Chapter 11: Health Sector Finance and Expenditure

1. Health Sector Financing Problems

The urgency of the need for information about health sector financing and expenditure in developing countries arises out of the current problems of the health sector. Despite the optimism of the late 1970s and the Alma Ata declaration on Primary Health Care, the limited improvements in health status that had been achieved have now been undermined by the world economic crisis of the late 1970s and 1980s. The health needs of many within developing countries and, particularly, the rural and urban poor populations, remain unmet. Infant mortality rates remain high in most developing countries and 80% of the world's population has no access to any permanent form of health care.

The inadequacy of funds in any country is a mix of absolute deficiencies (resource shortages) and relative deficiencies (inefficient use of resources). Resource use inefficiencies may take the form of inefficient manpower use (because functions are not clearly defined) or inappropriate use of technologies (such as capital-intensive methods of health facility construction). The maldistribution of available resources is also an aspect of inefficiency. Health systems in developing countries are generally dominated by urban (hospital) care, leaving only limited funding for rural facilities and primary health care. In many systems, especially those with social security schemes, resource distribution favours the more wealthy (employed and insured); and in most systems it is likely that the poorest have worst access to, and lower utilization of, health care. Finally, problems are caused by the lack of co-ordination between the sources of health finance and health care (such as government, private, foreign), and between the various providers of care (public, private, different levels of the system). The result may be inadequate service provision or wasteful duplication. Management weaknesses underlie these problems.

Resource shortages have been exacerbated by rising costs within the health sector due to increased utilization rates (in some countries), rising expectations - especially for the adoption of new and expensive technology, and an increasing proportion of elderly within the population (particularly in the more developed countries of Latin America and the Caribbean). Often incentives for cost-containment do not exist to temper the impact of these changes on resource use.

The lack of information about health sector financing and expenditure in many countries has undermined appropriate decision-making. The problems of studying financing and expenditure patterns in the health sector include:

- a tendency to regard the health sector as synonymous with health services and to ignore expenditures outside main government health agencies (i.e. a conceptual/definitional problem)

- bureaucratic reluctance to encroach on the organizational territory of co-providers of finance and services (unless formally instructed to)

- the independence of decision making enjoyed by many providers, which takes priority over the need to coordinate and integrate health policy.

The problems, however, are now sufficiently great to encourage more appropriate information collection, and a common methodology for obtaining the information is emerging.

2. Why Study Health Finance and Expenditure?

Studies of health sector finance and expenditure generally have two main purposes, related to the health sector's problems: to investigate the efficiency of the health sector and to provide information for financial planning.

In practical terms, the information can be valuable for:

- identifying who benefits from services and so clarifying the impact of present policies on equity

- identifying who gets what (i.e. the geographical, age, gender, ethnic and socio-economic distribution) and determining whether this is in line with policies

- identifying current patterns of financing and expenditure and so encouraging discussion of alternative sources of finance

- identifying and quantifying resource deficiencies through clarification of the type of services produced and the resources employed in their production

- facilitating the co-ordination of various funding agencies and spending bodies

- analysing resource deployment and identifying the possibilities for re-deployment

- permitting the comparison of financing and expenditure patterns between countries.

3. Steps in a Health Sector Finance and Expenditure Survey

There are four basic steps in assessing health sector finance and expenditure:

- define the health sector
- describe the scope and objectives of the survey
- collect and tabulate the data
- present the results.

3.1 Definition of the health sector

The precise definition of what services and activities comprise the health sector is necessary to guide data collection and, especially, to make comparisons of health systems across countries or at different times.

The following pairs of items show the difficulty of drawing a line between aspects of the health sector/non-health sector. Which should be included within the definition of the health sector?

- health services; environmental services (e.g. water, sanitation, environmental pollution control, occupational safety etc.)

- hospitals; social welfare institutions

- education and training; pure

- medical research medical social work; social work

- formally trained medical practitioners; traditional medical practitioners.

In practice, the limit of the health sector varies considerably between countries and different definitions have been developed for different purposes. In developing countries, the definition tends to be broader than in developed countries because, for example, of greater deficiencies in certain areas (e.g. environmental health) and extensive use of the traditional health sector. A useful rule of thumb is to include all finance/expenditure whose primary intention (regardless of effect) is to improve health.

Surveys often specifically seek to identify primary health care expenditures, and so require a definition of primary health care' (PHC). This encounters the same problems as those of defining the health sector (i.e. where to draw the line between health and non-health activities). In addition, it may be inappropriate to include all of the commonly accepted health expenditures as being PHC: To what extent is hospital care primary health care? To what extent do support services such as laboratories undertake PHC? Of course, each level of the health system supports the others but there are distinctions between types and levels of care. The common practice is to identify a 'PHC factor' which can be applied to the total within each category of expenditure. Thus, 0.2 might be the factor for secondary services which provide clear support to the primary level, but 0 might be the factor for tertiary facilities. To apply such factors it is important to identity the range of services provided within facilities or at different levels of the health system. The factors, clearly, represent only an approximation of PHC expenditure; it is difficult to capture the expenditure implication of facets of PHC such as decentralization and community participation.

As it is unlikely that uniform definitions of the health sector or of primary health care will ever emerge, it is necessary to describe clearly what has been included and excluded, and to justify the definition adopted.

3.2 Scope and objectives of survey

The scope and objectives of the survey clearly have to be set within the context in which it is undertaken - reflecting the needs and priorities of the specific country, and the feasibility of data collection. The common questions tackled by such surveys include: What is the total expenditure on the health sector? What are its sources? How much does each source provide? On what/who is it spent?

It is important first to clarify whether the emphasis is on financing or expenditure or both, and whether it is to be a full or partial review of sources of finance/items of expenditure.

The range of sources that might be investigated includes: ministry of health, other ministries, local government, other state bodies, missions, industry, local voluntary bodies, direct household payments, insurance, self-help, foreign aid (official and private).

Expenditure categories might include: national hospitals, general hospitals, specialized hospitals, health centres, community-based care, private practitioners, drug sellers, sanitation, nutrition, training, research.

3.3 Data collection and tabulation

A variety of data collection methods will be necessary - both because of the different sources of information and to allow for some cross-checking of results. They include routine accounts/budget data, questionnaires, and interviews with health care providers. It can be especially difficult to obtain information about expenditure on private health care, including traditional care, and information should be sought from many sources including providers, users and tax records.

The data should be tabulated as they are collected; particular care should be taken to guard against double-counting and to record income and expenditure against the appropriate source. For example, government subventions to mission facilities could be recorded against government expenditure or against mission expenditure - but the original source is government and the subvention should be recorded on its account when the survey's purpose is to identify the sources of finance. At the same time it is useful to know who controls how much money, and so in some cases it may be appropriate to record the subvention on the mission account.

Normally, sources of finance are defined as above to be government ministries, missions, insurance agencies etc. In some surveys it might be possible, or relevant to identify the original sources of finance e.g. for government expenditure, the amount originating from taxes (on households, businesses etc.), from borrowing (foreign governments) etc. This is particularly important when there is concern over the equity of financing and expenditure patterns (i.e. who pays, who gets care).

3.4 Presentation of data

The data should be presented clearly, in a form that reflects the survey's objectives and permits relevant decisions to be made. A number of different breakdowns are possible:

- recurrent, capital and total expenditure
- expenditure by line item
- expenditure by source of finance
- primary health care expenditure by source and by line item.

Information about population groups served can be disaggregated by: age, geographical distribution (i.e. urban/rural), insured/uninsured, socioeconomic (income) levels. Similarly, information about the types of health service provided can be disaggregated by: preventive/curative, ambulatory/hospital, primary/secondary/tertiary.

The data can also be used as the basis of other calculations which might add to the survey's usefulness e.g. unit costs (per inpatient day, per outpatient visit), proportion of budget actually spent. Expenditure on programmes or disease categories prevented/treated can be calculated in order to compare expenditure patterns with health objectives and plans, and to monitor the achievement of plans.

4. Results of Health Sector Financing and Expenditure Surveys

The results of surveys that have been undertaken make it more possible to compare health services at different times and across international boundaries. They have provided an impetus to further studies and to refinement of the methods, have contributed towards developing an overall system of national health accounts and have shown that surveys can be undertaken relatively quickly and cheaply.

Studies show that sector finance is contributed by more sources than previously imagined and comprises a higher percentage of national income than hitherto believed (e.g. 9.8% of GDP in Swaziland). The role of government financing within the sector as a whole, however, remains significant. In Sri Lanka 86.0% of sector recurrent expenditure was provided from government revenues, in Togo 52.4% and in Swaziland 30.2%.

Household expenditure on health care and health-related activities may be a high proportion of total recurrent expenditure within the health sector: in Swaziland it represented 32.4% of the total, in Malawi 31.5% and in Togo 27.8%. In Sri Lanka the wide availability of government health care and limited use of private care resulted in household health expenditures representing only about 3% of sector recurrent expenditure. Foreign aid may also be important: in Swaziland it financed 20.8% of the sector's total recurrent expenditure and in Togo 13.2%.

Other information obtained through such surveys includes: the importance of foreign aid to primary health care in Swaziland (and the lack of government financial backing for its stated policy of PHC), the unequal rural/urban allocation of resources in Malawi and Sri Lanka, the unequal racial allocation of resources in Zimbabwe, the dominance of curative and hospital care within health expenditure and the significance of private care within the sector (e.g. traditional healers in Swaziland).