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private sector P U B L I C P O L I C Y F O R T H E NOTE NUMBER 263 THE WORLD BANK GROUP PRIVATE SECTOR AND INFRASTRUCTURE NETWORK JUNE 2003 A franchise is a type of business model in which a firm (the franchiser) licenses independent businesses (franchisees) to operate under its brand name. A firm might choose to expand its business through franchising because the arrangement shifts capital investment and day- to-day managerial responsibilities to inde- pendent businesses, overcoming two major constraints to rapid growth. The franchiser typ- ically has established a successful product line and so is able to provide specialized business strategies to franchisees in exchange for a fixed fee or royalty payment.

Franchisers in the health sector, often supported by international donors and nongovernmental organizations (NGOs), establish protocols, provide training for health workers, certify those who qualify, monitor the performance of franchisees, and In the past decade a growing number of health franchising schemes have emerged in developing countries. Often reaching tens of thousands of poor households, these private schemes currently provide logistical, managerial, and sometimes financial support to small-scale providers (franchisees) of preventive care, such as family planning and maternal and child ... more. less.

health services . While franchising has attracted growing interest among governments and donors as a possible way to achieve health objectives, there is some debate about the ability of the model to reach the poorest people and the ability of franchisers to sustain themselves financially . Franchising in Health Emerging Models, Experiences, and Challenges in Primary Care Jeff Ruster, Chiaki Yamamoto, and Khama Rogo Jeff Ruster (jruster@ worldbank.org) is lead financial analyst, and Chiaki Yamamoto (cyamamoto@worldbank. org) a private sector development specialist, in the World Bank 9s Private Participation in Public Services Group. Khama Rogo (krogo@worldbank. org) is lead specialist, human development, in the World Bank 9s Africa Region. Figure Typical franchising structure in the health sector 1 Performance reports Member dues Training Certification Performance monitoring Bulk purchasing and credit Payment Services Franchiser Franchisees (for profit, nonprofit, informal) Target population Brand marketing F R A N C H I S I N G I N H E A L T H E M E R G I N G M O D E L S , E X P E R I E N C E S , A N D C H A L L E N G E S I N P R I M A R Y C A R E provide bulk procurement and brand market- ing (figure 1). Potential benefits Franchising offers potential benefits: ª Quality control. To protect the brand reputation, the franchiser typically trains its franchisees in technical and business admin- istration skills and monitors their perform- ance to ensure that they conform to its standards. The monitoring built into fran- chising may be attractive to a government that is interested in establishing partnerships with small-scale providers close to communi- ties but lacks the capacity or resources to oversee their operations. ª Bulk supply of goods and services. The franchiser may identify qualified suppliers and negoti- ate long-term bulk prices for goods (drugs, contraceptives, equipment, office supplies) and services (finance, insurance). A fran- chiser of primary health care might also develop a referral network of qualified sec- ondary care providers, creating opportuni- ties for referrals and professional networking and exchange. ª Mass marketing. The franchiser markets its brand name 4through billboards, mass media, and personal contacts (such as local meetings organized by community health workers) 4informing potential clients about the availability of services and enhancing the reputation of clinics by allying them with the brand name. ª Incentives for care providers . Because franchised providers bear the financial risks associated with their success or failure (with ejection from the franchise meaning the loss of the caseload associated with membership), they have a strong incentive to maintain the qual- ity of their service. As a result, franchised providers need less supervision than a net- work of providers employed by a single entity. A franchising effort in India uses competi- tion to strengthen incentives to perform well. After training a provider in a rural area, the franchiser maintains contact with a potential replacement and encourages the alternative provider to give feedback on the quality of care by the franchisee. Potential issues While the general concept of franchising is applicable to the health sector, the highly tech- nical nature of health care provision and the externalities associated with it raise issues often quite different from those in commercial fran- chising. These issues need to be considered when evaluating franchising as an option for health care provision and designing health fran- chising schemes. ª Asymmetry of information. Because judging the appropriateness of clinical services is extremely difficult for patients, they are unlikely to change providers on the basis of service quality. That makes demand shift a poor mechanism for quality assurance. Designed properly, franchising can address this problem. By signaling the quality of providers, franchising helps inform clients about their choices when seeking care. And the franchiser, which is better informed than patients, monitors and controls the quality of service on their behalf. ª Difficulty and cost of monitoring. Because a patient 9s needs and the appropriate care vary significantly from one case to another, mon- itoring the quality of health services tends to be more difficult and costly than monitoring the quality of other goods and services. ª Limited possibility for standardization. A success- ful franchising scheme requires well-defined products that enable franchisees to mass- produce and the franchiser to monitor qual- ity. In health care the range of services offered is much larger than in other sectors and rela- tively few cproducts d can be standardized. This is one reason that franchising in health has focused on preventive care, such as fam- ily planning and reproductive health, where standardization, training, and monitoring are relatively straightforward. ª Difficulty of franchising and training profession- als. Franchising can enable entrepreneurs with little knowledge of an industry to launch a successful business. But this is harder in the health sector, where providing services requires more specialized knowledge. For a health franchise to succeed may therefore require a large number of underemployed private medical practitioners. 2 3 Table Three health care franchises in developing countries Kisumu Medical Greenstar Well-Family Midwife Educational Trust Network Clinic Network Country Kenya Pakistan Philippines Geographic coverage Rural Urban and periurban Urban Year established 1995 1995 1997 Area of practice Family planning, postabortion Family planning and Family planning and care, and sexually reproductive health maternal and child health transmitted infections Franchisees Nurses, midwives, and clinical Mostly obstetrician Registered and practicing and medical officers working gynecologists or Bachelor of midwives with community-based doctors Medicine and Bachelor of Surgery (MBBS) doctors from disadvantaged neighborhoods Scope 125 providers (in October 2001) 2,850 female doctors and 205 clinics (in October 2002) 11,867 other health care providers (in June 2002) Services offered by franchiser Supplies Free contraceptives; start-up Subsidized contraceptives and Lease of clinic equipment kit for manual vacuum clinical supplies and instruments; clinical aspiration (MVA) supplies purchased at bulk rate Technical training One week 9s training in family 40 hours 9 training in 35 days for family planning; planning and reproductive managing intrauterine 4 days for communication health, MVA, sexually devices, or IUDs (for female skills; 4 days for counseling. transmitted infections, HIV/AIDS, providers); 8 hours 9 training Additional continuing training and infection prevention in administering hormones available from the franchise Business training Use of revolving loan funds; .. Market feasibility assessment; record keeping 2 days for business planning; 2 days for reporting and monitoring Advertising None Radio, television, and print Radio and television media advertising; personal advertising contacts Monitoring mechanism Monthly visits from Monthly visits from Greenstar Regular monitoring by regional coordinators doctor (informal monitoring) franchiser a and cmystery client d to monitor provider quality; biannual evaluation by qualified doctors Fees paid by franchisee Token annual membership None. Fee charged for 500 pesos (about US$10) a fee (for eligibility for revolving additional training month and 200 pesos (about loan scheme) US$4) per delivery. Fee charged for continuing training 1 .. Not available. a. Franchisees that fail to conform to standards receive a written reprimand after the first offense and a one-month suspension after the second, and are ejected after the third. Source: Interviews with franchisers; http://www.greenstar.org.pk; http://www.wfmc.com.ph. is an open forum to encourage dissemination of public policy innovations for private sector 3led and market-based solutions for development. The views published are those of the authors and should not be attributed to the World Bank or any other affiliated organizations. Nor do any of the conclusions represent official policy of the World Bank or of its Executive Directors or the countries they represent. To order additional copies contact Suzanne Smith, managing editor, Room I9-009, The World Bank, 1818 H Street, NW, Washington, DC 20433. Telephone: 001 202 458 7281 Fax: 001 202 522 3480 Email: ssmith7@worldbank.org Copyedited and produced by Communications Development Inc. Printed on recycled paper T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / V i e w p o i n t / i n d e x . a s p F R A N C H I S I N G I N H E A L T H E M E R G I N G M O D E L S , E X P E R I E N C E S , A N D C H A L L E N G E S I N P R I M A R Y C A R E view point Beyond these issues specific to the health sec- tor, social franchising 4franchising to achieve social goals 4also has unique features. For example, if public subsidy is involved, the poten- tial costs and benefits of a franchising scheme need to be measured against those of alternative subsidy mechanisms, including providing subsi- dies directly to clinics. Franchised networks are unlikely to use financial subsidies more effi- ciently unless their networks are large enough to benefit from economies of scale in advertis- ing and monitoring. Operating models Kenya, Pakistan, and the Philippines offer exam- ples of schemes ranging from an informal net- work of providers, which has the potential to evolve into a franchise structure, to a full-blown franchising operation (table 1). In Kenya a local NGO, Kisumu Medical Educational Trust, provides one-week training in postabortion care to a network of rural health care providers 4nurses, midwives, health work- ers, medical assistants, clinical officers, and community-based doctors. The NGO visits net- work care providers around once a month to conduct informal monitoring. In Pakistan the Greenstar Network franchises private doctors, female paramedics, and phar- macists to provide family planning services and reproductive care in urban areas. Clinics receive subsidized supplies from Greenstar as well as ini- tial training and monthly visits from Greenstar doctors. The monthly visits allow both ongoing training and informal monitoring. While most franchisees make little profit from family plan- ning services, participation in the network offers the benefits of more patients and training by Greenstar. In the Philippines the Well-Family Midwife Clinic Network franchises clinics owned and operated by midwives in selected municipalities to provide family planning and maternal and child health care services, including delivery services. The network has contracts with eight NGOs that act as regional franchisers. Midwives who meet the selection criteria and agree to invest in renovating or constructing their clinics sign an agreement with the regional franchiser to obtain membership in the franchise. The franchise focuses on urban areas and on clients who are unable to pay the full cost of most pri- vately provided health care services yet can afford to pay reasonable fees. Challenges and opportunities Early results from health franchising schemes suggest that the model can rapidly expand the coverage of basic health services to poor people, capture economies of scale, and reduce the information asymmetries that often adversely affect the quality of care. The financial sustain- ability of health franchising schemes is being debated, however. While franchisees may reach financial sustainability relatively quickly, as has happened in the Well-Family Midwife Clinic Network, franchisers that pursue public policy goals may need to continue to rely on public subsidies. One proposed strategy is to expand the ser- vices provided beyond family planning to include curative care, such as treatment for malaria and tuberculosis, for which the willing- ness to pay is typically higher. Indeed, donors have begun to develop new funding strategies to assist franchising schemes in expanding their operation to cover these services. These new funding approaches center on tying the pay- ment of subsidies to the outputs and outcomes of franchising schemes, increasing the need for the schemes to develop appropriate, cost- effective monitoring and reporting systems.

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