both public and private providers. This reflects both the limitations of public funding levels but also the accessibility and (perceived) quality of public services. In Mexico, officials in the Ministry of Health, one of the agencies responsible for public healthcare service delivery, have private health insurance coverage; this sums up part of the challenge.

The sources of funding for healthcare differ across national health systems but encompass the following:

  • Public financing: from general taxation and SHI.

  • OOP payment: from individuals and households, often paid directly to pharmacies, physicians, hospitals, and informal providers.

  • Other private financing: private insurance (often referred to as voluntary health insurance, VHI), though private insurance is most often an employer benefit with mandated employee contributions and philanthropy.

  • External sources: from multilateral and bilateral donors.

Table 2 classifies the 31 LAC countries by their mix of financing using five classifications.

Table 2. Health Financing Mix in 31 LAC Countries in 2015

Financing Mix

Countries

Over 50% public funding

Argentina, Belize, Bolivia, Colombia, Costa Rica, Cuba, Dominica, El Salvador, Jamaica, St. Lucia, Suriname, Uruguay

Under 30% OOP and private financing

Over 50% public funding

Chile, Guyana, Nicaragua, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago

Over 30% OOP and private financing

Over 50% OOP and private financing

Bahamas, Barbados, Brazil, Dominican Republic, Ecuador, Honduras, St. Vincent and the Grenadines, Venezuela

Over 50% only OOP

Guatemala, St. Kitts and Nevis

External aid major source of funding

Haiti

Source: Author elaboration based on World Bank (2018); see Figure A3. Appendix C.

Public funds represent over 50% of health spending in 20 of the 31 LAC countries, and are financed by a combination of SHI and general taxation. SHI is the predominant source of public health financing in most LAC countries and revenues are based on contributions from employees and employers, with some countries providing targeted subsidies for the elderly, low-income children and youth, and households below the poverty line. SHI funds are also subsidized through general revenue in a handful of countries. By contrast, Bahamas, Barbados, Brazil, Dominica, Jamaica, and St. Vincent and the Grenadines have a universal NHS system financed through general tax revenues.

Despite significant public spending across much of LAC, OOP payments remain an important source of health spending. Figure A3 indicates that in 17 LAC countries, OOP represents 30% or more of total health spending, and over 50% in Guatemala and St. Kitts and Nevis.

Among other private sources of financing, private health insurance (or VHI) is the most important, and is largely concentrated in a small, high-income segment of the population. Out of 31 countries in LAC, 26 are covered by private health insurance, and in eight of these countries, it comprises at least 10% of total health spending, as shown in Table 3. Most private insurance is employer-based health insurance, although individual plans exist as well (Pettigrew & Mathauer, 2016).

Table 3. LAC Countries with Private Health Insurance Coverage Over 10% (Latest Data 2018)

Countries

Argentina

10.1

Bahamas

23.1

Brazil

28.2

Colombia

10.9

Guatemala

10.1

Jamaica

15.4

Suriname

30.8

Uruguay

13.9

Source: World Bank (2018).

Suriname has the highest rate of private health insurance coverage—almost one third—and encompasses various forms of insurance, including public insurance primarily for civil servants, with voluntary membership for other family members, while the private formal sector is primarily covered via employer-based health insurance or other private (voluntary) health insurance (Pettigrew & Mathauer, 2016).

After Suriname, Brazilian citizens rely the most heavily on private health insurance (28%), mostly covered as employer health insurance benefits, though a small proportion of the population purchases individual insurance coverage either for comprehensive care or ancillary services such as dental care (van der Heijde & Mendonça, 2012). Private health coverage expanded after the 1988 constitution dismantled the social security system and created a universal health system (SUS). Effectively, many employers and employees shifted from SHI to employer-sponsored private insurance. Other non-formal sector workers choose to purchase health insurance either on their own or as part of a membership organization (e.g., engineering association).

In 2007, 18.9% of Jamaicans 15–74 years old had private health insurance, mainly as an employee benefit rather than as individual coverage. However, participation is declining due to slow economic growth and increasing labor force informality following the 2008 international economic crises, and by 2009 private health insurance coverage had dropped to 15.4% (Cushinie, 2010). In Guatemala, private coverage mostly complements the SHI for formal sector workers.

Considering the short-term trends in health spending, since the 2008 economic crisis, public health expenditures have been on the decline in many LAC countries and OOP payments are rising in tandem. This trend further undermines achievement of equality and UHC goals.

Health Economics and Finance Research on LAC

This section summarizes the major trends and accomplishments in LAC since around the late 1970s in health economics and finance, drawing on key research to illustrate the points and to provide context to the research findings. We focus on the contributions to the field from studies and research in English on multiple topics under the rubric of health economics and finance. National-level expenditure data are discussed in multiple research efforts, reports, and other publications. These are not studied here as many simply review similar data or provide the information as background, although equity studies review expenditure levels consistently.

Research on health financing in LAC was expanded in the 1980s with analysis of the impacts of the macroeconomic financial crises on health, and how to pay for publicly financed and provided healthcare as costs were spiraling, particularly in social security systems (Mesa-Lago, 1985). Musgrove (2004) assessed the impacts of the economic crises and concluded that countries reduced investment costs in that period, and while recurrent expenditures declined, staffing levels remained constant. In both cases, the lack of data on health during and after the crises across the region inhibited good analysis or even grasping the magnitude of shifts.

The value and harnessing of health data evolved over the 1990s and 2000s with a strong investment in fiscal and household data, much of it comparable across the region thanks to a regional data collection initiative in the 1990s, ENCOVI (Encuesta Sobre Condiciones de Vida), which offered a basis for research on public spending and equity, as measured specifically by access. Despite such progress, data gaps in measuring performance, efficiency, and costs of healthcare have affected what is researched, the research methodologies utilized, and ultimately what evidence exists regarding healthcare economics and finance in the region.

This section is broken down by specific subtopics. We summarize the breadth and content of the available English-language research related to each topic, as well as some implications for further research.

Demand for Health

Healthcare demand has received little attention. Bitran and McInnes (1993) provide comprehensive definitions, explanations, and analysis of the demand for healthcare, outlining the differences among need, demand, and utilization (effective demand), and how understanding the three aspects of demand should inform public sector decision-making. It stands as the best analysis of the theory and its application in low- and middle-income settings. In applying the framework to examine demand for healthcare across income groups in Santo Domingo, Dominican Republic, and San Salvador, El Salvador, they found higher demand for private compared to public healthcare. Overall, 58% of users chose private providers for outpatient and inpatient care, and 33% relied on public services, with the poor using private providers as frequently as the rich. In both cities, the poor preferred to pay OOP rather than wait for public care, as an inverse relationship emerged between paying and appetite for waiting.

Measuring demand means examining actual use of health services, usually through household or provider exit surveys (Bitran & McInnes, 1993) or through focus groups (Lewis, Eskeland, & Traa-Valerezo, 2004). The latter study, in which separate focus groups of men and women from randomly selected towns across El Salvador were convened, resulted in a strongly expressed preference for care from the for-profit private sector. Men said they would not go elsewhere. Women found non-profit outpatient services acceptable, and only sought public hospital care when they could not afford private care, effectively echoing the results from the San Salvador study.

Health and Equity

As discussed, economics research in LAC has focused heavily on equity issues, and the embrace of UHC simply reinforced the drive to understand and address inequity. The studies implicitly use spending levels as a proxy for equity. Ironically, as previously discussed, inequity in LAC is the highest in the world, despite the fact that it spends the most on health as a percent of GDP, reflecting the fact that the issue is more complex than many policymakers and researchers assume.

Costa Rica expanded children’s health insurance coverage between 1973 and 1984 from 42 to 72%, and the infant mortality rate (IMR) during that period declined from 70 to 20 deaths per 1,000 live births. Using a country fixed effects model, Dow and Schmeer (2003) concluded that insurance explained only a small part of the drop in IMR, however. The region would be well served to apply that level of rigor to researching impacts of investment as policy decisions and credit for achievements tend to be skewed toward priors that are not adequately measured in research.

Knaul et al. (2006) compare patterns of household catastrophic health spending incidence across 12 LAC countries. Data from national household surveys were applied to measure national experience with catastrophic expenditures and compare experiences across countries. The results indicate that between 1% and 25% of households in the 12 countries experienced catastrophic expenditure due to healthcare costs. In general, rural residence, being part of the lowest income quintile, presence of older adults, and lack of health insurance were found to be associated with higher likelihood of catastrophic health expenditures.

Considerable attention has been paid to the design of the benefits package under SHI. Giedion, Tristão, and Bitran (2014) compared benefit plans across seven countries in the region and showed that implementing a coherent benefit package is both technical and politically difficult given the lack of oversight, limitations of human resource inputs, and the inability of healthcare systems to limit access to services when under pressure from patients.

The recent World Bank agenda to address UHC produced a book and a number of working papers, some for LAC countries, that reviewed the evidence and made recommendations regarding directions for change in financing as well as delivery and management of healthcare (Cotlear et al., 2015). A set of edited papers by Dmytraczenko and Almeida (2015) use UHC to discuss coverage and equity among countries in the region. Cotlear, Nagpal, Smith, Tandon, and Cortez (2015) explore the results of different public healthcare programs that target specific groups, and the resulting segregation of patients, a persistent issue in virtually all countries.

Who Should Pay for Healthcare?

Affordability and how to pay for expanding and ever more expensive care led to debates starting in the 1980s on the acceptability of user fees to finance care as a complement to public spending, and the implications for the poor and equity overall (Jimenez, 1986). The controversy over user fees and their relevance to healthcare systems in the region became a litmus test for equity partly because the debate lacked nuance: the choice became either for households to pay for all care or receive it for free. The region had previously embraced cost sharing with patients for sound financial reasons, but the region and the broader global community came to essentially decry the practice.

Gertler, Locay, and Sanderson (1987) used a simulation model for Peru and concluded that while user fees generate revenue for the public system, the negative impact on aggregate consumer welfare suggested that “undiscriminating user fees” were regressive. The debate continued as user fees were a rallying cry in many countries in the region. Research from Jamaica (Lewis & Parker, 1991), the Dominican Republic (Lewis, 1992), and Honduras (Lewis, 1993) collected data from facilities, measured the effects of user fee revenue on providers, and concluded that: (a) the marginal value of revenue was significant given the rigidities of line item budgets, and (b) fees could be set on a sliding scale to accommodate the poor, a practice of all three countries.

Health and Efficiency

Efficiency concerns have not resonated in LAC countries’ public systems. Indeed, Brazil’s Labor Party government rejected the efficiency agenda on ideological grounds. Partly due to ideology and partly to rigidities of the public sector delivery model, addressing inefficiency and waste have not been on the agenda, but some initiatives have examined the topic.

Araujo (2018) undertook a data envelope analysis for Brazil looking specifically at the public healthcare system. He estimates average efficiency losses in primary care, and secondary and tertiary care combined at 23% and 34%, respectively, which translates into US$9 and 13 billion, respectively, in annual losses. In primary care, efficiency correlates with the size of municipalities; municipalities under 5,000 population are just 54% as efficient as the most efficient municipalities. The biggest opportunities for efficiency gains arise from improving integration across levels of care, raising worker productivity, and improving hospital performance; together, these efficiency improvements could save over US$16 billion annually.

Another area that implicitly captures inefficiency is the overuse of hospitals, something that is poorly measured, but widely acknowledged by providers and managers. The separate management of hospitals and primary healthcare facilities contributes to the lack of integration, and to the costly overuse of hospital services. Macinko et al. (2010) used a standardized methodology to distinguish unnecessary hospital discharges in Brazil between 1999 and 2007, examining the impact of the Family Health Program, a primary care program (see discussion in the section “Brazil Reform”). The Program’s medical team approach, house-to-house visits, and community health efforts resulted in statistically significant declines in unnecessary hospitalizations, and doubled the decline for chronic conditions such as asthma, cardiovascular disease, and strokes.

Guanais et al. (2012) analyzed a similar issue in Argentina, Colombia, Costa Rica, Ecuador, Mexico, and Paraguay and concluded that out of 39 million discharges, between 10.8% (Costa Rica) and 21.6% (Colombia) of hospitalizations could have been managed instead at a lower, and less costly, level of service. They estimate that the unnecessary costs can reach as much as 2.5% of total health spending, suggesting that the problem, while small in percentage terms, is a serious fiscal concern. Anecdotal evidence indicates that the percentage may be even higher, and given the limited services included in these studies, it is conceivable that they provide an underestimate. Better integration of secondary and primary care, rather than managing these services in parallel as is currently the practice, could help reduce fragmentation and improve patient access to appropriate services.

A third efficiency issue surrounds costs and effective use of resources. Lewis, LaForgia, and Sulvetta (1996) performed an in-depth study of hospital costs, measuring actual costs rather than relying on expenditure data. This was accomplished over a two-week period in a Dominican Republic hospital using time and motion studies, direct measurement of resource use (e.g., unit costs of pharmaceutical administration, lab tests), and application of a step-down approach to allocate indirect costs. The results allowed comparisons of a number of measures, among them: expenditures versus costs, where the former was 50% higher than actual costs; comparing the total cost of human resources (84% of the budget) to the average human resource cost per patient treated (12%); and absenteeism of physicians, which reached 88% of contracted time. Costs also showed perverse expenditures, for example, the cost of the large, underutilized immunization clinic exceeded average surgery costs by 20%.

Restructuring the Financing and Delivery of Healthcare

A few countries—Brazil, Chile, Costa Rica, Colombia—have achieved a complete restructuring and overhaul of their healthcare delivery and financing system. The nature of the restructuring varied significantly across the four countries.

Brazil Reform

The SUS is a decentralized, federally financed healthcare system that emanated from the new constitution in 1988, which marked the reestablishment of democracy. The existing parallel SHI and NHS-type systems were merged into a single, national, universal system (SUS), centering care around public health and envisioning service provision to all citizens, which also implied absorbing the private sector over the longer term. Public payment was intended to be based on a prospective payment, originally to both public and private providers, but public services now dominate under SUS. As discussed in the section “Who Should Pay for Healthcare?”, it effectively morphed into a line-item budget system. Decentralization to the municipalities has created challenges, but has also spawned experimentation at the state and municipal levels that were later adopted elsewhere. SUS also drove out the upper and middle classes, however, which explains why over 25% of the population has private health insurance and OOP comprises an even higher percentage of total health spending (IESS, 2018; Lewis & Medici, 1995, 1998). While Brazil’s public health efforts produced impressive control of infectious disease, its service delivery lags, with low efficiency (Araujo, 2018; LaForgia & Couttolenc, 2008), low quality, and a lack of basic incentives for healthcare performance and outcomes. It can be argued that SUS deserves an update, but to their credit the 1988 reforms universalized care and shifted away from a hospital model of care, no minor feats.

Chile Reform

The end of dictatorship marked the shift toward a new system for Chile as well. In 1981, the government established two separate systems: one managed, financed, and delivered by the public sector, known as FONASA (Fondo Nacional de Salud); the other, options across a set of privately managed care providers known as ISAPRES (Instituciones de Salud Previsional). Workers select their preferred provider and the employer/employee insurance premium is submitted directly to the provider (Bitran & Urcullo, 2008; Bitran et al., 2000). In 2005, the government mandated health insurance coverage for selected (mostly chronic) medical conditions; this mandate applied to both the public system (FONASA) and ISAPRES. The results, based on evidence pieced together from public data, show sizable improvements in diagnosis and treatment of chronic conditions for all beneficiaries in the system, and particularly for hypertension, depression, and type 1 and 2 diabetes. Improved diagnosis also allowed more timely treatment (Bitran, Escobar, & Gassibe, 2010). Limited evaluations have prevented a full understanding of the impact of reforms, and those noted are therefore partial. Chile’s unique financing and delivery structure deserves more scrutiny to generate lessons for policy in the country and beyond.

Colombia Reform

Analysis of the dramatic Colombian health reform launched with Law 100 in 1993 offers particularly valuable insights into the big-bang approach to reform. The reformed system, which replaced the previous NHI-NHS system, raises funds through payroll taxes on formal sector workers, supplemented by general tax revenue (Rodriguez-Monguio & Infante, 2004). The reform separated providers and payers, introduced competition among providers, launched market-driven incentives through managed competition, and established subsidized coverage for low-income households. The intent was to move from supply-side dominance of what to provide, where, and to whom, to a system in which money follows patients as they move through the health system. Numerous studies have analyzed the economic, financial, and policy aspects of the reform (Giedion & Villar-Uribe, 2009; Glassman, Escobar, Guiffrida, & Giedion, 2009; LaForgia & Couttolenc, 2008).

Results after 16 years were impressive, with insurance coverage growing from 25% to 85% of the population, including among the self-employed, and increases in utilization (Glassman et al., 2009). Harnessing data from household surveys, Trujillo (2003) analyzed the relationship between health status and insurance participation, and between participation and healthcare utilization. With a three-equation model for SHI, private insurance, and health service use, he found that coverage leads to higher use of medical care, but, surprisingly, that those in good health and those with chronic conditions are more likely to enroll in SHI than those in poor health.

Further analysis of household data sheds light on other aspects of the reforms. Applying propensity score matching and instrumental variable analysis, Trujillo, Portillo, and Vernon (2005) and Giedion and Villar-Uribe (2009), in separate analyses, found that access to and utilization of healthcare services was significant and more pronounced among rural and low-income households as well as among the self-employed. They also found reductions in OOP payments and catastrophic spending, with those with subsidized insurance benefiting the most. Miller et al. (2009) analyzed the subsidized insurance cohort using a regression discontinuity design and found that the program not only reduced catastrophic health spending for low-income citizens, but also promoted use of preventive services through targeted incentives to providers, a major achievement of a social insurance program. Subsequently, with a different focus but similar empirical design, Camacho and Conover (2013) used household survey and administrative data for Colombia and found that babies born to mothers with health insurance had a lower incidence of low birth weight, and mothers also seemed to have relatively better access to health facilities, which reinforces the evidence on the positive impact of the reform.

The Colombian reform extended coverage and improved financial protection for households, but the issue of improving efficiency and effectiveness of services, another objective of the reform, received less attention, partly because baseline data and evaluation were not part of the reform plan. Nonetheless, McPake, Yepes, Lake, and Sanchez (2003) assessed the impact of the reform on hospitals, pulling together available data. While acknowledging that the data was partial, they analyzed trends in inputs, production, and productivity; evaluated case mix; and reported on qualitative studies of provider and patient perceptions and satisfaction. They found that productivity rose, partly due to reductions in staff and increases in discharges, complexity of cases rose, personnel were better informed, and processes in hospitals were formalized, though many staff remained anxious and overwhelmed by the extent of the changes. Patient satisfaction results were ambiguous.

Weiss (2013) raises questions about the financial viability of the reform over time, given the broad benefit package and the fact that over half of participating households required subsidies. In addition, the Colombian constitution guarantees universal access, which has led to legal actions and excessive spending, particularly on individuals who seek treatment outside the country and send the receipts to the government.

Costa Rican Reform

In 1974, Costa Rica merged its SHI and NHS systems into a single public provider-payer program, Costa Rican Social Security (Caja Costarricense de Seguro Social, known as Caja), that serves the entire population through publicly financed and delivered services. Its focus on primary care, internal contracts with performance indicators and targets, and electronic health records makes it stand out from other public healthcare systems in the region (Pesec, Ratcliffe, & Bitton, 2017). Cercone, Briceño, and Gauri (2004) multivariate analysis compared service delivery via contracts with non-profits and via traditional public sector providers and found a 30% lower expenditure per capita in private providers with no significant difference in outcomes. Costa Rica consistently produces solid health outcomes grounded in a carefully managed public system with some modern elements that improve performance.

New Financing Models

The need for new health financing models that build on existing experience was highlighted by Londoño and Frenk (1997), two public health leaders in the region in the late 1990s, who, respectively, designed and launched the Colombian reform and Seguro Popular in Mexico. In the quest for better options to target and finance care, countries have tested a number of alternatives to the traditional SHI or NHS delivery and financing system. Though few have been formally evaluated, these experiments have become policy and all of them innovated in healthcare financing. However, it is important to highlight the differences in financial models based on health insurance and strengthening of primary care networks (such as the subsidiary regimen in Colombia or the family health program in Brazil) and other non-sectoral policies, such as conditional cash transfers (CCTs) (Bolsa Familia in Brazil or Progresa/Oportunidades in Mexico), which use cash benefits to the poor as a way to create demand incentives to use health supply facilities for essential primary care benefits.

CCTs

The launching of a CCT program, Bolsa Familia, in Brazil in 1996 pioneered targeting income transfers to low-income households, conditional on their bringing babies in for well-baby check-ups (and sending children to school). Mexico established a similar program, Progresa, in 1997, which was launched in tandem with a highly credible randomized impact evaluation led by Jere Behrman and the International Food Policy Institute (IFPRI). Bahram’s (2010) impact evaluation of Progresa showed that the program led to a 17% decline in rural infant mortality among the treatment group, but did not reduce neonatal mortality on average. The benefit–cost ratio sits between 1.3 and 3.6. Gertler’s (2000, 2004) analyses of the health impacts of Progresa (and its successor, Oportunidades) showed improvements in prenatal care, child health, and nutrition due to the conditional household income transfer.

The results from Progresa led to widespread adoption of CCTs across the region as a way to stimulate demand for healthcare, particularly preventive services. Impacts were mixed, but, notably, efforts were made to measure impact through randomizing implementation of the program, a new approach in healthcare for the region. Brazil’s Bolsa Familia program eventually followed suit with a less rigorous evaluation, but reflected the acknowledgment that measurement of impact mattered for both research and policy (Aquino, Oliveira, & Barreto, 2009; Rasella, Aquino, Santos, Paes-Sousa, & Barreto, 2013; Shei, 2013).

With Mexico as an example, Knaul et al. (2006) make the point that evidence matters for policy as it not only guides policy, but also facilitates evidence on what worked and why.

Brazil’s Family Health Program (Saúde da Família)

The Family Health Program launched nationally in 1994, building off of and adapting a successful Brazilian state initiative. The program was built on the idea that financing house-to-house visits in low-income areas by a dedicated medical team could improve the health status of the lowest income households at a modest cost. The medical team, led by a physician, accompanied by nurse, outreach workers, and other medical professionals, visits homes on a regular schedule and engages in activities including: diagnosing ailments, identifying threats to health, treating or referring citizens for care, and tracking chronic illnesses through subsequent visits. The program allows for early identification of “silent” killers like high blood pressure, and ensures prenatal care access for pregnant women, among other things.

Funded by the federal government but implemented locally, the Family Health Program has expanded across the country, and multivariate analysis suggests that it has contributed to rapid reductions in infant and perinatal mortality, among other achievements (Aquino et al., 2009). Other countries, both within and outside the region, have adopted some aspects of the program. It represents one of the few successful efforts to truly address equity concerns in healthcare.

Mexico’s Seguro Popular

Mexico launched health insurance coverage for the low-income, uninsured population in 2003 with a seven-year rollout. The goal was to create explicit benefits for the poor and marginalized populations, funded via federal capitation grants to the states, who became responsible for designing their own state program for the indigent with oversight at the national level. A complementary Catastrophic Fund finances catastrophic care for specified diseases through fee-for-service payments to private providers. Mandated in the design is systematic data collection to support annual evaluations to track progress and measure impact (Knaul & Frenk, 2005; Knaul et al., 2012). The latter requirement has translated into a wealth of studies that shed light on activity and performance, and represents a sharp departure from reforms elsewhere in the region that effectively ignore the value of data, evaluation, and research in guiding policy.

By the beginning of 2006, 11.5 million Mexicans had gained insurance coverage under Seguro Popular, and federal transfers to states had increased by 38%. Results show effective targeting to low-income patients, declines in inequality in access to services, a sharp rise in the number of discharges for the newly insured, and households reportedly spending roughly 14% less on medications than uninsured households (Gakidou et al., 2006). King et al. (2009) exploited the randomized rollout of Seguro Popular and produced a difference-in-difference analysis that found somewhat different results: a 23% reduction in catastrophic expenditures, but no differences in spending on medication or in the number of discharges between the insured and uninsured. Barros (2008), in his impact study, found a reduction in OOP payments and a shift from private to public providers among the insured.

Nigenda, Wirtz, Gonzalez-Robledo, and Reich (2015) complement the observational and impact studies with an examination of the implementation of the reform. They conclude that lack of institutional capacity at the federal and state levels, federal–state tensions, weak information systems, political factors, and irregularities in some spending undermined the program. This may be the price of ambitious reform in an immature public sector structure.

Argentina’s Plan Nacer

Gertler, Giovagnoli, and Martinez (2014) conducted a randomized evaluation of an innovative public insurance incentive program in Argentina, Plan Nacer, intended to improve maternal and child health service coverage among low-income households through incentive payments to public physicians and hospitals. The initiative resulted in increased prenatal visits and higher birth weights, suggesting the value of financial incentives for public providers.

Nicaragua’s Insurance Experiment

In Nicaragua, Thorton, Hatt, Field, Solis Diaz, and Gonzalez (2010) undertook an evaluation of a voluntary public health insurance program of the Social Security Institute (INSS) that targeted informal sector workers. Although OOP expenditures fell, total expenditures fell by less than the insurance premium, and no evidence emerged of an increase in healthcare utilization among the newly insured. Low enrollment (20% of eligible population) and retention (10%) rates suggest limited demand, and the program was terminated once the subsidy expired.

Contracting Out and Public–Private Partnerships (PPP)

Contracting out public services to private, often non-profit, healthcare providers has been on the regional agenda since the mid-1990s, but has mostly manifested in sporadic, often short-lived, experiments that terminated either with a new government or dissatisfaction with the new financing arrangement. Driving many of the initiatives were inefficiency in service delivery, the high cost of public financing, and rigidities in public management of public providers and expenditures.

Experimentation with contracting out services to non-profit providers serving low-income populations in a number of Central American countries suggested advantages in terms of quality and efficiency of service delivery. Some of these experiments were triggered by the inaccessibility of underserved populations that non-profit organizations were willing to serve (LaForgia, 2005).

In Brazil, São Paulo initiated PPPs for private management of public hospitals, stemming from a law under the Cardoso government that placed a ceiling on the number public employees allowed in public facilities. In response, the state launched a new approach based on contracting out to non-profit organizations, Social Health Organizations (Organizações Sociais da Saúde, OSS), starting with 12 new hospitals in low-income areas of São Paulo. The partnerships are based on clearly delineated contracts that allow the management organization to hire, pay, and manage staff and all other inputs. The contracts contain equally clear accountabilities for the hospitals, which are evaluated monthly based on predetermined indicators by public oversight committees. Five percent of the budget is withheld annually to ensure compliance with the contract, and is released upon confirmation of compliance.

Comparisons of the performance of the 12 OSS hospitals and 12 traditional publicly managed hospitals—which rely on public servants and public budget rules—found higher quality and productivity, lower costs, and greater patient satisfaction in the OSS hospitals (LaForgia & Couttolenc, 2008; LaForgia & Harding, 2009). The OSS hospitals have been in continuous operation for 20 years and the model has been adopted by all new state hospitals, and by the primary care services contracted by the São Paulo municipality as well as by other states in Brazil (Lewis & Bonfert, 2019).

Another evaluated PPP experiment involves the San Miguelito Hospital in Panama, a major referral hospital. In this reform, Panama established a purchasing entity, Coordinadora Nacional de la Salud (CONSALUD), that combined Ministry of Health and Social Security Institute (the Panamanian SHI) funding and contracted out management and delivery of the San Miguelito Hospital. Using a prospective payment system that reimbursed the hospital on the basis of the number of discharges, outpatient surgeries, and emergency room visits, it created incentives for providers to engage and retain patients and enhance productivity. To measure the effects of the new arrangement, Bitran, Ma, and Gomez (2005) compared San Miguelito Hospital with two similar traditional public hospitals whose budgets were determined by the traditional former year allocation, where public sector staff were hired centrally, and managers had limited autonomy and minimal training in management. They found that San Miguelito Hospital produced higher inpatient volume, lower lengths of stay, higher technical efficiency, lower expenditure per patient, and higher rates of patient satisfaction than the comparative publicly run hospitals. The results mirror those in Brazil and suggest the value of well-structured and managed PPPs.

In Haiti, a pilot effort in 1999 to incentivize preventive services in non-governmental organization (NGO) service delivery led to the development of performance-based contracts. United States Agency for International Development (USAID) agreed to finance 95% of provider costs, with an additional 10% tied to achievement of six specific targets largely related to prevention. After one year, the results, reported by Eichler, Auxila, and Pollack (2001), showed a striking jump in percent immunized, which almost doubled in two of the three NGOs involved in the performance-based contracts. Additionally, availability of modern contraceptives rose, as did mothers’ use of oral rehydration therapy (ORT) and demonstrated appropriate preparation of ORT. No increase in prenatal care was found, however. The mixed results suggest potential for performance-based incentives, but some adjustments to performance targets.

Provider Payment

Salaries, historical (line-item) budgets, and capitation characterize how providers are paid in LAC countries. Brazil introduced a “DRG-light” payment, AIH (Autorização Internação Hospitalar) for hospitals in the 1980s shortly after the U.S. launched its diagnostic-related grouping (DRG) system. While the payment arrangement persists, it has evolved effectively into a budget allocation, as the amount of spending per facility is determined at the beginning of the year, and the AIH is used to reimburse facilities (Lewis & Bonfert, 2019). The Brazilian AIH payment system has never been evaluated or used to incentivize policy or provider performance, as happens in DRG systems in Europe or health plans in U.S. Public payers at all levels of the system ignore the power of the payment system to encourage efficiency and/or quality. Similarly, Chile’s prospective payment system functions like a historical budget despite the existence of a handful of reimbursement rates by disease (Telyukov, Novak, & Bross, 2001). Unlike Europe (Busse, Geissler, Quentin, & Wiley, 2011), DRGs have not even been harnessed to improve management in either country, nor do they function as actual prospective payment systems. Thus, the only payment innovations emanate from the CCT program in Brazil and PPPs.

Private Sector: Delivery, Financing, and Payment Systems

One of the advantages of private sector investments is the opportunity to innovate. Yet, in LAC countries, private health services tend to be largely traditional, fee-for-service, physician-owned and operated facilities. Privately managed care models in Brazil, Chile, and Colombia offer insights into alternative delivery and pricing arrangements that face incentives for efficiency and performance (Lewis & Bonfert, 2019), and Mexico’s diabetes management companies point to structural approaches that meet the needs of all segments of society. That experience, combined with the continuing dependence of the poor on private providers, suggests shortcomings in public systems, including those that purport to be universal. The emergence of upgraded private mini-clinics in greater São Paulo, Brazil—for example, Dr. Consulta, a chain of affordable and accessible clinics that has grown rapidly over the past five years—reflect lack of access, not necessarily geographic but rather related to the cost of time and inconvenience associated with accessing public healthcare facilities, factors that inhibit utilization and prove costly to patients. On the one hand, these private services reflect innovations that highlight alternative ways to deliver care, which could inform public sector investments; but, on the other hand, they fall short in promoting an integrated care model that both the public and private sectors will need to adopt in managing chronic conditions.

Prospective payment is in its infancy in the region, though it has potential as a way to better integrate public and private healthcare delivery. Similarly, efficiency gains are tied to better incentives linked to both management improvements and payment arrangements that promote enhanced performance. Evidence from the OECD, particularly with regard to those countries with mixed healthcare systems, points to the power of payment systems in promoting both quality and efficiency. United Healthcare acquisitions in Brazil have begun to explore the potential of alternative payment systems to drive performance, but fee-for-service systems reign in the region.

Finally, unavailability of private company data inhibits analysis and learning from healthcare experiments and rollouts in the private sector. Claims data, for example, are not exploited, compromising both management and innovation. Overall, evaluation and research are scarce, but measuring impact without impinging on proprietary information would inform both private payers and operators and establish a basis for broader adoption of innovations and improvements.

Current Challenges and Directions for Future Research

LAC countries have achieved a great deal in healthcare, and the research summarized in this article reflects creativity and experimentation at a level and scope beyond much of what has occurred in other regions. The mixed public–private system serving much of the region, the experience with SHI and private insurance, and the experiments with health service delivery and financing offer a basis for moving forward, provided lessons from these experiences are internalized and acted upon. Importantly, the rallying cry regarding insufficient spending captures only part of the challenge in healthcare in LAC countries. Better organization, financing, and delivery grounded in clearly designed incentives and accountabilities will likely have a major impact on access, quality, and efficiency. Funding alone will not help countries achieve these fundamental objectives, which lie at the core of the shortcomings of healthcare in the region.

In general, healthcare coverage is approaching universality across the region, although remote areas receive uneven coverage. More concerning are the quality and efficiency of services, two key economic factors that receive little attention or investment. Quality measures are scarce and no consensus exists on standards; management in facilities is weak and there are few studies that touch on relative productivity to measure efficiency; and costs are largely unknown, with the public sector relying instead on expenditure data to capture costs. The high reliance on OOP payments and the extent of private insurance coverage suggests dissatisfaction with available public options. Waiting times and time-intensive requirements to access care within publicly financed systems pose high costs to patients. Citizens effectively pre-pay for care via the tax system, but many select to purchase care in parallel.

Over the coming decades, the rapidly shifting demographic, social, and epidemiological patterns in the region will affect both public revenues and the demand for healthcare. The aging population and the rise of NCDs both have serious implications for healthcare costs, and also the type of care required, for example, more preventive services, long-term management of chronic conditions, integrated care, and palliative care. Despite acknowledgments of these challenges, most health financing in the region is still driven by illness episodes, rather than by managing chronic conditions. Indeed, Costa Rica offers the sole example of an integrated primary care system that functions effectively for NCDs (Gottret, Schieber, & Waters, 2008).

The poor economic and financial health information system in most LAC countries is another challenge for research evidence improvements and support tools for the management of healthcare services delivery in the region. Despite the fast increase of health databases at governmental and private levels, the current level of information about costing, financing, and results of health services need to be improved and crossed with other databases such as population health needs and implementation of health interventions. This is crucial for future evaluations of programs from the perspectives of efficiency, effectiveness, and quality coverage. The establishment of well-coordinated information systems and database dissemination on these could contribute greatly to improvements in health economic research in the region.

Instead, fragmented delivery—with the public sector managing hospitals and outpatient services separately, and the private sector offering outpatient services from individual physicians and physician groups, and inpatient care from private hospitals—is the norm, reinforced by the lack of electronic health records or some alternative means of cross-provider communication and tracking of patients and their healthcare. Greater attention to integrating care and ensuring a patient focus in public healthcare services will be key to meeting the challenge of NCDs and helping citizens maintain their health status. Addressing the gap requires restructuring healthcare services, integrating hospital and primary care, focusing on patient care management, and engaging patients in improving their health. Central to this shift is harnessing and targeting economic and other incentives.

Among the important economic incentives are payment systems in the public sector that are predominantly historical, line-item budgets for hospitals, with capitation or historical budget allocations for primary care services. The private sector relies heavily on fee-for-service payments from payers and patients, and as discussed, typically underutilizes the potential leverage of payments to stimulate improvements in delivery, an opportunity that recent innovations in the U.S. under the Affordable Care Act (Obamacare) have made clear. Bundled payments (Dummit et al., 2018) that finance a set of inpatient and outpatient services for a particular diagnosis, and affordable care organizations (ACOs) (Song & Fisher, 2016) that promote prevention and chronic disease management offer examples of options that have considerable promise in LAC countries for both the public and private health sectors. Because of their flexibility and ability to innovate, private players are often the first initiators of change, and they tend to influence the public sector in the process. The absence of experimentation and research into the impact of payment arrangements on performance in LAC countries is a symptom of the lack of attention to innovation in this area and to lessons from OECD countries.

Restructuring public systems offers a means to improve quality and efficiency, and, as in the four countries that have already done so, to streamline public provision and financing. It further offers an opportunity to rethink health delivery and financing given the limitations of current programs. Merging SHI and NHS systems, and simultaneously strengthening coordination across primary care providers, hospitals, diagnostics, and other ancillary services are priorities, including for countries that have already moved away from multiple public systems.

The capacity to implement these reforms requires further research in other health economics correlated subjects that also are scarce in the health economics and financing literature in LAC countries, including the industrial organization of healthcare markets (provider competition, provider integration and coordination, market regulation, pharmaceutical purchases, and price setting), the political economy of healthcare (transparency and accountability), and the value of economic evaluation of technologies. On the demand side more research is needed on policies and interventions that promote healthy behaviors and discourage risky behaviors (traditional price policies and changes in the architecture of choice) and that cope with the increasing judicial claims for coverage of costly interventions and drugs.

Moving away from a health management culture of processes to one based on efficiency and outcomes is far from easy, and most of LAC countries have not committed to such a transformation, or are in the early stages of embarking on such changes. Implementing the components of value-based healthcare, for example, requires a rethinking of the overall quality of patient outcomes (and the longer-term benefit relative to the cost of any intervention), rather than just the quantity of treatments delivered. Health services in the region remain rooted in the culture of fee-for-service and supply-driven models, where payments are delivered independent of outcomes. Indeed, the lack of accountability across the system lies at the heart of the problems facing all LAC countries. Accountability requires data and holding providers and payers to account for their actions, spending, and outcomes. That process remains to be addressed, but it deserves to be prominent in the health policy agenda in the region.

Last, but not least, health policy reforms in LAC countries need to be driven by sustainability, based on evidence, and rooted in the best practices of governance, financial management, and equity. Integrated healthcare offers a solution to fragmentation in delivery and financing, but involves provider payment reforms, among other initiatives. Even maintaining the coexistence of different health systems (SHI, NHS, private health insurance by employers or individuals), which is highly likely given entrenched interests and expectations, the integration of medical records, adherence to protocols and clinical pathways, establishment of health networks built around primary care, along with harmonized incentives and payment systems, offer a direction for reforms that allow adapting to existing circumstances and institutions, and the basis for holding the system to account. These reforms, while challenging, offer a direction for adaptation and change that can move healthcare services to a new level, improve use of scarce resources, and meet the goals of UHC.

Acknowledgments

Thanks to Nazow Tarakai and Kiran Correa for assistance in preparing this article.

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Appendix

Additional Information on Health Financing in LAC Countries

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A1. Health expenditures in LAC countries as a % of GDP: 2015.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A2. Per capita health spending in LAC countries (in US$PPP 2015).

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A3. Percentage distribution of health financing in LAC by source of funding: 2015.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A4. Tax burden of some LAC countries (% of GDP): 2016.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A5. Public health expenditures as % of total government expenditures in LAC countries: 2015.

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A6. Percentage of children with diarrhea receiving treatment in some LAC countries (last available data).

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A7. Percentage of children with acute respiratory infection receiving treatment in some LAC countries (last available data).

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A8. Percentage of children under 24 months immunized with all vaccines in some LAC countries (last available data).

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic PerspectiveClick to view larger

Figure A9. Percentage of contraceptive prevalence in women aged 15–49 years in some LAC countries (last available data).

Table A1. Sources of Financing of Public Health Spending in LAC Countries: 2015

Countries

SHI

Tax Revenues

Argentina

X

X

Bahamas

X

Barbados

X

Belize

X

X

Bolivia

X

X

Brazil

X

Chile

X

Colombia

X

Costa Rica

X

D. Republic

X

Dominica

X

Ecuador

X

El Salvador

X

Guatemala

X

Guyana

X

Haiti

X

Honduras

X

Jamaica

X

Mexico

X

X

Nicaragua

X

X

Panama

X

Paraguay

X

X

Peru

X

X

St. Kitts and Nevis

X

X

St. Vincent and Grenadines

X

St. Lucia

X

X

Suriname

X

X

Trinidad and Tobago

X

X

Uruguay

X

X

Venezuela

X

X