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Health Sector Reform Essay

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The AIM Working Paper Series disseminates work-in-progress research papers to encourage the exchange of ideas about business and development issues. The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Institute of Management (AIM) or its affiliated Centers.

Overview of Health Sector Reform in the
Philippines and Possible Opportunities
For Public-Private Partnerships
francisco l. roman, Dba

MARIA cristina i. alarilla


Working Paper 10—002

The Authors
maria elena
b. herrera,
fasp, phD

AIM Executive
Education and Lifelong
Learning Center

francisco l.
roman, Dba

AIM W. SyCip Graduate
School of Business

cristina i.

AIM Ramon V.
del Rosario Sr.
Center for Corporate
Social Responsibility

Overview of Health Sector Reform in the Philippines
and Possible Opportunities for Public-Private Partnerships1

Maria Elena B. Herrera, FASP, PhD and Francisco L. Roman, DBA, Authors Maria Cristina I. Alarilla, Researcher

Analysis of the sector’s key participants—the hospitals, health workers, clinics, and the insurance system—suggests a system failure. Inadequate budgets, insufficient equipment, declining involvement of the government at the national level, unclear systems of accountability and lack of hospital facilities in rural areas are just some of the problems plaguing the Philippine health care system.

The potential public-private partnerships (PPP) in the Philippine health sector include (1) creating a regulatory framework for licensing and accrediting facilities and professionals; (2) pooling resources in private and public sectors through social health insurance where government provides tax-generated funding with private premiums and provides subsidies for indigents; and (3) subcontracting the provision of medical services or operation of healthcare facilities to the private sector.

Despite formidable operating constraints, the paper concludes that PPP in the health sector may alleviate the issue of inequitable access to health care, particularly for the inadequately serviced rural poor. Furthermore, the structure of policies and laws, the existence of many sometimes overlapping organizations involved in healthcare reform, and the slow expansion of enhanced health education and training for healthcare providers offer reason for optimism.


This paper was presented at the World-Bank Institute's Hospital and Health Reform Conference/Training and Development held in Thailand in February 2010.


1. Executive Summary


1.1 Poverty and Hunger


1.2 The Philippine Health Sector


1.3 National Healthcare Insurance Program


1.4 Healthcare Financing


1.5 Health Sector Outcomes


2. A Brief History of Health Care Reform
3. Challenges Facing the Health Sector


3.1 The Context of the Philippine Health System


3.2 Structure of the Healthcare Sector


3.3 Profile Hospitals and Nature of Services Provided


3.4 Health Workers


3.5 Non-Hospital Providers (Clinics)


3.6 Social Insurance


4. Health Sector Reform Agenda: “FOURmula One for Health”


5. Public Private Partnerships in the Health Sector


5.1 Botika ng Bayan and Botika ng Barangay: Cheaper Medicines for All


5.2 Maternal Services for the Poor


5.3 Blue Star Pilipinas: Social Franchising for Health


5.4 Enhancing the PPP


5.5 Opportunities


6. Key Current Concerns, Initiatives and Opportunities


6.1 Key Issues in the Healthcare System as a Whole


6.2 Hospital Reform


7. Annex





The Philippine2 health sector exists in a context of persistent poverty and financial challenges. As of 2009, the Philippines had a national poverty index of 20.9%, with many of the poorest spending for medical care out-of-pocket. The government has instituted a National Health Insurance Program (NHIP) to help make health care more accessible to Filipinos, but contentious coverage issues as well as lack of facilities and trained medical personnel are continuing obstacles for the program. Health sector and hospital reform programs instituted by the government have yielded some positive results, but the Philippines is still far from achieving its goal of a sustainable, high quality, and cost-efficient healthcare system that can be accessed by all Filipinos.

1.1 Poverty and Hunger
About 24 out of 100 Filipino families (equivalent to about 30 out of 100 Filipinos) did not earn enough in 2003 to satisfy their basic food and non-food requirements. The poorest Filipino families live in Zamboanga del Norte (64.6% poverty incidence), followed by the province of Maguindanao (60.4% incidence). The 10 poorest provinces consist of seven provinces in Mindanao, two in Luzon, and one in Visayas (NSCB 2007). An average Filipino family (with five family members) living in the National Capital Region (NCR) must earn a monthly income of about PhP10,000 to stay out of poverty.3 This figure is based on an estimate of basic needs such as food, clothing, shelter, and transportation, and excludes recreation and emergency expenses (Remo 2008). The minimum wage per person in NCR is pegged at PhP4044 per day or PhP9,696 per month based on 24 working days (DOLE, 2010), which is below the minimum estimate for staying out of poverty. To compound this issue, a fairly large percentage of the population is either unemployed or underemployed. In the June 2009 SWS survey, adult unemployment levels were at 25.9%, slightly lower than the February 2009 estimate of 34.2%. The labor force is comprised of 63.3% of the population, with 29% of the labor force (18.2% of the total population) underemployed as of January 2009 (NSCB 2009). 2

Located in Southeast Asia, the Philippines is an archipelago with over 7, 108 islands, divided into 17 regions, 81 provinces, 136 cities, 1,494 municipalities, and 41,995 barangays or villages. 3
Poverty statistics in the Philippines are conducted every three years. The latest results published were the 2006 figures. The official figures were determined in 2009 and will be released in 2011. (Remo, 2008) 4

In the NCR, the minimum wage for non-agriculture workers is PhP404. This is the highest rate compared to other regions in the country, where the rate ranges from PhP196 to PhP320. (DOLE, 2010) 3

According to the Social Weather Stations (SWS) Fourth Quarter Report of 2009, “the proportion of families experiencing involuntary hunger at least once in the past three months reached a new record-high of 24.0%, or an estimated 4.4 million households.” The same report also stated that 46% or an estimated 8.5 million Filipino families consider themselves Poor, and 39% or an estimated 7.1 million families consider themselves Food-Poor (SWS 2010).

1.2 The Philippine Health Sector
The Philippine healthcare sector is generally divided along the following axes—public/private, formal/informal, and modern/traditional.

Public health providers offer free medical services and are usually governed or regulated by the government through the Department of Health (DOH) or local government units (LGUs). Private providers, on the other hand, generally charge fees for services. The latter include both for-profit and non-profit organizations. However, there is a generally observed disparity in quality between the medical services from private and public providers. According to a report published by the Asian Development Bank (ADB) (2007), … private health facilities, which were considered by clients as providing better quality of services, were more heavily used by patients from the higher income groups (about 15%) than from the lower ones (about 5%). People at the lower end of the income distribution used public health facilities such as rural health units and village health stations more than those at the upper end. Such facilities are generally perceived to provide low-quality health services: diagnosis is poor, resulting in repeat visits; medicines and supplies are inferior and rarely available; staff members are often absent, especially in rural areas, and are perceived to lack medical and people skills; and waiting time is long, schedules are inconvenient, and facilities are rundown.

This situation was echoed by current DOH Secretary Dr. Enrique Ona (2010) in his speech at the 2010 World Population Day Celebration:
… (There is) unfair and inequitable access to healthcare that leaves the poor behind; low overall government spending on health; high out-of-pocket spending that impoverishes thousands of Filipino families; persisting high maternal and newborn deaths that are among the highest in the Southeast Asian region; high fertility rates among our poorest women; the continuing challenge 4

of infectious diseases like TB, dengue and malaria; emerging diseases like HIV/AIDS and the interlocking crisis of non-communicable diseases… The shortage in human resources for health, particularly doctors, is a well-known fact. 70% of all health professionals are working in the private sector addressing the needs of about 30% of our population while 30% of health workers employed by government are addressing the health needs of the majority of Filipinos.

The formal sectors consist of registered medical and non-medical facilities and registered medical personnel. The informal sector is largely unregistered by government regulation agencies, and consists mainly of traditional healers and unlicensed midwives. Sources suggest that the formal sector is predominant in the urban areas, while the informal sector thrives in the provinces where the regulation is minimal and there is a lack of access to medical facilities and personnel.

Services can be classified into either modern medical services or traditional medical practices (such as massage, faith-healers, acupuncture, herbal clinics). Due to poverty, most Filipinos in the provinces tend to subscribe to traditional medical practices such as hilot (traditional Filipino massage), albularyo (Filipino folk healers), and faith-healers. Traditional medical practices are also gaining popularity among the higher income segment of the population. However, these practices consist of herbal supplements, acupuncture, various Asian massages, and well-being exercises.

1.3 National Health Insurance Program
To assist Filipinos in gaining access to quality healthcare, the Philippine government instituted the NHIP to provide universal health coverage for the Philippine population. The Philippine Health Insurance Corporation (PhilHealth), a government-owned and -controlled corporation, is mandated to administer the NHIP and to ensure that Filipinos have financial access to health services.

The law provides for the funding of contributions for indigents partially from LGUs. In practice, however, funding for indigent contributions has come either fully or partially from the national government, with the balance being shouldered by the local government. Historically, 5

the challenge in the implementation of the program has been the identification of the indigent, with some studies showing that there have been periods of significant leakage. According to former DOH Secretary Alberto Romualdez, only about 20% of the poor are considered indigent. The government has been promoting the use of a “means test”5, but only recently has this generally acceptable tool become available for use.

In terms of enrolment, PhilHealth may be regarded as a success. (Obermann 2006) As of March 2010, about 20 million Filipinos are registered members of PhilHealth, with most of its members located in NCR and North Luzon (43%), while the rest is spread in South Luzon and Visayas (35%) and Mindanao (22%). In terms of membership by sector, 36% are from the private sector and 25% are sponsored by the local and national government. The rest is composed of the following sectors: Individually Paying (17%); Overseas Workers Program (11%); Government Employees (9%) and Lifetime Members (2%).

In early 2010, PhilHealth announced achievement of universal coverage, or that 85% of Filipinos are covered by the National Health Insurance Program. However, questions have been raised on the validity of the statistics. Studies of an academic group and the 2008 National Demographic and Health Survey (results released in January 2010) argue that PhilHealth coverage has only reached 54% and 38% of the total population, respectively. In terms of facilities accreditation, about 8 of 10 DOH-licensed hospitals are accredited by PhilHealth. Of the 1,404 hospitals accredited, 60% are private hospitals and 37% are government hospitals. As of 2010, PhilHealth has also accredited 22,444 medical personnel to service over 90 million Filipinos. The licensed personnel are composed of General Practitioners (10,617), Medical Specialists (11,286), Dentists (184) and Midwives (357). The ratio of PHIC Beneficiaries to PHIC Accredited Professionals varies depending on the region. In NCR, the ratio is one accredited professional for every 1,379 PHIC beneficiaries. This increases for the Autonomous Region of Muslim Mindanao, where the ratio is 1:8,504. (Solutions Incorporated 2009)


This is a protocol administered at the barangay level to determine the ability of individuals or households to pay varying levels of contributions to the Program, ranging from the indigent in the community whose contributions should be totally subsidized by the government, to those who can afford to subsidize part but not all the required contributions for the Program. (RA 7875)


1.4 Healthcare Financing
From 2005 to 2007, healthcare expenditure in the Philippines experienced decelerating growth rates. At current prices, “total outlay for health went up from PhP198.4 billion in 2005 to PhP234.3 billion in 2007, registering a growth rate of 9.1 percent in 2006 and 8.3 percent in 2007.” Looking at per capita spending this translates to “an increase in per capita health spending of PhP14 in 2006 and PhP11 in 2007.” (Virola 2010) The latest statistics from the Philippine National Health Accounts 2007 on healthcare financing are as follows: •

The level of health expenditure in 2005 to 2007 was within the target of 3 to 4 percent of GNP set as part of the National Objectives for Health 2005-2010.

Filipino households continued to bear the heaviest burden in terms of spending for their health needs as private out-of-pocket surpassed the 50 percent mark in health expenditure share in 2006, reaching 54.3 percent in 2007.

Government came in a far second in health spending contribution, with the national government and the local government units (LGUs) footing almost equal shares of 13.0 percent and 13.3 percent in 2007, respectively. It is worth noting that the LGUs spent more than the national government in 2006 and 2007.

Health expenditure from social insurance barely grew from PhP19.4 billion in 2005 to nearly PhP20.0 billion in 2007, indicating an average annual growth of only 1.6 percent. Thus, instead of picking up as targeted, the social insurance share in health spending went down from 9.8 percent in 2005 to 8.5 percent two years later.

1.5 Health Sector Outcomes
The mission of the Philippine healthcare sector is to create a sustainable, high quality, and costefficient healthcare system that can be accessed by all Filipinos. To this end, there are numerous health sector and hospital reform programs that have been implemented—the development of information and communication technology (ICT) software to facilitate health insurance access, devolution of medical services from the central to the local government, corporatization of public health providers, and the promotion of a national health insurance program. To a certain extent, these initiatives, together with the past programs of the Philippine 7

government, have improved several key healthcare indicators in the country. However, the country still lags behind many of its Asian neighbors as indicated by the numbers below.

Figure 1. Relative Achievements in Health Outcomes for Selected Asian Countries, 2000-2007

Note: The graph presents the relative achievement index, that is, the normalized index of achievement relative to the average achievement of the world; the world index is set to 100. The achievement index considers a further increase in the standard of living of a country that is already at a higher level an achievement greater than that of another country with an equal increase in standard of living but from a lower base.

Source: Son 2009.

In addition, there are critical health and medical issues that need to be addressed. Tuberculosis (TB) remains a widely spread disease, especially with the increased incidence of multiple drug resistant TB viruses, and dengue fever still claims the lives of many, particularly indigents, during rainy seasons (Romualdez, 2010). New challenges are also facing the system, such as the increase of AIDS and HIV incidence in the country, with reported HIV cases increasing by 36% in 2010 (DOH 2010).

According to Dr. Ramon Paterno of the UP National Health Institute, the country needs a universal healthcare system where “every Filipino has access to needed healthcare, with minimal or no co-payment.” Current Health Secretary Enrique Ona also raised as an area for improvement the need to “fulfill the mandate of Universal Health Care for all Filipinos”


focusing on a “single national healthcare strategy, protection for the Filipino families against the rising cost of healthcare, and improving outcomes and delivering quality care.”



The earliest attempt towards healthcare reform was the promulgation of Primary Health Care in the country in the 1970s. This was followed by a series of health policies that focused on the use and prescription of medicines (RA 6675: Generics Act of 1988 and RA 9052: Universally Accessible Cheaper and Quality Medicine Act), the devolution of health services to local government units (RA 7160: Local Government Code of the Philippines), and the expansion of the social health insurance program to include indigents (RA 7875: National Health Insurance Act of 1995).

To create a comprehensive and coherent approach to managing the sector, the DOH in 1999 adopted the Health Sector Reform Agenda (HSRA). The objectives were (1) expansion of social health insurance, (2) corporatization of government hospitals, (3) strengthened local health systems, (4) improved health regulation and drug management, and (5) improved public health services. From 1999 to 2006, the DOH adopted various reform implementation strategies to ensure the effective and efficient completion of its target objectives. To address the population problem of the country and achieve the United Nations Development Programme’s (UNDP) Millennium Development Goals (MDGs), the Reproductive Health Initiatives House Bill No. 5043, also known as Reproductive Health and Population Development Act of 2008, was introduced. Its aim is to “uphold and promote respect for life, informed choice, birth spacing and responsible parenthood in conformity with internationally recognized human rights standards.” It also aims to guarantee universal access to medically safe, legal and quality reproductive hea...

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