In Mongolia, better provider payment systems help maintain universal coverage and improve care

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Co-authored with Cheryl Cashin, Senior Program Director, Results for Development
In the early 1990s, after 70 years of a socialist system, Mongolia transitioned to a market economy and embarked on reform across all sectors, including health. Since that time, the health system has gradually moved from a centralized “Semashko-style” model to a somewhat more decentralized financing and service delivery, with a growing role for private sector providers and private out-of-pocket financing.
The main challenge to the system has been to maintain the universal coverage of the socialist period in the face of drastically reduced public funding, while introducing incentives for greater efficiency and improved quality of care.
Inside a hospital in Ulaanbaatar, Mongolia

Mongolia’s Ministry of Health has identified strategic purchasing as one of the most important levers to more effectively direct limited funds to priority services and populations.
Health care provider payment systems—the way providers are paid to deliver the covered package of services—are an important part of strategic purchasing. It helps balance revenues and costs in a way that creates incentives for providers to improve quality and deliver services more efficiently. This ultimately makes it possible to expand coverage within limited funds. In practice though, provider payment systems are often under-utilized as an effective tool to achieve Universal Health Coverage (UHC) goals.
In 2014, we produced an assessment of payment systems in Mongolia to help policymakers improve and better leverage these to achieve health sector objectives. Done in partnership with the Ministry of Health, the World Health Organization, and the Joint Learning Network for Universal Health Coverage, it was the first-ever comprehensive and in-depth assessment in the country.
The assessment generated important evidence on the strengths and weaknesses of Mongolia’s provider payment systems.
The assessment showed that the general direction of health care provider payment policy has been effective. Many of the pitfalls observed in other middle-income countries have largely been avoided. The health system objective of achieving UHC is supported by the overall provider budget cap, which has helped control cost escalation in the health sector.
However, we also heard from the health facilities in Mongolia that the line item budget restrictions are a major impediment to improving health service delivery. Here is what some of them told us:
  “There is no incentive or bonuses for efficient operations. We save on electricity and water, however the savings are taken back to the treasury.” – National Specialty Hospital
 “Districts that have a smaller population than ours receive the same budget. This means that the budget is allocated regardless of the size of the population and geographical condition.” – District Health Complex
“Even if a patient is not willing to be confined in the hospital, for the hospital it is the only way to get paid.  This creates an incentive to go after money, not service quality.” – Province General Hospital

We concluded that although more flexibility needs to be introduced into how health provider budgets are formed and used to better match resources with health needs, a major overhaul of the payment systems does not seem to be necessary for Mongolia.
As a result of the assessment, a roadmap to improve health care provider payment systems was also agreed upon among key policymakers and providers through a consultative process. The roadmap suggested that in order to further improve and benefit from different incentives of health care provider payment system in Mongolia, three main phases of action are recommended in the next six months to five years.

The areas of action include:
  1. Making better use of existing flexibility in public financial management rules with respect to line item rigidities and retaining a portion of surpluses;
  2. Refining the technical design of the payment systems to better link payment rates to appropriate volume projections and case mix;
  3. Consideration of geographic equity of payment systems.
 Do you know how other countries have successfully improved health provider payment systems? Please share them with Mongolia!


Aparnaa Somanathan

Practice Manager for Health, Nutrition and Population, East Asia and the Pacific

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