There are many reasons to believe that contracting out health services could lead to better outcomes. Contracting out has the potential to provide:

  • Freedom from many constraints that limit performance in the public sector
  • Stronger incentives for performance
  • Greater autonomy for providers
  • Greater flexibility in funding
  • Greater ability to partner with others
  • Competitive pressures to deliver quality
  • Greater responsiveness to ‘customer’ demands

The evidence, however, suggests that contracting out rarely delivers on its promise. For instance, a study of primary health facilities in India found that facilities which were contracted out performed better, but only marginally. The improvement was small relative to the impact of better management in either the public or private sector. Similar findings have been found in many different contexts; contracting out is implemented, but often fails to deliver the impact its advocates hoped for.

Our review of contracting out health services in a range of contexts suggest that contracting can deliver, but that a wide range of details are crucial to ensure strong performance. These include:

  • Ensuring that there is regular and reliable monitoring of performance, incorporating both quantitative and qualitative factors
  • Ensuring that failing providers can be identified quickly and corrective action taken
  • Involving top officials in contract management
  • Phasing implementation to allow time for learning and refinement of contracts and management
  • Ensuring that the contracting process engages and provides opportunities for the best possible providers

The graphic below summarizes key questions to be answered in any contracting effort.