To deliver improved value to patients, national health systems must rethink their approach to health sector governance.

National health systems around the world face three interrelated challenges. In the face of persistent cost pressures, they need to become more efficient. But they must do so while improving the health outcomes they deliver to their populations and reducing variation in outcomes across the population as a whole. And finally, they must do all this in an industry that is subject to enormous change and disruption:

Innovations and improvements in care delivery are setting new standards for clinical best practice; new social trends are encouraging patients to demand a greater say in their care and more access to information about their health; and new technologies such as wearables, advanced analytics, and Putting Artificial Intelligence to Work are driving a revolution in e-health.

Addressing these challenges effectively won’t happen through incremental initiatives. Rather, it requires comprehensive health system transformation. Most national health systems have evolved over many decades into a patchwork of organizations and institutions—the equivalent of legacy systems in the IT world. But today, industry and government leaders need to go back to square one and holistically rethink the design of national health systems in order to fundamentally transform them.

The key to this transformation is a new approach to health sector governance. To continue the IT analogy, governance is the equivalent of a computer’s operating system. By redesigning a country’s governance model for the health sector, health care leaders can, in effect, replace the old operating system with a new one that is better suited to addressing the challenges that face health systems today.

BCG has been working with national health systems around the world to redesign and refocus their approach to health sector governance. We have found that, although the specific governance challenges that a country faces differ depending on contextual factors, nearly all health systems confront a common set of problems. First, the health care environment is changing so rapidly that even the best-governed health systems suffer from critical gaps in governance. Second, in many instances, the incremental evolution of governance systems over decades has created overlapping responsibilities that lead to unclear accountability, and sometimes conflicting directives, from competing regulatory entities. Third, even in situations where accountability is clear, the relevant regulatory agencies often lack the expertise and capabilities necessary to cope effectively with today’s challenges.

Despite these problems, however, a new logic for health sector governance is beginning to emerge. More and more countries are reorienting their national health systems on the principle of delivering improved health care value to their citizens. They are aligning stakeholders in support of this shared objective, encouraging innovative ways of organizing and paying for care delivery, and embracing advances in health informatics that take advantage of up-to-date digital technology.

Governance is a key lever for health care policymakers in pursuing a holistic approach to all of these changes and creating coherent, value-based strategies for the entire national health system. In this article, we define what good governance ought to mean in health care, explain how leaders should approach the design of a 21st-century governance system, and identify four critical design choices that will shape any redesign effort.

Defining Good Governance in Health Care

In the context of a national health system, governance refers to the constellation of organizational entities, policies, and regulations that define appropriate behaviors for actors in the system and monitor performance in order to optimize the health value of the entire population. Health value encompasses the health outcomes delivered to defined patient groups or population segments (for example, all patients suffering from congestive heart failure, or members of specific risk groups such as newborns or the frail elderly). An effective health sector governance system will accomplish four things:

1. Set the direction for the entire health system by establishing an overall vision and strategy, developing short- and long-term plans for each sector of the system, and defining key performance indicators.
2. Translate the vision into relevant policies, regulations, and standards, and then review and update them over time.
3. Monitor systems performance through the collection, analysis, and reporting of data on the key performance indicators.
4. Strengthen the performance of key actors in the system by defining roles, designing incentives, and building capabilities.

In our work with clients, BCG has extensively benchmarked health system governance models around the world. We have identified seven design principles that should inform any effort to redesign health sector governance. (See Exhibit 1.) Some of these principles may sound obvious, but the logic underlying the principles and the way the principles work together to create a coherent governance operating model is essential. What’s more, these high-level principles will serve as a constant reference point in efforts to design the details of the governance system.

Population Centric. The ultimate goal of any health sector governance system is to improve the overall health of a nation’s population over time. At a minimum, that goal entails universal access to care, but access is by no means sufficient in itself. Rather, the primary objective of any governance system should be to enable the delivery of continuously improving health outcomes to different population segments in an equitable manner, without major variations in outcomes across different regions (for example, urban versus rural) or different demographic, ethnic, and socioeconomic groups. Although the term population health has grown increasingly popular in recent years, its implications for health sector governance remain underdeveloped. It is the rare national health system that is explicitly organized to deliver continuously improving health outcomes to all its citizens and measures its performance in those terms.

Nationally Holistic. The governance system also needs to be holistic. That is, it needs to cover all key dimensions of the national health system and set coordinated and integrated policies. Although most advanced health systems around the world have a single national regulator at the center of their governance model, few have a comprehensive and integrated governance strategy. One country that has successfully developed a holistic approach to governance is the Netherlands. Recently, the Dutch government announced a five-year Plan for Outcome-Based Healthcare—in effect, a national strategy for value-based transformation of the health system. The Dutch Ministry of Health, Welfare, and Sport is leading the €70 million initiative, with the active participation of stakeholders across the Dutch health system.

Accountable. An effective governance system requires accountability, with clear roles and responsibilities; efficient allocation of resources and capabilities; and system-wide monitoring, compliance, and enforcement. The cornerstone of accountability in a population-centric, value-based health system is the systematic measurement and reporting of health outcomes by disease and by population segment, coupled with incentives that reward stakeholders for delivering improved outcomes for the same or lower cost. For example, Sweden’s extensive infrastructure of more than 100 quality registries tracks outcomes for leading diseases, procedures, and medical conditions. Increasingly, Swedish health authorities are leveraging this network to introduce value-based approaches for care delivery and health system management. From 2011 to 2015, Sweden’s national and regional governments invested approximately 1.5 billion Swedish kronor (about €160 million) to extend the registry network and to develop new tools that use data on outcomes to inform clinical decision making, improve relevant information available to patients, and serve as the foundation for value-based payment.

Trusted. Clear accountability enhances a governance system’s trustworthiness. One key source of trust is transparent decision making driven by objective data analysis—an approach that is becoming increasingly feasible, thanks to the revolution in health informatics, which makes more and more health data available to decision makers. For example, Estonia’s national health system has made significant progress toward creating an advanced digital infrastructure for e-health. The country now requires by law that all personal health information be stored in a machine-readable common format within five days of service delivery. The health informatics system links data from different providers and from ancillary stakeholders such as ambulance services. Individuals have access to their data through a single point of access. Providers also have access to aggregated data for clinical and research purposes, although patients have the right to restrict such access in specific situations.

Dynamic. A country’s health sector governance system should also be dynamic. Its processes should have the agility to respond quickly to changing circumstances or innovations in clinical practice and care delivery. For example, Singapore has created a dynamic health system that emphasizes quality and access, encourages preventive measures to minimize expensive care, and creates multiple incentives for patients to take responsibility for their own health. In 2015, Singapore invested 20% of its total government health spending in social and economic development and in preventive measures.

Complementary and Cooperative. A governance system needs to encourage cooperation among the national health system’s many stakeholders. This principle is especially important in an era when improvements in health care value increasingly depend on breaking down traditional silos between stakeholders and on creating more integrated models of care. In Slovakia, for example, the government has recently concluded a nationwide conversation about health care reform, focusing on how to change the way the national health system manages costs, with the goal of improving health care value. The catalyst for the process was a set of proposals from the trade association of the nation’s three private payers. The Ministry of Health picked up the proposals and orchestrated a consultation process involving key government agencies (such as the Ministry of Finance), private and public providers, Slovakian municipalities (which own some public hospitals), patient organizations, and the country’s main political parties. The reform proposals define minimum standards for treatment, suggest policies for concentrating patient volume to encourage the development of national centers of excellence, and outline continuous improvement processes for provider organizations. The reforms, which the Slovakian legislature recently adopted, will drive a major reorganization of the Slovakian health system over the next few years.

Strategic and Focused. Finally, an effective governance system needs to be pragmatic and practical. Planners should temper their desire for a holistic system-wide approach with a strategic focus on what matters at a given moment in time. For example, a US federal health agency recently introduced a new strategic planning process to identify a set of focused strategic initiatives to improve health care value for the patients it serves.  Among the priorities identified by the process:  a new strategy for rural health care, a major e-health initiative to help patients access and share their medical data and use it to inform their medical decision-making, and other projects focused on key aspects of value-based health care including price transparency and innovative payment models.  The agency created a simple governance process to manage these strategic initiatives, which combined clearly defined owners, milestones, and success metrics, with regular engagement between senior leadership and the initiative owners.

Designing the Components of the Governance System

These design principles set the high-level vision for health sector governance. But the critical challenge is to translate that vision into the infrastructure of the governance system itself—the organizational entities, roles, and responsibilities that will set the national health system’s strategy, policies, and regulations.

It’s useful to think of a modern national health system as a series of three concentric circles. (See Exhibit 2.) The innermost circle consists of a country’s population, and the system’s overarching goal is to continuously improve the health outcomes that it delivers to that population over time. A second circle, surrounding the one at the center, consists of three crucial subsystems: the public health subsystem, which aims to prevent disease and promote health; the provision subsystem, comprising the medical treatments and other services provided through delivery organizations that focus on primary, secondary, tertiary, and quaternary care; and the financing and payments subsystem, which organizes the funding of the national health system.

Surrounding this second circle is a third circle containing four additional support subsystems: the food, drugs, and medical devices subsystem, for assessing the safety, efficacy, and contribution to health care value of critical supplies such as medications and medical devices; the professionals subsystem, for planning and developing the health care workforce necessary to meet the health system’s goals; the research subsystem, for driving biomedical and clinical research and innovation and identifying the most effective interventions; and the data and digitization subsystem, for helping continuously develop the health system’s digital infrastructure, including creating new data services across the health care continuum.

A national health system doesn’t have good governance unless it has full coverage across this map, with adequate and appropriate resources, accountability, and interaction in place for direction setting, policy formation, and ongoing monitoring and enablement. BCG has identified 33 specific functions across the seven subsystems that a comprehensive health governance design should include. (See Exhibit 3.)

In designing a governance model to encompass all of these activities, the health system’s leaders must address four critical design decisions: balancing centralization and decentralization, integrating prevention with treatment, defining the role of the public sector, and combining enforcement and enablement.

Balancing Centralization and Decentralization

The contributions of centralization to system consistency and comprehensiveness are clear. That’s why most advanced health systems around the world have a single national regulator—typically, the Ministry of Health—at the center of their governance model. This national regulator acts as the voice and custodian of the entire health care system and supports a holistic and integrated approach to health sector governance.

Within the general concept of a single national regulator, however, planners must decide which regulatory activities the Ministry itself should perform and which it should entrust to independent specialized entities. No single approach is best for all national health systems. Some countries—Belgium, for example—adopt a centralized approach in which the national regulator does almost everything. Others, such as Canada, pursue a more decentralized arrangement. As a rule of thumb, the larger and more geographically, socioeconomically, and ethnically diverse a country is, the more suitable a decentralized approach is likely to be.

Even the most centralized of governance systems, however, need some independent entities to deal with potential conflicts of interest. Among the activities that should always be at arm’s length from the national regulator are quality assessment and improvement (which should be the responsibility of an impartial body that sets transparency standards for information and publishes data on health outcomes and other performance measures) and patient advocacy (to deal with malpractice issues and other patient complaints). Determining the appropriate degree of centralization and decentralization was a key issue in the design of a new governance system for an emerging-market country. (See “Building a New Health Governance System from Scratch.”)

Integrating Prevention with Treatment

When most people think about health care, they tend to focus on the treatment of disease and on the complex network of providers, drug companies, and medical device makers responsible for delivering treatment to patients. In a world where major chronic diseases are becoming increasingly prevalent and now account for a major portion of health care costs, preventing disease is as important as treating it. And yet, many important interventions to prevent disease are not typically viewed as being integral to medical care. Examples include efforts to address socioeconomic determinants of health or patient life-style choices. Too often, budgets for preventive activities stretch across multiple payers and government agencies, creating obstacles to coordination, planning, and more rational resource use. The result is systematic underinvestment in prevention and public health.

Consequently, a second key design issue that health care leaders should consider is how to integrate prevention and treatment, so that the system can support explicit tradeoffs between the investments in each domain. Key levers for addressing this issue include the design of the budgeting process for the health care sector, the creation of value-based payment and reimbursement models, and licensing requirements that promote more integrated and multidisciplinary end-to-end provider networks. These dimensions of governance were a major focus of our work with the national health system of a European country. (See “Creating a More Holistic Approach to Health Sector Governance.”)

Defining the Role of the Private Sector

In most countries, health care has traditionally been part of the public sector. More recently, however, many countries have been exploring various forms of privatization in the hope that introducing market mechanisms into the health system will promote efficiency and more rational use of resources. In many developing countries, the health system suffers from critical infrastructure and capacity gaps that the government lacks the resources to address adequately. In such situations, the private sector can be an important source of investment to build capacity and fill gaps that the publicly owned health system cannot. Therefore, two key decisions that countries must make about the design of their health sector governance involve identifying the precise role of the private sector and designing incentives to attract private investment while also establishing safeguards to minimize negative market effects.

Privatization and market-based competition won’t automatically lead to improved health care value. As in any market, the impact of market mechanisms will depend on the design of the rules governing market competition. In both developed and developing countries, governance systems need to design the rules for competition so that all stakeholders—public and private—have incentives to compete on value and so that the health system rewards participants that deliver the highest-quality outcomes in the most cost-effective way. A key first step is to require all providers to systematically measure and report the health outcomes that they deliver to patients. In the absence of such information, patients cannot make informed choices among providers, and providers cannot understand the relative quality of the services they are delivering or how to improve those services.

Combining Enforcement and Enablement

The traditional model of regulation in health sector governance focuses on enforcement. Regulators play a relatively hands-off role in which their chief responsibility is to determine whether stakeholders in the industry are complying with the rules. Although the enforcement model still has its place, it needs to be supplemented with a new model of regulation as enablement, in which hands-on regulators actively engage with stakeholders to help them build capabilities and improve their own organizational effectiveness and that of the system as a whole.

This enablement model acknowledges the critical importance of regulatory agencies’ interactions with stakeholders and of the quality of service they provide in key areas such as data analysis and benchmarking, research and development, and training and continuous education. The goal is to work together to create a more efficient, better-performing national health system. This emphasis on enablement and improved quality of service was a key focus of our work with the Ministry of Health in a Middle Eastern country. (See “Designing a More Agile and Efficient Governance System.”)

Four Steps in Redesigning Health Sector Governance

Many factors may cause a health system’s leaders to revisit the design of their governance system. The catalyst might be a reform in the legal framework governing the health system, as it was in the case of the emerging-market country. Or it might be a desire to embrace a new strategic focus such as value-based health care, as in the case of the Netherlands. Or it might be a growing conviction that after years of incremental development, the governance system is due for an extensive refresh. Whatever the precipitating cause, the redesign process involves four basic steps.

Assess your starting point. In order to thoroughly assess their starting point, health system leaders must ask and answer a number of critical questions:

• How is our health system performing? Where do we stand in terms of global benchmarks for health outcomes?
• What parts of our current governance system are working well, and what parts not so well? Is our governance model sufficiently comprehensive?
• What can we learn from benchmarking other health systems’ best practices for governance? How can we adapt these practices to our national context?
• Do we have the potential to leapfrog past other global health systems by comprehensively redesigning our governance system?

Define your goals. The assessment exercise should establish a baseline for current system performance and the existing governance model. It should also identify some key challenges or gaps in need of attention. For example, in the emerging-market country, the goal was to design a new health governance system from scratch. In the European country, the objective was much narrower: to develop a holistic approach to tradeoffs between investments in prevention and investments in treatment. And in the Middle Eastern country, the aim was to improve the efficiency and effectiveness of service delivery. In each case, the goal shaped the focus of the redesign initiative.

Redesign the governance model. Although the particular emphasis of the redesign effort will depend on the specific gaps or issues that leaders need to address, some best practices hold true for any redesign effort. For example, a good governance system will empower a single institutional voice for regulating the health system; ensure proper allocation of roles by eliminating duplication, filling gaps, and managing potential conflicts of interest; address all dimensions of the health system; and reflect the seven design principles described earlier in this report.

Plan for implementation. Finally, while good design is necessary, it is far from sufficient. Transforming a country’s health care governance system is usually a multiyear journey, so the implementation requires careful planning. In particular, planners must pay close attention to generating buy-in and support from the system’s multiple stakeholders—providers, payers, suppliers, and patients. Political leaders and policymakers can broadly set the rules of the game through the legal and policy framework governing the health system, but transformation by top-down mandate rarely succeeds in complex, multistakeholder environments such as health care.

Rather, a successful transformation requires the development of a broad network of authorization consisting of multiple champions from different organizations in the system who endorse the new governance model, advocate for it inside their own organizations and in the community at large, and invest the resources needed to make it happen. Transforming health systems through a new approach to health sector governance has the best chance of scaling up when health system leaders collaborate in the effort. (For more on this subject, see “Value in Healthcare: Accelerating the Pace of Health System Transformation,” World Economic Forum, December 2018.)

The global health care sector is in the midst of a massive transformation. Health sector governance must change—not only to keep up with the latest trends, but also to guide the transformation wisely and in a coordinated fashion. Now is the time for national health systems to take a fresh look at health sector governance and to systematically rethink their governance model.