District health boards and referral hospitals in Zambia : An economic analysis of contracting

Zambia adopted the policy of internal contracts, as part of the broader health sector reforms. Drawing on insights from New Institutional Economics, this study investigated the policy of internal contracts between District Health and Referral Hospital Boards. The objectives of the study were: to describe the nature of contracts between districts and hospitals; assess the impact of different types of contract settings on referrals; and explore the processes through which contracts impacted on referrals. The study used a combination of qualitative and quantitative methods. The study found that internal contracts had produced positive outcomes such as the delineation of service provision functions among providers, devolution of authority to devolved units, and increased interaction between districts and hospitals. These outcomes were, however, marred by a narrow decision making space, which was characterized by staff inadequacies and management difficulties and service delivery constraints. The juxtaposition of autonomous district and hospital units with hierarchies further limited the effectiveness of internal contracts. The study showed that referral inappropriateness was a pervasive problem and there were significant differences between public and NGO contracts. Both the districts and hospitals faced a combination of incentive structures which impacted on referrals. The contract payment method resulted in the district and hospitals' urge to maximise referrals and minimise referral care respectivley. The providers were more likely to respond to social than organisational incentives. Among NGO providers, the social incentives were more pervasive, the likelihood of congruence between provider and managerial objectives was higher, and there was a high level of social deprivation and low quality public health services, which generated referral pressures. The weak/lack of effective rewards and penalties perpertuated referral difficulties. The New Institutional Economics framework was helpful in understanding the difficulties of contracts by identifying the influence of incentive structures on referrals. The study recommended that: internal contracts could be more effective with the expansion of autonomy, improvement of service delivery capacity, and adoption of effective rewards and penalties. In order to monitor and improve the operation of contracts, the information system ought to capture referral data.