Hospital Governance Reforms in the

Philippines: Four Case Studies

Oscar F. Picazo

COHRED Global Forum on Research and Innovation

Philippine International Convention Center
August 25, 2015

Health sector context 1

~100 million population, 12th largest in the world;
high population growth (1.8% p.a.); high TFR (3.3);
49% urban
Demographic and health transitions are underway
Health MDGs likely to be met for child health; shaky
for infectious diseases (TB, malaria, dengue, HIV);
unmet for maternal mortality
Multiplicity of funders (National Government, local
governments, PhilHealth social health insurance,
HMOs, micro-insurance, employer-based, OOP);
OOP has historically been very high
O. F. Picazo, Hospital Governance in the Philippines

Health sector context 2

Multiplicity of providers (government, for-profit,
nonprofit)
Dual health care system, access dictated largely by
ability to pay
Health spending 3% of GDP; rising government
health spending since 2010
Major reforms underway to achieve UHC (width,
breadth, depth); width reforms in Q1 and Q2
running way ahead of breadth (benefits
improvement) and depth (full reimbursement and
No Balance Billing).
O. F. Picazo, Hospital Governance in the Philippines

Growth of hospital system, 1970s to

present
2500

20
18

17.5

16.9
16.3
15.9
15.5
15.115 14.9
14

2000

1812

1821

1784

1781

1921

1838

1725

1719

1739

1708

1712

1794

1713

1817

1738

1700

1571

1632

1742

1663

1733

1767

1782

1754

1846

1814

1705

1599

1607

1213

1036

1149

1483

1839

1000

500

14

13.7
12.8

12.312.3
12
11.811.7
11.711.611.8
11.411.111.2
11
10.710.9
10.710.910.4
10.6
10.2
10

1500

1713

No. of Hospitals

13

16

8
6
4
2

Hospitals

Hospital Beds/10,000

Source: Philippine Statistical Yearbooks

O. F. Picazo, Hospital Governance in the Philippines

Hospital Beds/10,000 Population

18 18.2
17.617.817.9

Hospital by ownership, 1976-2010

Year

1976
1985
1995
2005
2010

Government
Hosp- Beds Ave.
itals
Beds

Private
Hosp- Beds Ave.
itals
Beds

366

44,525

122

670

31,075

46

624

48,395

76

1,190

41,113

35

584

43,229

73

1,111

37,571

34

662

43,739

66

1,057

43,397

41

730

49,372

67

1,082

48,783

45

O. F. Picazo, Hospital Governance in the Philippines

Government hospitals by type, 2011

Type

No.

No.

Ave. No. of
Beds

DOH
retained

75

11.0

21,819

43.4

295

LGU
managed

572

83.6

22,188

44.2

39

University

0.7

453

0.9

91

Military

28

4.0

3,761

7.5

139

Other govt

0.7

2,011

4.0

40

684

100.0

50,232

100.0

60

All

Hospitals

Beds

O. F. Picazo, Hospital Governance in the Philippines

Government hospitals by level, 2009

Level

1
2
3
4
Total

Hospitals
No.
%
362
271
38
50
721

50.2
37.6
5.3
6.9
100.0

Beds
No.

7,213
14,890
5,212
20,834
48,149

15.0
30.9
10.8
43.3
100.0

O. F. Picazo, Hospital Governance in the Philippines

Ave.
No. of
Beds
20
55
137
425
68

DOH-retained hospitals: occupancy rate and patient

load by level, 2011
Level

Level 1
Level 2
Level 3
Level 4
All

Ave.
Implem. Bed
Cap.
21
66
314
389
265

Bed Occ.
Rate (%)

Ave. Annual
Patient Load

70.0
103.0
114.0
108.0
105.0

11,403
21,837
74,632
128,294
85,213

O. F. Picazo, Hospital Governance in the Philippines

Four Hospital Case Studies

O. F. Picazo, Hospital Governance in the Philippines

Overview of case studies

Items

LUMC (1)

Leyte (9+3)

NKTI (1)

SPMC (1)

Location

Ilocos Region,
Northern
Luzon

Eastern
Visayas

Metro Manila

Davao Region,
Mindanao

DOH or LGU
hospital?

LGU

LGU

DOH

DOH

Autonomy

Became
autonomous
as part of
reforms

Not
autonomous

Autonomous
before and
after reforms

Not
autonomous

O. F. Picazo, Hospital Governance in the Philippines

Major reforms undertaken

Reforms

LUMC

Leyte

NKTI

SPMC

Autonomization

Yes

No

No

No

Fee retention

Yes (new)

Yes (but at
LGU level)

Yes (not
new)

Yes (not
new)

Active claiming of
Yes
PhilHealth reimburse-ments

Yes

Yes

Yes

Strengthening PhilHealth
eligibility verification
system

No

Yes (LINKS
call center)

No

No

PPP on equipment
acquisition

Yes, but
minor

No

Yes,
major

Yes,
major

PPP drug consignment

No

No

No

Yes

O. F. Picazo, Hospital Governance in the Philippines

LA UNION MEDICAL CENTER

O. F. Picazo, Hospital Governance in the Philippines

La Union Medical Center (LUMC)

Background
La Union, a medium-sized province in Northern Luzon (pop. 720,000)
LUMC (formerly DGMPH) served as district secondary hospital for 10
municipalities; one of 6 such hospitals owned by the province
Province faced financial difficulties in supporting these hospitals as
soon as they were devolved; about 33 percent of IRA spent on their
maintenance
Hospitals annual budget of PhP35 million deemed highly inadequate;
some PhP80 million to PhP100 million more needed
Poor quality of services (unfilled staff posts, drug shortage, poor
patient amenities, inadequate diagnostic capacity)

O. F. Picazo, Hospital Governance in the Philippines

LUMC Reforms undertaken

Construction of new facilities (EU funded) leading to 100 beds
Granting of economic enterprise status through presidential Executive
Order; granting of autonomy through Congressional Republic Act; conversion
into a non-stock, nonprofit government owned and controlled corporation
(operating under GOCC Law) of La Union Province
Change in status from secondary to tertiary hospital
Reform of fee structure; retention of fees at facility; classification of patients;
creation of paying wards
PhilHealth enrolment of members initially by the province, then by the
National Government
Internal restructuring of the hospital through creation of 17 hospital
committees (teams); systems improvement in procurement, financial
system, HR system, and IT
Selected capital acquisition of diagnostic and imaging equipment
O. F. Picazo, Hospital Governance in the Philippines

LUMC Governance structure

Evolution from a hierarchical unit of the provincial government to an
autonomous unit with independent board of trustees (17 members);
the only LGU hospital that has been made autonomous in the
country
Governor sits as chairman of the board; ensures provincial
commitment to continue its share of the subsidy
Selection and appointment of members of the board representing a
range of skills
Formulation of provincial resolutions and ordinances to
institutionalize reforms
Formation of internal management team

O. F. Picazo, Hospital Governance in the Philippines

LUMC Results of reforms

Containment of the provincial fiscal subsidy to a manageable level
(~PhP35 million a year)
Increase in total patient discharge from an annual average of 8,056
before the reforms to 11,481 after
Decline in percentage of charity patients from 84.7 percent before
the reforms to 53.4 percent after; Corresponding increase in
PhilHealth patients from 10.2 percent before the reforms to 38.8
percent after
Increase in PhilHealth collections from PhP1.1 million in 2002 to
PhP19.1 in 2008
Greater stability in employment among hospital staff, better
employee incentives and morale
Better patient amenities (rooms, waiting areas)
O. F. Picazo, Hospital Governance in the Philippines

LEYTE PROVINCIAL HOSPITALS

O. F. Picazo, Hospital Governance in the Philippines

Leyte provincial hospitals Background

Island province in Eastern Visayas, one of the poorest regions in the
Philippines (direct path of typhoons)
Involved 12 provincial hospitals (9 secondary + 3 primary)
Province faced financial difficulty in supporting hospital services since
these were turned over in 1992; 30-35 percent of IRA devoted to
these hospitals
Provincial budget for hospitals in 2003 of PhP233.8 million deemed
highly inadequate; very weak internal revenue mobilization (PhP7.3
million a year)
Annual provincial subsidy of PhP223.4 million deemed as
hemorrhaging provincial finances
Poor condition of hospitals has led to declining patient census from
5,867 in 2003 to 5,531 in 2004
O. F. Picazo, Hospital Governance in the Philippines

Leyte Reforms undertaken: Hospital

Enhancement for Leytes Progress (HELP)
Province-wide governance of 9 secondary and 3 primary hospitals,
under Office of the Governor
Start of Special Service Fee (SSF) voluntary scheme with standard
fees for hospitals
Enrolment of PhilHealth members through provincial premium
subsidy; More active claiming of PhilHealth reimbursements
Establishment of PhilHealth LINKS as a regional call center to assist in
eligibility verification of members
Establishment of paying and PhilHealth wards in all provincial
hospitals
Collection of all fee revenues at the provincial level (hospital fees,
professional fees), and their allocation as staff incentives, capital
outlay, and maintenance and other operating expenditures (MOOE)
for all provincial hospitals using set rules
O. F. Picazo, Hospital Governance in the Philippines

Leyte Governance structure

Creation of an Ad Hoc Committee on Health in 2004 to implement
HELP program
Visionary and transformational leadership of Gov. Jericho Petilla;
active governance by the Governors office of the HELP program,
which managed provincial hospitals like a holding corporation
Advocacy and capacity-building (including study tours domestically
and abroad) of hospital directors and managers
Formulation of provincial resolutions and ordinances to
institutionalize reforms

O. F. Picazo, Hospital Governance in the Philippines

Leyte Results of reforms

Hospitals are in better upkeep; Patient census doubled from 5,867 in
2003 to 9,973 in 2012
Total funding for 12 provincial hospitals increased from PhP227.3
million in 2003 to PhP272.2 million in 2012
Income from fees and PhilHealth reimbursements increased from
PhP7.3 million in 2003 to PhP118.4 million in 2012
Provincial subsidy declined from PhP220.0 million in 2003 to
PhP153.8 million in 2012, and further down to PhP100.0 million in
2013
Doctors now much better remunerated (each earning in the range
from PhP41,000 to PhP162,000 a month); medical vacancies no
longer exist, and there is a queue of applicants

O. F. Picazo, Hospital Governance in the Philippines

NKTI-FRESENIUS HEMODIALYSIS
CENTER PPP

O. F. Picazo, Hospital Governance in the Philippines

National Kidney and Transplant Institute (NKTI)

Background
Established in 1983 as an autonomous hospital, one of 4 premiere
government hospitals; major renal hospital and transplant center in
Asia
Asian financial crisis of late 1990s/early 200os turned capital outlay
to zero and reduced recurrent budget
Increasing burden of renal patients > high demand for hemodialysis >
high breakdown rate of equipment > overstressed HD nursing staff

O. F. Picazo, Hospital Governance in the Philippines

NKTI Reforms undertaken: PPP scheme with

private investor, Fresenius
PhP54 million Build-Operate-Transfer (BOT) scheme, initial contract
from 2003-2008, renewed 2009-2013
Equity participation: NKTI, 20 percent + Fresenius, 80 percent
Fresenius role: supply of all HD machines, state-of-the-art water
treatment and dialysis reprocessing machines, service maintenance
NKTIs role: (a) pay fee-per-treatment to Fresenius in accordance with
agreed lease payment schedule; (b) provision of staff, space, and
water utility supply

O. F. Picazo, Hospital Governance in the Philippines

NKTI Governance structure

BOT Law (R.A. 6957) governs PPP contract
NKTI board of trustees approves all key policy decisions, including
choice of investment partner and renewal of contract
NKTI management team implements decisions and carries out HD
program
Unclear whether to attribute success to governance (the board) or to
the management team, but senior hospital staff indicated that
autonomous hospital status makes governance and management
more flexible

O. F. Picazo, Hospital Governance in the Philippines

NKTI Results of reforms

Quick award of contract > quick acquisition of latest HD technology at
competitive cost
From 2007 to 2010, total number of patients reached 27,522 or 6,880
per year (roughly 20 a day)
Access among patients with limited ability to pay was expanded as
fees remained lower (PhP2,000 per week) than commercial rates at
private hospitals and dialysis centers (PhP4,000 per week)
Training and rotation of nurses improved, lessening staff stress, and
lowering staff turnover
Hospitals budget from National Government has remained fairly
constant since 1998, and HD fee revenues have increased and
outpaced the annual payment to the private partners

O. F. Picazo, Hospital Governance in the Philippines

SOUTHERN PHILIPPINES
MEDICAL CENTER

O. F. Picazo, Hospital Governance in the Philippines

Southern Philippines Medical Center (SPMC)

Background
Located in Davao City, the metropolitan area in Mindanao, second
largest island
One of 72 DOH retained hospitals; regional catchment area; tertiary
facility
Inpatients (1,107 per day) far exceeds authorized bed capacity (600);
1,096 OPD patients per day
No capital outlay for the past 3 years (2010-2012); recurrent budget
barely increased from PhP250 million in 2011 to PhP261 million in
2012
Frequent drug shortage; inadequate diagnostic capability; frequent
equipment breakdown

O. F. Picazo, Hospital Governance in the Philippines

SPMC Reforms undertaken

Based on 2008-09 stocktaking exercise
Hospital financing reforms focusing on maximizing PhilHealth
reimbursements
Staff recruitment, 7 to 40 for claims preparation; assignment of 3 doctors as
claims adjudicators
Staff training on PhilHealth rules and ICD-10/11
Quality assurance on claims preparation

Adoption of drug consignment system with private pharma providers (pay

for what you consume)
Use of PPP to access diagnostic equipment from private sector (cost-pertest payment)
Chemistry and immune-assay analyzers, dialysis machines, Computed radiography
and digital radiography
CT scans
Mechanical ventilators

O. F. Picazo, Hospital Governance in the Philippines

SPMC Governance structure

Hospital remained non-autonomous before, during, and after
reforms
Visionary and transformational leadership of hospital director (who
came from the private sector)
Strong agreement among senior hospital managers on the direction
and scope of reforms
Relative latitude provided by central DOH on the execution of the
reforms

O. F. Picazo, Hospital Governance in the Philippines

SPMC Results of reforms

PhilHealth patients increased from 32 percent in 2008 to 44 percent
in 2012
PhilHealth reimbursements increased from PhP170.4 million in 2008
to PhP436.9 million in 2012
Most of large-scale capital investment program has been completed
(buildings, equipment)
Drug consignment system has largely solved drug shortage problem;
DOH Administrative Order based on SPMC experience has been
approved, encouraging the practice in DOH retained and LGU
hospitals

O. F. Picazo, Hospital Governance in the Philippines

Summing Up

O. F. Picazo, Hospital Governance in the Philippines

Internal environment affecting governance

Active and visionary leadership is critical, but rare
Financial difficulties frequently trigger hospital reforms. While the
solution is available (PhilHealth), hospital leaders usually do not
know what to do, used as they were to passively receiving budget
subsidy.
No rifts were identified between reform leaders and hospital
managers/staff in the 4 reform sites, but vociferous critics do abound
Successful reforms in devolved hospitals hinge on the good
relationship between LGU executives and hospital managers; short
tenure of office of LGU executives can be a hindrance

O. F. Picazo, Hospital Governance in the Philippines

Strengths and good practices

Use of provincial resolutions and ordinances to institutionalize
reforms in LGUs and sustain them across administrations and local
elections; use of Administrative Orders to do the same for DOH
hospitals
Use of competitive PPP (lease, BOT) as a means of acquiring
expensive medical equipment under conditions of limited govt fiscal
capacity
Centrality of PhilHealth financing as the anchor of reforms; user fees,
which tend to be regressive, used only as transitional mechanism
Maintenance of budget subsidy during the transition period until the
reforming hospitals are able to sustain themselves with PhilHealth
payments
Conduct of corresponding systems improvement, especially IT, to
udergird hospital reforms
O. F. Picazo, Hospital Governance in the Philippines

Challenges and recommendations

Lack of an overall analysis and strategy of government hospital sector
The few reforms are sporadic and highly individualized
(idiosyncratic) based on leaders
Poor state of government hospital data (collected but not encoded,
analyzed, aggregated)
Negativity of skeptics within hospitals and public commentators
Challenge of financing both communicable and noncommunicable
diseases

O. F. Picazo, Hospital Governance in the Philippines