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Thailand: A Case Study in Strategic Purchasing

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Thailand is seen widely as a key example of a successful transition to Universal Healthcare (UHC). Since the shift towards UHC in 2002, Thailand has experienced an impressive decline in out-of-pocket (OOP) expenditure from 27% in 2002 to 11% of the Total Health Expenditure in 2019. At a total health spending of $723 per capita per year, Thailand spends much lesser than what most developing countries do for similar outcomes measured as DALY rates (Table 1). What makes its success even more impressive is the fact that Thailand’s transition was achieved despite starting its journey in 2002 with relatively modest numbers for both per capita income ($8179 PPP) and tax to GDP ratio (13%). Thailand’s transition to UHC offers important lessons for developing countries in the effective utilization of care purchasing and incentive structures to provide good health outcomes at low costs.

Table 1: Financing and health indicators in developing countries[1]

Country GDP Per Capita (PPP) (2018) Tax to GDP (%) (2019) Total health expenditure (PPP) (2018) Govt. share (%) (2018) OOPE (%) (2018) DALY Rate (2019)
Colombia $14,866 15% $1,155 72% 15% 24,212
Brazil $15,020 14% $1,531 42% 28% 30,189
China $15,609 9% $935 56% 36% 26,871
Thailand $18,530 15% $723 76% 11% 29,338
Mexico $20,258 13% $1,066 50% 42% 27,197

Health System Financing in Thailand

Thailand’s population is currently covered by three public health insurance schemes: 1. Civil Servant Medical Benefit Scheme (CSMBS), established in 1980, which covers civil servants and their dependents (accounting for 9% of the population), 2. Social Health Insurance (SHI) scheme, active since 1990, for private sector employees (16% of the population) and 3. UCS, launched in 2002, covers the rest of the population (75% of the population). It is mandatory for citizens to be enrolled in one of these non-competing plans. When SHI members become unemployed, they are automatically transferred to UCS and similarly when UCS members gain employment in the private sector they get transferred to SHI. Both CSMBS and UCS are tax funded. SHI, while a contributory scheme, also receives a third of its funds from tax revenues (Figure 1). 

Health has long been a priority in Thailand and forms a critical part of its National Economic and Social Development Plan. By the early 2000s, the priority accorded to health had already led to large scale investments in health infrastructure at the district and subdistrict levels, resulting in each district having a hospital and every sub-district having a health centre. Thus, in the shift to universal health coverage from 2002 on, the challenge before Thailand was not so much to create delivery networks, as to effectively channel the collected funds to the existing provider networks for optimal utilisation. This Thailand did through an effective strategic purchasing mechanism.

Figure 1: Financing flows

*OP: Outpatient services     **IP: In-patient services     ^DRG: Diagnosis Related Group

Strategic Purchasing: Key to effective fund utilisation

The Thai health financing architecture is characterized by a purchaser-provider split. Each of the three public insurance schemes has a purchasing agency that negotiates with the budget bureau for funds and independently contracts with a network of public and private providers to provide care for its members. While the benefit package[2] itself is largely uniform across the schemes, the terms by which providers are paid differs across schemes.

When UCS was launched in 2002 as the largest insurance scheme, its purchasing strategies were developed based on the experiences of the then two-decades old CSMBS and the then relatively nascent SHI scheme. The Controller General Department (CGD), the purchaser for CSMBS, followed a free choice, fee-for-service (FFS) model for purchasing healthcare from public providers. This has resulted in serious cost escalation and supplier induced demand without necessarily leading to any subsequent benefit for members. When SHI was launched, the Social Security Office (SSO), which acts as its purchaser, opted for capitation payments (essentially a lumpsum per capita payment, independent of services provided) for both outpatient and in-patient services. Provider incentives were no longer tied to the number of services rendered. More the number of persons registered with a hospital, larger the revenue it received. Through this, SSO shared risks with providers, incentivising them to cut down on unnecessary care, limit the length of hospital stays to what was necessary and prioritise preventive and primary care to prevent procedures requiring a higher payout. While this capitation model and subsequent registration to a provider network did not allow members to have a free choice of providers as CSMBS’s FFS model, members could still make an annual choice with regard to their preferred provider network. There were a fair number of competing private and public hospitals in urban areas (where most SHI beneficiaries were concentrated) for the SSO to contract with, providing a good set of provider networks for members to choose from.

The National Health Security Office (NHSO), the purchaser for UCS, opted for a closed-end approach for provider payments, similar to that of the SHI scheme. NHSO contracts with district provider healthcare networks, typically consisting of a district hospital and 10-12 sub-district health centres, serving a catchment of about 50,000 people[3]. Beneficiaries are required to register with local district healthcare provider to access services for free. To provide outpatient services to registered beneficiaries, NHSO pays provider networks an age-adjusted capitation based on the number of patients registered to the network. As the effective gatekeeper of their health, the provider network also bears the costs for any referrals that the registered patients need, to access higher levels of care. However, unlike SSO, NHSO does not follow a capitation payments model for in-patient services. Hospitals are instead paid by Diagnosis Related Group (DRG) or case-based payments[4], based on the admission services incurred on a monthly basis. NHSO opted for a DRG payments model over inclusive capitation to prevent under-provision of often expensive inpatient services, which is a possibility with capitation. To keep costs contained, DRGs are however subject to a national global budget ceiling set by NHSO for admissions. This global budget prevents hospitals from manipulating DRGs and pushing patients into a higher cost DRG. The use of capitation payments still posed the risk of under-provision in outpatient care. To counter this, NHSO set up complaint management through a 24hour call centre, with the complaints raised being legally required to be settled within 30 days.

UCS, covering three-fourths of the Thai population, thus effectively built on the lessons offered by existing insurance schemes to arrive at what can be considered a ‘Goldilocks zone’ of purchasing arrangements. Through a careful design of incentive structures, the Thailand experience demonstrates that healthcare for all is achievable in a developing country at low cost, without compromising on the quantity or quality of care.


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[1] The selected countries share GDP per capita similar to that of Thailand

[2] All services, as long as they are proven clinically effective and are not deemed to be non-essential, are covered by the insurance schemes. The benefit package is largely the same across the schemes. Since 2008, expansion of the benefit package is informed by health technology assessments.

[3] While in rural areas, beneficiaries don’t have much of a choice of providers, in urban areas beneficiaries can choose from among the different public/ private providers in the area. To account for temporary migration, UCS members are allowed to change their network upto four times a year.        

[4] Hospitals are paid by admission, whereby patients are classified into groups based on diagnosis and procedures. Cases classified in the same group consume similar resources or similar cost weights. The cost weight is applied to pay the hospitals for the cost attached to each case.

Cite this item


Ashraf, Hasna. 2021. Thailand: A Case Study in Strategic Purchasing.


Ashraf, Hasna. 2021. Thailand: A Case Study in Strategic Purchasing.


Ashraf, Hasna. 2021. Thailand: A Case Study in Strategic Purchasing.

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