The efficiency of the healthcare sector: evidence from Mongolia

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National University of Mongolia

The efficiency of the healthcare sector: evidence from Mongolia

Suvdaa Damiran, Odbileg Dorjdagva, Battulga Sukhbaatar

Ulaanbaatar, Mongolia

Abstract

This research aims to investigate the efficiency level of Mongolia's healthcare sector using statistical analysis. Based on previous research, the following three hypotheses are made: (i) The financing of the healthcare sector has no strong impact on healthcare sector efficiency; (ii) There is a statistically significant relation between the general indicators of the healthcare system; (iii) Compared to the healthcare systems of other countries that are based on unity, the operations of financial revenue collector and allocation organizations of Mongolia's healthcare sector are inconsistent. In this research, the DEA method is used to determine the efficiency of Mongolia's healthcare sector. The research results show that the efficiency rate of Mongolia's healthcare sector is 94.55%, with the most influential factor being the number of doctors. The research determines the relation between 11 general indicators of the healthcare system. Total expenditure on healthcare as a percentage of GDP is not significantly related to the health sector's general indicators. The health sector's budget expenditure is insufficient. The analysis of the third hypothesis in the research shows no coherence in the activities of financial collector and allocation organizations of Mongolia's healthcare sector. There is no independent accumulative entity and there is no unified system for allocating the multiple sources of funding. However, a comparative study on the healthcare systems of two countries, Kazakhstan and Bangladesh, shows that financial allocation done by a single organization is fundamental for increasing the efficiency of the healthcare sector. Therefore, a single buyer system is advised for Mongolia.

Keywords: healthcare sector efficiency, health care financing, health insurance system, data envelopment analysis, life expectancy, number of doctors, hospital beds, HALE, infant mortality rate

Introduction

Many factors that determine a country's development, such as its level of development, economic strength, and living standards, are more or less related to human capital, or the health of every citizen. Hence, many countries pay special attention to its health sector. At this current time, with the world facing the COVID-19 pandemic, the healthcare sector is becoming increasingly important for countries. In this research, we have only considered financial sources such as the state budget, the Health Insurance Fund, the operational income of health organizations, and external financing to determine the efficiency of Mongolia's healthcare sector. As of 2020, about 70 percent of the healthcare sector is funded by the state budget, more than 26 percent is funded by the Health Insurance Fund, and the remaining 4 percent is funded by other sources.

Fig. 1. Structure of healthcare sector expenditure funding sources (%) [1].

Therefore, we believe that the findings of a study of the financing system of Mongolia's healthcare sector and its efficiency will have an important impact on the further development of this sector.

Research hypotheses:

The research tries to investigate the following hypotheses:

1) The financing of the healthcare sector has no strong impact on efficiency;

2) There is a statistically significant relation between the general indicators of the healthcare system;

3) Compared to the healthcare systems of other countries that are based on unity, the operations of financial collector and allocation organizations of Mongolia's healthcare sector are inconsistent.

Research Objectives: The aim of this research is to determine the factors that affect the efficiency of Mongolia's healthcare sector and analyze its efficiency over the past 19 years.

Literature Review

Laura Asandului et al. [2] assessed the efficiency of Europe's healthcare sector using 2010 statistics from 30 European countries. The researchers selected life expectancy at birth, health adjusted life expectancy, and infant mortality rate for output variables and the number of doctors, the number of hospital beds, and public health expenditure as percentage of GDP for input variables. The results of their study showed that there were a number of developed and developing countries on the border of efficiency, and most of the countries included in the sample were inefficient.

Martine Audibert et al. [3] used the Data Envelopment Analysis (DEA) model to examine the efficiency of China's rural hospitals and provided recommendations for health insurance system reforms. The results of the study showed that technical efficiency of China's rural hospitals had decreased over the previous years and concluded that the amount of funding had no positive effect on increasing technical efficiency. Martine Audibert et al. [4] emphasized that the results of the DEA method can be used practically.

Rising costs have mainly hit the insurance sector, which now takes up a larger share of payments for health care than government. Government spending as a proportion of the total expenditure on health declined from 30 percent to 20 percent between 1980 and 1988; labour insurance comprised 32 percent, but the largest contribution (36 percent) came from self-financed, fee-for-service payments. The majority of these are made in rural areas where most people do not have health insurance [5]. health medical insurance mongolia funding

Laurene Petitfour [6] evaluated the efficiency of Mongolia's healthcare sector from 1995 to 2014 in her research. She identified potential factors that could increase the efficiency of the healthcare sector in Ulaanbaatar, Mongolia, by about 30 percent. Nonparametric efficiency models and the introduction of environmental variables in efficiency analyses were used in the research. R. A. Mozir Ahmetov [7] explored the healthcare information of Uzbekistan, a country which is nearly identical to Mongolia. The Soviet model of allocating state funds to public organizations is determined by a strict detailed budgeting process, with almost no flexibility to shift funds between different sectors, which leads to consistency. In 1999, Uzbekistan's government confirmed a new decree with major changes to the budgeting of public organizations.

These changes aimed to improve the efficiency and effectiveness of budgetary allocations through increased organizational independence in management and decision-making. The new mechanism introduced a single budget line, with four subcategories.

Although researchers are studying the issues facing Mongolia's healthcare sector, there has yet to exist a significant study evaluating the sector's efficiency. Thus, our research will be the first to evaluate the efficiency of Mongolia's healthcare sector. We believe that this will be an important contribution to the further development of the sector.

Methodology

Data Envelopment Analysis (DEA) method. When it comes to the field of health economics, analysis of hospital efficiency is of utmost importance [8]. Farrell [9] was the first to utilize a frontier method that used the distance between the decision-making unit's observed level of outputs and inputs and the best practice production frontier to evaluate the decision-making unit's efficiency. This later on served as the basis of the DEA model, which uses linear programming to determine the best practice production frontier, first proposed by Chames et al. [10]. The efficiency score is measured between 0 to 1, which represents 0 to 100 percent. Less than 100% indicates inefficiency compared to other units (packages). For each decision-making unit, the input and output are represented by the following variables:

In order to determine weight, the objective function below is maximized. This determined weight is unequal and will be different for each decisionmaking unit. As the data will be used to measure the efficiency of each decisionmaking unit, optimization will be done for each decision-making unit.

Objective function:

Constraints output:

We reduce that problem to next the general fractional linear constrained problem:

Linearized constraints:

The fractional programming equation was solved using the `fmincon' package of MatLab.

Results

Current state of Mongolia's healthcare system. Mongolia implements the Bismarck model, which is based on the principle of solidarity in health financing. The Bismarck model is also referred to as the social health insurance model. In this research, the following indicators will be considered.

Fig. 2. Indicators of Mongolia's healthcare sector¹. Source: WHO. Retrieved from: https://www.who.int/data/gho/indicator-metadata-registry/imr-details/66 (Accessed: 08.02.2021)

Fig. 3. Indicators of Mongolia's healthcare sector². Source: NSO of Mongolia. Retrieved from: https://www.l212.mn/ tables.aspx? TBL_ID=DT_NSO_2100_005Vl (Accessed: 05.02.2021)

Fig. 4. Total expenditure on health as percentage of GDP. Source: World Bank. Retrieved from: https://data.worldbank.org/ indicator/ SH.XPD.CHEX.GD.ZS?locations=MN (Accessed: 12.02.2021)

Our study of some important indicators of the healthcare sector showed that between 2000 and 2019, life expectancy increased by 1.1 times, infant mortality decreased by 3.5 times; the number of hospital beds and doctors increased from 2000 to 2019. These results can be considered as a sign of certain progress made in the healthcare sector between 2000-2019.

Data Envelopment Analysis. As mentioned in the methodology, when performing a DEA, the input and output variables of decision-making units are determined and the efficiency factor is derived. The efficiency factor value of less than 1 indicates that it is inefficient compared to other units. Using the DEA method, the following input and output variables were used to estimate Mongolia's healthcare sector efficiency.

The first input variable refers to the percentage of GDP allotted to healthcare. It consists of recurrent and capital spending from government (central and local) budgets, external borrowings and grants (including donations from international agencies and nongovernmental organizations), and social (or compulsory) health insurance funds.

The second input variable describes the human resource most valuable in healthcare system: the number of doctors. Hospital Beds are also included in the model as the third input variable. In both cases, statistical data are calculated for 1,000 inhabitants.

Health adjusted life expectancy (HALE) (also called disability-free life expectancy) measures the number of remaining years that a person of a certain age is supposed to live without disability. It is a solid indicator to monitor health as a productivity/economic factor.

Infant mortality rate represents the ratio of the number of deaths of children under one year of age during the year to the number of live births in the same year. The value is expressed per 1,000 live births.

The indicators above were based on data from 2000 to 2019, which were collected from the World Health Organization, the World Bank, the National Statistical Office of Mongolia, and healthcare sector statistics.

Numerical Results

Correlation tests of the input and output variables indicate that there is no significant relationship between the input variables. They also indicate that there is a significant correlation between life expectancy and health adjusted life expectancy (HALE). However, the tests show that infant mortality rate is inversely related to life expectancy and health adjusted life expectancy.

Table 1. Correlation between input and output variables

Source: Authors' calculations.

The DEA method was used for the problem (Г) - (3'). Linearized condition:

Objective function:

where Ую>У20>Узо>хіо>х20>хзоas the 20-year averages of the input and output variables.

The optimal solution of the fractional programming problem:

The value of the objective function showed that the selected input variables had a 94.5 percent effect on the selected output variables, indicating that the input variables were efficient.

It should be noted that the selected input variables had the greatest impact on HALE, as evidenced by the optimal solution.

Among the selected input variables, the number of doctors had the strongest impact on the output variables, while the number of hospital beds had the least. Additionally, the total expenditure on healthcare as a percentage of GDP had a moderate impact, confirming our first hypothesis - financing of the healthcare sector has no strong impact on efficiency. In the case of Mongolia, infant mortality has declined over the last 10 years. In 2019, the death rate per 1,000 live births reached a record low of 13.3. As of 2019, 1,041 cases of infant mortality were registered, of which 841 cases or 80.8 percent were hospital deaths. Of the registered hospital deaths, 25.2 percent were deaths of infants with a hospital length of stay less than 24 hours. The average mortality rate of infants with a hospital length of stay less than 24 hours in the last 10 years was 28.6 percent. In 2019, this rate decreased by 3.4 percent from the 10-year average and by 0.1 percent from the previous year.

Perinatal morbidity accounted for 71 percent of these deaths. Research shows that increasing the number of doctors is the most effective way to reduce infant mortality.

Similar to the research done by Agnieszka Bern et al. [11], the Pearson correlation coefficient methodology was used on Mongolia's healthcare sector data to test the relationship between the general indicators of the healthcare system. For Mongolia's case, statistical data from 2000-2018 (for some indicators, there was no data for 2019) of the following variables were used to test the correlation between total healthcare expenditure and healthcare indicators. These include:

Table 2. Pearson's correlation coefficients matrix

Source: Authors' calculations

According to Pearson's matrix (Table 2), there is no statistically significant relationship between total healthcare expenditure as percentage of GDP (zl) and main healthcare sector indicators. This indicates that the budget for Mongolia's healthcare sector is too small and therefore insufficient. However, z₂, zз are strongly correlated to the average life expectancy of the population, regardless of gender (z6, z_7> z₈), and are inversely related to z₉, infant mortality rate per 1,000 births. Additionally, z₂ and Z3 are directly correlated to Z10 /potential years of life lost (PYLL), all causes, female population/. However, they are not correlated to z\\. The next interesting finding is that z₅ /out-of- pocket expenditure on health per capita, USD РРР/, although strongly correlated with average life expectancy of the population, is not related to zi₀.

Discussion

Differences in healthcare sector financing mechanisms in developing countries and Mongolia. Although each country has a different healthcare financing system, the general financing mechanism has three main steps: revenue collection, accumulation, and distribution. On the basis of these steps, it is possible to provide medical services to the population through both the public and private sectors.

Fig. 5. Interactions among different sources of healthcare financing and service delivery. Source: [12], Retrieved from: https://lmijopen.bmj.eom/content/4/12/e006806 (Accessed: 01.03.2021)

Fig. 6. Distribution/flow of the financing for Mongolia's healthcare sector, Retrieved from: http^/meh.mn/wp-content/uploads/2020/OS/Stiategic- purchasmg-report-cdited-WHO-comment-MN.pdf, (Accessed:18.02.2021)

The benchmark shown in Figure 5 has a single accumulative body that combines the multiple sources of funding. Davidson R, Gwatkin [14] found that an indirect approach to providing healthcare is inappropriate in cases where the World Bank's Corruption Perceptions Index is less than 50. As Mongolia's Corruption Perceptions Index (CPI) is 35 [15], a direct approach to providing healthcare is more appropriate. The direct approach to providing healthcare means one organization would be in charge of both financing healthcare and providing it to the population. Therefore, there should be one participating organization to combine revenue. However, Mongolia does not have a consolidation component and instead has many participants, which makes the management of healthcare financing different from those of other developing countries. Under the previous centralized Semashko system model, Mongolia's health care delivery system was state-owned, hierarchically organized, and the health care providers are paid from the general tax fund as an economy-based income- based budget form The Semashko model funding and service delivery system creates a number of inefficiencies at all levels of healthcare [16].

Comparative analysis

According to the World Bank classification, Mongolia is a below average income country. Two other countries in this category, Kazakhstan and Bangladesh, were selected in order to comparatively study how the difference in financing impacts the efficiency of the health sector.

Rationale for choosing Kazakhstan and Bangladesh:

1. In both Kazakhstan and Mongolia, prior to 1990, the government was solely responsible for financing the health sector and provided free healthcare to citizens. However, with the transition from a socialist to market economy, it was no longer possible for the state to finance healthcare provision on its own. Hence, Kazakhstan was chosen because the initial conditions for the transition to a health insurance system and the political situation at the time were similar.

2. There are many different policies that can be developed and implemented in the health sector, but they are limited by financing. Funds can be raised not only from the domestic market, but also from foreign loans and grants. However, loans and aid from other countries are closely linked to the country's economic situation. For example, in 2011, the number of healthcare projects implemented by the World Bank in Rwanda was four times more than those being implemented in Mongolia. The amount of funding from the domestic market also depends on the economic capacity of the country. For example, in 2015, Switzerland spent 12% of GDP on health, while low-income countries spent 5%. Therefore, in order to compare Mongolia to a country with similar income levels, Bangladesh was chosen.

Kazakhstan has the largest territory, Bangladesh has the largest population and the highest average life expectancy, and Mongolia has the fastest population growth. Let us compare the main healthcare sector indicators of these countries.

For the selected countries, some healthcare sector variables for 2003 and 2019 are shown in Table 4.

Table 3. General comparison of the chosen countries

Source: Trading economics, 2019.

Table 4. Comparison of main healthcare sector indicators

Source: World Bank, 2020.

Average life expectancy in these three countries increased faster than that of developed countries. Bangladesh had the highest increase in average life expectancy since 2003. Infant mortality decreased 3 times in Mongolia, 3 times in Bangladesh and 4 times in Kazakhstan. Healthcare expenditure as a percentage of GDP had a relatively less change in Mongolia and Bangladesh, however, Kazakhstan had high expenditures in 2003 due to political influence. While the number of doctors and hospital beds (per 1,000 people) increased during the mentioned period in both Mongolia and Bangladesh, it decreased in Kazakhstan.

Table 5. Healthcare financing in Mongolia, Bangladesh, and Kazakhstan

Source: WHO, 2020.

Features of Mongolia's healthcare sector

Prior to 1990, the Mongolian government solely financed citizens' social security matters, specifically those relating to public health. After its transition to a market economy, three participants - the government, the employer, and the insured - started participating and deciding cooperatively. In other words, the social insurance system has been in place since 1995 and is still being implemented. Mongolia introduced its Budget Expenditure Reform in 2002 for the second time since the transition to a market economy in 1990. Within the framework of this reform, the Law on Public Sector Management and Finance was reapproved and a system of product and service or performance-based financing of all budgetary entities was implemented for a period of 10 years from 2003 to 2012 [17]. In order to implement this reform, the Mongolian government received financial and technical assistance from international financial institutions. An example of this was the Public Sector Management and Financing Reform project jointly implemented by ADB and the GOM. “Defining a public entity's product and service is important in planning which products to supply and the budget and resources required to meet the objectives set for the planning period” [18]. The model template is used to determine how it relates to products and services at the local and sectoral levels.

Fig. 7. The model template to determine public products and services. Source: [19]

This budget expenditure reform was implemented unsuccessfully. Since 2012, program-based budgeting has been implemented In 2016-2020, the Government of MongoUa aims to reform the health insurance system, to fully cover citizens with health insurance, to create an environment for every insured person to receive high- quality healthcare services regardless of their income state, without any financial difficulties, and to double the health sector financing step by step Action Plan of the Government of Mongolia for 2016-2020.. Although some new steps have been taken at the policy and system level in the field of health insurance, risks to health of the citizens still have not been covered. The health sector financing and the health insurance system face the following challenges.

Payment share of citizens for healthcare service is increasing. Mongolia's health sector financing system is mixed. It consists of: (1) state budget financing, (2) Health Insurance Fund, (3) individual payments. Currently, 40% of health financing is provided by the state budget, 20% by the Health Insurance Fund, and the remaining up to 40% is provided by citizens. According to the World Health Organization, if the healthcare financing amount paid by an individual exceeds 25 percent, poverty and income-related inequality will increase.

Both state financing for healthcare service and government contributions as a fee to the Health Insurance Fund are too low.

a) The World Health Organization reckons that it is appropriate when developing countries spend 5 to 6 percent of GDP on the health sector, but Mongolia spends an average of 4.0 percent (see Figure 4) and it has a tendency to decrease in recent years.

b) Health insurance fee paid by citizens whose insurance is covered by the government is set too low. According to the 2019 budget revenue structure, income from fee paid by employed insured people is 65.5%, and income from fee paid by the insured whose insurance is paid by the government is 20.6%. Government is in charge of fee of 58.8% of all insured people.

The Health Insurance Fund does not cover health risks. Although health insurance is based on the principle of solidarity, it must also share the risk when an insured person faces health risk. But there is a smaller opportunity to get the health insurance service when citizens who pay a 4 percent fee (2% from the employer, 2% from the employee), especially young people and middle-aged people face risk. On the one hand, the healthcare service package does not fully cover the healthcare service which meets the needs and requirements of the insured; therefore, if it is not included in the specified healthcare service list, insured people make payments from their own pockets. On the other hand, due to the limited availability of the healthcare service and the high workload, queues in public hospitals, they do not receive the public hospital service but face an option in which they will have to pay for service in private hospitals, which do not have service with insurance.

The health insurance system depends on one ministry and the participation and control of the insured are low. Although the first step towards an independent system was made by separating the Health Insurance Fund from social insurance and establishing the General Authority for Health Insurance in 2017 with the status of an implementing agency, it did not become a perfect restructuring. Also, management of the fund was directly dependent on government and especially on the Ministry of Health that receives certain amount of financing from the fund.

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