fiscal decentralization, budget norms and equalization norms in the health sector

Fiscal Decentralization, Budget Norms and Equalization Norms in

the Health Sector: From Simplified Interim Formula

to Final Complex Formula

Jean-Marc Lepain Public Finance Specialist

Intergovernmental Fiscal Advisor, Ministry of Finance jlepain@yahoo.fr

Tel: 020.776.16.934.

Manilay Thipalansy Research Consultant July 2010

Consensus about Budget Norm Formulae

• Must be facility-based

• Should be disaggregated by facility types

• Should take into consideration size of the attached population

• Should take into consideration the capacity to raise user fees and technical revenue

• Should pay for basic operation needs

• Should be based on a clear expenditure assignment

Three Types of Norms

• Norms for central budget

• Norms for provincial budget

• Norms for health facility type (central and provincial)

Non-Wage Fiscal Envelope

The non-wage fiscal envelope will be calculated as a percentage of the recurrent budget with the objective of raising the ration from 16.8% in FY2009/10 to 26%-28% in FY2011/12 in all provinces.

Provincial Health Budget (F)

District Health BudgetProvincial Hospital

(F)Prov.

Admin.

District HospitalType A (F)

District HospitalType B (F)

H.C. (F) H.C. (F) H.C. (F)H.C. (F)

BUDEGET NORM ARCHITECTURE

(F) = formula

Possible Final Budget Norm Structure

+ Allocation on the basis of medical staff 70%-80%)

+ Allocation on the basis of population (20%)

+ Adjustment for poverty level and other cost

factors (0%-10%)

= Total Health Provincial Allocation

Medical Staff

• Best proxy for facility type and size

• Can use different categories of medical staff:

-specialists (Hospital type A)

-general practitioners

-other technical staff

-nurses (Health Centers)

The exact number of categories and their definition remain to be defined.

Issues with Medical Staff

• Doctors can work in different facilities;

• Central data do not track staff by district or health facilities

• Definition of staff categories is based on salaries, not on performed duty

Issue with the poverty factor

• Poverty does not explain inequality in past allocation;

• Poverty is only an indirect indicator of the capacity to raise user fees

• Poverty is better measured at the district level, not at the provincial level

Spending per Capita and Poverty Population Poverty Spending

Provinces Level per

Capita

Vientiane Capital 761,077 1 2,464

Xayabury 370,145 1 4,823

Xiengkhuang 264,073 1 6,324

Vientiane Pro. 463,502 1 6,017

Bolikhamsay 252,220 1 8,896

Champasak 656,142 1 3,841

Oudomxai 292,491 2 3,315

Bokeo 160,789 2 3,905

Luangphrabang 443,910 2 7,468

Khammouane 369,830 2 4,652

Savannakhet 900,288 2 1,308

Phongsaly 178,531 3 8,517

Luangnamtha 160,294 3 2,705

Houaphan 309,797 3 2,875

Saravanh 357,585 3 9,193

Xekong 94,418 3 1,794

Attapeu 123,840 3 4,926

Imbalance Ratio by Poverty Level

Average Povert level 1 3237

Imbalance Ratio 2.3

Average Povert level 2 4836

Imbalance Ratio 5.7

Verage Poverty level 3 4416

Imbalance Ratio 5.1

ALLOCATION IMBALANCE FY2009/10

Average allocation in kip by poverty level

Way Forward

• To implement a simplified interim formula until systems are in place, issues are solved and data are collected.

• To improve MOH’s statistic system

• To analyze hospital cost structure

• To analyze hospital capacity to collect user fees and technical revenues

• To clarify the expenditure assignment

Simplified Interim Formula

• By a fix amount per health facilities

• By a fix amount per health facilities plus population

• By a fix amount per staff plus population

• By a fix amount per staff plus population with a poverty level adjustment

Why a simplified interim formula?

• Impossibility to measure the need of the provinces due to the lack of data

• Lack of program structure

• Lack of data on hospital spending

• Unclear expenditure assignment

• Unclear user fee and technical revenue policy

Pros and Cons By fix amount per health facility By fix amount per staff

•Formula is simple •No risk of ambiguity •Can easily solve all equalization issues

•The formula is slightly more complex but is intuitive •It will make easier the transition toward a more complex formula •Can easily solve all equalization issues

•Staff categories can be unclear or too aggregated to be representative of needs •Can consolidate staff misallocation

•Fix amount is not representative of the size of the facility and lead to high imbalance in fund allocation •The scheme is politically risky and difficult to justify in the eyes of the provincial authorities. •Not fair for province with large population (Vientiane Cap. Receive less) •No easy transition toward a more complex formula.

Choice of formulae should not be based

on their respective merits but on a

careful analysis of who are the winners

and who are the losers

Fix Amount per Facility (formula 1)

A = fix amount for each provincial hospital (Ex: 1000M kip)

B = fix amount per district hospitals (Ex: 100 M kip)

b = number of district hospitals

C = fix amount per health centres

c = number of health centres (Ex: 19 M kip)

PHA = A + (B x b) + (C x c)

Non-Wage / Recurrent = 26%

Total non-wage budgets: 44.037 M kip

Budget increase: 19,490 M kip

Fix amount per facility plus Population (formula 2)

• Fix amount per facility = 80%

• Fix amount per capita = 20%

Calculated on the basis of the fiscal envelope plus equalization needs.

PHA = A + (B x b) + (C x c) + (D x d)

Non-Wage / Recurrent = 26,7%

Total non-wage budgets: 44.841 M kip

Budget increase: 19,998 M kip

Fix Amount per Medical Staff and Population (Formula 3)

• A = fix amount per capita

• Popn = total population of the province

• S = fix amount per technical staff

• s = number of technical staff

PHA = (A x Popn) + (S x s)

Non-Wage / Recurrent = 26.1%

Total non-wage budgets: 43.305 M kip

Budget increase: 18,461 M kip

Issue with Formula 3

Based on the projection for FY2010/11, Bokeo Province would receive less that its previous budget

Options:

• To let the province go above the budget using its budgetary resources;

• To use a special grant after reviewing reasons for overspending

• To change the formula (see formula 4)

Fix Amount per Medical Staff Plus Population and Poverty Incidence

(Formula 4) Provinces are divided in two levels of poverty

with different values for S according to that level

Non-Wage / Recurrent = 27.4%

Total non-wage budgets: 46.428 M kip

Budget increase: 21,584 M kip

Imbalance by Poverty Level

Average Povert level 1 3237

Imbalance Ratio 2.3

Average Povert level 2 4836

Imbalance Ratio 5.7

Verage Poverty level 3 4416

Imbalance Ratio 5.1

ALLOCATION IMBALANCE FY2009/10

Formulae Comparison

Scenario 1: Fix amount per facility

Scenario 2: Fix amount per facility plus population

Scenario 3 : Fix amount per medical staff plus population

Scenario 4: Fix amount pre medical staff + population + poverty

FY2009/10 Sc. 1 Sc. 2 Sc. 3 Sc. 4

non-wage / recurrent 16.8% 26.4% 26.7% 26.1% 27.4%

Total non-wage budget in M kip 24,844 44,037 44,841 43,305 46,428

non-wage expenditure increase n.s. 77.3% 80.5% 74.31 86.9%

Imbalance ratio 7.0 3.5 2.7 1.7 2.1

Non-wage per capita in kip 4,034 7,297 7,430 7,175 7,693

THANKS