ABSTRACT
Chapter 6 continues the analysis of the NRCMS in the local arenas. Chapter 5 focused on the policy design in the implementation process, and how local governments and healthcare providers adjust the system in accordance with their preferences. Chapter 6 analyzes the impact of the institutional misfits described in Chapter 2 on the long-term operations of the NRCMS. It argues that the institutional misfits generate a deadlock in the governance and steering of the rural health sector, which affects not only the NRCMS but virtually all fields of local health policy. Chapter 6 focuses on the NRCMS and some of its complementary policies in the context of the institutional misfits, and reconstructs causal processes that explain some of the counterintuitive effects of the NRCMS, such as accelerating rises in health costs. The effects of the institutional misfits work as follows. As a rule of thumb, local
governments are unable or unwilling to finance the local healthcare providers properly due to the incentive structures and fiscal capacity that the dysfunctional public finance system creates. The leading cadre evaluation system further modifies their preferences by emphasizing the importance of family planning and public health. Health sector regulation specifies business models for rural healthcare providers that implicitly assume a level of state funding which the public finance system can no longer provide. As a result, they often find themselves unable to make ends meet economically without violating their institutional roles, usually by overcharging and systematically inducing demand for drugs and diagnostic tests. Local governments, on the other hand, have little incentive to supervise and sanction these activities, as they are a structural component of healthcare financing. For the NRCMS and its complementary policies, this deadlock has a number
of important effects. With regard to budgetary financing, it contributes to frequent shortfalls in local governments’ contributions to the NRCMS and Medical Assistance funds, a situation to which the central government reacted by raising the central and provincial shares in NRCMS funding. Furthermore, the NRCMS administrative bodies are chronically underfunded, most notably in comparison with urban health insurance administration. This renders theNRCMS less effective as insurance. Finally, some local governments tend to decrease their own budgetary funding for the health sector as the inflow of NRCMS subsidies from the higher levels increases.
