Financing Primary Health Care

1. Financing Primary Health Care Agnes Soucat Lead Economist Health, Nutrition and Population The World Bank

2. Introduction Purpose of conference: Review progress on PHC and make recommendations. Given the interest on PHC, this presentation will concentrate on Public Health Expenditure issues and fiscal space. Leaving the important issues of the main functions of health financing and the alternative financing models such as SHI, NHS and others for another opportunity. After 30 years of Alma-Ata: How come we still have it wrong? Three Facts: • The majority of health spending in LIC is still private and out of pocket. • Government expenditures tend to concentrate in upper levels of care and benefit the better off • Donor Funding in LIC do not necessarily finance government or country priorities nor finance the greatest needs according to morbidity and mortality indicators.

3. Main Messages • Countries have to prioritize public spending in health according to their own morbidity, mortality, and availability of funding. • A great degree of impact can be made in making accessible health interventions at a low cost through sustainable, domestic financing. • Fiscal space for additional expenditures is a binding constraint. To ignore this facts only leads to distortions that inhibits countries, specially LIC, to fund PHC in a sustainable manner. • Donor funding (especially in LICs) can generate distortions if it is not focused on non-volatile and long-term financing. • Additional spending in health “alone” does not necessarily improve health outcomes. Health outcomes are determined by interventions in multiple sectors.

4. 1. PHC development is key for improving health outcomes

5. Africa is still facing a daunting challenge for achieving MDGs:an example with child mortality

6. Cost-Effectiveness is one criterion for prioritizing health expendituresHow much health will a million dollars buy? Source: Disease Control Priorities in Developing Countries, second edition, 2006, Tables 1.1- 1.4

7. But Financial Protection is also Important Source: Herrin and Racelis 2007

8. As is Equity Income Quintile Source: Gwatkin et al. 2007

9. An example in Ethiopia Major health problems in the country can be solved with low cost interventions • Infant and Child Mortality: Diarrhea (24%), pneumonia (28%) as the main causes of early death of children; HIV has emerged as a growing cause of early death (6.2), Malaria 5%; malnutrition underlies over half of these deaths • Maternal Deaths: hemorrhage 25%; infections 15%; ecclampsia 13%; complicated abortions 10%; obstructed labor 8%; High fertility (TFR is 5.9 children per women in 2000, 6.4 in rural area) is an underlying factor

10. 2. PHC strategies can be costly

11. Given Past Growth Trends, Some Countries Will Have Problems Accommodating Even a Basic Package of Services

12. Alternative Cost Estimates for Basic Package of Services

13. The Challenge of Scaling Up in Ethiopia

14. 3. PHC should be funded by the government, although various forms of public funding are possible

15. Nature of PHC Services • Well-known, cost-effective and sustainable interventions that can have a large impact on mortality and morbidity • Non-insurable (without government subsidization) • because PHC services are highly predictable • Nature of PHC services (public goods) necessitates public sector financing.

16. Public funding of PHC can take several forms • Removing user fees may not be best solution, if: • public finance systems do not ensure money will reach PHC facilities • or if public funding is not based on performance (i.e. Rwanda or Congo) • Government can also fund demand (instead of supply) through mandatory health insurance (i.e. Rwanda, Ghana)

17. 4. Whatever mechanism is chosen for funding PHC, fiscal space will be a binding constraint

18. What is Fiscal Space? • Fiscal space = The availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position. • Fiscal Sustainability • Capacity of governments, in the future, to finance desired expenditure programs, service its debts, and ensure its solvency. • Cover cost of borrowing and recurrent costs • Replacement of donor funding

19. Sources of Fiscal Space • Government budget constraint: G = Taxes + B (domestic) + ΔM + B (external) + Grants • Is there potential to increase tax revenue? • Can borrowing be increased (domestic or external)? • Is there room to print money to finance expenditure? • Can you finance by receipt of grants? • Consistency with Macroeconomic Framework

20. 1. Revenue-generation capacity is limited in low-income countries For low-income countries, it may not be feasible to expect higher than 15% of GDP as source of revenue from taxes.

21. 2. Domestic and Foreign Borrowing • Key issue: both domestic and external borrowing imply the need to repay in the future! • Are the returns high enough to justify borrowing? • Will borrowing stimulate economic growth, enhancing repayment ability? • Governments need to be particularly careful about domestic borrowing: unlike the case with external borrowing, there is no possibility of debt cancellation. • Borrowing adds to non-discretionary expenditure in the future. • Debt sustainability is still a concern in LIC and it does not make much sense to borrow for what in PHC are largely recurrent expenditures.

22. 2. Some Countries Face Difficult External Debt Repayment Problems Source: World Bank 2006

23. 3. Seignorage • Offers very limited room for creation of fiscal space. • In the normal course of growth, seignorage to the order of 0.5-1% of GDP may be sustainable. Seignorage as share of GDP: Income Group 1990s 2000s Low-income countries 4.4% 3.0% Lower-middle-income countries 3.7% 2.0% Upper-middle-income countries 3.9% 2.2% High-income countries 1.4% 1.7% • Excessive seignorage can lead to inflation: >10% can disproportionately affect the poor and can be detrimental to the broader investment climate. • Can have other compounding negative effects on the macro economy (e.g., on exchange rates).

24. 4. External aid is an important source of health spending in Sub-Saharan Africa

25. Donor aid for health has increased significantly • Most of the recent increases: • Focus on Africa • Focus on specific diseases • Come from bilaterals and multilaterals (e.g. GAVI & Global Fund) Source: Michaud 2006

26. Where Does All the Aid Go? • On average, for every $1 disbursed by donors to our 14 case study countries, we estimate: • Not recorded $0.30 • Recorded but not in Govt spending $0.20 • Aid earmarked to specific projects $0.30 • Budget support $0.20

27. Most assistance is provided outside government systems, making efficient planning, budgeting and M&E difficult. Donor Aid for Health in Rwanda • Aid is spent in public or public-sector assisted facilities, but Government manages only 14% of aid to health, and only 20% of total health expenditures – less than NGOs (27%) • Leads to a distorted spending pattern and high administrative costs absorbing 27% of health spending Source: NHA 2003

28. Donor commitments for health are VOLATILE and UNPREDICTABLE Try managing this…

29. Donor collaboration is a challenge WHO INT NGO CIDA 3/5 UNAIDS GTZ RNE UNICEF Norad WB Sida USAID T-MAP MOF UNTG PMO CF DAC GFCCP PRSP PEPFAR HSSP GFATM MOEC MOH SWAP CCM NCTP CTU CCAIDS NACP LOCALGVT CIVIL SOCIETY PRIVATE SECTOR Source: Mbewe, WHO

30. Vertical aid distorts priorities : Example from Rwanda • Project type support dominates, leading to: • Geographical inequalities:$11.84 p.c. in highest funded province $1.86 p.c. in lowest funded • Inequalities by strategic objective: $46.6m earmarked for HIV/AIDS, vs. $18.3m for malaria vs. $1.1m for IMCI • Short time horizon: 55% of projects end in one year or sooner Source: MoH Donor Mapping Study (2005) and NHA 2003

31. Improve Donor Funding Through: • Country ownership • Alignment • Reduced earmarks • Focus on comparative advantage • Pooled financing • Improve data collection • Increased coordination

32. 5. Increasing PHC funding will not be enough

33. Increasing public spending is not enough * Percent deviation from rate predicted by GDP per capita

34. More Spending in other sectors is needed

35. More money alone will not achieve results unless countries deal with their major constraints including: • Macroeconomic issues • capacity to raise more money domestically • Institutional issues • administrative capacity, level of corruption • Health staffing issues • skills, salaries, and number of administrative, managerial & medical staff • Social/cultural/political issues • political and social stability, cultural norms, etc.

36. Conclusions • Developing PHC is key for improving health outcomes in Africa, although efforts in other sectors are also needed • This PHC strategy implies a major increase of resources and well-targeted health expenditures • PHC is a public good and should be funded by the government, which does not mean that only supply should be funded • Fiscal constraints are binding, particularly in low-income countries (LICs). • In LICs, donors need to consider possible distortions when providing financing outside the basic package of services. They should focus on long-term and non-volatile interventions.