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Involving Private Healthcare Providers to Reduce Maternal Mortality in India: A Simulation Study to Understand Implications on Provider Incentives

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  • Bhat Ramesh
  • Chandra, Pankaj
  • Mukherjee Shantanu

Abstract

Gujarat State has implemented the “Chiranjeevi Yojana” to improve access to institutional delivery with an objective to reduce maternal mortality and at the same time providing financial protection to poor families. The scheme involves private providers in provision of maternity services through contracting-out and use of voucher type of mechanism. Five districts covered by this scheme have population of about 10.5 million of which 43 per cent are below poverty line having about 110,000 deliveries per annum. The scheme during first year of its implementation has covered 31,641 deliveries. Of the total 217 providers in these districts 133 (61 per cent) have been empanelled in this scheme. This paper mainly examines two things, one, the revenue distribution a private provider would have experienced if the provider was not part of the Chiranjeevi Scheme and second, does the financial package provided in the scheme provides adequate incentives to the private provider to join the scheme. Further, given the number of providers empanelled in each district, does number of providers contracted-out in the scheme make any difference in revenue distribution of private provider? We use Monte Carlo simulation method to examine these issues. The simulation results suggest that the average revenue is Rs. 1416 per delivery. This is less than what the provider is being reimbursed by the government on capitation fee basis, which is Rs. 1445 (Rs. 1795 less Rs. 350 towards reimbursement for food, transport and Dai). By joining this scheme, the provider’s additional margin on an average is 2 per cent. This is over and above the profits included in the average revenue earned if the provider was not part of the scheme. The results further suggest that revenue distribution is scattered asymmetrically indicating significant risk in revenues to the provider. By joining in the Chiranjeevi Scheme, the provider is able to reduce the overall risk in revenue. In addition to this, the increased volume of services will spread the fixed cost of the provider and increase overall profitability further. Since the provider is paid up-front advance for delivering services under the scheme, there is no transaction cost of bureaucratic delays in payments. The provider in the absence of this scheme can maximise the revenue by doing more cesarean cases. The scheme has embedded incentive to minimise the cesarian cases to maximise the revenue and this produces larger indirect benefits from health systems point of view. The study identifies other issues that need further investigation.

Suggested Citation

  • Bhat Ramesh & Chandra, Pankaj & Mukherjee Shantanu, 2007. "Involving Private Healthcare Providers to Reduce Maternal Mortality in India: A Simulation Study to Understand Implications on Provider Incentives," IIMA Working Papers WP2007-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:wp02001
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