Fiscal decentralization, budget norms and equalization norms in the health sector
Fiscal Decentralization, BudgetNorms 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 email@example.com 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 EnvelopeThe 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.
BUDEGET NORM ARCHITECTURE Provincial Health Budget (F) Provincial Hospital Prov. District Health Budget (F) Admin. District Hospital District Hospital Type A (F) Type B (F)H.C. (F) H.C. (F) H.C. (F) H.C. (F) (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 costfactors (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
Imbalance Ratio by Poverty LevelAverage allocation in kip by poverty level ALLOCATION IMBALANCE FY2009/10 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
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 •The formula is slightly more •No risk of ambiguity complex but is intuitive •Can easily solve all equalization issues •It will make easier the transition toward a more complex formula •Can easily solve all equalization issues•Fix amount is not representative ofthe size of the facility and lead tohigh imbalance in fund allocation •Staff categories can be unclear•The scheme is politically risky and or too aggregated to bedifficult to justify in the eyes of the representative of needsprovincial authorities. •Can consolidate staff•Not fair for province with large misallocationpopulation (Vientiane Cap. Receiveless)•No easy transition toward a morecomplex formula.
Choice of formulae should not be basedon their respective merits but on acareful analysis of who are the winnersand 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 hospitalsC = fix amount per health centresc = 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 kipBudget 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 kipBudget 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 kipBudget increase: 18,461 M kip
Issue with Formula 3Based on the projection for FY2010/11, Bokeo Province would receive less that its previous budgetOptions:• 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 PlusPopulation and Poverty Incidence (Formula 4)Provinces are divided in two levels of poverty with different values for S according to that levelNon-Wage / Recurrent = 27.4%Total non-wage budgets: 46.428 M kipBudget increase: 21,584 M kip
Imbalance by Poverty Level ALLOCATION IMBALANCE FY2009/10 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
Formulae ComparisonScenario 1: Fix amount per facilityScenario 2: Fix amount per facility plus populationScenario 3 : Fix amount per medical staff plus populationScenario 4: Fix amount pre medical staff + population + poverty FY2009/10 Sc. 1 Sc. 2 Sc. 3 Sc. 4non-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 46,428non-wage expenditure increase n.s. 77.3% 80.5% 74.31 86.9%Imbalance ratio 7.0 3.5 2.7 1.7 2.1Non-wage per capita in kip 4,034 7,297 7,430 7,175 7,693