Toward an analytical approach to health sector reform.

An analytical approach to health sector reform requires definition of the objectives of the health sector. Although a multiplicity of objectives may be appealing, there are compelling analytical reasons for simplicity. It is argued that a health status maximization objective is a widely acceptable choice, which captures most of the important aspects of utility maximization of relevance for health sector reform. Equity can be addressed in the process of aggregating individual outcomes. The widely recognized need for health sector reform in developing countries constitutes, in itself, evidence of the market failures in the health sector. If the market worked, why would we need reform? Given an objective and a justification for reform, analysis should proceed to address measurement questions and intervention strategies. The disability-adjusted life year lost is proposed as a consistent and feasible measure of health. Based on an optimization model of health sector performance in Africa, the paper discusses interventions to improve allocative and technical efficiency. These are broadly characterized as interventions dealing with lack of knowledge and interventions dealing with institutional shortcomings. They lead to different approaches to health sector reform. The paper concludes that we now have a systematic analytical approach to reform, in which tools and methods for addressing information gaps are well developed and need to be more widely applied, while those addressing institutional failures still need further development and application.