Article

Impact on Stock Price by the Inclusion to and Exclusion from CNX Nifty Index 43

User Fee Impact on Equitable Journal of Health Management

14(1) 43–49
Access to Care: A Review © 2012 Indian Institute of
Health Management Research
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
Anupama Sharma DOI: 10.1177/097206341101400104
http://jhm.sagepub.com

Abstract
Access to care and equity are the two most pertinent issues for policy-makers of the current era. In
developing countries, health care is continuously facing budget constraints as central governments’

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expenditures do not reach peripheral level of health care. Lack of resources and emphasis on systems’
sustainability has supported the concept of user charges. However, the World Health Organisation

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(WHO) has recently urged developing countries to not rely on user fee as a source of fund, based on

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the economic theory that high prices induce negative demand, especially for vulnerable populations,

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which invariably raises the issue of user fee widening inequity.
This article reviews the evidences from low and middle-income countries to analyze various political
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agendas supporting user fee policies and their impact on health facilities in terms of utilization and avail-
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ability of resources in view of barriers to access. The evidences highlighted that access to care is largely
affected by unavailability of resources in most African countries whereas India grapples continuously
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with governance issues for improving efficiency of health care facilities. The success of the concept of
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user fee lies in careful examination of health care system-capacity issues, providing a support mecha-
nism for the vulnerable and restructuring user fee policy around efficiency rather than cost-recovery
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mechanism.
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Keywords
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User fee, equity, access, utilization, quality

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Introduction
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Access to care is still denied to many of the world’s poorest people (Commission for Africa 2005). The
poor and vulnerable groups, who are in need of health care, are the ones most affected by absence of suf-
ficient resources to provide the desired level of health care. The payment for health care in the form of
user charges is currently argued by policy makers for presenting as a barrier in access to care.
According to a World Health Report (WHO 2010), review of evidence confirms that paying for ser-
vices either formally or informally prevents availing necessary care when needed the most and results in
financial catastrophe and impoverishment. In search of better ways of financing health care, the concept
of user fee was introduced in early 1980s and 1990s in many countries. User fees refer to the official fees
charged by public health providers for basic as well as higher level services as used in one form or
another in most countries and contexts (James et al. 2006).

Anupama Sharma, Assistant Professor, International Institute of Health Management Research, New Delhi.
Email: anupama@iihmr.org
44 Anupama Sharma

In developing countries, health care facilities are continuously facing resource-stricken environment
as central government expenditures do not reach peripheral level of health facilities. Therefore, user fee
revenue was seen as a source of finance for recovering recurrent cost of expenditure in health care facili-
ties. In addition to complementing scarcity of resource, many other potential benefits of user fee, like
improved consumption efficiency, demand rationing (to counter moral hazard), better targeting and pro-
moting equity were presumed (James et al. 2006). In specific cases like over-utilization of services in
India, user fee can achieve efficiency through cutting down of excess usage which is seen mainly in out-
patient areas of secondary and tertiary hospitals and can also streamline the referral system through
Primary Health Care Centres (PHCs). In this way rationalization of PHC services can be achieved
through optimum utilization of resources (Mahal and Veerabhraiah 2005).
If user charges not set too high, that might push providers to make efforts to provide services at a lower cost,

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which would enhance the efficiency of the health services. (Ibid.)

In a WHO annual report (WHO 2008) the organization urged countries to ‘resist the temptation to rely

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on user fees’. According to economic theory, prices affect the demand for health care services in a way

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that higher prices induce negative demand for health care services especially in developing countries for

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poor sections of society. This is because the poor are highly price-elastic and the decision to seek health
care often involves a tradeoff with alternatives such as food, clothing, shelter, etc. The established link
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between poverty and health is very likely to induce poverty trap for the poor due to excessive financial
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burden (NYU 2009). This in turn leads to morbidity, reduced access, impoverishment, mortality and
irrational drug use (Whitehead et al. 2003).
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The WHO 2010 report highlights that the proportion of people spending more than 40 per cent of total
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expenditure on direct payment is as high as 11 per cent at a national level, this invariably leading to 5 per
cent of people being forced to poverty. WHO statistics show that if the out-of-pocket expenditure falls to
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less than 15–20 per cent of total expenditure, the incidence of financial burden falls to significant lows.
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However, high-income countries are only able to achieve lows of direct payments in comparison to low
and middle-income countries whose targets are set to 30–40 per cent.
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Through research it is known that health care users in developing countries are just like other consum-
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ers who shop around for health services based on best ‘value for money’. If health care providers and
policy makers want to enhance their outcomes, two main strategies should be opted: First, to improve
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quality as perceived by the user, and, second, to lower their prices and provide financial support to Below
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Poverty Line (BPL) households. The user fee policy perhaps has focused on option one while underesti-
mated the second option (Yates 2006).
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Henceforth, this article provides underlying issues in current debate on user fee relating to access and
equity. The article is structured as follows: The second section summarizes the international evidence on
user fee and highlights the barrier to access, the third section talks about the equity issues related to ex-
emption policies. Pertinent questions and conclusions are discussed in the fourth section.

International Experiences: User Fee and Parameters Impacting Access

to Services
Adoption of user fee concept among various governments is driven by many factors such as lack
of political commitment for health, governments’ poor understanding of health care system capacity

Journal of Health Management, 14, 1 (2012): 43–49

User Fee Impact on Equitable Access to Care 45

within the countries, absence of funding to remote and conflict areas and as a compensation for eco-
nomic downturn.
The first wave of user fee within developing countries government services was seen during the 1970
global recession, which led to restructuring of health budgets wherein user fee was seen as a source of
revenue for covering operational facility expenses. The 1987 Bamako initiative build on the similar con-
cept was approved by African health ministers and user fee was implemented along with health care
reforms for enhancing availability of essential drugs and services (37th WHO Regional Committee,
1987).
There have been experiences in some African countries like Uganda where user fees were abruptly
removed in 2001 in general wings of public-owned hospitals and lower-level health facilities, but fees
remained in private wings of government hospitals, being a concern in view of access to quality care.
Many studies see the Uganda case as a successful story for scrapping the user fee as there was steep rise

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in utilization of services after abolishing user fees. The supply constraints were minimized due to com-
plementary increase in health expenditure by government. This was not a surprise, as the initiative was

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implemented just 10 days before the presidential election in 2001. However, the surveillance conducted

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in 2007 (Basaza et al. 2010) showed non-availability of tracer medicines in 72 per cent of sampled health

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facilities and for this reason at least for purchasing drugs, many ‘out-of-pocket’ payments are still made
by Ugandans. The study also highlighted out-of-pocket expenditure on purchasing health supplies and
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informal payments given to health workers at the time of care. This poses a question of impact on sus-
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tainability of health care facilities after removal of user fee if not supported by a health financing
mechanism.
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In a similar case in Madagascar and South Africa, following the removal of user fee, utilization in-
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creased. However, there were many concerns including non-availability of drugs affecting preventive
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health programmes. Realizing the negative impacts, user fees was thereafter reintroduced in Madagascar
(James et al. 2006).
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Promoting decentralization and community empowerment as a means for bringing accountability in

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Zambian health care system, user fee was introduced in 1993. This could be seen as a step towards
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acceptance of community-based insurance system within policy makers and other stakeholders. However,
after the abolition of user fee in 2006 showed substantial increase in utilization of services by 50 per cent
among rural populations (Masiye et al. 2008). Contrastingly, there was unavailability of skilled workers
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at various health facilities which could have greatly affected accessibility for curative services wherein
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skilled workers are required to conduct various diagnostic procedures.

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A WHO experimental and quasi-experimental study on the effect of introducing, removing, increas-
ing or decreasing user fee reported increase in utilization of curative services following fee removal
whereas no effect on preventive services was seen. The ‘controlled before and after’ studies (CBA) for
introducing user fee and its effect on quality was found significant for utilization of services by the poor.
The positive impact of user fee on quality of services can not be ignored as the poor often weigh the
value of out-of-pocket spending in relation to value gained through improved quality of services (Lagarde
and Palmer 2008).
Consider the case of Kenya where user fee was reintroduced at a lower rate under the 10/20 policy in
2004 with greater flexibility in revenue redistribution within the facilities. The results showed a marked
30 per cent increase in utilization of essential services in a study done by Pearson (Pearson 2005). As
Pearson predicted, ‘it is doubtful that any net revenue could be generated through low user fee’. Even if

Journal of Health Management, 14, 1 (2012): 43–49

46 Anupama Sharma

direct payments are small, in a way they encourage self medications and use of services through quacks
and inappropriate health care providers.
A WHO experimental study showed that the decrease in user fee by 25 per cent and 75 per cent led to
more-than proportionate change in the number of pregnant women and children accessing services of
health centres in Sudan (Lagarde and Palmer 2008).
In Burundi, fees were removed for maternal and child services (but not drugs) in 2006. A UNICEF
report advocates removal of user fees for maternal and child services as this could increase the number
of institutional deliveries and therefore help achieve the maternal and child mortality MDGs. A situ-
ational analysis report on women and children conducted by UNICEF in Zambia indicated that the
gradual removal of user fees has resulted in improved access to health care, but the forgotten costs of
transport and prices paid for prescription drugs remain a constant barrier to health services for the major-
ity of the poor (Sylwander 2008).

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Asian experiences show that user fees might not necessarily be a significant proportion of the house-
hold total resources, but they can push poor families into financial catastrophe. For instance, the Chinese

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National Household Health Survey showed a drastic decrease of health care utilization in urban China
during 1993 to 2003 after introduction of user fee policy as a cost recovery mechanism in 1978. The gap

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between the richest and the poorest in 1993 was 1.2 times but it increased to 1.5 times in 2003. However,
there was no sound evidence for improved institutional efficiency, quality of health care and efficiency
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gains as a result of implementation of user fee (WHO 2008). In April 2009, the Chinese government
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announced plans for providing safe, effective, convenient and affordable health care to all by 2020 with
the aim to reducing expenditure related to direct payment through expansion of health insurance cover-
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age to more than 90 per cent of the population, thenceforth ending market-based approaches (WHO
2010).
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Studies on user fee in Andhra Pradesh APVVP hospitals and in hospitals of Maharashtra in India
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highlight the inefficiencies of health care system in utilizing the funds generated from user fee (Mahal
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and Veerabhraiah 2005).

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The reinvestment of APVVP funds has been extremely tardy, although it has been improving over time—user fee
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reinvestment rates were barely 43 per cent in 2001–2002, rising to about 74 per cent in 2003–2004. Moreover,
the rates differ across regions—ranging from 53 per cent in Telangana in 2003–2004 to more than 90 per cent
in Andhra.
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The decline in government allocations to Andhra Pradesh hospitals have created an urge for add-
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itional hospital funds. It can be deduced, that on one hand, user fees compensated for the deficit and sus-
tained efficiency and quality of services in hospitals, while on the other hand the access to services for
poor declined.
In the Indian state of Maharashtra the report by the Commission of Macroeconomics in India sug-
gests that overall utilization of services declined between 2000 and 2001 for out-patient visits as well as
for in-patient care. The revenues from user fees in Maharashtra were not utilized due to directives of
government to freeze the funds, the major reason being the likelihood of misuse due to lack of accounta-
bility in the system (Duggal 2003). This invariably defeated one of the purposes of user fees, that is,
improving the quality of services and providing additional source of fund to hospitals. Research done on
National Sample Survey for out-of-pocket payment in India estimated that 70 per cent of total out-of-
pocket expenditure is on drugs and that out-of-pocket expenditure constitutes 5 per cent of household

Journal of Health Management, 14, 1 (2012): 43–49

User Fee Impact on Equitable Access to Care 47

expenditure. This implies a 3.2 per cent rise in poverty after incorporating out-of-pocket expenditures
(Garg and Karan 2008).
However, most of the studies focus on impact of user fee in terms of access through indicator of util-
ization of services but the impact in terms of health seeking behaviour of the poor and impact on health
care providers influencing demand for public, as well as private, health care has not been explored much
in current studies.
A WHO meeting on user fee impact on access and equity and on lessons learnt for Pacific island
countries in Fiji 2008 concluded: ‘International evidence suggests that user fees can recover some of
costs if appropriately designed to ensure that the poor and under-privileged are not affected’. The lessons
shared between eight pacific countries and experiences from Asia and Africa suggested that quality can
be improved if fees are retained and re-invested in health facilities in which they are collected. However,
the notion of correlating cost with quality itself is unclear and the assumption of paying for services

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ensures quality is not ensured (WHO 2008).

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User Fee and Equity: Exemption Policies

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In low-income and middle-income countries, charges as low as $0.2 US will discourage the poorest

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members of society from visiting health facilities. The question of user fee impact on equity relies on
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how exemption schemes are working for the poor, protecting the most vulnerable, including mothers and
children from financial catastrophes due to health. In low-income countries, exemption based on income
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is hard to quantify where most of the population are either subsistence farmers or are in the informal
employment sector.
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There is, for instance, evidence from Punjab in India (another wealthy state with health reforms initi-
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ated with World Bank support) that the process for obtaining exemption cards was time-consuming and
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bureaucratic, making it virtually impossible for the poor to obtain the benefits associated with such cards
(Gupta 2002). Without effective exemption policy in place, it seems reasonable to support the claim that
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utilization by the poor must have declined.

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The power of providing exemption stays in the hands of health workers; based on certain criteria
either they could provide full/partial or no exemption and this is a significant reason for the poor never
receiving any kind of exemption. The case of successful exclusion policies was seen in a study imple-
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mented by MSF in Burundi where health communities took charge for indentifying households to be
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considered for exemption (Médecins Sans Frontières 2008). The exclusion can not be only based on the
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economic status of households but also for services like child care and maternity services, which could
push a household into the poverty trap. In Cambodia, assessment of user fee impact after five years of
introduction in 1990 showed that exemptions were ineffective as each exemption cases represented a
loss of significant amount of salary for a poorly paid health worker as compensated through user fee
income (Thomson and Mossialos 2010).

Pertinent Questions and Conclusion

No doubt many studies have shown decrease in utilization of services due to introduction of user fee;
however, inferences can be drawn from many case studies that lack of availability of supplies and staff

Journal of Health Management, 14, 1 (2012): 43–49

48 Anupama Sharma

was also an impediment to health care access. In most of the African countries the question of availabil-
ity of drugs and manpower was an issue; in Asia, the issue of accountability in health care system was a
bottle-neck for reinvesting of user fee revenue. As we saw in the current studies, in most of the countries
user fee was implemented with the objective of cost-recovery and therefore, it could not meet the goal as
it coincided with the goal of equity and free access to poor.
Impact on utilization due to change in quality of services was not viewed in light of decreasing or
removing user fee by most of the research done in low and middle-income countries. The concept suc-
ceeded wherever the user fee was implemented with the objective of improving quality and cases where
system had a capacity to utilize funds generated by user fee. Economists world over suggest, that user
fees are appropriate only where the marginal value of an additional dollar of user fees on health services
in the public sector exceeds the marginal value of an additional dollar in the private sector (Araoyinbo
and Ataguba 2008).

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Therefore, fees should not be imposed unless policy makers have carefully examined the potential
impacts of fee structure on health-seeking behaviour and on provision of essential health care. Success

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in user fee policy can be affected by administrative costs for implementing fees. If costs of collecting
fees are high compared to fees collected, then user fee policy is ineffective. The answer to questions of

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access, equity and achieving universal coverage lies in devising cross-subsidization financing policies.
Henceforth, much more research is required to answer the questions of impact on user fee across various
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groups for utilizing services, user fee impact on mother and child-related services, emergency services
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and impact of user fee across socio-economic indicators. It is necessary to devise a user fee policy by
carefully looking at demand for services, equity, resource availability and budget constraints, thereby
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devising effective evidence-based pro-poor user fee policies.

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