A review of literature on international and local experiences of Health Fund and Proposed

Malawi Health Fund

Health Sector Mid-Year Review Meeting27th April 2015

1. Overview of Reform

2. Methodology

3. Literature Review Findings

4. Recommendations: Proposed Model

for Malawi

2

Outline:

Health sector problems:– The Malawi healthcare system faces twin

challenges of absolute and relative inadequate of resources

– Alternative ways of financing the health sector more efficiently is paramount if access and quality of healthcare provision are to be improved

– A Health Fund is being proposed as means of pooling resources generated from some alternative financing mechanisms proposed in the Health Financing Strategy,

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Overview of the Reform

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Problem Statement: Malawian health system faces serious absolute inadequate financial resources to fund the Essential Health Package (EHP) and broader health services

2012-13 2013-14 2014-15 2015-160

200

400

600

800

1,000

1,200

537 548 563 584

845926

1,007 1,042

Resources Cost

$307MGap

$379MGap

$444M Gap

$458MGap

Mill

ions

USD

Source: Budgeted resources from MoH Resource Mapping Round 3; Resources required from 2014 HSSP costing based on current programmatic targets. Resources available exclude administration & management and technical assistance which haven’t been costed. Available resources include projected private and out of pocket expenditures from National Health Accounts.

Resources required versus planned spendingin millions USD, by Malawi FY (July – June)

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Fiscal yearCost

per capitaResources per capita

2012-13 $55 $35

2013-14 $58 $35

2014-15 $62 $34

2015-16 $62 $35

Per capita costs and resourcesin USD, by Malawi FY (July-June)

Malawi has the second lowest government spending on health across SADC countries, and its per capita health spending is significantly below SADC average

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Country THE as % of GDP

THE/Capita, USD

Government Expenditure on Health/Capita , USD

General Government Spending on Health as % of Total

Government Expenditure

Angola 3.5% 190 118 5.6%

Botswana 5.3% 384 216 8.1%

Lesotho 11.6% 138 108 14.5%

Malawi 9.2% 39.7 11.9 6.2%

Mauritius 4.8% 444 217 10.1

Mozambique 6.4% 37 16 8.8%

Namibia 8.4% 473 292 13.9%

South Africa 8.8% 645 309 12.9%

Swaziland 8.5% 259 192 18.1%

Tanzania 6.9% 41 16 10.3%

Zambia 6.5% 96 62 16.4%

Average 6.7% 147 141 11.0%

Methodology

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Methodology

- Reviewed local and international literature on health fund and local fund

- Systematic search of several social science, economics literature to identify and appraise studies on health funds

- 11 countries experiences:- Category 1 – WHO African region (Kenya, Tanzania, South Sudan,

Zimbabwe, Botswana and Ghana)- Category 2 - outside the WHO Africa Region (Jamaica, Poland,

Australia, Vietnam and Cambodia)- 6 local funds - Framework of analysis – reviewed goals, sources of

finance, methods, uses, successes, challenges, lessons learned of health funds in light of health system instrumental goals – access, efficiency, equity, quality, coverage, sustainability 7

Literature Review findings

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• Goal or objectives of the health funds……– To finance specific diseases -NCDs, by providing a subsidy for

prescription medication (Jamaica)– To finance a package provided to population (Poland)– To pay for the cost of health care services to members of the

Scheme (Ghana, Kenya) – To finance the medical cover between the Medicare (free)

benefit and fees charged for inpatients (Australia)– To pool multi donor funds for delivery of essential health

services(South Sudan, Zimbabwe)– As community health fund to make healthcare affordable to

the rural population (Tanzania)– As health equity funds to protect the poor(Cambodia,

Vietnam)

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Literature Review Findings:

• Source of revenues– local levies on tobacco, alcohol, consumption tax, Health insurance

premiums, loans, investments, national budgets, territory budgets (Jamaica, Poland Australia, Ghana, Kenya, Botswana etc)

– donor basket (pooled) funds (Zimbabwe, South Sudan)

• Management of funds– Independent organization established by Act of Parliament with

Board of Management and CEO (Jamaica)– Consortium of donors (South Sudan, Zimbabwe)

• Uses or Applications of funds- Pay for (drugs) for the majority of NCDs and ART (Jamaica)- Pay for essential health package(Ghana) - Pay for health promotion and prevention (Jamaica)- Pay for health services for insured (Poland, Australia)- Medical gap cover between the Medicare benefit (free) and fees

charged for inpatients (Australia)- Training programme, development activities (Malawi Local funds)

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Literature Review Findings……………………..cont’d

• Successes -coverage, quality, access, equity, efficiency, sustainability

- Some health funds increased access, and coverage of health services (Jamaica, Poland, Ghana, Australia and Kenya)

- Some health funds increased quality of health services (Poland, Australia)

- Innovative financing mechanisms – Jamaica, Botswana, Zimbabwe

- Some programs enhanced equity for the poor – Cambodia, Vietnam

- High-level political commitment and visionary leadership (Botswana, Zimbabwe) ~ regarded as regional best practice by SADC

- Increased utilizations of health services (South Sudan, Zimbabwe)

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Literature Review Findings……………………..cont’d

• Challenges (coverage, quality, access, equity, efficiency, sustainability)– Large informal sector – risk sustainability of the funds

(Ghana, Jamaica, Kenya)– Limited financing versus increasing coverage (Ghana,

Kenya)– Insufficient financial management(Poland)– Poor access to specialized services(Poland)– Lack of mechanisms on provider payment methods(Poland)– Failure to close the gap between rich and poor people

(Ghana)– Inequitable access to services especially remote and rural

location (Australia, Ghana, Kenya, Tanzania, Vietnam) – Weak regulatory and enforcement framework to comply

with the levy(Botwana, TEVETA)– No clear sustainability of donor health funds – (South Sudan,

Zimbabwe)12

Literature Review Findings……………………..cont’d

Design Options for Malawi Health Fund

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Proposed objectives of the Malawi Health Fund

Problem Rationale for selection

Underlying causes

Objective: To bridge the resource gap for the Malawi EHP Inadequate resources to fund the Malawi EHP

Available resources are inadequate to fund EHP (HSSP re-costing estimates $62 per capita per annum, Government spent only $11.9 per capita per annum) ~ Gap of $50.1 per capita per annum

• Declining of domestic revenue• Inefficient allocation and utilization of health resources• Low government budget allocation to the health sector seriously below the Abuja target• Declining external funding and increased earmarking of resources with increased fragmentation of the health system

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Proposed objectives of the Malawi Health Fund……………………………..cont’d

Problems Rationale for selection

Underlying causes

Objective: To fund specific conditions and health support systems 1. Rising incidences of NCDs

NCDs are increasingly becoming significant causes of morbidity and mortality in adults

Caused by shared risk factors, mainly tobacco use, unhealthy diet, physical inactivity and the harmful use of alcohol

2. Lack of appropriate health facility infrastructure and deteriorating of existing infrastructure

•The current hospital infrastructure is in bad shape and limited space is available•There are few specialty health facilities to deal with rising NCDs leading to government sending patients abroad

• Low domestic spending in hospital infrastructure • Low partner spending in cross-cutting infrastructure investments

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Proposed objectives of the Malawi Health Fund……………………………..cont’d

Problems Rationale for selection Underlying causes

Objective: To fund specific conditions and health support systems 3. Lack of medicines and medical supplies

• Persistent shortages of essential medicines and medical supplies• High cost intervention for some communicable diseases solely funded by donors e.g. ART

• Inadequate financial resources• Serious Supply chain issues

4. Acute shortage of Human Resources for Health

The human resources is critical component of health system and is in short supply

Due to inadequate financial resources to train required numbers of healthcare workers

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Proposed objectives of the Malawi Health Fund……………………………..cont’d

Problems Rationale for section Underlying causes

Objective: To fund specific conditions and health support systems

5. High Incidences of preventable diseases and health conditions

Many health conditions and diseases are preventable e.g. Malaria, cholera, diarrhea, cancer, diabetes, stroke etc.

• Bad eating habits, poor diet and poor lifestyles contributes to these health problems

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Proposed Source of Funds for the Health Fund

Revenue Source

Rationale for selection

Advantages Disadvantages

1. Health levy on Alcohol and tobacco

Alcohol causes majority of road accidents and trauma, gender based violence etc.

Heavy use of tobacco products contributes a lot of health problems such as TB, Cancer etc.

Earmarked levy for health is for particular purpose rather than general health funding

Clear health benefits if price increases leads to demand decreases

Excise already exists so no additional infrastructure or reporting systems would be necessary

Potential economic implications of decreased demand

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Proposed Source of Funds for the Health Fund….cont’d

Revenue Source

Rationale for selection

Advantages Disadvantages

2. Health levy on airtime (telecommunication)

Distractive driving such as calling, texting on phone while driving causes road accidents by three times compared to others

Little to no administrative cost

Excise already exists so no additional infrastructure or reporting systems would be necessary

Price increases could result, decreasing airtime demand and inhibiting economic growth

Airtime already constitutes a big portion of spending for the poorest; potentially a regressive measure

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Proposed Source of Funds for the Health Fund….cont’d

Revenue Source

Rationale for selection Advantages Disadvantages

3. Fuel levy

Various fuel fumes/gas cause emitted by cars cause health and environmental risks

Other existing levies could be replaced or shared with health levy as the health system is also in dire stress

Fuel is nearly demand-inelastic nature and revenue-generating potential

Little to no administrative cost

Other levies already exists so no additional infrastructure

Increased fuel prices could result in reduced income levels, inflation, and decreased demand

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Proposed Source of Funds for the Health Fund….cont’dRevenue Source

Rationale for selection

Advantages Disadvantages

4. Visa health fees

Visitors health charge could act as an insurance cover in a predominantly free public health system

Limited visa fees in place (none for US or EU citizens

Highly sustainable once instituted

No adverse effects to equity and access

None (majority of travelers to Malawi from EU or US or far East are for development work

not tourism per se)

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Proposed Source of Funds for the Health Fund….cont’dRevenue Source

Rationale for selection

Advantages Disadvantages

Extractive health levy

Mining sector contributes to health risks

Mining companies could contribute to the health of people in the surrounding communities and nationally

Levy could inhibit the growth of the industry

Health VAT levy

Bad eating habits, poor diet and poor lifestyles contributes to health problems

Majority of people are in the informal economy hence the only way to directly contribute to their own health

Little to no administrative cost

VAT already exists so no additional infrastructure or reporting systems would be necessary

Increased prices could result in reduced demand for basic goods and services, and inflation; potentially a regressive measure

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Proposed Management Arrangement for the Malawi Health Funds

Management Arrangement

Justifications Advantages Disadvantages Recommendation

1. Statutory Corporation with separate board of directors and CEO

Promote efficiency, transparency and independence

Cost effective

IndependenceTransparencyEffectively invest into other activities

Effectively manage the contracting of the service providers

High administrative costs

Social obligation vs profit conflict

Political interference

Limited oversight by MOF and MOH

Suitable if efficiency and independency is to be promoted

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Proposed Management Arrangement for Health Funds………..cont’d

Management Arrangement

Justifications

Advantages Disadvantages Recommendation

2. Trust Fund

Could suit well in the Government type of operations

Can serve both social and business oriented responsibilities

Effectively manage the contracting of the service providers

Independence is compromised

Needs strong institutional checks

Recommended if the health fund will cater for the poor beneficiaries

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Proposed Management Arrangement for Health Funds………..cont’d

Management Arrangement

Justifications Advantages Disadvantages Recommendation

3. Treasury Fund

Ensures effective government control

Government will make sure it prioritizes the health fund

Steady stream of funding

Limited power apart from the orders

Cannot invest in other activities

Limited transparency

Political interference

Treasury can reduce general budget funding for health

Recommended if the Health fund will only be responsible for financing specific activity i.e. ART, hospital infrastructure

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Financial Projections (MK Billions ~nominal terms)

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

2024/25

-

50

100

150

200

250

300

350

400

450

24

113

47

254

72

406 Low case scenario

Medium case scenario

High case scenario

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Financial Projections (MK Billions ~real terms)

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

2024/25

0

20

40

60

80

100

120

140

160

180

1323

25

5238

82

High Case Scenario

Medium Case Scenario

Low Case Scenario

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Example of source of funds using medium scenario (Sharp increases of fuel levy revenue while steady increases of VAT revenue)

2014/15 2016/17 2018/19 2020/21 2022/23 2024/25$0.00

$50,000,000.00

$100,000,000.00

$150,000,000.00

$200,000,000.00

$250,000,000.00

$25,340,807.00

$224,232,197.00

$51,013,393.66

$103,394,626.96

Alcohol and cigarettes taxes Visa fees Fuel levy Exponential (Fuel levy)Extractive levy Communication levy VAT Exponential (VAT)Corporate Tax

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Most of the priority gaps in the health sector can be closed with the investments in the health fund (using low case scenario). EHP gap can be closed by 28% (medium scenario) or 35% (High case scenario)

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Proposed areas to be financed

Projected gaps (MK) in 2015/16

Essential medicines commodity gaps (7,453,952,095)

Gaps for NCD drugs (2,714,117,838)

Gaps in facility rehabilitation and construction costs*

(1,149,191,995)

Gaps in human resources for health (pre-service training)

(8,233,483,737)

Total expected annual gaps, 2015/16 for specific areas

(19,550,745,666)

Reduction percentage of EHP gap under Medium case scenario 28%

Reduction percentage of EHP gap under High case scenario

35%

Proposed revenue scenario

Total ( MK) in 2015/16

Total Low Case Scenario 26,615,984,170

Total Medium Case Scenario 53,822,407,532

Total High Case Scenario 83,022,887,688

*Based on resource-constrained infrastructure costings, subject to be updated with new Capital Investment Plan costing.Source: MoH HSSP costing for 2015-6; health fund revenue projections

Summary

• International experience has shown that health funds are introduced either as health insurance – to cover high cost interventions;

• Or as Donor pool or Donor/government pool to pay for certain essential health interventions

• The objective of the Health Fund should be determined by specific health problem

• The key factors for success are ~ establish clear goal and definite sources and application of funds

• Separation of functions between financing and providing services

• Commitment by leadership• Strong governance structures to ensure independence from

political interference

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Issues to consider before further development of the Malawi Health Fund

1. What should be the objective of the health?a. Fill the EHP gap? b. Fill the gap of specific disease/condition or

inventions ?2. Are the proposed source of revenue right

and what could be other sources of revenue?3. What could be the best uses or application of

fundsa. Fill the EHP gap(regardless)?b. Fill specific areas (which one/s)?

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Thank you

Zikomo Kwambiri

To learn more or provide input, please contact the Ministry of Health,

Department of Planning and Policy Development, PO Box 30377,

Lilongwe 3. Tel: 01789400