To contract or not to contract? Issues for low and middle income countries

Many low and middle income countries have inherited publicly funded and provided health services, often operating at relatively low levels of technical efficiency. Changing ideas about the management of the public sector, in particular stemming from new public management theory, are spreading to these countries, whether directly or via the recommendations of multilateral and bilateral aid agencies. Pronouncements of agencies such as the World Bank imply that competitive contracting with the private sector is likely to improve the efficiency of services provision. However, very little evidence is available on whether this is likely to be the case, and in what circumstances delivery of services through contracts with the private sector is likely to be preferable to direct provision by the public sector. This paper draws on evidence from five country case-studies of contractual arrangements, in Bombay, Papua New Guinea, South Africa, Thailand and Zimbabwe, done through collaborative research between the LSHTM Health Economics and Financing Programme and local researchers in each country. A common evaluative framework was applied in each country to selected, existing contractual arrangements. Services provided under contract and evaluated included catering, cleaning, security, diagnostic services and whole hospitals. Information is presented on the design of contracts, the process of agreeing contracts including the extent of competition, and the monitoring of contract performance. A variety of evidence, including information on the relative cost and quality of contracted out versus directly provided services in the case of South Africa, Thailand, and Bombay, is used to explore whether or not contracting out to the private sector represented a preferable means of service provision. This analysis, together with information on the capacity of the agency letting the contract, and on the wider environment including the level of development of the private sector, is used to identify which aspects of the contracting process and the context in which it takes place are important in influencing whether or not contracting with the private sector is a desirable means of service provision.