Purchaser-provider models in Finnish health care

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Purchaser-provider models have been increasingly applied to municipal health services in Finland. The Government has been supportive towards the adoption of the purchaser-provider models and has been willing to endorse the introduction of them. As the local applications of the models vary between municipalities, the definition of the purchaser-provider model remains vague. In practice, the applied models have mainly been used as administrative tools to organize the municipal services.

Purpose of health policy or idea

Traditionally municipals have based their administration on hierarchical steering, but the trend has shifted and is shifting more towards market-oriented models where the political steering and expert bodies of administration are separated. During the 2000s several different models where purchasing and provision are separated have been introduced in Finnish municipalities (e.g. Tampere, Karjaa, Oulu, Jyväskylä, Turku, Raisio). It seems that in small municipalities the purchaser-provider models have been used more as strategies to organise services together with other municipalities (e.g. municipalities purchase services from a federation of municipalities). In larger cities in turn, the purchaser-provider models have meant larger administrative reforms.

Presently, the practices and organizational characteristics of the applied purchaser-provider models vary quite a lot between municipalities and the definition of the purchaser-provider model remains vague. Despite the blurry conceptualization, the fundamentals of the different purchaser-provider models are quite similar. The salient principle behind the models is separating the purchasing and the provision of the services. In principal, the purchasers are politicians that allocate public resources for different services. The providers, for their part, can be either public or private and their task is to produce the services based on the purchaser's orders. The operations are coordinated through contracts where the terms of the purchasing and provision are defined (i.e. what is produced, how much, with what cost etc.).

Main points

Main objectives

The most commonly stated objectives behind the purchase-provider models are as follows:

• improving cost awareness and cost-effectiveness
• improving administrative and financial transparency
• improving the manageability of the operations and organisations
• improving customer-orientation
• enhancing the private service providers' involvement in service provision
• strengthening political steering
• clarifying the roles of the different parties
• shifting focus from the costs to value of the services
• creating the conditions for competition between different providers
• enabling the introduction of diverse models of service production
• enhancing competition

The disadvantages or possible treats of the models may be

• increasing bureaucracy
• difficulties on quality control
• lack of purchasing know-how
• transaction costs

to name but a few.

Type of incentives

In many municipalities it has been noticed that fundamental restructuring of the municipal administration systems is necessary to improve the current operations. It is believed that by adopting the purchaser-provider model it is possible to rationalize service production and provision and gain cost savings. In addition, the ongoing restructuring of municipal services (see HPM 11/2008 & 7/2006) has forced the municipalities to rethink the organisation of the services and some municipalities have adopted purchaser-provider models when reorganizing the service structure. Finally, utilising private service production and can be seen as one of the objectives when purchaser-provider models are introduced.

Groups affected

Citizens, private service providers, health care personnel

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

The systemic impact of the reform may be seen rather fundamental as the separation of purchaser and provider restructures the hierarchical municipal administration towards more market-oriented one. However, the degree of innovation can not be said to be very high as purchaser-provider models are already rather established ways to organize services internationally and also in Finland. The matter is contested especially when a political ideology is concerned.

Political and economic background

In 1993, municipalities were given more freedom to decide how to arrange their services including healthcare services. As the autonomy of the municipalities increased, the adoption of the purchaser-provider split has become possible. Recently, in its Government programme for the years 2007 - 2010 (HPM 10/2007), Matti Vanhanen's second government stated that the adoption of purchaser-provider models in the municipal services will be encouraged.

The Ministry of Employment and the Economy has especially promoted the introduction of purchaser-provider models. The National Institute for Health and Welfare has a mandate to conduct research on the subject.  The Association of Finnish Local and Regional Authorities and the Finnish Innovation Fund (Sitra), for their part, have created tools and provided help for municipalities in the execution of the purchaser-provider models.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

The separation of purchaser and provider in municipal services in Finland has been affected by the ideas of New Public Management, which have been influential to many healthcare reforms in Europe since the 1980s. The very first purchaser-provider models in Finland were introduced in specialized health care in order to rationalize operations and to improve the predictability of costs. After that, the models have been introduced also in primary health care and in the field of social services.

Initiators of idea/main actors

• Government

• Providers

• Payers

• Patients, Consumers

• Private Sector or Industry

• Political Parties

Stakeholder positions

The Government has been very supportive toward the purchaser-provider models. However, its possibilities to affect the introduction of the models are marginal as the responsibility of organizing primary health care and social services belongs to municipalities. 

Several municipalities have introduced or have planned to introduce the separation of purchasing and provision in the organization of municipal services. The municipals decide whether or not to organize the services based on the separation of purchaser and provider and thus, they are also influential in the matter.

Right-wing politicians have traditionally been supportive of increasing market-orientation in municipal service production while the left-wing parties have more or less opposed these kind of reforms. Local democracy is characteristic of Finnish municipalities and the relative strength of the political parties matters when decisions on marked-oriented models like purchaser-provider models are made.

Citizens have a possibility to participate in policy making through local elections. However, the citizens' influence is rather marginal as the contribution to decision making is indirect. Because the separation of purchasing and provision is mainly a strategy to arrange the services, he position of citizens can be seen rather neutral providing that access to and quality of services are not deteriorating.  

Employees have been concerned about how the application of purchase-provider models affects their positions in the organization. The personnel have been afraid for their jobs especially if the municipals decide to adopt a model where competition is allowed. However, the adoption of the model has improved the employees' motivation and commitment to the organization. This may be because the responsibilities and organizational operations have become more transparent. The purchaser-provider models that apply competition to the models are few and thus, the worries of the employees have proven to be gratuitous.

Actors and positions

Government
Government	very supportive		strongly opposed
Providers
Public health personnel	very supportive		strongly opposed
Payers
Municipalities	very supportive		strongly opposed
Patients, Consumers
Citizens	very supportive		strongly opposed
Private Sector or Industry
Private service providers	very supportive		strongly opposed
Political Parties
Left-wing parties	very supportive		strongly opposed
Right-wing parties	very supportive		strongly opposed

Influences in policy making and legislation

Legislation has enabled the separation of purchasing and provision since 1993. In the new health care act (HPM 12/2008) separation of purchasing and provision in the municipal services has been mentioned among the alternatives according to which services can be organized. The project of restructuring municipalities and services (HPM 11/2008) has influenced especially the trend where small municipalities organize their services jointly according to purchaser-provider split.

Actors and influence

Government
Government	very strong		none
Providers
Public health personnel	very strong		none
Payers
Municipalities	very strong		none
Patients, Consumers
Citizens	very strong		none
Private Sector or Industry
Private service providers	very strong		none
Political Parties
Left-wing parties	very strong		none
Right-wing parties	very strong		none

Positions and Influences at a glance

Adoption and implementation

Municipalities are free to decide whether they want to adopt a purchaser-provider model. To date several municipalities, mainly large or medium-sized, have adopted purchaser-provider models. However, the introduction of models has not been coordinated at the state level, which has led to a great variation between different models. Some municipalities (usually large cities) have changed the whole administrative structure of municipal services while some have introduced the model only in certain sectors. Especially small municipalities have employed purchaser-provider split as a way to organize services together with other municipalities. 

Presently, only a small fraction of municipal services is purchased from private providers. Separating purchaser and provider may, however, facilitate service purchasing from the private sector.

Monitoring and evaluation

As the municipals are free to decide how the municipal healthcare services are arranged, no formal, state-level monitoring or evaluation concerning specifically the purchaser-provider models is executed. There have, however, been some projects that have evaluated the success of the models and their impacts on the services.

Results of evaluation

There have been few evaluations of the purchaser-provider models in Finland. However, a research project MAISEMA, funded by the Finnish Innovation Fund (Sitra), has produced some data about the evaluation of some purchaser-provider models in Finland. It was found that:

• Cost-effectiveness of the services has been improved compared to the time before the adoption of the model
• Awareness of the costs and the value of the services have improved
• The purchaser-provider model has been found to be suitable especially when it comes to primary health care, elderly care and specialized health care
• Seeing the big picture of the municipal's services has become possible
• In some cases the contracts have been vague and difficult to renegotiate
• Purchasing know-how and management must be improved
• Reward systems need to be revisited

Expected outcome

There is variation between the municipalities' characteristics (e.g. demography, economic situation etc.) and thus the preconditions to adopt purchaser-provider models differ between municipalities. Possible transaction cost may affect the municipality's willingness to adopt the model. Moreover, the municipality size affects the feasibility of purchaser-provider models (more feasible in larges cities) and it may be that the purchaser-provider model is not a sensible alternative for all Finnish municipalities. Most recently, purchaser-provider models have been adopted by some federations of small municipalities that jointly organize services for their citizens.

In the purchaser-provider model the services are purchased for citizens by a purchaser whose task is to estimate the demand of the services and then to obtain the necessary services. Thus, the end-users are not those who purchase the services. Consequently, the question remains how well the purchasers are able to recognize the citizens' needs and preferences that may vary between different demographic groups as well as between individuals. In order to be able to recognize the needs and preferences of the citizens, the purchasers must possess adequate purchasing know-how (i.e. capability to use epidemiological information as the basis of the orders).

The purchaser's ability to negotiate contracts with the providers can be seen as a crucial factor, as in the purchaser-provider models it is the contracts through which the reasonability and the value of the services can be controlled and monitored. In order to be able to make adequate purchasing decisions, the purchaser must be sufficiently trained. It is, however, unclear wether such training is arranged systematically in all municipalities. This may lead to a situation where, in some occasions, the purchaser-provider model is not able to meet the needs of the population. It may also be that not all needs and preferences are handled equally and some population groups may be ignored. Thus a possible danger of the model is that it creates inequality among the citizens. As the purchasing is, at least partly, a political matter, it is indeed worth asking whether the politicians are willing to recognize all the needs of the citizens, as addressing them might add to municipal healthcare costs.

Even though the Government has been willing to endorse the implementation of the purchaser-provider models, it is mainly dependent on the willingness and activity of the municipalities to introduce the models. At the state level the promotion of the purchaser-provider models has mainly been done by the Ministry of Employment and the Economy. On the local level, especially right-wing politicians have promoted the introduction of the model.

Presently the municipalities are not using private providers to any large extent. The purchaser-provider model may, however, be seen as a tool to increase the amount of private service provision in the field of health care. How the purchaser-provider models affect the relationship between the public and the private sector, remains to be seen.

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

References

Author/s and/or contributors to this survey

Liina-Kaisa Tynkkynen

Suggested citation for this online article

Tynkkynen, Liina-Kaisa. "Purchaser-provider models in Finnish health care". Health Policy Monitor, October 2009. Available at http://www.hpm.org/survey/fi/a14/3