How to manage healthcare budgets

At the recent “New Directions in Governance” meeting it was suggested that future meetings should bring governance advisors together with sector-specific colleagues. The different language we use in our respective disciplines is a serious barrier to taking forward an agenda of real importance and  hence this message seemed particularly pertinent. I came to the meeting with a number of thoughts on how public finance management (PFM) rules often hinder health system performance, some of which I outline below.

Over the past three decades a major focus in low- and middle-income countries has been to seek new revenue sources for health services to overcome strict controls over the use of budget funds which were seen as inefficient but difficult to address. Community-based health insurance schemes have been widely introduced, as were patient user charges and payroll tax-funded social health insurance schemes. These various developments reflected a belief that governments were unlikely to increase funding to health, or to introduce the flexibility in budget funds required to incentivize improvements in service delivery.

Now, however, health financing policy is shifting its focus back to the health budget, a response to evidence that new sources and models of funding outlined above have had limited success.  Schemes relying on voluntary contributions raise little new funding, a problem also faced by mandatory insurance schemes when the informal economy dominates, and patient charges have proved time and again to be regressive. Many Ministries of Health particularly in Africa have now abolished patients charges altogether for priority services or population groups.

Strategically, the potential gains from aligning PFM rules with health sector objectives far outstrip those from developing new “innovative” sources of funding. This brings us back to governance and accountability mechanisms and the rules which govern health budget formulation, execution and reporting. All this may seem like old news to those in the PFM community, but the time has come to sit together and work through the issues in detail. Here are a few items to kick off a joint health–PFM work agenda:

• Alignment issues – budget formulation: Improving health service performance requires that budgets be built around outputs linked to priority services and populations, rather than inputs e.g. number of hospital beds. PFM rules still often require detailed calculations of service inputs with spending and reporting made against the same categories. However, reducing reliance on hospitals and strengthening primary health care (PHC) is high on most countries’ agendas and input-based budgeting would likely result in overall health budgets and, potentially, cuts in PHC services, creating a perverse incentive to maintain expensive inpatient care.
• Alignment issues – budget execution: Uncertain demands on health services makes accurate budgeting more difficult, and spending needs to be flexible enough to be reallocated when demand for certain services surges, e.g. following disease outbreaks. Setting spending controls at the level of a health programme (e.g. PHC) rather than individual spending units (e.g. health facility) would provide flexibility without compromising financial controls. Similarly, growing interest in results-based financing requires flexibility in the way staff are paid: most initiatives currently use external funding not subject to government budget rules.

Health will remain central to the post-2015 development agenda, as will health system strengthening.  The current Ebola crisis is largely blamed on weak health system performance. WHO is committed to equity in health and financial protection, the heart of the universal coverage agenda and maximising the impact of public budgets are also central to this agenda. Close collaboration between Ministries of Finance and Health is required to develop more flexible budgetary systems without compromising fiscal discipline, to align results-oriented approaches in the health sector with public finance management rules, and reinvigorate health systems in their push towards universal coverage.

This post first appeared on The World Bank Blog

Author: Matthew Jowett is a Senior Health Financing Specialist with the World Health Organization.

Image: A nurse poses for a photo in a trauma center of the University of Mississippi Medical Center in Jackson, Mississippi October 4, 2013. REUTERS/Jonathan Bachman