- Overview of changes in the provider payment mechanisms over the last half a century in the Iranian healthcare sector
In this part, our findings are presented based on the four inter-related aspects of a policy: context, content, process (agenda setting, formulation, implementation, and evaluation) and actors/stakeholders as subsections.
- Health care services reimbursement
In Iran health system, the tariffs are used to reimburse both public and private providers. Public provider tariffs are set at a lower rate as they are often being received monthly as a salary and rely on public sector infrastructure and staff to provide care. The MoHME sets the tariffs in consultation with other governmental agencies, such as Parliament Health Commission, Vice-presidency for Strategic Planning and Supervision of the MoHME, the Ministry of Cooperatives, Labour and Social Welfare (MCLSW), IMC, special councils, and Basic and Supplementary Insurance funds. The tariffs are determined for hospital treatment and diagnostic service, medical in-patient care, laboratory and imaging services, and paraclinical services. Health services delivery costs are split into three groups: outpatient doctor’s visits, FFS based on the “K rate” of services, and hospital bed costs[Feb2002 Gazzete No:13753]. The tariffs are also determined for physician's office visits and some of the ambulatory care services, although by using a much less sophisticated approach than estimation of tariffs. As stated in analyzed documents, many research interviewess also pointed out the role of private sector in setting medical tariffs:
“Overall, despite occasional conflicts over health care services pricing, the private sector works in close cooperation with agencies determining national medical tariffs”[Former senior policy officer].
-Mechanisms of setting medical tariffs
Since 1995, the annual revision of the tariffs follows an established formalized process. First, a technical assessment of the annual costs is done separately by the MoHME and the insurance organizations, and occasionally by the IMC. Next, several technical meetings between representatives of the MoHME and insurance organizations are being held to reach an agreement on the incremental tariffs increase. Finally, agreed tariffs are presented to the HCHI for approval. In theory, all these steps should be completed before the start of a new fiscal year. In reality, however, this never happens.  In the last few years, the agreement was achieved as late as a second quarter of a new fiscal year. The process is frequently halted by the private sector, large public hospitals and medical universities that are usually lobbying for higher tariffs. At the same time, insurance companies do not hesitate to delay the final agreement, so that the implementation of the new higher tariffs (and reimbursement) is also delayed for as long as possible.
Pricing medical services that are not already on the tariffs list has also proven to be complicated. The HCHI should approve all new tariffs, and each member of the Council can present their suggestions for approval including the fiscal amount. The role of lobbying, negotiating power of stakeholders in tariff setting, as well as the insurers’ fiscal space for adding new service to the list play an important role in such ad hoc additions of the services. Physicians and hospitals usually initiate a request for a tariff for a new health care service; however, given the lack of corresponding medical tariffs that could act as a proxy, quite frequently the specialty groups and hospitals set their tariffs via routes that do not involve the HCHI. As a result, most such services are not included in the insurance benefit packages.
Content and process
- Establishment of the national tariff payment system during 1972-1995
Before the creation of the national tariff payment system in 1972, budgetary payments were the only mechanism for paying to public hospitals and other public health services providers (Table 1). “In 1972, following the approval of the Act on Provision of Medical Services to Government Employees, medical services organization were required to provide health care services to the insured population also through the private sector providers”[May 2002, Gazette No: 15146]. The same year, following an extensive review of similar costs in other countries with health insurance systems (i.e., Belgium, France, and US), a first list of the tariffs was published.  These tariffs remained unchanged until 1982 when the first handbook of medical tariffs or ‘relative value units’ (called the “California Handbook”) was published in the US. When adopting the California Handbook tariffs for use in Iran, the relative value units were adjusted, disease coding was introduced to price services, with the consequential assignment of specific units to each service, and applying the Rial coefficient (the K-factor), which would be revised annually based on the cost of living index. However, the implementation of a new disease coding system led to confusion, resulting in a three-year delay with full-scale implementation of a tariff-based reimbursement system. Until the implementation of a new system was complete, most hospital and physician practices applied and charges ‘old-style’ fixed fees (1972), which in practice remained unchanged until 1986.
Additionally, in 1985, the MoHME was established which led to a revision of the physician visit costs and costs per hospital bed-day tariffs. During this period, in addition to the budget lines and tariff-based reimbursement, hospitals now also received additional reimbursed through FFS and salary payment methods, where preventive and public health services were reimbursed by salary, bonus and capitation payment methods.  In 1990, the tariffs were increased two-fold (compared to 1986) and remained unchanged until 1995. During the same year (1995), the Universal Medical Services Insurance (UMSI) Act was passed. The UMSI Act declared that actual medical prices should serve as a base for a medical tariff setting and should be revised annually. This way, from 1995, tariffs became the cornerstone in regulating health care services market, financial autonomy of hospitals and setting insurance premiums per capita [Feb 2002, Gazette No:16615].
In this year, following the passage of the Universal Medical Services Insurance (UMSI) Act, Medical Services Insurance Organization (UMIO) was established.
<Table 1 about here>
- Dynamics of changes in medical tariffs during 1972-2017
During the last half a century, tariffs for private health care services were consistently higher than those provides in public sector settings (Figure 2). However, the gap in tariffs for public and private services fluctuated and was not consistent. For example, from 1972 to 1982, the ratio between private and public tariffs remained stable.
Before 1992, public and private sectors had similar medical tariffs and insurance coverage were the same in both sectors. In 1992, medical tariffs of laboratory, hoteling and radiotherapy services were divided into public and private sectors [Jan 1993, Gazette No: 18032]. From 2000, physician visit cost tariffs were divided into private-and public-sector groups. Before that, only inpatient care had different prices in the public and private sectors. In this year, the first peak occurred with a growth rate of 36.4 percent. As a result of this decision, the gap between the public- and private-sector costs of visits became larger. The ratio of the costs of visiting general practitioners and specialists in the private sector to the same costs in the public sector increased from 1.3, 1.5, and 1.67 in 2000 to 2.06, 2.6, and 2.75 in 2014. Also, visiting tariffs rate for faculty members physicians including assistant professors, associate professors, and professors, were respectively 1.18, 1.27 and 1.45 times more than visiting tariffs for non-faculty members physicians.
In 2001, the selection of exemplary hospital beds (1000 beds) were discussed and approved by the Council of Ministers. In 2002, the building-up approach to the pricing of services to deprived regions was introduced. In 2004, the Fourth Five-Year Development Plan (2004-2009) was announced and the Comprehensive System of Social Security and Welfare Act was approved.  However, the most important event of this year was the passing of a new act for the IMC, whereby this council was charged with the task of determining medical services prices in the private sector.  In 2004, the second peak occurred with a 54.1 percent growth rate. By passing the new act for IMC, this council was charged with pricing medical services in the private sector, and subsequently, the cost of inpatient services in the private sector was announced to be seven times that in the public sector. Until 2007, the fees announced by the Medical Council were the criteria for pricing in the private sector. In 2008, a special task force was formed by the President to determine the costs of medical services in both the public and private sectors. Therefore, three pricing systems were implemented in 2008: public sector prices, private sector prices published by the special governmental taskforce, and private sector prices published by the IMC. Determining medical tariffs in the private sector was done by IMC until 2011. After this time, this duty was continued by the MoHME .
Until 2014, the tariff imbalance between different services grew over time and became more complicated.
“The continuing imbalance resulted in dissatisfaction among different medical specialties and in some times resulted in reducing the 'quality' of health services or other outcomes in the health system such as induced demand or overuse, prevalence of informal payment, lack of transparency in the revenues and effect on tax system and the country’s economy cycle, caused to some health care providers avoid from contract with insurance organizations(Former advisor to the minister of health).
In 2014, the third peak occurred with a 50.3 percent growth rate. In that year, the Health Transformation Plan was implemented by the MoHME, and the handbook of relative values was reviewed and published, leading to the considerable increase of costs in the public sector (e.g., 50-64 percent growth in doctor visit costs, 85 percent growth in inpatient care costs, 120 percent increase in hospitalization costs).
“Therefore, it can be concluded that along with the increase in the costs of medical services, an attempt has been made to subsidize insurance companies to fulfill their commitments, mainly those companies whose revenues do not depend on the salary of the insured[Oct 2016, Gazette No. 326].
During the period after starting the Health Transformation Plan implementation, insurance organizations claimed that they cannot pay reimbursements of health care service provider organizations regularly.
<Fig 2 about here>
In September 2015, following the implementation of HTP, the Handbook for Relative Values for Healthcare Services was published. The financial burden to the health system caused by changes in the number of relative value units was 2.2 times the previous published handbook (2009). In practice, it led to a 120 percent increase in the cost factors of surgery, anesthesia, and internal medicine. Figure 3 reflects more pronounced fluctuations in the growth rate of health insurance premiums per capita in 2015, as compared to 2009.
As noted earlier, since 1995, by approving MSIA and implementing hospital autonomy policy in Iran, tariffs were set to be revised annually and there was an attempt to align them with the inflation rate . From 1995 to 2018, tariffs increased for all types of services to match the inflation rate (Figure 3). Overall, in public sector, medical services costs had higher annual growth than the inflation (except surgery and para clinical services); however, an average increase in health premiums was higher. In the private sector, medical services costs (except for incentive care beds and para clinical services) were higher than the average increase in health premiums.  For public services, the most substantial increase in tariffs was observed for hotel services in hospitals per diem and the lowest increase in tariffs was observed for clinical laboratory services (Figure 3). For private services, the most substantial increase in tariffs was observed for conversion factor and the lowest increase in tariffs was observed for clinical laboratory services.
<Fig3 about here>
Actors and stakeholders
-The roles and influences in setting medical tariffs
As described earlier, currently, the tariffs are revised annually and determined jointly by the vice-presidency for strategic planning and supervision of the MoHME and the MCLSW. Once approved by the HCHI and the Council of Ministers, tariffs are ready for implementation. The HCHI acts as a policy-making platform that facilitates the discussions and decisions surrounding key tariff-related issues, including insurance coverage, rate of insurance premium per capita and coinsurance, medical services costs, medical prices and supervision. [30, 49]
According to the research participants: “One of the major criticism regarding the HCHI is that individual council members, namely physicians, may have direct or indirect conflicts of interest and may affect the decisions made by the Council”(National policy maker).
The MoHME, HCHI, MCLSW, IMC, and the four basic health insurance organizations are the main actors in determining the tariffs. Most of these actors are governmental organizations.
To describe stakeholders, we identified four main groups, based on power and interest. Table 2 shows 11 main actors categorized by a certain group. Group 1 (high power and highly interested people) - MoHME, the IMC and basic health insurance organizations are the stakeholders that have more power and interest in defining tariffs than most. The MoHME, as the main actor in tariffs setting, should try to fully engage with other actors and make the most considerable efforts to satisfy them. Group 2 (high power and less interested people) – the MCLSW, Parliament Health Commission and the Vice-Presidency for Strategic Planning and Supervision of the MoHME are the stakeholders that MoHME should put enough effort to keep them satisfied, but not so much so that they become exhausted and bored with the messages. Group 3 (low power and highly interested people) - special councils and public/private hospitals are the stakeholders that MoHME should try to adequately inform and engage in discussion not to overlook any issues. Group 4 (low power, less interested people) – 17 supplementary insurance funds and smaller stakeholders whose activity can be monitored but without priority and excessive communication.
<Table 2 about here>
- Major shortfalls and drawbacks brought by implementation of medical prices and ways forward
Analyzing interviews and documents showed significant differences between medical tariffs in public and private sectors, as well as between intra- and inter-disciplinary prices, is an important factor that led to unfavorable outcomes, that are listed below:
-Elite students being propelled toward high-paying medical professions
Imbalance among relative values of medical services tariffs in different medical specialties had an improper influence on the delivery of health services, as well as on a medical education system since there were no prices for medical education activities. Medical specialty residency programs in Iran select their candidates through a high-stake annual national exam, based on multiple-choice questions. Hence, students spend a lot of time and energy to prepare themselves for the exams to get higher marks and enter specialty routes with higher earning potentials. It also resulted in a phenomenal popularity of the specialties that had been favored in the price setting:
“even among medical science graduates there is a tendency to continue studies in high tariffs medical services or profitable fields, such that health care professionals are warning about the lack of interest in fields such as internal medicine and pediatrics and a greater interest in cardiology, ophthalmology, surgery, and radiology”. (Health Researcher)
-Development of private sector for medical services and undermining of the public sector
With claims about unrealistic health services expenditure and the increased profit margin of medical services provided by the public sector, physicians are becoming more inclined to operate in the private sector:
“Moreover, the demand for less expensive services provided by private-sector institutions has increased, while resources, technologies, and management practices in the public sector have remained stagnant with the growth in demand”(Health insurance staff).
As a result, both patients and employees (physicians and non-physicians) got dissatisfied with the public sector. Subsequently, legislators passed an amendment to Article 32 of the Fifth (2010-2016) and Sixth (2016-2020) five-year Development Plan, which based on this amendment, physicians were prevented from simultaneously working in both public and private sectors (dual practice) [50, 51]. In this amendment, legislators implied that the main reason for the tendency of physicians to leave the public sector or preference to work in a private sector is the financial incentive, but failed to provide practical solutions to incentivize participation in the public sector [52, 53].
-Governance power of actors in setting medical prices
Despite annually revised health care tariffs, there is no systematic costing process for health services, and the pricing system is still suffering from a lack of a transparent and balanced structure that can effectively manage conflicts of interest in decision making related to the medical services prices. Some experts believe that it is necessary to change actors' roles in tariff setting process. “Unfortunately, during the last years public, non-public, private and semi-private organizations determine tariffs separately for their own side and own benefits. They set tariffs based on individual agreements between their organizations and the insurance organizations or based on statutory authorities that sometimes resulted in unilateral increases in tariffs.” (MoHME senior officer)
The highest authority in medical price setting (i.e., HCHI) suffers from an inappropriate membership composition. Its membership includes a heterogeneous group including insurance organizations representatives, the MOCLSW, the MoHME and the IMC. It seems that it is a time for the role of the MoHME in the pricing council to be more prominent. “One of the main critics to the tariff setting system is that in tariffs context, there is no harmony between different decision-makers and groups that have more power have the main role in price setting and get more benefits”. (Health insurance officer)
“People’s expectation from governing actors who set pricies and tariffs is to provide health services while upholding social equity, high quality of medical services and rational prices”. (Medical Council officer).
Analysis of interviewees and documents showed that the organization and governance of medical tariffs setting consists of polymorphous patterns of different philosophies of health governance. Ironically, this ambiguity contributed to making tariff-related decisions regardless of implementation outcomes; for example, through implementing Health Transformation Plan and approving the medical tariffs systems within the MoHME before even ensuring that the main insurance organizations would support such changes. Another example is the transfer of the power of setting medical tariffs for the private sector to the IMC, which occurred in 2004 as part of the Five Year National Development Plan. Within the five years that this legislation was in power, it marked continuous challenges between the IMC and the insurers, rapid increases in the private sector tariffs, and increases in the share of out-of-pocket expenditure
-Medical information systems and setting prices rationally
Despite improvements in the management of medical information systems in the hospitals, they still suffer from structural limitations that prevent detailed assessments of the health services costs. Most of the current information systems are developed based on the current pricing structure; hence, they are inadequate for assessing or modeling alternative approaches to provider payments. “Determining the actual costs of the health services is an important input for revising and setting medical prices, but the limitations of the records and in the information system has meant that this has remained a challenge in Iran’s health care system”. (A physician)
As a result, a provider that brings substantial revenue to the hospital might also produce substantial costs to the hospital because of material or human resources required for them. The latter costs, however, are not well-recorded in the system, and the hospital remains in the dark about the actual costs and benefits of the services. The limitation of the data at the local level reflects the problem at the national level where calculating and updating the relative values remains a challenge as it requires for micro-data to be available, while it is not. This also makes it difficult to compare the actual costs of delivering services in different geographical regions or different settings.
-Native model for pricing health services
Documantry analysis showed that, until now, the Iranian health system does not have a national health services tariff setting framework and evidence-based model. This issue should be addressed, as to achieve Universal Health Coverage, it is necessary to determine the actual price of health services based on scientific methods and new models. According the interviewees determining the actual fiscal value of health services is also necessary to ensure equity in reimbursement of the costs to service providers in contrast to delivery and supply of these services.
“To balance the medical price market, it is necessary to set regulative (normative) tariffs that reflect the actual costs of service delivery and reliability in the development of health care delivery system, and use appropriate mechanisms of setting health services tariffs. Medical tariffs in public and private sectors need to be the same in order to increase the competition on increasing the quality of health care”(Advisor to the minister of health).
Study participants also mentioned that periodic review of health care prices and revising them based on some indicators (e.g., health insurance per capita, inflation rate, and increasing index of the total cost of goods) is very important in setting those prices rationally as well.