In the late 1990s the state of São Paulo was completing construction of a number of new hospitals in underserved poor neighborhoods. State authorities faced a dual challenge. First, they wanted to avoid the governance problems-particularly the lack of incentives and accountability for performance-widespread in directly managed public hospitals operated by the State. São Paulo considered this a low-performing and unworkable hospital governance form.
Second, although they envisioned a reform model endowing hospital management with greater autonomy, they were concerned about developing effective accountability arrangements via contracting. In particular, they wished to avoid the shortcomings of existing contracting arrangements for private hospitals. As practiced, contracting was passive and poorly managed, and there was no accountability. The contract was a weak form of contract management referred to as an "agreement" (convenio), which is a legal arrangement to distribute budgets to private hospitals traditionally, and often politically, linked to the public system. The only requirement was to provide information on service volume for payment purposes.4 Performance targets, however defined, were not specified.
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3 La Forgia, G., and A. Harding. 2009. Public-Private Partnerships and Public Hospital Performance in São Paulo, Brazil. Health Affairs. 28(4). pp. 1114-1126. http://content.healthaffairs.org/content/28/4/1114.full
4 Government uses a treatment-and procedure-based rate system to pay private hospitals. Hospitals report admissions per procedure group and additional services provided beyond a standard package.